STARWOOD LODGING TRUST, S-2, 1995-05-08

STARWOOD LODGING TRUST
S-2, 1995-05-08
REAL ESTATE INVESTMENT TRUSTS

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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 8, 1995

REGISTRATION NO. 33-
=================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
_________
FORM S-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
_________

STARWOOD LODGING TRUST STARWOOD LODGING CORPORATION
(EXACT NAME OF REGISTRANT (EXACT NAME OF REGISTRANT
AS SPECIFIED AS SPECIFIED
IN ITS GOVERNING INSTRUMENTS) IN ITS GOVERNING INSTRUMENTS)

11845 West Olympic Blvd., 11845 West Olympic Blvd.,
Suite 550 Suite 560
Los Angeles, California Los Angeles, California
90064 90064
(310) 575-3900 (310) 575-3900
(Address of principal (Address of principal
executive offices) executive offfices)

_________

Maryland Maryland
(State or other (State or other
jurisdiction jurisdiction
of incorporation or of incorporation or
organization) organization)
52-0901263 52-1193298
(I.R.S. employer (I.R.S. employer
identification no.) identification no.)

Jeffrey C. Lapin Kevin E. Mallory
President and Executive Vice President
Chief Operating Officer 11845 West Olympic Blvd.,
11845 West Olympic Blvd., Suite 560
Suite 550 Los Angeles, California
Los Angeles, California 90064
90064 (310) 575-3900
(310) 575-3900 (Name and address of
(Name and address of agent for service)
agent for service)

Copies to:

Sherwin L. Samuels, Esq. James M. Asher, Esq.
Sidley & Austin Robert E. King, Jr., Esq.
555 West Fifth Street Rogers & Wells
Los Angeles, California 90013 200 Park Avenue
(213) 896-6000 New York, New York 10166
(212) 878-8000

__________

Approximate date of commencement of proposed sale to the public:
As soon as practicable after the effective date of this
Registration Statement.

CALCULATION OF REGISTRATION FEE

Title Proposed
of each Maximum Proposed
class of Offering Maximum
securities Amount Price Aggregate Amount of
to be to be Per Offering Registration
registered registered(1) Unit(2) Price(2) Fee

Convertible $278,760,000 100% $278,760,000 $96,124.82
Notes
Due
_________,
1995
Shares of
beneficial
interest,
$0.01 par
value, of
Starwood
Lodging
Trust
Paired with
Shares of 11,615,000 ---- ---- ----
common stock, Paired
$0.01 par Shares(3)
value of
Starwood
Lodging
Corporation

(1) Includes $36,360,000 principal amount of convertible notes
(and 1,515,000 Paired Shares into which such notes are
convertible) as to which the Registrants have granted the
Underwriters an option solely to cover over-allotments.
(2) Estimated solely for the purpose of calculating the
registration fee.
(3) Such shares become deliverable upon conversion of the
convertible notes being registered hereby.
________

THE REGISTRANTS HEREBY AMEND THIS REGISTRATION STATEMENT ON
SUCH DATE OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE
UNTIL THE REGISTRANTS SHALL FILE A FURTHER AMENDMENT THAT
SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT SHALL
THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE
SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL
BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO
SAID SECTION 8(A), MAY DETERMINE.
=================================================================

<PAGE>

CROSS REFERENCE SHEET

Location of Heading in
Item Number and Caption in Prospectus
_______________________ ______________________

1. Forepart of Registration
Statement and Outside Front
Cover Page of Prospectus. . . . Outside Front Cover
Page

2. Inside Front and Outside Back
Cover Pages of Prospectus . . . Inside Front Cover Page;
Outside Back Cover

3. Summary Information, Risk
Factors and Ratio of Earnings
to Fixed Charges . . . . . . . Prospectus Summary; Risk
Factors

4. Use of Proceeds . . . . . . . . Use of Proceeds

5. Determination of
Offering Price. . . . . . . . . Underwriting

6. Dilution. . . . . . . . . . . . Dilution

7. Selling Security Holders. . . . Not Applicable

8. Plan of Distribution. . . . . . Underwriting

9. Description of Securities
to be Registered. . . . . . . . Capital Stock

10. Interests of Named Experts
and Counsel . . . . . . . . . . Experts; Legal Matters

11. Information with respect
to Registrant . . . . . . . . . Prospectus Summary; Price
Ranges of Paired Shares;
Selected Financial
Information; Management's
Discussion and Analysis of
Financial Condition and
Results of Operations;
Business and Property;
Management; Partnerships;
Principal Shareholders;
Shares Available for Future
Sale; Financial Statements.

12. Incorporation of Certain
Information by Reference. . . . Incorporation by Reference

13. Disclosure of Commission
Position on Indemnification
for Securities Act
Liabilities . . . . . . . . . . Not Applicable

i
<PAGE>

EXPLANATORY NOTE

This Registration Statement contains two forms of prospectus:
(i) one to be used in connection with a United States and Canadian
offering (the "U.S. Prospectus") and (ii) one to be used in
connection with a concurrent international offering outside the
United States and Canada (the "International Prospectus"). The
U.S. Prospectus and the International Prospectus will be identical
in all material respects except for the front cover page. The form
of U.S. Prospectus is included herein and is followed by those
pages to be used in the International Prospectus which differ from
those in the U.S. Prospectus. The alternate page for the
International Prospectus included herein is labelled "Alternate
Page for International Prospectus."

ii
<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.

<PAGE>

SUBJECT TO COMPLETION
PRELIMINARY PROSPECTUS DATED , 1995
PROSPECTUS
__________

10,100,000 PAIRED SHARES
STARWOOD LODGING
STARWOOD LODGING TRUST STARWOOD LODGING CORPORATION
________________

Of the 10,100,000 Paired Shares being offered hereby,
8,585,000 Paired Shares are being offered in the United States and
Canada (the "U.S. Offering") by the U.S. Underwriters. The
remaining 1,515,000 Paired Shares are being offered outside the
United States and Canada (the "International Offering") by the
International Managers. See "Underwriting." Upon completion of
the U.S. Offering and the International Offering (collectively, the
"Offerings"), approximately 33% of the Paired Shares on a fully
diluted basis would be owned by Starwood Capital Group L.P. and its
affiliates, subject to the ownership limitation provisions
described herein.

The Trust intends to pay regular quarterly distributions of $
per Paired Share, beginning with a distribution for the period
from the closing date of the Offerings through September 30, 1995.
The Paired Shares are listed on the New York Stock Exchange under
the symbol "HOT." The last reported sale price of the Paired
Shares on the New York Stock Exchange Composite Tape on May 1, 1995
was $4.00 per Paired Share. Prior to the completion of the
Offerings, the Company will effect a reverse stock split. The
public offering price of the Paired Shares offered hereby is
expected to be $24.00 per Paired Share.

SEE "RISK FACTORS" FOR CERTAIN FACTORS RELEVANT TO AN
INVESTMENT IN PAIRED SHARES.
________________

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.

PRICE TO UNDERWRITING PROCEEDS TO
PUBLIC DISCOUNT(1) COMPANY(2)

Per Paired
Share(3) . . $ $ $
Total(4) . . $ $ $

(1) The Company has agreed to indemnify the Underwriters against
certain liabilities under the Securities Act of 1933. See
"Underwriting."
(2) Before deducting estimated expenses of $
payable by the Company.
(3) The Paired Shares offered hereby will be issued automatically
upon conversion of convertible notes being acquired by the
Underwriters from the Company. The price per Paired Share
equals the conversion price of the convertible notes. See
"The Convertible Notes."
(4) The Company has granted the U.S. Underwriters and the
International Managers options to purchase additional notes
convertible into up to an additional 1,287,750 and 227,250
Paired Shares respectively to cover over-allotments. If all
of such convertible notes are purchased, the total Price to
Public, Underwriting Discount and Proceeds to the Company will
be $ , $ and $ ,
respectively. See "Underwriting."
_________________

The Paired Shares are being offered by the several Underwriters,
subject to prior sale, when, as and if the convertible notes are
delivered to and accepted by them, subject to approval of certain
legal matters by counsel for the Underwriters. 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 Paired Shares offered hereby will be made in New York, New York
on or about , 1995.

MERRILL LYNCH & CO. LEHMAN BROTHERS SMITH BARNEY INC.
_________________
The date of this Prospectus is , 1995.

<PAGE>

[Map of Hotel Locations]

[Photograph of Assets]

NEITHER THE NEVADA GAMING COMMISSION NOR THE NEVADA STATE
GAMING CONTROL BOARD HAS PASSED ON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS OR THE INVESTMENT MERITS OF THE SECURITIES OFFERED
HEREBY. ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL.

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

IN CONNECTION WITH THESE OFFERINGS, THE UNDERWRITERS MAY OVER-
ALLOT OR EFFECT TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET
PRICE OF THE PAIRED SHARES AT LEVELS ABOVE THOSE WHICH MIGHT
OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH TRANSACTIONS MAY BE
EFFECTED ON THE NEW YORK STOCK EXCHANGE OR OTHERWISE. SUCH
STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.

<PAGE>

TABLE OF CONTENTS

Page
____

PROSPECTUS SUMMARY . . . . . . . . . . . . . . . . . . . . 1
The Company. . . . . . . . . . . . . . . . . . . . . . . . 1
Risk Factors . . . . . . . . . . . . . . . . . . . . . . . 2
The Hotel Industry . . . . . . . . . . . . . . . . . . . . 3
Business Objectives and Growth Strategy. . . . . . . . . . 4
Business and Properties. . . . . . . . . . . . . . . . . . 5
Structure of the Company . . . . . . . . . . . . . . . . . 7
The Offerings. . . . . . . . . . . . . . . . . . . . . . . 9
Distributions. . . . . . . . . . . . . . . . . . . . . . . 9
Tax Status of the Company. . . . . . . . . . . . . . . . . 9
Summary Combined Selected Financial Data . . . . . . . . . 10

RISK FACTORS . . . . . . . . . . . . . . . . . . . . . . . 12
Tax Risks. . . . . . . . . . . . . . . . . . . . . . . . . 12
Offering Price May Not Reflect Values of the Assets. . . . 13
Effects of Various Factors on Share Price. . . . . . . . . 13
Ownership Limitation and Limits on Change of Control . . . 13
Influence of Starwood Capital. . . . . . . . . . . . . . . 15
Hotel Industry Risks . . . . . . . . . . . . . . . . . . . 15
Real Estate Investment Risks . . . . . . . . . . . . . . . 17
Risk of Debt Financing; Prior Defaults . . . . . . . . . . 19
Certain Assets Recently Acquired . . . . . . . . . . . . . 20
Limitation on Starwood Capital's Noncompete Obligation . . 20
Net Losses . . . . . . . . . . . . . . . . . . . . . . . . 20
Dilution Experienced by Purchasers in Offerings. . . . . . 20
Changes in Investment and Financing Policies Without
Shareholder Approval. . . . . . . . . . . . . . . . . . . 20

THE COMPANY. . . . . . . . . . . . . . . . . . . . . . . . 21

USE OF PROCEEDS. . . . . . . . . . . . . . . . . . . . . . 22

DISTRIBUTION POLICY. . . . . . . . . . . . . . . . . . . . 24

PRICE RANGES OF PAIRED SHARES. . . . . . . . . . . . . . . 25

CAPITALIZATION . . . . . . . . . . . . . . . . . . . . . . 25

DILUTION . . . . . . . . . . . . . . . . . . . . . . . . . 26

SELECTED COMBINED FINANCIAL DATA . . . . . . . . . . . . . 26

MANAGEMENT'S DISCUSSION AND ANALYSIS OF
PRO FORMA FINANCIAL STATEMENTS. . . . . . . . . . . . . . 29

BUSINESS OBJECTIVES AND GROWTH STRATEGY. . . . . . . . . . 31
Business Objectives. . . . . . . . . . . . . . . . . . . . 31
Acquisition Strategies . . . . . . . . . . . . . . . . . . 31
Operating Strategies . . . . . . . . . . . . . . . . . . . 32
Devclopment Strategy . . . . . . . . . . . . . . . . . . . 33
Financing Strategies . . . . . . . . . . . . . . . . . . . 33
Implementation of Strategies . . . . . . . . . . . . . . . 35
Starwood Capital . . . . . . . . . . . . . . . . . . . . . 35

BUSINESS AND PROPERTIES. . . . . . . . . . . . . . . . . . 36
Hotel Industry . . . . . . . . . . . . . . . . . . . . . . 36
The Hotel Assets . . . . . . . . . . . . . . . . . . . . . 37
Owned Hotels . . . . . . . . . . . . . . . . . . . . . . . 37
Industry Segmentation. . . . . . . . . . . . . . . . . . . 40
Hotel Operating Leverage . . . . . . . . . . . . . . . . . 41
Geographic Diversification . . . . . . . . . . . . . . . . 42
National Franchise Affiliations. . . . . . . . . . . . . . 42
Operations . . . . . . . . . . . . . . . . . . . . . . . . 43
Excluded Assets and Related Matters. . . . . . . . . . . . 45
Environmental Matters. . . . . . . . . . . . . . . . . . . 47
Regulation and Licensing . . . . . . . . . . . . . . . . . 47
Insurance. . . . . . . . . . . . . . . . . . . . . . . . . 49
Employees. . . . . . . . . . . . . . . . . . . . . . . . . 49

MORTGAGE LOAN AND ACQUISITION FACILITY . . . . . . . . . . 49
The Mortgage Loan. . . . . . . . . . . . . . . . . . . . . 49
The Acquisition Facility . . . . . . . . . . . . . . . . . 50

STRUCTURE OF THE COMPANY . . . . . . . . . . . . . . . . . 50
General. . . . . . . . . . . . . . . . . . . . . . . . . . 50
Formation of the Partnerships
and the Reorganization . . . . . . . . . . . . . . . . . 50
Management of the Partnerships . . . . . . . . . . . . . . 51
Term and Dissolution . . . . . . . . . . . . . . . . . . . 52
Distributions and Reimbursement. . . . . . . . . . . . . . 52
Offerings of Paired Shares . . . . . . . . . . . . . . . . 52
Limited Partner Rights . . . . . . . . . . . . . . . . . . 53
Issuance of Additional Units . . . . . . . . . . . . . . . 54

POLICIES WITH RESPECT TO CERTAIN ACTIVITIES. . . . . . . . 55
Investment Policies. . . . . . . . . . . . . . . . . . . . 55
Disposition. . . . . . . . . . . . . . . . . . . . . . . . 56
Financing. . . . . . . . . . . . . . . . . . . . . . . . . 56
Conflicts of Interest. . . . . . . . . . . . . . . . . . . 56
Other Policies . . . . . . . . . . . . . . . . . . . . . . 57

MANAGEMENT . . . . . . . . . . . . . . . . . . . . . . . . 58
Trustees and Executive Officers of the Trust . . . . . . . 58
Directors and Executive Officers of the Corporation. . . . 59
Classified Boards; Removal . . . . . . . . . . . . . . . . 60
Independent Board Approval . . . . . . . . . . . . . . . . 60
Board Committees . . . . . . . . . . . . . . . . . . . . . 60
Compensation of Trustees/Directors . . . . . . . . . . . . 61
Liability and Indemnity of Directors and Trustees. . . . . 61
Summary of Cash and Certain Other Compensation . . . . . . 62
Stock Options. . . . . . . . . . . . . . . . . . . . . . . 63
Agreements with Executive Officers . . . . . . . . . . . . 65

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS . . . . . . 65

PRINCIPAL SHAREHOLDERS . . . . . . . . . . . . . . . . . . 67

SHARES AVAILABLE FOR FUTURE SALE . . . . . . . . . . . . . 68

CAPITAL STOCK. . . . . . . . . . . . . . . . . . . . . . . 69
General. . . . . . . . . . . . . . . . . . . . . . . . . . 69
Paired Shares. . . . . . . . . . . . . . . . . . . . . . . 70
The Pairing Agreement. . . . . . . . . . . . . . . . . . . 70
Exchange Rights. . . . . . . . . . . . . . . . . . . . . . 71
1986 Warrants. . . . . . . . . . . . . . . . . . . . . . . 71
Options. . . . . . . . . . . . . . . . . . . . . . . . . . 72
Preemptive Rights. . . . . . . . . . . . . . . . . . . . . 72
Maryland Takeover Legislation. . . . . . . . . . . . . . . 72
Ownership Limits; Restrictions on Transfer; Repurchase and
Redemption of Shares. . . . . . . . . . . . . . . . . . . 72
Dissolution of Trust . . . . . . . . . . . . . . . . . . . 74
Amendment to Declaration of Trust. . . . . . . . . . . . . 74
Transfer Agent for Paired Shares . . . . . . . . . . . . . 74

FEDERAL INCOME TAX CONSIDERATIONS. . . . . . . . . . . . . 74
Federal Income Taxation of the Trust . . . . . . . . . . . 75
Federal Income Taxation of the Corporation . . . . . . . . 83
Federal Income Taxation of Holders of Paired Shares. . . . 83
Information Reporting Requirements and Backup Withholding. 86
Federal Income Tax Aspects of the Partnerships . . . . . . 87

ERISA CONSIDERATIONS . . . . . . . . . . . . . . . . . . . 89

CONVERTIBLE NOTES. . . . . . . . . . . . . . . . . . . . . 91

UNDERWRITING . . . . . . . . . . . . . . . . . . . . . . . 93

EXPERTS. . . . . . . . . . . . . . . . . . . . . . . . . . 95

LEGAL MATTERS. . . . . . . . . . . . . . . . . . . . . . . 95

ADDITIONAL INFORMATION . . . . . . . . . . . . . . . . . . 95

INFORMATION INCORPORATED BY REFERENCE. . . . . . . . . . . 96

GLOSSARY . . . . . . . . . . . . . . . . . . . . . . . . . 97

INDEX TO FINANCIAL STATEMENTS. . . . . . . . . . . . . . . F-1

<PAGE>
PROSPECTUS SUMMARY

This Summary is qualified in its entirety by the more detailed
information and financial statements appearing elsewhere in this
Prospectus. Unless otherwise indicated, the information contained
in this Prospectus assumes (i) a one for six reverse stock split
that will become effective prior to the consummation of the
Offerings, (ii) no exercise of the Underwriters' over-allotment
options and (iii) a public offering price of $24 per Paired Share.
Such information also gives effect to the consummation as of
January 1, 1995 of the Reorganization described below under
"Structure of The Company." Unless the context otherwise requires,
all references to the "Company" refer to the Trust and the
Corporation, and all references to the "Trust" and to the
"Corporation" include the Trust and the Corporation and those
entities respectively owned or controlled by the Trust and the
Corporation, including SLT Realty Limited Partnership (the "Realty
Partnership") and SLC Operating Limited Partnership (the "Operating
Partnership"). The Realty Partnership and the Operating
Partnership are referred to collectively as the "Partnerships."
References herein to "the completion of the Offerings" include the
application of the proceeds of the Offerings. Other than when used
in the financial statements included herein, the term "on a fully
diluted basis" assumes the exchange by Starwood Capital Group, L.P.
and certain of its affiliates (collectively, "Starwood Capital") of
all of their exchangeable interests in the Partnerships for Paired
Shares but not the exercise of outstanding options or warrants.
See "Glossary" for definitions of certain terms used in this
Prospectus.

THE COMPANY

The Company was recently reorganized to combine and expand the
hotel investment and operating businesses of the Company and
Starwood Capital. Management believes that the Company's unique
"paired share" ownership structure gives it a competitive advantage
over other hotel REITs and other hotel owner/operators with respect
to owning and operating hotels, as discussed below. The Company
has owned hotel assets since 1969 and has managed hotel assets
since 1980. Starwood Capital has been an active opportunistic
investor in the hotel industry over the last three years. Upon
completion of the Offerings, the Company will own, operate and
manage a geographically diversified portfolio of hotel assets (the
"Hotel Assets"), including fee, ground lease and first mortgage
interests in 47 hotel properties, comprising over 9,400 rooms
located in 20 states. Thirty-six of such hotels are operated under
licensing or franchise agreements with national hotel
organizations, including Marriott(TM), Embassy Suites(TM),
Omni(TM), Doubletree(TM), Radisson(TM), Residence Inn(TM), Holiday
Inn(TM), Sheraton(TM), Best Western(TM), Days Inn(TM), Ramada(TM),
Quality Inn(TM) and Harvey(TM).

As a fully integrated owner/operator of hotels, the Company
will continue to make opportunistic hotel acquisitions and to
improve performance of its existing portfolio through aggressive
management. The Company expects to expand and diversify its hotel
portfolio by continuing to acquire hotels, primarily in the upscale
and mid-scale segments, at prices which are below replacement
costs, and that have attractive yields on investment which the
Company believes can be sustained and improved over time.
Consistent with its strategy, the Company has recently acquired the
Omni Hotel in Chapel Hill, North Carolina and agreed to acquire the
Embassy Suites in Tempe, Arizona, and the Sheraton Colony Square in
Atlanta, Georgia. The Company continually evaluates its portfolio
and will sell assets when appropriate. The Company is actively
pursuing the acquisition of other upscale and mid-scale hotels, and
is currently negotiating a credit facility of $150 million, which
will enable the Company to aggressively pursue and complete hotel
acquisitions. See "Mortgage Loan and Acquisition Facility - The
Acquisition Facility."

The Company's paired share ownership structure is unique for
a hotel REIT because its shareholders own both the owner, the
Trust, and the operator, the Corporation, of the Company's hotels.
Therefore, the Company's shareholders retain the economic benefits
of both the lease payments received by the Trust and the operating
profits realized by the Corporation while maintaining the tax
benefits of the Trust's REIT status. The pairing arrangement
creates total commonality of ownership, as the shares of beneficial
interest of the Trust (the "Trust Shares") and the Common Stock of
the Corporation (the "Corporation Shares") are paired on a one for
one basis and may only be held or transferred as units consisting
of one Trust Share and one Corporation Share ("Paired Shares").

<PAGE>

Under the REIT qualification requirements of the Internal
Revenue Code (the "Code"), REITs generally must lease their hotels
to third party operators. Since such leases must be structured so
that the third party operator captures a portion of each hotel's
current cash flow and future growth, the shareholders of a typical
hotel REIT do not receive all of the economic benefits of both
hotel ownership and hotel operations. Leases may create conflicts
of interest between the REIT and the operator of each hotel,
particularly when insiders of the REIT own an economic interest in
the operator. The Paired Share structure eliminates potential
conflicts of interest between the hotel owner and the hotel
operator. Although the Code has prohibited the pairing of shares
between a REIT and an operating company since 1983, this rule does
not apply to the Company because its Paired Share structure has
existed since 1980. The Trust is the only publicly traded hotel
REIT which has the Paired Share structure.

For the twelve consecutive quarters through December 1994, the
hotel industry has experienced demand increases, producing an
aggregate increase in room night demand of 11.2%. During such
period, net supply has only increased by 3.8%. Between 1993 and
1994, room demand, occupancy and room sales increased more rapidly
in both upscale and mid-scale segments than lower-scale segments of
the hotel industry. The Company intends to focus on the
acquisition, repositioning or refranchising and operation of
upscale and mid-scale hotels.

Management of the Company has improved the portfolio's
performance during the two-year period ended December 31, 1994,
despite certain restrictions imposed by the Company's lenders.
During such period, the Company's management increased REVPAR (room
revenue per available room, or total room revenues divided by
available rooms) by 13.0%, and increased EBITDA (as defined below)
by 19.7% on the continuously owned and operated properties.
Upon the restructuring of the Company's debt in March 1995,
restrictions imposed by prior lenders were removed and management
now has more flexibility to acquire hotels and reinvest in its
existing hotels. The Company anticipates continued internal growth
from improving market conditions, improved property operations,
renovations and reaffiliations.

Upon completion of the Offerings, Starwood Capital will own
approximately 33.2% of the Company's equity (having a value of $144
million, assuming a public offering price of $24 per Paired Share)
on a fully diluted basis. Starwood Capital is a private real
estate investment firm that since 1991 has acquired in excess of $1
billion (at cost) of real estate assets. Starwood Capital's
investors include its principals and employees, certain high net
worth families, three of the ten largest U.S. corporate pension
funds and other institutional investors. During the past three
years, Starwood Capital acquired over $425 million (at cost) of
interests in hotel assets from insurance companies, banks,
distressed borrowers, the Resolution Trust Corporation, the Federal
Deposit Insurance Corporation and others. In January 1995, the
Company completed a reorganization in which Starwood Capital contributed
to the Company several hotels, hotel mortgages, cash and other related
assets (the "Reorganization"). Starwood Capital has entered into
a non-competition agreement with the Company relating to the
acquisition of new equity interests in hotel properties in the
United States. See "Structure of the Company - Management of the
Partnerships." Starwood Capital's experienced real estate
acquisition and finance professionals, with their network of
industry contacts, will continue to assist management in
identifying acquisition opportunities and attractive sources of
capital.

Upon completion of the Offerings, the Company will have a
Ratio of Debt-to-Total Market Capitalization (as defined below), of
approximately 9.5%. The Company intends that such ratio not exceed
50%.

RISK FACTORS

Prospective investors should carefully consider the matters
discussed in the section entitled "Risk Factors" prior to making an
investment decision regarding the Paired Shares offered hereby.
Some of the significant considerations include:

o The Company is subject to various tax risks, including
taxation of the Trust as a corporation if it fails to
qualify as a REIT, which could adversely affect the
ability of the Trust to make expected distributions to
shareholders. The Trust did not qualify as a REIT
during its 1991 through 1994 taxable years.

<PAGE>

o The aggregate market value of the Paired Shares as an
ongoing business enterprise may exceed the aggregate
fair market value of the Company's portfolio.

o The organizational documents of the Trust and the
Corporation contain certain provisions that may inhibit
a change in control, including a limitation (intended
to protect the Trust's ability to qualify as a REIT and
to preserve the benefits of the Company's Paired Share
structure) on direct or constructive ownership by any
one person or related group of persons to 8.0% of the
Paired Shares (the "Ownership Limitation"),
authorization of the issuance of preferred stock and
the existence of classified Boards.

o Starwood Capital and Barry S. Sternlicht, the President
and Chief Executive Officer of Starwood Capital, may
have the ability to exercise influence over the affairs
of the Company. There may be certain conflicts of
interest between the interests of Starwood Capital and
other shareholders of the Company because Starwood
Capital will suffer different tax consequences upon the
sale by the Company of certain properties.

o The Company is subject to the risks associated with the
hotel industry, including operating risks, competition
from other hotels, risks associated with franchise
license agreements, the seasonality of the hotel
business, the concentration of the Company in a single
industry and the special risks associated with the
gaming business.

o The Company incurred losses in recent years and could
experience such losses in the future.

o The purchasers of Paired Shares in the Offerings will
experience immediate dilution of $8.70 per Paired Share
in the net tangible book value of the Paired Shares.

THE HOTEL INDUSTRY

The hotel industry, which is one of the most management-
intensive sectors of the real estate industry, has been
characterized over the last 15 years by increased product
segmentation and by greater marketing and cost control
sophistication. However, even as the importance of sophisticated
management has grown, it has continued to be common in the industry
for hotel owners to rely on fee-oriented third parties to manage
their hotels. The Company believes that, as an integrated
owner/operator focused on maximizing long-term operating profits
and asset values, rather than maximizing fees, it will distinguish
itself from owners who rely on third-party managers.

The hotel industry is now recovering from severe disparity in
the growth of supply and demand that produced real decreases in
average daily rates ("ADRs"), widening losses, and numerous
foreclosures. The rapid rise in room supply in excess of demand
that occurred throughout the 1980s drove occupancies and ultimately
industry profitability downward. The oversupply in the hotel
industry resulted from special circumstances in the 1980s,
including readily available financing and tax incentives which were
favorable to development of new hotels. In the late 1980s, equity
sources became scarce due to changes in the tax law and the
withdrawal of traditional lending sources. Between 1991 and 1994,
new hotel room supply has increased at an annual rate of only 1.2%,
as shown in the tables below.

Historically, growth in demand for hotel rooms has been
dependent on the overall health of the national economy. Demand
for hotel rooms grew steadily during the 1980s. Growth in room
demand fell as the national economy entered a recession in 1990,
and has since resumed growth. The combination of minimal new room
supply and increasing demand has resulted in the growth over the
last three years in occupancy and ADR as shown in the tables below.
If the trends shown were to continue, the Company believes that
further increases in ADR and occupancy would result.

<PAGE>

[INSERT NEW GRAPHS]

BUSINESS OBJECTIVES AND GROWTH STRATEGY

The Company's primary objective is to increase per share funds
from operations in order to maximize long-term total returns to
shareholders. The Company's mission is to offer consistent high
quality accommodations and service at competitive rates in order to
provide superior value to its customers.

ACQUISITION STRATEGIES. Since the Reorganization, the Company has
acquired or agreed to acquire three upscale, full service hotels,
consistent with the following strategies:

o Concentrating on the upscale and mid-scale industry
segments. New supply is limited in these segments,
while numerous opportunities exist to buy at
significant discounts to replacement cost and at
attractive EBITDA multiples.

o Acquiring assets where existing management contracts
can be terminated, allowing the Company to utilize its
experienced management team and exploit the advantages
of its paired share structure.

o Focusing on markets in which the Company currently
operates, or new markets which have favorable
demographics, stable demand generators or barriers to
new supply.

o Utilizing Starwood's network of real estate and finance
industry contacts to identify opportunistic situations
where the Company's liquidity, and its ability to
acquire distressed debt, issue partnership units or
turn around poorly managed properties, provide a
competitive advantage.

OPERATING STRATEGIES. The Company believes its existing portfolio
possesses significant operating leverage. As industry conditions
continue to improve, the Company will seek continued cash flow
growth by implementing the following strategies:

o Increasing operating efficiency by eliminating third
party managers and installing the Company's experienced
management team and on-line systems.

o Improving profitability by completing major renovations
at certain properties, such as the Dallas Park Central,
Portland Riverside Inn, Lexington French Quarter Suites
and the Capitol Hill Suites.

o Maximizing portfolio performance by reaffiliating and
repositioning certain properties, such as the Seattle
Meany Tower, the Tucson Plaza, the Lexington French
Quarter Suites and the Capitol Hill Suites.

<PAGE>

o Selling assets inconsistent with the Company's growth
objectives and minimizing exposure to gaming-related
operations.

DEVELOPMENT STRATEGY. The Company may expand the number of rooms
at certain high occupancy hotels and, in the future, may
selectively develop new hotels in certain submarkets.

FINANCING STRATEGY. The Company is negotiating a $150 million
acquisition credit facility and currently intends to maintain a
Ratio of Debt-to-Total Market Capitalization of less than 50%. In
addition, concurrently with the consummation of the Offerings, the
Company will borrow approximately $41 million (the "Mortgage Loan")
from an institutional lender. See "The Mortgage Loan and
Acquisition Facility."

BUSINESS AND PROPERTIES

The Company is a fully integrated owner and operator of hotels
located throughout the United States. Upon completion of the
Offerings, the Company will own fee or long-term leasehold
interests in 32 hotels, including two hotel/casinos (collectively,
the "Owned Hotels"), and 13 performing promissory notes secured by
mortgages (the "Mortgage Note Receivables") on 15 additional
hotels.
5
<PAGE>

OWNED HOTELS
Twelve Months Ended
March 31, 1995
---------------------
Number Year
Hotel Location of Rooms Acquired ADR Occupancy
- ----- -------- --------- -------- --- ---------
<S> <C> <C> <C> <C> <C>
Upscale:
Embassy Suites Phoenix, AZ 227 1983 $82.89 77.0%
Embassy Suites(1) Tempe, AZ 224 1995 87.47 81.9
Doubletree Rancho
Bernardo, CA 209 1995 66.81 66.9
Capitol Hill Suites Washington,
D.C. 152 1995 91.98 67.9
Radisson Hotel Gainesville, FL 195 1986 59.82 58.9
Sheraton Colony
Square(1) Atlanta, GA 462 1995 87.30 73.6
Harvey Wichita Wichita, KS 259 1995 54.58 58.3
French Quarter Suites Lexington, KY 155 1995 77.88 70.8
Omni Chapel Hill Chapel Hill, NC 172 1995 76.12 67.6
Omaha Marriott(2) Omaha, NE 303 1979 88.63 78.8
Milwaukee Marriott(3) Milwaukee, WI 393 1990 68.57 70.5
Residence Inn Tysons Corner,
VA 96 1984 98.86 86.7
--- ----- ----

Subtotal/Weighted Average 2,847 $77.61 71.4%

Mid-Scale:
Plaza Hotel(4) Tucson, AZ 149 1983 $47.45 76.0%
Holiday Inn Albany, GA 151 1989 56.00 81.5
Best Western Riverfront Savannah, GA 142 1986 46.63 59.2
Bay Valley Resort Bay City, MI 151 1984 61.60 65.1
Best Western Airport
Inn(4) Albuquerque,
NM 123 1984 54.76 86.9
Best Western Mesilla
Valley Las Cruces, NM 166 1982 43.21 73.3
Best Western Columbus, OH 180 1992 42.70 70.0
Riverside Inn Portland, OR 137 1984 65.75 78.9
Dallas Park Central(4) Dallas, TX 445 1972 58.87 33.7
Best Western Airport El Paso TX 175 1985 35.08 81.8
Meany Tower Hotel Seattle, WA 155 1984 69.77 73.0
Sixth Avenue Inn(4) Seattle, WA 166 1984 70.15 75.7
WestCoast Tyee Hotel Olympia, WA 155 1987 60.87 57.7
--- ----- ----

Subtotal/Weighted Average 2,295 $55.02 65.8%

Economy:
Vagabond Inn-Rosemead Rosemead, CA 102 1974 $37.33 38.2%
Vagabond Inn-Sacramento Sacramento, CA 108 1975 58.86 60.5
Vagabond Inn-Woodland
Hills Woodland Hills,
CA 101 1973 47.83 58.7
Days Inn Portland, OR 173 1984 54.08 74.8
Days Inn Town Center(4) Seattle, WA 90 1984 60.05 80.6
--- ----- ----

Subtotal/Weighted Average 574 $51.84 63.7%

Gaming:
Bourbon Street Hotel
& Casino Las Vegas, NV 150 1988 $34.18 89.5%
King 8 Hotel & Casino Las Vegas, NV 300 1988 32.77 81.0
--- ----- ----

Subtotal/Weighted Average 450 $33.24 83.8%

Total/Weighted Average
All Owned Hotels 6,166 $63.56 69.4%
===== ====== ======

__________________
<FN>
(1) Acquisition of this hotel is pending.
(2) The Corporation owns a 5% general partnership interest in
this hotel.
(3) The Corporation has a 51% general partnership interest in
this hotel and, following the Offerings, the Trust will
hold $27.2 million in first mortgages on this hotel.
(4) These hotels are owned subject to long-term ground leases
expiring in the years 1999 through 2029.

</TABLE>

<PAGE>

RECENT ACQUISITIONS

Since the completion of its debt refinancing in March 1995,
the Company has, consistent with its acquisition strategy, acquired
or agreed to acquire the following properties:

o On April 6, 1995 the Company acquired and assumed
management of the Omni Chapel Hill Hotel, a 168-room
upscale hotel located near Research Triangle Park,
University of North Carolina and the Duke University
Medical Center.

o The Company expects on ______, 1995 to acquire and
assume management of the Sheraton Colony Square, a 462-
room upscale highrise hotel which is part of a major
office and retail mixed use development located at the
center of midtown Atlanta.

o The Company expects on ____ __, 1995 to acquire and
assume management of the Embassy Suites in Tempe,
Arizona, a 224 all-suite upscale hotel located near
Arizona State University.

MORTGAGE NOTES RECEIVABLE

The Company owns 13 performing mortgage notes secured by 15
hotels. In the future, the Company will continue to invest in
mortgage notes as a strategy for ultimately acquiring the
underlying hotel property as well as provide seller financing in
select circumstances consistent with the Company's disposition
strategies. The current portfolio as of March 31, 1995 includes:
a $15 million 8% note, with an outstanding balance of $10.4 million
and a carrying value of $7.4 million, secured by the Harvey Hotel,
Addison and maturing in 2002 (the three Harvey notes are cross-
collateralized and personally guaranteed by the borrowers); an $18
million 8% note, with an outstanding balance of $16.6 million and
a carrying value of $11.9 million, secured by the Harvey Bristol
Suites (Dallas) and maturing in 2002; a $28 million 8% note, with
a $25.9 million outstanding balance and a carrying value of $18.5
million, secured by the Harvey Hotel DFW and maturing in 2002; a
$12.9 million prime-based floating rate tax-exempt note with a
balance of $8.8 million and a carrying value of $4.5 million,
secured by the Quality Inn Atlantic City, New Jersey and maturing
in 2010; and a $13.8 million LIBOR-based floating rate note with a
balance of $12.4 million and a carrying value of $8.0 million,
secured by the Ramada Suites Secaucus (New Jersey) and maturing in
1999. Historically, the Company has provided seller financing of
up to 80% of the sales price as a means of facilitating its
operating strategy to dispose of assets with limited growth
prospects. The Company currently holds eight seller notes secured
by 10 hotels with an aggregate outstanding balance of $12.6
million, a weighted average interest rate of 9.6% and a weighted
average maturity in 2000.

STRUCTURE OF THE COMPANY

The Trust and the Corporation are separate entities, the
shares of which are owned, through the Paired Share structure, by
the same shareholders. See "Principal Shareholders" and "Capital
Stock - The Pairing Agreement." The Company's ownership interests
in the Hotel Assets are held, and the operating functions for the
Assets are performed, through the Realty Partnership and the
Operating Partnership, respectively. The Trust controls the Realty
Partnership as the sole general partner, and the Corporation
controls the Operating Partnership as the managing general partner
(subject, in the case of the Gaming Assets, to receipt of certain
regulatory approvals). See "Structure of the Company - Management
of the Partnerships." Starwood Capital is the limited partner of
the Partnerships. Subject to the Ownership Limitation, units of
partnership interest in the Partnerships ("Units") held by Starwood
Capital are (subject to certain restrictions) exchangeable one-for-
one for Paired Shares except that prior to receipt of certain
regulatory approvals, Starwood Capital's ownership of Paired Shares
may not exceed 4.9% of the outstanding Paired Shares.

<PAGE>

The ownership structure of the Company after the completion of
the Offerings will be as follows:

THE TRUST THE CORPORATION

Percentage Percentage Percentage
Before After Shares Percentage After
Unit Unit are Before Unit Unit
Owners Exchange Exchange Paired Owners Exchange Exchange
- ------ ----------- ----------- ------ ------------ ----------
<S> <C> <C> <C> <C> <C> <C>
Current Holders 16.3% 10.9% Current Holders 16.3% 10.9%
(other than (other than
Starwood Capital) Starwood Capital)

Starwood Capital 0.4% 1 33.2% 1 Starwood Capital 0.4% 1 33.2% 1

Purchasers in the 83.3% 55.9% Purchasers in the
Offering Offering 83.3% 55.9%

general partner general partner
</TABLE>
<TABLE>
<CAPTION>

Starwood Capital 33.2% 0% Starwood Capital 33.2% 0%

limited partner limited partner

STARWOOD
CAPITAL

</TABLE>

1 The percentages in this table set forth under the heading
"Percentage After Unit Exchange" assume that all remaining
Units held by Starwood Capital have been exchanged for
Paired Shares. However, because of the Ownership
Limitation, Starwood Capital can only exchange Units which
will cause Starwood Capital to receive in exchange therefor
not more than an additional 7.6% of the outstanding Paired
Shares, bringing its Paired Share ownership to 8.0%.

<PAGE>

THE OFFERINGS

Paired Shares
Offered Hereby . . . . . . 10,100,000 shares (1)

Paired Shares
Outstanding After the
Offerings. . . . . . . . . 18,065,736 shares (2)

Use of Proceeds. . . . . . . The net proceeds of the
Offerings, which are estimated to
be approximately $222.7 million,
will be used to repay a
substantial portion of the
Company's indebtedness, acquire
certain additional hotel
properties, make capital
improvements, pay certain amounts
owed to Starwood Capital and for
general business purposes.
New York Stock
Exchange Symbol . . . . . . HOT

____________________________
(1) Assumes the Underwriters' over-allotment options to purchase
up to 1,515,000 Paired Shares are not exercised. See
"Underwriting."
(2) Includes 5,943,578 Paired Shares which are issuable upon the
exchange of Units held by Starwood Capital. See "Structure
of the Company - Limited Partner Rights - Exchange Rights."
Excludes 84,750 Paired Shares issuable pursuant to
outstanding options and 276,662 Paired Shares issuable
pursuant to warrants which expire in 1996 and which have an
exercise price of $101.70 per Paired Share.

DISTRIBUTIONS

Following the completion of the Offerings, the Trust intends
to make regular quarterly distributions to its shareholders. The
distribution for the period commencing on the closing date of the
Offerings and ending on September 30, 1995, is expected to be
approximately equivalent to a quarterly distribution of $ per
Paired Share and an annual distribution of $ per Paired
Share, or an annual distribution of %, assuming an offering
price of $24 per Paired Share. The Trust does not expect to change
its estimated distribution rate if the Underwriters' over-allotment
options are exercised. The Company established its initial
distribution based upon its estimate of the cash available for
distribution after the Offerings under present conditions. See
"Distribution Policy" for information regarding the basis for the
estimate. The Trust intends to maintain its initial distribution
rate for at least 12 months following the consummation of the
Offerings, unless actual results of operations, economic conditions
or other factors differ from the assumptions used in calculating
the estimate.

The Trust anticipates that its cash available for
distribution, and the amount it distributes to shareholders, will
exceed earnings and profits for federal income tax purposes due to
non-cash expenses, primarily depreciation and amortization and non-
cash interest expense to be incurred by the Trust.

The Corporation does not intend to make any distributions to
its shareholders in the foreseeable future. All available cash is
expected to be used by the Operating Partnership to repay
indebtedness to the Realty Partnership.

TAX STATUS OF THE COMPANY

The Trust intends to qualify to be taxed as a REIT, commencing
with its taxable year ending December 31, 1995. As a REIT, the
Trust generally will not be taxed at the trust level on its taxable
income that it distributes to its shareholders. A REIT is subject
to a number of organizational and operational requirements,
including a requirement that it currently distribute at least 95%
of its REIT taxable income (which does not include net capital

<PAGE>

gains). Failure to qualify as a REIT will render the Trust subject
to tax on its taxable income at corporate rates and distributions
to shareholders in any such year will not be deductible by the
Trust. The Code prohibits paired share arrangements for REITs that
were not paired before 1983. Application of this rule would
prevent the Trust from qualifying to be taxed as a REIT; however,
because the Trust Shares and the Corporation Shares were paired
prior to 1983, this prohibition does not apply to the Trust and the
Corporation. See "Federal Income Tax Considerations - Federal
Income Taxation of the Trust - Requirements for Qualification -
Paired Shares."

The Trust was taxed as a REIT beginning in 1969 through and
including its taxable year ended December 31, 1990. The Trust did
not qualify as a REIT for its taxable years ended December 31, 1991
through 1994 primarily due to its failure to comply with certain
procedural requirements of the Code. Because the Trust had net
losses for tax purposes for its taxable years ended December 31,
1991 through 1994, the Trust did not owe any federal income tax for
such years. The Trust has received a letter from the IRS
permitting it to re-elect to be taxed as a REIT commencing with its
taxable year ending December 31, 1995.

Although the Trust does not intend to request a ruling from
the IRS as to its REIT status, the Trust has obtained the opinion
of Sidley & Austin, legal counsel to the Trust and the Corporation,
that, commencing with its taxable year ending December 31, 1995,
the Trust will be organized in conformity with the requirements for
qualification as a REIT, and the Trust's proposed method of
operation will enable it to qualify to be taxed as a REIT under the
Code, which opinion is based on certain assumptions and
representations and will not be binding on the IRS or any court.
Even if the Trust qualifies as a REIT, the Trust may be subject to
certain state and local taxes on its income and property and to
federal income and excise taxes in certain limited circumstances.
See "Federal Income Tax Considerations - Federal Income Taxation of
the Trust" and "Risk Factors - Failure to Qualify as a REIT." The
Corporation will be subject to federal and state tax on its taxable
income at regular corporate rates.

SUMMARY COMBINED SELECTED FINANCIAL DATA

The following table sets forth selected combined historical
and pro forma financial information for the Company. The following
information should be read in conjunction with (i) the historical
financial statements and notes thereto for the Company, (ii)
Management's Discussion and Analysis of Financial Condition and
Results of Operations, and (iii) the pro forma financial statements
and notes thereto for the Company, which are included elsewhere in
this Prospectus. The historical operating information of the
Company as of December 31, 1994 and 1993 and for each of the five
years in the period ended December 31, 1994 have been derived from
audited financial statements which are included elsewhere in this
Prospectus. The comparable data as of December 31, 1992, 1991 and
1990 and for the years ended December 31, 1991 and 1990 have been
derived from financial statements that are not required to be
included in this Prospectus. In the opinion of management, the
financial data as of March 31, 1995 and for the three months ended
March 31, 1995 and 1994 include all adjustments necessary to
present fairly the information set forth therein.

The pro forma operations data and other data for the three
months ended March 31, 1995 and for the year ended December 31,
1994 have been prepared as if the Offerings, the Mortgage Loan and
the hotel properties acquired or to be acquired and (with respect
to the December 31, 1994 data) the Reorganization had been
consummated at the beginning of the periods presented, and the pro
forma balance sheet data has been prepared as if the Offerings, the
Mortgage Loan and the hotel properties acquired or to be acquired
had been consummated on March 31, 1995. The pro forma financial
information is not necessarily indicative of what the actual
financial position and results of operations of the Company would
have been as of and for the period indicated, nor does it purport
to represent the Company's future financial position and results of
operations.

STARWOOD LODING
SUMMARY COMBINED SELECTED FINANCIAL INFORMATION
(in thousands, except per share data and room information)

For the three months ended
March 31, As of and for the Year Ended December 31,
----------------------------- --------------------------------------------------------------
Pro Pro
Forma Historical Forma Historical
------- ------------------ -------- ---------------------------------------------------
1995 1995(5) 1994 1994 1994 1993 1992 1991 1990
------- ------- ------- -------- ------- ------- -------- -------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
OPERATING DATA:
REVENUE
Hotel . . . . . . . . $30,894 $22,781 $20,586 $125,878 $82,668 $86,903 $88,812 $85,156 $85,515
Gaming . . . . . . . 6,669 6,669 7,188 27,981 27,981 27,505 26,150 22,609 25,439
Interest from
mortgage and
other notes. . . . . 2,581 2,581 355 10,050 1,554 1,412 1,348 1,761 2,813
Rents from other
leased hotel
properties. . . . . 159 159 150 927 927 839 947 936 942
Management fees and
other income . . . . 61 61 59 411 411 475 1,186 1,376 2,315
Gain (loss) on sales
of hotel assets. . . (113) (113) -- 456 456 21 (787) 1,598 --
----- ----- ----- --- --- -- ----- ----- -----
40,251 32,138 28,338 165,703 113,997 117,155 117,656 113,436 117,024
------ ------ ------ ------- ------- ------- ------- ------- -------

EXPENSES
Hotel operations. . . 21,236 16,280 15,568 91,600 60,829 68,132 68,620 65,963 65,223
Gaming operations . . 6,021 6,021 5,993 24,454 24,454 24,055 23,699 21,948 23,995
Interest. . . . . . . 904 5,827 4,125 3,614 17,606 15,187 14,208 16,458 16,408
Depreciation and
amortization . . . . 4,111 2,863 2,066 16,739 8,161 9,232 10,196 11,688 14,850
Administrative and
operating. . . . . . 1,072 1,068 921 4,289 4,203 4,729 6,177 6,086 5,987
Shareholder litigation
expense. . . . . . 2,648 2,648 483 188
Loan restructuring. . 10,892 3,797
Provision for
losses . . . . . . . 759 759 2,369 3,419 9,580 18,147
------ ------ ------- --- --- ----- ----- ----- ------
33,344 32,059 28,673 144,103 118,660 124,187 137,399 135,520 144,610
------- ------ ------ ------- ------- ------- ------- ------- -------

Income (loss) before
minority interest
in Partnership . . . 6,907 79 (335) 21,600 (4,663) (7,032) (19,743) (22,084) (27,586)
Minority interest in
Partnership (1) . . 2,272 94 7,106
----- ----- ------ ----- ------ ------ ------- ------ ------
Income (loss) before
extraordinary
item . . . . . . . . 4,635 (15) (335) (4,663) (7,032) (19,743) (22,084) (27,586)
Extraordinary item. . 363
----- ----- ------ ----- ------ ------ ------- ------ ------
Net income (loss) . . $4,635 $ 348 $(335) $14,494 $(4,663) $(7,032) $(19,743) $(22,084) $(27,586)
===== ===== ====== ======= ======== ======== ========= ========= =========
Net income (loss)
per share (2). . . . $0.38 $(0.17) $(.17) $1.20 $(2.31) $(3.48) $(9.73) $(10.92) $(13.65)
===== ======= ====== ===== ======= ======= ======= ======== ========

OTHER DATA:
Funds from
operations (3). . . $11,131 $3,055 1,731 $41,290 $6,449 $5,031 $5,739 $1,383 $5,411
EBITDA (4) . . . . . 12,035 8,882 5,856 $44,904 $24,055 20,218 $19,947 $17,841 $21,819
EBITDA margin (% of
total revenues) . . 30% 28% 21% 27% 21% 17% 17% 16% 19%
Number of hotel rooms
(Hotel Assets). . . 9,373 8,687 9,373 5,400 5,400 5,700 6,700 6,700
Revenue per available
room (Owned
Hotels) . . . . . . $42.08 $36.24 $39.22 $35.65 $34.32 $32.89 $32.21 $33.38
Average daily room
rate (Owned
Hotels) . . . . . . $65.47 $56.45 $59.59 $56.59 $52.80 $52.20 $51.95 $52.15
Average Occupancy
(Owned Hotels). . . 64% 64% 62% 63% 65% 63% 62% 64%

BALANCE SHEET DATA:
Total real estate
investments. . . . . $311,086 246,113 $165,496 $179,172 $187,753 $200,540 $218,896
Total assets. . . . . 341,896 279,765 183,955 195,352 210,945 221,917 240,998
Total debt. . . . . . 45,668 68,195 160,482 170,886 170,297 171,271 106,651
Shareholders'
equity . . . . . . . 189,361 7,756 8,708 13,326 20,351 40,083 62,104

- ----------------------------
<FN>
(1) Represents the 32.9% minority interest in the Partnerships which Starwood Capital will own after the
contribution of the net proceeds from the Offerings by the Trust.
(2) Net income (loss) per Paired Share has been computed using the weighted average number of common and
common equivalent Paired Shares outstanding which, for periods with net income, includes the dilutive
effect of stock options and warrants outstanding.
(3) Management and industry analysts generally consider funds from operations to be one measure of the
financial performance of an equity REIT that provides a relevant basis for comparison among REITs
and it is presented to assist investors in analyzing the performance of the Company. Funds from
operations before minority interest is defined as net income (computed in accordance with generally
accepted accounting principles), excluding gains (losses) from debt restructuring and sales of property,
provision for losses, and depreciation and amortization (excluding amortization of financing costs).
Funds from operations does not represent cash generated from operating activities in accordance with
generally accepted accounting principles and is not necessarily indicative of cash available to fund
cash needs. Funds from operations should not be considered an alternative to net income as an
indication of the Company's financial performance or as an alternative to cash flows from operating
activities as a measure of liquidity.
(4) Management considers EBITDA to be one measure of the cash flows from operations of the Company before
debt service that provides a relevant basis for comparison among REITs and it is presented to assist
investors in analyzing the performance of the Company. EBITDA should not be considered as an alternative
to net income as an indication of the Company's and Partnerships' financial performance or to cash flows
from operating activities as a measure of liquidity, nor is it necessarily indicative of sufficient cash
flow to fund all of the Company's and Partnerships' needs.
(5) The historical combined information of the Company presented for the three months ended March 31, 1995
reflects the consolidation of the Partnerships into the Trust and the Corporation in order to facilitate
a comparison with the prior historical information of the Company and the pro forma information.
</TABLE>

11
<PAGE>
RISK FACTORS

Prospective investors should carefully consider, among other
factors, the matters described below.

TAX RISKS

Failure to Qualify as a REIT. The Trust intends to operate so
as to qualify as a REIT under the Code commencing with its taxable
year ending December 31, 1995. Although the Trust believes that it
will be organized and will operate in such a manner, no assurance
can be given that the Trust will qualify or remain qualified as a
REIT. The Trust did not qualify as a REIT during its taxable years
ended December 31, 1991 through 1994. Qualification as a REIT
involves the application of highly technical and complex Code
provisions for which there are only limited judicial or
administrative interpretations. The complexity of these provisions
is greater in the case of a REIT that owns hotels and leases them
to a corporation with which its stock is paired. The determination
of various factual matters and circumstances not entirely within
the Trust's control may affect its ability to qualify as a REIT.
In addition, no assurance can be given that legislation, new
regulations, administrative interpretations or court decisions will
not significantly change the tax laws with respect to qualification
as a REIT or the federal income tax consequences of such
qualification. However, the Trust is not aware of any proposal to
amend the tax laws that would significantly and adversely affect
the Trust's ability to operate as a REIT. Although the Trust has
obtained the opinion of Sidley & Austin, counsel to the Trust,
that, based on certain assumptions and representations, the Trust
will qualify as a REIT, such legal opinion is not binding on the
IRS or any court. Furthermore, the validity of the opinion and the
qualification of the Trust as a REIT will depend on the Trust's
continuing ability to meet various requirements concerning, among
other things, the ownership of Paired Shares, the nature of its
assets, the source of its income and the amount of its
distributions to its shareholders. See "Federal Income Tax
Considerations."

If in any taxable year the Trust were to fail to qualify as a
REIT, the Trust would not be allowed a deduction for distributions
to shareholders in computing its taxable income and would be
subject to federal income tax on its taxable income at regular
corporate rates. Unless entitled to relief under certain Code
provisions, the Trust would also be disqualified from treatment as
a REIT for the four taxable years following the year during which
qualification was lost. As a result, the funds available for
distribution to the Trust's shareholders would be reduced for each
of the years involved. Although the Trust intends to operate in a
manner designed to qualify as a REIT commencing with its taxable
year ending December 31, 1995, it is possible that future economic,
market, legal, tax or other considerations may cause the Board of
Trustees to revoke the REIT election. See "Federal Income Tax
Considerations."

Distributions to Shareholders. In order to obtain and retain
REIT status, the Trust must distribute to its shareholders at least
95% of its REIT taxable income (excluding any net capital gain).
In addition, the Trust will be subject to tax on its undistributed
net taxable income and net capital gain, and a 4% nondeductible
excise tax on the amount, if any, by which certain distributions
paid by it with respect to any calendar year are less than the sum
of (i) 85% of its ordinary income, (ii) 95% of its capital gain net
income for that year, and (iii) 100% of its undistributed income
from prior years.

The Trust intends to make distributions to its shareholders to
comply with the distribution requirements of the Code and to avoid
federal income taxes and the nondeductible federal excise tax.
Differences in timing between the receipt of income and the payment
of expenses in arriving at taxable income, the seasonality of the
hotel industry and the effect of required debt amortization
payments could require the Trust (or the Realty Partnership) to
borrow funds on a short-term basis to meet the REIT distribution
requirements, which borrowing may not otherwise be advisable for
the Company.

Distributions by the Trust will be determined by the Board of
Trustees and will be dependent on a number of factors, including
the amount of cash available for distribution, the Trust's
financial condition, any decision by the Board of Trustees to
reinvest funds rather than to distribute such funds, the Trust's
capital expenditures, the REIT distribution requirements and such
other factors as the Board of Trustees deems relevant. See
"Federal Income Tax Considerations."

<PAGE>

Classification of the Partnerships. The Company has obtained
an opinion of Sidley & Austin, counsel to the Company, that the
Partnerships will be classified as partnerships for federal income
tax purposes. If a Partnership were not to be classified as a
partnership for federal income tax purposes, such Partnership would
be taxable as a corporation which would reduce distributions to the
Company's shareholders. In addition, if the Realty Partnership
were to be taxable as a corporation, the Trust would not qualify as
to be taxed as a REIT. See "Federal Income Tax Considerations -
Federal Income Tax Aspects of the Partnerships."

Ownership Limitation. See "- Ownership Limitation and Limits
on Change of Control" for a description of the ownership limitation
required to maintain REIT status.

OFFERING PRICE MAY NOT REFLECT VALUES OF THE ASSETS

The value of the Company, for purposes of determining the
public offering price of the Paired Shares, has not been determined
on a property-by-property basis. Rather, the focus of the
valuation has been on pro forma adjusted funds from operations and
estimated cash available for distribution, the Company's potential
for growth and the other factors set forth under "Underwriting."
It is possible that the aggregate market value of the Paired Shares
as an ongoing business enterprise may exceed the aggregate fair
market value of the Company's portfolio.

EFFECTS OF VARIOUS FACTORS ON SHARE PRICE

Shares Available for Future Sale. Sales of a substantial
number of Paired Shares, or the perception that such sales could
occur, could adversely affect prevailing market prices for Paired
Shares. Up to 5,943,578 additional Paired Shares may be issued in
the future as a result of the potential exchange of Units by
Starwood Capital. See "Structure of the Company - Limited Partners
Rights - Exchange Rights." 84,750 Paired Shares have been reserved
for issuance upon the exercise of options granted or available for
grant pursuant to the Share Option Plans of the Trust and the
Corporation and 276,662 Paired Shares have been reserved for
issuance pursuant to the publicly issued warrants which have an
exercise price equal to $101.70 per Paired Share and which expire
in 1996 (the "1986 Warrants"). See "Management - Stock Options"
and "Capital Stock." With certain exceptions, Starwood Capital
will not be permitted to offer, sell, contract to sell or otherwise
dispose of any Units or Paired Shares for a period of twelve months
after the closing of the Offerings without the consent of Merrill
Lynch and the Company. At the conclusion of the twelve-month
period, all Units or Paired Shares held by Starwood Capital or
issuable to Starwood Capital in exchange for Units may be sold.
Starwood Capital has agreed with various of its investors who hold
indirect interests in the Units, that Units and/or Paired Shares
for which Units are exchanged will be distributed in kind to such
investors at times following the expiration of such twelve-month
period. Following any such distribution, Starwood Capital will not
control any such investor's decision as to the exchange or sale of
such investor's Units or Paired Shares. See "Paired Shares
Available for Future Sale" and "Structure of the Company - Limited
Partner Rights - Registration Rights." No prediction can be made
regarding the effect that future sales of Paired Shares will have
on the market prices of Paired Shares.

Other Factors Affecting Share Price. The market value of the
Paired Shares could be substantially affected by general market
conditions, including changes in interest rates. An increase in
market interest rates may lead purchasers of the Paired Shares to
demand a higher annual yield on the price paid for shares from
dividend distributions by the Company, which could adversely affect
the market price of the Paired Shares. Moreover, numerous other
factors, such as government regulatory action and modification of
tax laws, could have a significant effect on the future market
price of the Paired Shares. Although the Paired Shares are listed
on the New York Stock Exchange, there can be no assurance that an
active trading market for the Paired Shares will exist.

OWNERSHIP LIMITATION AND LIMITS ON CHANGE OF CONTROL

Certain provisions of the Trust's Declaration of Trust and the
Corporation's Articles of Incorporation may have the effect of
discouraging a third party from making an acquisition proposal for
the Trust and the Corporation and may thereby inhibit a change in
control under circumstances that could give the holders of Paired
Shares the opportunity to realize a premium over the then-
prevailing market prices.

<PAGE>

Ownership Limitation. In order for the Trust to maintain its
qualification as a REIT, not more than 50% in value of its
outstanding shares may be owned directly or indirectly, by five or
fewer individuals (as defined in the Code to include certain
entities). Furthermore, actual or constructive ownership of a
sufficient number of the Paired Shares could cause the Operating
Partnership or the Corporation to become a related party tenant of
the Trust which would result in the loss of the Trust's REIT
status. In order to help preserve the Trust's REIT status, the
Trust's Declaration of Trust and the Corporation's Articles of
Incorporation prohibit actual or constructive ownership by any one
person or group of related persons of more than 8.0% (other than
for existing shareholders who owned in excess of 8.0% as of the
date of the Reorganization, who may not own more than the lesser of
9.9%, or the number of Paired Shares they held on such date) of the
Paired Shares (the "Ownership Limitation"). Generally, the Paired
Shares owned by related or affiliated persons will be aggregated
and certain options and warrants will be treated as exercised for
purposes of the Ownership Limitation.

The Ownership Limitation will not be automatically removed
even if the REIT provisions of the Code are changed so as to no
longer contain any ownership concentration limitation or if the
ownership concentration limitation is increased. Any change in the
Ownership Limitation would require an amendment to the Trust's
Declaration of Trust and to the Corporation's Articles of
Incorporation. Such amendments would require approval of the Board
of Trustees, the Board of Directors and the affirmative vote of
holders owning not less than two-thirds of the outstanding Paired
Shares.

The constructive ownership rules of the Code are extensive and
complex and may cause Paired Shares owned, directly or indirectly,
by all direct or indirect partners in any partnership, including
the direct and indirect owners of interests in the Realty
Partnership and the Operating Partnership, and other classes of
related individuals and/or entities to be deemed to be
constructively owned by one individual or entity. As a result, the
acquisition of less than 8.0% of the Paired Shares (or the
acquisition of an interest in an entity which owns Paired Shares)
by an individual or entity could cause that individual or entity
(or another individual or entity) to own constructively in excess
of 8.0% of the Paired Shares, and thus subject such Paired Shares
to the Ownership Limitation. Direct or constructive ownership in
excess of the Ownership Limitation would cause the violative
transfer or ownership to be void, or cause such shares to be
converted into Excess Shares (defined herein), which have limited
economic rights. Notwithstanding the Ownership Limitation, given
the breadth of the Code's constructive ownership rules and that it
is not possible for the Trust and the Corporation to continuously
monitor direct and constructive ownership of Paired Shares, it is
possible that an individual or entity could at some time
constructively own sufficient Paired Shares to cause termination
of the Trust's REIT status.

Preferred Stock. The Trust's Declaration of Trust authorizes
the Board of Trustees to issue up to 135 million shares, of which
110 million shares (less any Trust Shares) may be preferred stock,
and to establish the preferences and rights (including voting
rights) of any preferred stock issued. The Corporation's Articles
of Incorporation authorize the Board of Directors to issue up to 10
million shares of preferred stock and to establish the preferences
and rights (including voting rights) of any shares issued. See
"Capital Stock - The Pairing Agreement - Preferred Shares." No
such shares will be issued or outstanding as of the closing of the
Offerings. The power to issue preferred shares could have the
effect of delaying or preventing a change in control of the Company
even if a change in control were in the shareholders' interest,
although the Company has no intent of issuing preferred shares for
that purpose.

Classified Board. The Board of Trustees of the Trust and the
Board of Directors of the Corporation have each been divided into
three classes. The terms of the classes will expire in 1995, 1996
and 1997, respectively. Beginning in 1995, as the term of each
class expires, trustees and directors for that class will be
elected for a three-year term and the trustees and directors in the
other two classes will continue in office. The staggered terms for
Trustees and Directors may affect the shareholders' ability to
change control of the Company even if a change in control were in
the shareholders' interests.

Directors of the Corporation may be removed only for cause
upon the affirmative vote of two-thirds of the votes entitled to be
cast for election. Trustees of the Trust are subject to removal
with or without cause by the affirmative vote of two-thirds of the
votes entitled to be cast for election. Any Trustee or Director
appointed to a vacant trusteeship or directorship will hold office
for a term expiring at the annual meeting at which the class to

<PAGE>

which they have been appointed expires. These provisions preclude
shareholders of the Corporation from removing incumbent directors
without cause. Maryland law grants shareholders of a Maryland
corporation the right, together with the board of directors, to
fill vacancies created by the removal of a director. In the case
of the Trust, however, the shareholders may not fill vacancies
created by such removal with their own nominees.

INFLUENCE OF STARWOOD CAPITAL

Individuals employed by or otherwise affiliated with Starwood
Capital hold three positions on the Board of Trustees of the Trust
and two positions on the management committee of the Operating
Partnership and will hold two positions on the Board of Directors
of the Corporation subject to receipt of certain regulatory
approvals. See "Management - Trustees and Executive Officers of
the Trust" and "Management - Directors and Executive Officers of
the Corporation." Accordingly, although the Company has a policy
requiring a majority of its trustees and directors to be
"independent" (see "Policies with Respect to Certain Activities -
Conflicts of Interest - Independent Board Approval"), Starwood
Capital may have the ability to exercise certain influence over the
affairs of the Company. Prior to the exchange by Starwood Capital
of all of its Units for Paired Shares, Starwood Capital will
experience different, and possibly more adverse, tax consequences
than the Company and its shareholders upon the sale of certain
properties or the restructuring or sale of certain mortgage loans.
Therefore, Starwood Capital may be opposed to the sale of such
properties or the restructuring or sale of the loans even though
such a sale or restructuring might otherwise be in the best
interest of the Company and its present shareholders. In addition,
Starwood Capital's objectives regarding the pricing, structure and
timing of any such sale may differ from the objectives of the
shareholders of the Company or current management of the Company.
Barry S. Sternlicht is the President and Chief Executive Officer
of, and controls, Starwood Capital. Mr. Sternlicht is a Trustee of
the Trust and the Chief Executive Officer of the Trust. In
addition, Mr. Sternlicht is a member of the management committee of
the Operating Partnership and, upon the receipt of certain
regulatory approvals, he will be a Director of the Corporation. As
a consequence, Mr. Sternlicht has the ability to exercise certain
influence over the affairs of the Company.

The Reorganization was consummated pursuant to the terms of
the Formation Agreement and other related agreements pursuant to
which, among other things, Starwood Capital contributed cash,
certain hotel properties and first mortgage notes. The principal
rights which remain in favor of the Company relating to such
contributions relate to the indemnification by Starwood Capital
with respect to such contributions and the noncompetition agreement
of Starwood Capital. See "Structure of the Company - Formation of
the Partnerships and the Reorganization" and "Structure of the
Company - Management of the Partnerships." Starwood Capital's
aggregate liability in respect of such indemnification is limited
to $5,000,000. To the extent that the Company chooses to enforce
its rights under the Formation Agreement or any related agreement,
it may determine to pursue available remedies, such as actions for
damages or injunctive relief, less vigorously than it otherwise
might because of its desire to maintain its ongoing relationship
with Starwood Capital and related persons.

Certain hotel assets not contributed by Starwood Capital to
the Company in the Reorganization (the "Excluded Assets") owned by
Starwood Capital do not currently, but may in the future compete
with the Company if the Company were to invest in hotel properties
in the same markets as such Excluded Assets. However, the Company
has an option, under certain conditions, to purchase the Excluded
Assets. See "Business and Properties - Excluded Assets and Related
Matters."

HOTEL INDUSTRY RISKS

Operating Risks. The properties of the Company are subject to
all operating risks common to the hotel industry. These risks
include: changes in general economic conditions; the level of
demand for rooms and related services; cyclical over-building in
the hotel industry; competition from other hotels, motels and
recreational properties; the recurring need for renovations,
refurbishment and improvements of hotel properties; restrictive
changes in zoning and similar land use laws and regulations or in
health, safety and environmental laws, rules and regulations; the
inability to secure property and liability insurance to fully
protect against all losses or to obtain such insurance at
reasonable rates; and changes in travel patterns.

<PAGE>

Competition. The hotel industry is highly competitive. The
properties of the Company compete with other hotel properties in
their geographic markets. Some of the Company's competitors may
have substantially greater marketing and financial resources than
the Company.

The Company may compete for acquisition opportunities with
entities which have substantially greater financial resources than
the Company. These entities may generally be able to accept more
risk than the Company can prudently manage. Competition may
generally reduce the number of suitable investment opportunities
offered to the Company and increase the bargaining power of
property owners seeking to sell. Further, management believes that
it will face competition for acquisition opportunities from
entities organized for purposes substantially similar to the
objectives of the Company.

Franchise Agreement Risks. Upon completion of the Offerings,
all but eleven of the Company's Hotels will be operated pursuant to
existing franchise or license agreements (the "Franchise
Agreements"). Franchise agreements generally contain specific
standards for, and restrictions and limitations on, the operation
and maintenance of a hotel property in order to maintain uniformity
in the system created by the franchisor. Such standards are often
subject to change over time, in some cases at the discretion of the
franchisor, and may restrict a franchisee's ability to make
improvements or modifications to a hotel property without the
consent of the franchisor. In addition, compliance with such
standards could require a franchisee to incur significant expenses
or capital expenditures.

Certain of the Franchise Agreements covering the Company's
hotel properties expire or terminate, without specified renewal
rights, at various times and have terms of differing lengths, some
as short as one calendar year. As a condition to renewal, the
Franchise Agreements frequently contemplate a renewal application
process, which may require substantial capital improvements to be
made to the hotel which would have the effect of reducing funds
available for distribution by the Company.

Seasonality of Hotel Business. The hotel industry is seasonal
in nature. Generally, hotel revenues are greater in the second and
third quarters than in the first and fourth quarters. This
seasonality can be expected to cause quarterly fluctuations in the
revenues of the Company. As a result, the Trust may be required
from time to time to borrow to provide funds necessary to make
quarterly distributions.

Investment Concentration in Single Industry. The current
strategy of the Company is to concentrate its efforts in the hotel
industry. The Company will not seek to invest in assets selected
to reduce the risks associated with an investment in real estate in
the hotel industry, and will be subject to risks inherent in
investments in a single industry.

Gaming. The Company's casino gaming facilities located in Las
Vegas, Nevada are subject to extensive licensing and regulatory
control by the Nevada Gaming Commission (the "Nevada Commission")
and other Nevada authorities. These regulatory authorities have
broad powers with respect to the licensing of gaming operations,
and may revoke, suspend, condition or limit the gaming approvals
and licenses of the Corporation and its gaming subsidiary, impose
substantial fines and take other actions, any of which could have
a material adverse affect on the Corporation's business and the
going concern value of the Trust's hotel/casinos. Directors,
officers and certain key employees of the Corporation and its
gaming subsidiary are subject to licensing or suitability
determinations by the Nevada Commission and local gaming
authorities. If the Nevada Commission were to find a person
occupying any such position unsuitable, the Corporation would be
required to sever its relationship with that person. Any
beneficial holder of the Corporation's voting securities may be
required to file an application, be investigated, and have his
suitability as a holder of such securities determined if the Nevada
Commission has reason to believe that such ownership would be
inconsistent with the policies of the State of Nevada. Any person
who acquires more than 5% of the Corporation Shares must report
such acquisition to the Nevada Commission. Beneficial owners of
more than 10% of the Corporation Shares must apply to be found
suitable by the Nevada Commission. In addition, changes in control
of the Corporation may not occur without the prior approval of the
Nevada Commission. The Company must file an application with the
Nevada Commission and local gaming authorities requesting authority
to consummate certain portions of the Reorganization, including the
transfer of the Company's gaming assets to the Operating
Partnership, licensure of the Operating Partnership and certain of
the Company's officers and directors,

<PAGE>

and the related change of control of the Corporation as a result of
the recent election of certain Directors of the Corporation. See
"Structure of the Company - Formation of the Partnerships and the
Reorganization" and "- Management of the Partnerships" and
"Management - Directors and Executive Officers of the Corporation."
In the event such licenses and approval are not received, the
Company may determine to dispose of such gaming assets. For a
further discussion of these and other aspects of Nevada gaming
regulations and control, see "Business and Properties - Regulation
and Licensing."

The operation of hotel/casinos in the Las Vegas area is highly
competitive. The number of hotel rooms and casinos in the Las
Vegas area has increased substantially in recent years.
Competition for gaming customers also comes from other areas of the
country, where gaming facilities have proliferated. Competition
among hotel/casinos in Las Vegas involves not only the quality of
casino, room, restaurant and convention facilities, but also room,
food and beverage prices. The level of gaming activity at the
Company's hotel/casinos varies significantly from time to time,
principally as a result of general economic conditions and
marketing efforts by, and occupancy rates at, the large
hotel/casinos on the Las Vegas strip and other similar facilities
in the general Las Vegas area.

REAL ESTATE INVESTMENT RISKS

General Risks. Real property investments are subject to
varying degrees of risk. The investment returns available from
equity investments in real estate depend in large part on the
amount of income earned and capital appreciation generated by the
related properties as well as the expenses incurred. If the
properties of the Company do not generate revenue sufficient to
meet operating expenses, including debt service and capital
expenditures, the income of the Company and its ability to make
distributions to its shareholders will be adversely affected.
Certain significant expenditures associated with an investment in
real estate (such as mortgage payments, real estate taxes and
maintenance costs) generally are not reduced when circumstances
cause a reduction in revenue from the investment. In addition,
income from properties and real estate values are also affected by
a variety of other factors, such as governmental regulations and
applicable laws (including real estate, zoning and tax laws),
interest rate levels and the availability of financing.

Illiquidity of Real Estate Investments. Equity real estate
investments, such as the investments held by the Company and any
additional properties that may be acquired by the Company, are
relatively illiquid. Such illiquidity limits the ability of the
Company to vary its portfolio in response to changes in economic or
other conditions.

Uninsured Loss. The Company will carry comprehensive
liability, fire and extended insurance covering all of the
properties owned or operated by the Company, with policy
specifications and insured limits customarily carried for similar
properties. There are, however, certain types of losses (such as
from wars or acts of God) that generally are not insured because
they are either uninsurable or not economically insurable. Should
an uninsured loss or a loss in excess of insured limits occur, the
Company could lose capital invested in such properties, as well as
the anticipated future revenues from such properties, while
remaining obligated for any mortgage indebtedness or other
financial obligations related to such properties. Any such loss
would adversely affect the Company. Management believes that the
properties currently held by the Company are adequately insured in
accordance with industry standards.

With respect to those properties in which the Company holds an
interest through a mortgage position, the borrowers under such
mortgage are obligated to the Company to maintain insurance on such
properties and to arrange for the Company to be covered as a named
insured on such policies. The face amount and scope of such
insurance coverage may be less comprehensive than the Company would
carry if it held the fee interest in such property directly.
Accordingly, in such circumstances, or in the event that the
borrowers under such mortgages fail to maintain required coverage,
uninsured or underinsured losses may occur, which could have an
adverse impact on the Company's cash flow or financial condition.

Acquisition Risks. There can be no assurance that the Company
will be able to implement its investment strategies successfully or
that its property portfolio will expand at all, or at any specified

<PAGE>

rate or to any specified size. In addition, investment in
additional hotel assets is subject to a number of risks. In
particular, investments are expected to be financed with funds
drawn under the Acquisition Facility, which would subject the
Company to the risks described in "Risk Factors - Risk of Debt
Financing; Prior Defaults." The Company does not intend to limit
its investments to the markets in which the Hotels are currently
located. Consequently, to the extent that it elects to invest in
additional markets, the Company will also be subject to the risks
associated with investment in new markets, with which management
may have relatively little experience and familiarity. Investment
in additional hotel assets also entails other risks associated with
real estate investment generally.

Development Risks. The Company may, in the future, elect to
engage in hotel development activities. See "Business Objectives
and Growth Strategy - Operating Strategies." To the extent that
the Company engages in such development activities, it will be
subject to the risks normally associated with such activities.
Such risks include, without limitation, risks relating to the
availability and timely receipt of zoning and other regulatory
approvals, the cost and timely completion of construction
(including risks from causes beyond the Company's control, such as
weather or labor conditions or material shortages) and the
availability of both construction and permanent financing on
favorable terms. These risks could result in substantial
unanticipated delays or expenses and, under certain circumstances,
could prevent completion of development activities once undertaken,
any of which could have an adverse effect on the financial
condition and results of operations of the Company and on the
amount of funds available for distribution to shareholders.

Investments in Mortgage Positions. The Company may invest in
performing, non-performing and subperforming mortgages, generally
as part of a strategy for ultimately acquiring the underlying
property. In general, investments in mortgages include the risk
that borrowers may not be able to make debt service payments or to
pay principal when due, the risk that the value of mortgaged
property may be less than the amounts owed, and the risk that
interest rates payable on mortgages may be lower than the Company's
cost of funds. In addition, borrowers may contest enforcement of
foreclosure or other remedies, seek bankruptcy protection against
such enforcement and/or bring claims for lender liability in
response to actions to enforce mortgage obligations. If any of the
above occurred, funds from operations and the Company's ability to
make expected distributions to shareholders could be adversely
affected.

Possible Liability Relating to Environmental Matters. Under
various federal, state and local environmental laws, ordinances and
regulations, a current or previous owner or operator of real
property may become liable for the costs of removal or remediation
of hazardous or toxic substances on, under or in such property.
Such laws often impose liability without regard to whether the
owner or operator knew of, or was responsible for, the presence of
such hazardous or toxic substances. The presence of hazardous or
toxic substances, or the failure properly to remediate such
substances when present, may adversely affect the owner's ability
to sell or rent such real property or to borrow using such real
property as collateral. Persons who arrange for the disposal or
treatment of hazardous or toxic wastes may be liable for the costs
of removal or remediation of such wastes at the disposal or
treatment facility, regardless of whether such facility is owned or
operated by such person. Other federal, state and local laws,
ordinances and regulations require abatement or removal of certain
asbestos-containing materials in the event of demolition or certain
renovations or remodeling and govern emissions of and exposure to
asbestos fibers in the air. The operation and subsequent removal
of certain underground storage tanks also are regulated by federal
and state laws. In connection with its ownership, operation and
management of its properties, the Company could be held liable for
the costs of remedial action with respect to such regulated
substances or tanks or related claims. Future remediation costs
are not expected to have a material adverse effect on the Company's
results of operations or financial position and compliance with
environmental laws has not had and is not expected to have a
material effect on the capital expenditures, earnings or
competitive position of the Company. See "Business and Properties
- - Environmental Matters."

Asbestos. Limited quantities of asbestos-containing materials
("ACMs") are present in various building materials such as floor
coverings, acoustical tiles and decorative treatments located at
certain hotel properties. The ACMs present at the hotel properties
are generally in good condition, and possess low probabilities for
disturbance. The Company has implemented comprehensive operations
and maintenance plans for hotel properties where ACMs are present
or reasonably suspected. Property, custodial and maintenance staff
workers have been trained to deal effectively with the in-place
maintenance of ACMs. ACMs will be properly removed by the Company
in the

<PAGE>

ordinary course of renovation and all damaged ACMs will be replaced
immediately; however, in certain circumstances, the Company may
determine to encapsulate rather than remove damaged ACMs.

Transformers. All of the hotel properties have electrical
transformers located on site. According to federal regulations,
transformers that have not been tested for polychlorinated
biphenyls ("PCBs") are not considered PCB transformers. For
regulatory purposes, however, such transformers must be considered
to be PCB contaminated. Several hotel properties have transformers
which contain or may contain PCBs.

Costs of ADA Compliance. Under the Americans with
Disabilities Act of 1990 (the "ADA"), "public accommodations" such
as hotels are required to meet certain federal requirements related
to access and use by persons with disabilities. Compliance with
the ADA requirements could require both structural and non-
structural changes to the properties of the Company and
noncompliance could result in imposition of fines by the United
States government or an award of damages to private litigants.
Because the ADA became effective in 1992, the extent of its
application to and its impact on the Company is uncertain. The
Company believes that it has completed a substantial portion of the
changes necessary to comply with the ADA and expects to complete
all such changes which are currently contemplated prior to the end
of 1995. It is possible that the Company could incur additional
costs in complying with the ADA. If required changes involve
additional expenditures, or must be made on a more accelerated
basis than the Company currently anticipates, the ability to make
expected distributions could be adversely affected.

Limitation on Control of Partially Owned Properties. The
Company owns partial interests in the Milwaukee Marriott Hotel and
the Omaha Marriott Hotel (in addition to its holdings of mortgage
notes). See "Business and Properties - The Hotels." As a general
partner in the partnerships holding such properties, the Company
may have certain fiduciary responsibilities to other partners in
those partnerships, which it will need to consider when making
decisions that affect those properties (including decisions
regarding sale, refinancing and the timing and amount of
distributions therefrom).

In addition, instead of acquiring properties directly in the
future, the Company may invest as a co-venturer or partner. In
such event, the Company may be at risk if other partners or co-
venturers fail to fund their share of required capital
contributions. In many instances, co-venturers or partners have
equal control over the operation of joint venture assets and may
have economic or business interests or goals which are inconsistent
with the business interests or goals of the Company. However, the
Company will seek to maintain sufficient control of such joint
ventures to permit the Company's objectives to be achieved. The
Company cannot assess the percentage of funds which the Company
will invest in such joint venturers or partnerships, as such will
depend on the opportunities identified and pursued by the Company.

RISK OF DEBT FINANCING; PRIOR DEFAULTS

Certain significant expenditures, including, in particular,
mortgage payments and other indebtedness, related to real estate
investments are generally not reduced when circumstances cause a
reduction in income from the investment. Should such events occur,
the Company's income and funds available for distribution would be
adversely affected.

Upon the completion of the Offerings and the application of
the proceeds therefrom, the Company will have a Mortgage Loan of
approximately $41 million and approximately $5 million of other
indebtedness, representing a Ratio of Debt-to-Total Market
Capitalization of approximately 9.5%. The Trust is currently
negotiating an additional $150 million line of credit. See
"Mortgage Loan and Acquisition Facility."

As a result of incurring debt, the Company would be subject to
the risks normally associated with debt financing, including the
risk that cash flow from operations will be insufficient to meet
required payments of principal and interest, the risk that existing
debt will not be able to be refinanced or that the terms of such
refinancings will not be as favorable to the Company and the risk
that necessary capital expenditures for such purposes as
renovations and other improvements will not be able to be financed
on favorable terms or at all. In

<PAGE>

addition, the Company will be subject to the risk that its interest
expense may increase upon the refinancing of existing debt if
interest rates increase, which could adversely affect the ability
to make distributions.

From time to time in the past, the Trust was in default under
its senior indebtedness (which is being repaid in full from the
proceeds of the Offerings) and was required to renegotiate such
indebtedness in order to avoid foreclosure or other actions by the
lenders. There can be no assurance that the Company will not
default on indebtedness in the future. Neither the Trust's
Declaration of Trust nor the Corporation's Articles of
Incorporation contain any limitation on the amount or percentage of
indebtedness the Corporation or the Trust may incur. Accordingly,
the Boards could alter or eliminate the current policy limiting the
amount of borrowing. See "Policies With Respect to Certain
Activities - Financing."

CERTAIN ASSETS RECENTLY ACQUIRED

The Company has only recently acquired certain of the Assets
and therefore the Company does not have an established operating
history with respect to those Assets. Certain of the Assets
contributed by Starwood Capital in the Reorganization were
purchased by Starwood Capital in situations where the previous
owner had over-leveraged those Assets.

LIMITATION ON STARWOOD CAPITAL'S NONCOMPETE OBLIGATION

Starwood Capital has agreed that, subject to certain
exceptions and limitations, for the longer of three years from the
consummation of the Offerings or the time at which no officer,
director, general partner or employee of Starwood Capital is on
either the Board of Trustees of the Trust or the Board of Directors
of the Corporation, Starwood Capital will not compete with the
Partnerships (the "Starwood Noncompete") and will present to the
Partnerships certain investments in hotel properties in the United
States. See "Structure of the Company - Management of the
Partnerships." The termination of the Starwood Noncompete and the
exceptions to and limitations on the Starwood Noncompete could have
a material adverse effect on the Company.

NET LOSSES

The Company incurred net losses for accounting purposes, on a
combined basis, in each of the last five years. There can be no
assurance that the Company will not experience net losses in the
future.

DILUTION EXPERIENCED BY PURCHASERS IN THE OFFERING

The purchasers of the Paired Shares offered hereby will
experience immediate dilution of $8.70 per Paired Share in the net
tangible book value of the Paired Shares. See "Dilution."

CHANGES IN INVESTMENT AND FINANCING POLICIES WITHOUT SHAREHOLDER
APPROVAL

The investment and financing policies of the Company, and
their policies with respect to certain other activities, including
acquisitions, debt, capitalization, distributions, REIT status and
operating policies, will be determined by the Board of Trustees of
the Trust or the Board of Directors of the Corporation. Since the
Trust is the sole general partner of the Realty Partnership and the
Corporation will be the managing general partner of the Operating
Partnership, the Board of Trustees of the Trust and the Board of
Directors of the Corporation will also be able to establish
policies for the Partnerships. Although neither the Board of
Trustees of the Trust nor the Board of Directors of the Corporation
has any present intention to do so, they may, by the approval of a
majority of the independent Trustees or Directors, as the case may
be, amend or revise these policies from time to time without notice
to or a vote of the shareholders of the Trust or the Corporation.
A change in these policies could adversely affect the financial
condition or results of operations of the Trust or the Corporation.
See "Policies with Respect to Certain Activities." Accordingly,
shareholders will have no control over changes in these policies of
the Trust, the Corporation or the Partnerships, except through
their ability to elect new members to the Board of Trustees and the
Board of Directors.

<PAGE>

THE COMPANY

As a fully integrated owner/operator of hotels, the Company
will continue to make opportunistic hotel acquisitions and to
improve performance of its existing portfolio through aggressive
management. The Company expects to expand and diversify its hotel
portfolio by continuing to acquire hotels, primarily in the mid-
scale and upscale segments, at prices which are below replacement
costs, and that have attractive yields on investment which the
Company believes can be sustained and improved over time.
Consistent with its strategy, the Company has recently acquired the
Omni Hotel in Chapel Hill, North Carolina and agreed to acquire the
Embassy Suites in Tempe, Arizona, and the Sheraton Colony Square in
Atlanta, Georgia. The Company continually evaluates its portfolio
and will sell assets when appropriate. The Company is actively
pursuing the acquisition of other upscale and mid-scale hotels, and
is currently negotiating a credit facility of $150 million, which
will enable the Company to aggressively pursue and complete hotel
acquisitions. See "Mortgage Loan and Acquisition Facility - The
Acquisition Facility."

The Company's paired share ownership structure is unique for
a hotel REIT because its shareholders own both the owner, the
Trust, and the operator, the Corporation, of the Company's hotels.
Therefore, the Company's shareholders retain the economic benefits
of both the lease payments received by the Trust and the operating
profits realized by the Corporation while maintaining the tax
benefits of the Trust's REIT status. The pairing arrangement
creates total commonality of ownership, as the shares of beneficial
interest of the Trust and the Common Stock of the Corporation are
paired on a one for one basis and may only be held or transferred
as units consisting of one Trust Share and one Corporation Share
("Paired Shares").

For the twelve consecutive quarters through December 1994, the
hotel industry has experienced demand increases, producing an
aggregate increase in room night demand of 11.2%. During such
period, net supply has only increased by 3.8%. Between 1993 and
1994, room demand, occupancy and room sales increased more rapidly
in both upscale and mid-scale segments than lower-scale segments.
The Company intends to focus on the acquisition, repositioning or
refranchising and operation of upscale and mid-scale hotels.

<PAGE>

and sales of property, provision for losses, interest and
depreciation and amortization) by 19.7% on continuously owned
and operated properties. Upon the restructuring of the Company's
debt in March 1995, restrictions imposed by prior lenders were
removed and management now has more flexibility to acquire hotels
and reinvest in its existing hotels. The Company anticipates
continued internal growth from improving market conditions,
improved property operations, renovations and reaffiliations.

Upon completion of the Offerings, Starwood Capital will own
approximately 33.2% of the Company's equity (having a value of $144
million, assuming a public offering price of $24 per Paired Share)
on a fully diluted basis. Starwood Capital is a private real
estate investment firm that since 1991 has acquired in excess of $1
billion (at cost) of real estate assets. Starwood Capital's
investors include its principals and employees, certain high net
worth families, three of the ten largest U.S. corporate pension
funds and other institutional investors. During the past three
years, Starwood Capital acquired over $425 million (at cost) of
interests in hotel assets from insurance companies, banks,
distressed borrowers, the Resolution Trust Corporation, the Federal
Deposit Insurance Corporation and others. In January 1995, the
Company completed a reorganization in which Starwood Capital
contributed to the Company several hotels, hotel mortgages, cash
and other related assets (the "Reorganization"). Starwood Capital
has entered into a noncompetition agreement with the Company
relating to the acquisition of new equity interests in hotel
properties in the United States. See "Structure of the Company -
Management of the Partnerships." Starwood Capital's experienced
real estate acquisition and finance professionals, with their
network of industry contacts, will continue to assist management in
identifying acquisition opportunities and attractive sources of
capital.

Upon completion of the Offerings, the Company will have a
ratio of debt to total capitalization (i.e., total consolidated
debt of the Company as a percentage of the market value of all
outstanding shares assuming the exchange of all exchangeable
securities for shares, plus total consolidated debt ("Ratio of
Debt-to-Total Market Capitalization")), of approximately 9.5%. The
Company intends that such ratio not exceed 50%.

Each Partnership is a Delaware limited partnership formed in
1994. The Trust conducts all of its business and operations
through the Realty Partnership, and the Corporation, upon receipt
of certain regulatory approvals, will conduct all of its business
and operations through the Operating Partnership, which leases from
the Realty Partnership all but three of the hotel properties owned
by the Realty Partnership. The Company currently expects that
future real estate acquisitions by the Trust will generally be made
through the Realty Partnership and will be leased to and operated
by the Operating Partnership. The Trust is the sole general
partner of the Realty Partnership. Upon the receipt of certain
regulatory approvals, the Corporation will be the managing general
partner of the Operating Partnership. Starwood Capital is the
limited partner of each Partnership. Certain assets are or may be
held by partnerships or limited liability companies owned or
controlled by the Company. See "Structure of the Company -
Management of the Partnerships - General."

The gaming business of the Corporation is operated through a
wholly-owned subsidiary of the Corporation, Hotel Investors
Corporation of Nevada ("HI Nevada"), which operates two
hotel/casinos located in Las Vegas, Nevada. See "Structure of the
Company."

The Trust was organized in 1969 as a Maryland real estate
investment trust. The Trust's executive offices are located at
11845 West Olympic Blvd., Suite 550, Los Angeles, California 90064;
telephone (310) 575-3900.

The Corporation is a Maryland corporation formed in 1980. The
Corporation's executive offices are located at 11845 West Olympic
Blvd., Suite 560, Los Angeles, California 90064; telephone (310)
575-3900.

USE OF PROCEEDS

The net proceeds to the Company from the Offerings (after
deducting expenses of the Offerings estimated to be approximately
$19.7 million) are estimated to be approximately $222.7 million
(approximately $256.4 million if the Underwriters' over-allotment
options are exercised in full), and the net proceeds from the
Offerings, together with the net proceeds from the Mortgage Loan,
are expected to be approximately $262.7 million. The Company

<PAGE>

will contribute the entire net proceeds from the Offerings to the
Realty Partnership and the Operating Partnership in return for a
number of Units in each Partnership equal to the number of Paired
Shares sold in the Offerings.

The Realty Partnership will receive 95%, or $211.5 million, of
the net proceeds of the Offerings in addition to $40.0 million in
net proceeds from the Mortgage Loan. The Operating Partnership
will receive 5%, or $11.1 million, of the net proceeds of the
Offerings. Approximately $193.4 million of net proceeds will be
used to repay existing mortgage indebtedness, which indebtedness
has a weighted average interest rate of approximately 9.25% and a
weighted average maturity of five years as of March 31, 1995.
Approximately $51.6 million will be used for acquisition of fee
assets and $10.0 million to purchase a first trust deed that is a
liability of the Operating Partnership's Milwaukee hotel. The
Realty Partnership will use approximately $7.2 million to repay
various amounts owed to Starwood Capital (See "Certain
Transactions") and $0.5 million for penalties related to the early
prepayment of certain indebtedness. Approximately $2.7 million
will be used by the Operating Partnership for the acquisition of
hotel assets (furniture, fixtures and equipment). The Company will
use $5.0 million from cash on hand to establish reserves for
identified capital projects.

If the Underwriters' over-allotment options are exercised in
full, the additional net proceeds therefrom of $37.9 million will
be contributed to the Partnerships for 1,580,656 additional Units
and will be available for additional property acquisitions and for
general corporate purposes.

Pending application of the net proceeds, the Realty
Partnership and the Operating Partnership will invest such portion
of the net proceeds in interest-bearing accounts and short-term,
interest-bearing securities, which, in the case of the Realty
Partnership, are consistent with the Trust's intention to qualify
for taxation as a REIT. Such investments may include, for example,
obligations of the Government National Mortgage Association, other
governmental and government agency securities, certificates of
deposit, interest-bearing bank deposits and mortgage loan
participation.

<PAGE>

DISTRIBUTION POLICY

The following table illustrates the adjustment made by the
Company to its pro forma net income for the 12 months ended
December 31, 1994 to estimate annual distributions.

(In thousands,
Except Distribution
per Share and
Payout Ratios)
___________________

Pro forma net income for the 12 months
ended December 31, 1994 before
minority interest. . . . . . . . . . . . . $21,600

Non-cash adjustments:
Depreciation and Amortization (1). . . . . 16,739
Other non-cash adjustments (2) . . . . . . 2,951
_______
Pro forma funds from operations for
the 12 months ended December 31, 1994 (3). 41,290
Adjustments:
Less: Pro forma funds from operations
for the 3 months ended March 31, 1994. . (10,213)
Plus: Pro forma funds from operations
for the 3 months ended March 31, 1995. . 11,131
_______
Pro forma funds from operations for the
12 months ended March 31, 1995 . . . . . . 42,208
Adjustments:
Non-cash interest income (4) . . . . . . (956)
________

Pro forma adjusted funds from operations
for the 12 months ended March 31, 1995 . . 41,252
Reserve for capital expenditures (5) . . . . (4,466)
________
Estimated cash available for distribution. . $36,786
=======
Expected annual distribution . . . . . . . . $
=======
Expected annual dividend per share . . . . . $
=======
Expected cash available for distribution
payout ratio (6) . . . . . . . . . . . . . ======%

____________________________

(1) Represents real estate depreciation expense of $15.5 million
and amortization of reorganization expenses of $1.2 million
related to the formation of the Partnerships.

(2) Includes non-cash items recognized in income for the period
presented as follows; $759,000 provision for losses;
$2,648,000 shareholder litigation expense (see "Certain
Relationships and Related Transactions - Ross Agreement")
net of $456,000 gain on sales of hotel assets.

(3) In accordance with the resolution adopted by the Board of
Governors of the National Association of Real Estate
Investment Trusts ("NAREIT"), funds from operations
represents net income (loss) (computed in accordance with
generally accepted accounting principles), excluding gains
(or losses) from debt restructuring and sales of property,
plus depreciation and amortization, and after adjustments
for unconsolidated partnerships and joint ventures. Funds
from operations, therefore, does not represent cash
generated from operating activities in accordance with
generally accepted accounting principles and should not be
considered an alternative to net income as an indication of
the Company's performance or to cash flow as a measure of
liquidity or the ability to pay distributions.

(4) Represents the elimination of the effect of interest
recognized in income in excess of the actual cash received
for the period presented on the Atlantic City Quality Inn
and Secaucus Ramada. See "Business and Properties -
Mortgage Note Receivables."

(5) Represents estimated capital expenditure reserves calculated
on the basis of 5% of room revenues for the period presented
calculated as follows: .05 x $89,320 = $4,466.

(6) Calculated by dividing the estimated initial annual
distributions by the estimated adjusted cash available for
distribution. The Company's estimated pro forma adjusted
funds from operations payout ratio, which is calculated by
dividing the estimated initial annual dividends by the
estimated pro forma adjusted funds from operations, is
____%.

<PAGE>

PRICE RANGES OF PAIRED SHARES

The Paired Shares are traded principally on the New York Stock
Exchange (the "NYSE") under the symbol "HOT." The following table
sets forth, for the fiscal periods indicated, the high and low
sales prices per Paired Share on the NYSE Composite Tape (after
giving effect to an assumed one for six reverse stock split prior
to the closing of the Offerings).

Period Price
________________ _____________________

1995 High Low
____ ___

Second Quarter (through May 1) . .
First Quarter. . . . . . . . . . . $26 1/4 $15

1994
____

Fourth Quarter . . . . . . . . . . $20 1/4 $15 3/4
Third Quarter. . . . . . . . . . . $20 1/4 $17 1/4
Second Quarter . . . . . . . . . . $18 $9 3/4
First Quarter. . . . . . . . . . . $15 $11 1/4

1993
____

Fourth Quarter . . . . . . . . . . $20 1/4 $12
Third Quarter. . . . . . . . . . . $18 3/4 $9 3/4
Second Quarter . . . . . . . . . . $15 $7 1/2
First Quarter. . . . . . . . . . . $10 1/2 $6

The high and low prices per Paired Share on the NYSE Composite
Tape on May 1, 1995 were $24.00 and $24.00, respectively (after
giving effect to an assumed one for six reverse stock split). As
of April 28, 1995, there were approximately 2,075 holders of record
of Paired Shares.

CAPITALIZATION

The combined capitalization of the Trust and the Corporation
as of March 31, 1995, and the pro forma capitalization as adjusted
to reflect the completion of the Offerings (assuming no exercise of
the Underwriters' overallotment options) is set forth below. The
information set forth below should be read in conjunction with the
combined historical financial statements and notes thereto, the
unaudited pro forma financial information and notes thereto
included elsewhere in this Prospectus and the discussion set forth
in "Management's Discussion and Analysis of Pro Forma Financial
Statements," in each case included elsewhere in this Prospectus.

MARCH 31, 1995
______________
PRO
HISTORICAL FORMA
__________ _____

(IN THOUSANDS)
DEBT
Secured notes payable
and revolving line of
credit . . . . . . . . . . . . $130,360 $40,700
Mortgage and other
notes payable. . . . . . . . . 68,195 4,968
________ _______

Total long-term debt. . . . . 198,555 45,668

Minority interest. . . . . . . . 58,874 92,843
________ _______
SHAREHOLDERS' EQUITY (DEFICIT)
Trust shares of beneficial
interest, $.01 par value;
authorized 110,000,000
shares; outstanding
2,022,158 shares;
12,957,184 pro forma . . . . . 20 121
Corporation Common Stock;
$0.01 par value;
authorized 100,000,000 shares;
outstanding 2,022,158 shares;
12,957,184 pro forma . . . . . 20 121
Excess shares (1)
Additional paid-in-capital . . . 222,257 407,183
Accumulated deficit. . . . . . . (214,547) (218,064)
_________ _________

Total equity . . . . . . . . . 7,756 189,261

Total capitalization . . . . . $265,185 $327,772
======== =========

____________________________________

(1) The Trust has authorized Excess Common Shares and Excess
Preferred Shares of 20,000,000 and 5,000,000, respectively,
none outstanding. The Corporation has authorized Excess
Common Stock and Excess Preferred Stock of 20,000,000 and
5,000,000, respectively, none outstanding.

<PAGE>

DILUTION

At March 31, 1995, the Company had a combined net tangible
book value of approximately $57.8 million or $7.26 per Paired Share
(assuming for this purpose the exchange of all Units held by
Starwood Capital for Paired Shares without regard to the Ownership
Limitation). Without taking into account any other changes in such
pro forma net tangible book value after March 31, 1995 other than
to give effect to the completion of the Offerings at a public
offering price of $24 per Paired Share (before deducting
underwriting discounts and commissions and estimated offering
expenses payable by the Company), the pro forma net tangible book
value at March 31, 1995 would have been approximately $276.4
million or $15.30 per Paired Share (assuming for this purpose the
exchange of all Units held by Starwood Capital for Paired Shares
without regard to the Ownership Limitation). This amount
represents an immediate increase in pro forma net tangible book
value per Paired Share of $8.11 to holders of Paired Shares
previously outstanding and an immediate dilution in pro forma net
tangible book value per share to new investors of approximately
$8.70 per Paired Share. The following table illustrates this
dilution:

Assumed public offering price
per Paired Share (1) . . . . . . . . . . . . . $24.00
Net tangible book value per
Paired Share as of March 31, 1995. . . . . . . $7.26
Increase in net tangible book
value per Paired Share attributable
to the Offerings . . . . . . . . . . . . . . . $8.04
_____
Pro forma net tangible book value per
Paired Share after completion
of the Offerings (2) . . . . . . . . . . . . . 15.30
______
Dilution per Paired Share purchased
in the Offerings(3). . . . . . . . . . . . . . $ 8.70
======

____________________________

(1) Before deducting underwriting discount and estimated expenses
of the Offerings.

(2) Net tangible book value per Paired Share is determined by
subtracting total combined liabilities from total combined tangible
assets and dividing the remainder by the number of Paired Shares
and Units that will be outstanding after the Offerings.

SELECTED COMBINED FINANCIAL DATA

STARWOOD LODGING
COMBINED SELECTED FINANCIAL INFORMATION
(in thousands, except per share data and room information)

OTHER DATA:
Funds from
operations (3). . . $11,131 $3,055 1,731 $41,290 $6,449 $5,031 $5,739 $1,383 $5,411
EBITDA (4) . . . . . 12,035 8,882 5,856 $44,904 $24,055 20,218 $19,947 $17,841 $21,819
EBITDA margin (% of
total revenues) . . 30% 28% 21% 27% 21% 17% 17% 16% 19%
Number of hotel rooms
(Hotel Assets). . . 9,373 8,687 9,373 5,400 5,400 5,700 6,700 6,700
Revenue per available
room (Owned
Hotels) . . . . . . $42.08 $36.24 $39.22 $35.65 $34.32 $32.89 $32.21 $33.38
Average Occupancy
(Owned Hotels) . . . $65.47 $56.45 $59.59 $56.59 $52.80 $52.20 $51.95 $52.15
Average daily room
rate (Owned
Hotels) . . . . . . 64% 64% 62% 63% 65% 63% 62% 64%

BALANCE SHEET DATA:
Total real estate
investments. . . . . $311,086 246,113 $165,496 $179,172 $187,753 $200,540 $218,896
Total assets. . . . . 341,896 279,765 183,955 195,352 210,945 221,917 240,998
Total debt. . . . . . 68,195 68,195 160,482 170,886 170,297 171,271 106,651
Shareholders'
equity . . . . . . . 189,361 7,756 8,708 13,326 20,351 40,083 62,104

<PAGE>

MANAGEMENT'S DISCUSSION AND ANALYSIS OF
PRO FORMA FINANCIAL STATEMENTS

PRO FORMA RESULTS OF OPERATIONS - FOR THE YEAR ENDED DECEMBER 31,
1994

On a pro forma basis, after giving effect to the
Reorganization, the acquisition of hotel properties acquired or to
be acquired after the Reorganization, the Offerings and the
Mortgage Loan, pro forma net income of the Company for the year
ended December 31, 1994 was $21.6 million, as compared to a
historical net loss of $4.7 million for such year.

During 1994, pro forma hotel revenues increased by $43.2
million or 52.3%, to $125.9 million and hotel expenses increased by
$30.8 million. The increases represent the effects of (i) the
contribution by Starwood Capital of the Doubletree Hotel located in
Rancho Bernardo, California; the Capitol Hill Suites located in
Washington, D.C.; the Harvey Wichita located in Wichita, Kansas and
the French Quarter Suites located in Lexington, Kentucky; (ii) the
recently acquired Omni Hotel located in Chapel Hill, North
Carolina; and the two hotels which the Company has recently agreed
to acquire, which are the 224-all suite Embassy Suites in Tempe,
Arizona and the 462-room Sheraton Colony Square located in Atlanta,
Georgia; and (iii) in the case of hotel expenses, the elimination
of third-party management fees at five continuously owned hotels
(as well as seven hotels which were contributed or acquired) offset
partly by increases in the Company's general and administrative
expenses, resulting in a net expense reduction of approximately
$2.4 million.

The following table summarizes, for the Owned Hotels, average
occupancy, average room rates and revenue per available room on a
pro forma basis in comparison to historical amounts as of
December 31, 1994:

Historical Pro Forma
__________ _________
Occupancy Rate 68.0% 68.3%
Average Room Rate $59.85 $65.64
Revenue Per Available Room $40.72 $44.81

Hotel expenses as a percentage of hotel revenues decreased
from 73.6% to 72.8% and EBITDA from hotel operations increased
57.0% from $21.8 million to $34.3 million.

Interest from mortgage and other notes increased from $1.6
million for the historical year ended December 31, 1994 to $10.1
million on a pro forma basis, an increase of $8.4 million. The
increase in interest income represents the additional interest from
the five Mortgage Note Receivables contributed by Starwood Capital
in the Reorganization.

Interest expense decreased from $17.6 million to $3.6 million
on a pro forma basis after applying a portion of the proceeds from
the Offerings to pay off $153.6 million of Mortgage and Senior
Debt. See "Liquidity and Capital Resources" below.

Depreciation and amortization expense increased form $8.2
million to $16.7 million on a pro forma basis as a result of the
addition of the hotels discussed above and $1.2 million of
amortization of organization costs relating to the Reorganization.

LIQUIDITY AND CAPITAL RESOURCES

On a pro forma basis as of March 31, 1995 after giving effect
to the Offerings and the application of the proceeds of the
Offerings as set forth in "Use of Proceeds" and the Mortgage Loan,
the Company's mortgage indebtedness would consist of the
approximately $41 million Mortgage Loan and approximately $5
million of other mortgage indebtedness. The interest rate on the
Mortgage Loan is a fixed rate of 8.5% and the maturity date is
__________. The Company's Ratio of Debt-to-Total Market
Capitalization would be approximately 9.5% on a pro

<PAGE>

forma basis as of March 31, 1995. As of March 31, 1995 on a pro
forma basis, scheduled principal payments in the next five years in
connection with the indebtedness will be as follows:

YEAR AMOUNT
(in thousands)
1996 2,934
1997 129
1998 140
1999 151
2000 1,614
Thereafter 40,700
_______
Total $45,660
=======

In addition, the Company expects to have available a $150
million acquisition line of credit. As part of its investment
strategy, the Company plans to acquire additional hotels in the
future. The Company has recently acquired the 168-room Omni Hotel
located in Chapel Hill, North Carolina, and has committed to
acquire the 224-room Embassy Suites in Tempe, Arizona, and the 462-
room Sheraton Colony Square in Atlanta, Georgia. Future
acquisitions are expected to have a positive impact on Funds from
Operations. The Company expects to fund future acquisitions
through use of the Acquisition Facility or other borrowings, the
issuance of additional Paired Shares to raise additional equity
capital or the issuance of additional Partnership Units.

The source of capital to be used to fund the Company's
operating expenses, interest expense, and recurring capital
expenses will be funds from operations. Funds from operations on
a pro forma basis increased to $41.3 million from $6.5 million on
a historical basis for the year ended December 31, 1994 and to
$11.1 million from $3.1 million for the three months ended March
31, 1995. The Company anticipates that its funds from operations
will provide the necessary funds on a short and long term basis for
its operating expenses, interest expense on outstanding
indebtedness, recurring capital expenditures and all distributions
to shareholders. Sources of capital for major building
renovations and expansions, as well as scheduled maturities of
outstanding indebtedness are expected to be obtained from: (i)
excess funds from operations; (ii) additional debt financing, and
(iii) additional equity raised in the public and private markets.
The Company intends to incur additional indebtedness in a manner
consistent with its policy of maintaining a Ratio of Debt-to-Total
Market Capitalization of not more than 50%. The Company may pursue
discussions with rating agencies in order to access debt financing
from the capital markets on a secured or unsecured basis.
Management and industry analysts generally consider funds from
operations to be one measure of the financial performance of an
equity REIT that provides a relevant basis for comparison among
REITs, and it is presented to assist investors in analyzing the
performance of the Company.

Management believes that it will have access to capital
resources sufficient to satisfy the Company's cash requirements and
expand and develop its business in accordance with its strategy for
future growth.

SEASONALITY

Demand is affected by normally recurring seasonal patterns.
For most of the Company's hotels, demand is higher in the spring
and summer months (April through September) than during the
remainder of the year. Accordingly, the Company's operations are
seasonal in nature, with lower revenue, operating profit and cash
flow in the first and fourth quarters due to decreased travel
during the winter months.

INFLATION

The rate of inflation as measured by changes in the average
consumer price index has not had a material effect on the revenues
or operating results of the Company during the three most recent
fiscal years.

<PAGE>

EBITDA - EARNINGS BEFORE INTEREST, TAXES, DEPRECIATION AND
AMORTIZATION

Management believes that there are several important factors
that contribute to the ability of the Company to improve
profitability of its hotel properties, including increased average
occupancy, average rate and effective cost management. Each of
these factors has a significant effect on EBITDA. While management
believes that Funds from Operations will be the principal factor
considered by the Board of Directors in determining the amount of
cash distributions the Company will make to stockholders (see
"Distributions"), management further believes that EBITDA is an
effective measure of operating performance because: (1) it is
industry practice to evaluate hotel properties based on operating
income before interest, depreciation and amortization, which is
generally equivalent to EBITDA, and (2) EBITDA is unaffected by the
debt and equity structure of the property owner. Neither Funds
from Operations nor EBITDA (i) represents cash flow from operations
as defined by generally accepted accounting principles, (ii) is
necessarily indicative of cash available to fund all cash flow
needs or (iii) should be considered as an alternative to net income
for purposes of evaluating the Company's operating performance.

EBITDA for the hotel properties owned and operated by the
Company increased from $21.9 million or 26.4% of hotel revenues,
for the historical year ended December 31, 1994 to $34.3 million,
or 27.2% of hotel revenues, on a pro forma basis and increased from
$6.5 million, or 28.5% of hotel revenues, for the historical period
ended March 31, 1995 to $9.6 million, or 31.1% of hotel revenues,
on a pro forma basis for the same period.

BUSINESS OBJECTIVES AND GROWTH STRATEGY

BUSINESS OBJECTIVES

The Company's primary objective is to increase per share funds
from operations and to maximize the long-term total return to its
shareholders. The Company believes it can accomplish these
objectives by continuing to acquire attractively-priced mid-scale
and upscale hotels, and continuing to refurbish existing hotels and
improve hotel operations. The Company intends to maximize the
advantages of its Paired Share structure by operating the hotels it
owns, thereby eliminating the economic costs and conflicts of
interest which arise when hotels are leased to third party
operators. The Company's mission is to be a cost-efficient owner
of quality accommodations providing superior service and value to
the consumer.

Since completing its Reorganization with Starwood Capital on
January 31, 1995, the Company has implemented its acquisition and
operating strategies by acquiring, or agreeing to acquire, three
upscale, full service hotels containing 854 rooms, by initiating
major renovations at the Company's Dallas Park Central Hotel and
Portland Riverside Inn, and by assuming management of several owned
hotels.

ACQUISITION STRATEGIES

Management will seek to expand and diversify the hotel
portfolio by continuing to acquire hotels, primarily in the mid-
scale and upscale industry segments, in selected markets throughout
the United States. The Company believes the current environment
for hotel acquisitions is attractive for a well capitalized,
opportunistic investor due to the historical overbuilding, deflated
values, and relative illiquidity that presently characterize the
hotel market. Management seeks to acquire well located and
constructed hotels at significant discounts to replacement cost and
at attractive returns with potential for cash flow growth and long
term capital appreciation. Starwood Capital's experience and
extensive real estate and finance industry contacts will be used to
identify opportunistic situations and negotiate acquisitions using
some of the following criteria:

Upscale and Mid-scale Properties. The Company will
concentrate its acquisition efforts on properties which are or can
be affiliated with such hotel chains as Marriott(TM), Embassy
Suites(TM), Westin(TM), Hyatt(TM), Hilton(TM), Sheraton(TM),
Omni(TM), Radisson(TM), Doubletree(TM), Residence Inn(TM), Le
Meridien(TM), Intercontinental(TM) and others because management
believes:

<PAGE>

o these segments offer numerous opportunities to acquire
hotels for significant discounts to replacement cost
and at attractive multiples of EBITDA;

o current supply growth remains low and new construction
of these types of hotels is generally more costly and
requires longer lead times to plan, finance, and
construct than lower scale hotels; and

o the Company is experienced in acquiring and operating
these types of properties.

Ability to Self-Manage. The Company intends to acquire hotels
where it can immediately assume the management thereof because:

o self-management enables the Company to capture the
economic benefits otherwise retained by a third- party
operator;

o self-management enables the Company to directly control
the operations of those hotels;

o in the case of "turn-around" situations, the Company
believes its management team is experienced in
implementing renovations, expansions, hotel chain
affiliations and other techniques which improve cash
flow and asset values; and

o the Company does not intend to manage properties in
which the Company does not have a substantial economic
interest.

Preferred Markets. The Company intends to target acquisitions
of hotels in markets:

o where favorable demographic trends exist, such as
population, job and corporate growth;

o near historically stable demand generators, such as
major universities, medical centers, government
agencies and major office complexes;

o near the Company's existing hotels, where the Company
can draw on its knowledge of local market conditions
and may realize operating efficiencies from ownership
of multiple properties; or

o where barriers to new supply exist such as restrictive
zoning or scarcity of land.

Opportunistic Situations. The Company will seek investments
where competitive bidding can be minimized and where:

o the Company can employ its ready access to capital to
satisfy sellers who require certainty and speed to
close a sale;

o the Company's ability to offer partnership units will
permit it to satisfy owners who seek to dispose of
properties on a tax-deferred basis to such owners; or

o hotel equity can either be acquired or controlled
through the purchase of debt.

OPERATING STRATEGIES

The Company continually seeks to improve the profitability of
its hotel assets using the following strategies:

Self Management. Substantially all of the Company's hotels
are operated by the Company, and the Company intends to manage most
of the remaining hotels at the earliest practicable date. The
Company's mission is to offer consistent high quality
accommodations and service at competitive rates in order to provide
superior value to its customers. When the Company assumes the
management of a hotel, it seeks to become a cost-efficient

<PAGE>

provider of quality accommodations and service by standardizing and
upgrading reporting and control systems and implementing its
computerized on-line accounting system, establishing consistent
performance-based compensation programs for hotel-level managers,
and ensuring that proper preventive maintenance and cost saving
energy upgrades are timely installed.

Major Capital Renovations. Major renovations have been
completed at the Milwaukee Marriott and the Harvey Wichita and cash
flows have improved substantially. With the proceeds of the
Offerings, renovations are expected to begin in 1995 at the Dallas
Park Central, the Portland Riverside Inn and the Lexington French
Quarter Suites and the Capitol Hill Suites. Management believes
these renovations will significantly increase the cash flows of
these hotels. See "Implementation of Strategies" below.

Reaffiliations and Minor Renovations. Management believes
operating performance at several of the Company's hotels can be
improved through modest upgrading of the hotel's physical plant or
from the affiliation with a national franchise and reservation
system. The Company has executed with Radisson a franchise
agreement for the Dallas Park Central, and is considering franchise
reaffiliations for its Lexington French Quarter Suites, Tucson
Plaza and Seattle Meany Tower hotels.

Redeployment of Capital. The Company has historically sold
and intends, if appropriate, to sell assets in the future if they
exhibit limited upside potential. The Company is exploring several
alternatives for its gaming assets.

DEVELOPMENT STRATEGY

The Company may expand the number of rooms at certain high
occupancy hotels and, in the future, may selectively develop new
hotels in certain submarkets.

FINANCING STRATEGIES

The Company believes that in order to continue to maximize the
value of its shareholders' equity and to execute its growth
strategies, it is essential to implement and periodically review a
diversified financing strategy that (i) incorporates long-term,
secured and unsecured corporate debt, (ii) minimizes exposure to
fluctuations of interest rates, and (iii) maintains maximum
flexibility to manage the Company's short-term cash needs.
Furthermore, the Company believes that its capital structure will
be conducive to and allow flexibility for the aggressive growth
which the Company seeks to achieve.

Management currently plans to maintain a conservative Ratio of
Debt-to-Total Market Capitalization that does not exceed 50%. Upon
consummation of the Offerings, the Company's Ratio of Debt-to-Total
Market Capitalization will be approximately 9.5%. The Company
believes that a conservative leverage policy, coupled with a
diversified portfolio of assets, will position the Company to
access flexible and cost-efficient forms of financing in the
capital markets.

IMPLEMENTATION OF STRATEGIES

Since completing its Reorganization on January 31, 1995, the
Company has implemented its acquisition and operating strategies by
acquiring or agreeing to acquire approximately $64 million of
upscale, full service hotels containing 854 rooms, and by planning
major renovations at several of the Company's Owned Hotels, as
described below:

Omni Chapel Hill. On April 6, 1995, the Company completed the
acquisition and assumed management of the Omni Chapel Hill Hotel,
a 168-room upscale hotel located near such stable demand generators
as the University of North Carolina, Raleigh Research Triangle Park
and the Duke University Medical Center. The Omni has historically
experienced annual occupancy levels lower than its competitors (56%
vs. 64% and 65% vs. 68% in 1994 and 1995, respectively) and
management believes that this situation can be reversed given the
quality of the hotel relative to the competition and the hotel's
potential ability to attract a greater share of weekend demand due

<PAGE>

to its proximity to the University of North Carolina. In addition,
the Company believes that the opportunity exists to increase REVPAR
through increased penetration in the corporate segment of the
market. This potential is evidenced by the more than 13 percent
increase in REVPAR for the full array of hotels (i.e., all product
types) in 1994 in the Chapel Hill-Raleigh Durham market area as
compared to 1993 and a compound annual growth rate in excess of 10
percent since 1991. Consistent with the Company's acquisition
strategies, management believes the $10.5 million purchase price
(approximately $62,500 per room) represents an estimated 31%
discount to an estimated replacement cost (in excess of $90,000 per
room) and an attractive multiple of 7.6 times pro forma 1994 EBITDA
with potential for increased cash flow.

Sheraton Colony Square. On May __, 1995, the Company agreed
to acquire the Sheraton Colony Square, a 462-room upscale high-rise
hotel with 36,000 square feet of meeting space which is part of a
major mixed use development located at the center of midtown
Atlanta, including 66,000 square feet of office, 140,000 square
feet of service-oriented retail and 1,668 underground parking
spaces. Midtown is known as the cultural center of Atlanta and
contains in excess of 9 million square feet of office space, with
tenants such as The Coca-Cola Company, IBM, Bell South and AT&T.
The Sheraton Colony Square achieved a 67% and 72% occupancy and a
$55 and $63 ADR in 1993 and 1994, respectively. This represented
a 14% increase in REVPAR year over year. In 1994, Atlanta was
ranked second out of the country's 25 largest hotel markets in ADR
growth (7.2%) and fifth in room sales growth (11.9%). The hotel is
being acquired from an insurance company which previously acquired
the hotel through foreclosure. After closing, the hotel will be
managed by the Company subject to a franchise agreement with
Sheraton. Consistent with the Company's acquisition strategy,
management believes that the purchase price of $34.0 million
(approximately $74,000 per room) represents an attractive multiple
of 9.6 times pro forma 1994 EBITDA with potential for increased
cash flow, particularly as market demand is stimulated by Atlanta's
1996 Olympic Games. The purchase price also represents an
estimated 32% discount to replacement cost of approximately $50
million. The Company believes it can enhance operating
profitability through a reduction in operating expenses and the
elimination of costs related to a third-party manager.

Embassy Suites Tempe. On April 30, 1995, the Company agreed
to acquire the Embassy Suites in Tempe, Arizona, a 224 all suite,
upscale property located near the Arizona State University. Tempe
is an upscale section of Phoenix which in 1994 ranked number one
out of the country's 25 largest markets in ADR growth (8.2%) and
number one in room sales growth (13.6%). The hotel is being
acquired from a liquidating publicly traded limited partnership on
a privately negotiated basis. After closing, the Company intends
to manage the property subject to an Embassy Suites franchise
agreement. Consistent with its investment strategies, management
believes the purchase price of $19.6 million (approximately $87,500
per room) represents an attractive multiple of 8.5 times pro forma
1994 EBITDA and represents a 25% discount to its estimated
replacement cost of $26 million. Because the hotel is located
within close proximity of the Company's Phoenix Embassy Suites,
management believes this acquisition may enhance revenues of both
properties by sharing demand overflow, and may result in increased
operating efficiencies.

Dallas Park Central Hotel Conversion. In 1994, after losing
its franchise affiliation due to the Company's inability to make
necessary capital improvements prior to the refinancing of the
Company's senior debt, the hotel EBITDA was negative $165,000 and
its occupancy fell to 42%. For the twelve months ended March 31,
1995, the hotel had negative cash flow of $445,000 which is a
reduction of the Company's Funds from Operations. With proceeds of
the Offering, the Company will commence a $3.7 million major
renovation and conversion of the Park Central Hotel to Radisson.
The 445-room high-rise hotel is located in North Dallas. Room
sales in Dallas increased at double digit rates in 1994 fueled by
increases in both ADR (5.4%) and occupancy (5.0%). Historically,
when maintained in better condition and with the benefits of a
national affiliation, the property generated EBITDA in excess of
$1.0 million. Management believes upgrading the rooms and public
space, combined with the Radisson national franchise affiliation
and reservation services, will enable the hotel to increase its
REVPAR and EBITDA towards its historical levels. Upon completion
of the Offerings, the Company will terminate the hotel's existing
third-party manager, assume operations and complete the
renovations.

Riverside Inn Renovation. The Company has planned an
approximately $1 million renovation scheduled to begin in November
1995 with proceeds from the Offerings. The 173-room Riverside Inn
is located in downtown Portland, Oregon, and is currently
considered a mid-scale property. Due to the current disparity in
average rates between the mid-scale and upscale segments in the

33
<PAGE>

Portland market, management believes that a repositioning of the
property to the lower end of the upscale market should result in
significant increases of REVPAR and EBITDA. In addition, such
repositioning would facilitate affiliation with a national
franchise if appropriate.

French Quarter Suites Reaffiliation. This 155-room upscale
hotel is located in Lexington, Kentucky. With proceeds of the
Offerings, the Company intends to implement a substantial
refurbishment which will enable the property to franchise with a
national all suites franchise system. Franchises currently under
consideration by management include Embassy Suites, Doubletree
Suites and Marriott Suites. Management believes this
refurbishment, combined with a franchise affiliation, will enable
the hotel to increase its REVPAR and EBITDA.

Other Minor Improvements. In addition to the major capital
renovations described above, the Company will reserve a portion of
the Offering proceeds to complete other refurbishments of the
Company's hotels, primarily those located in the Western United
States. The Company intends to upgrade and improve the exterior
facade and public areas of these hotels, including landscaping,
exterior lighting, and exterior building treatments. The Company
believes that such improvements will enhance curb appeal and help
to attract additional transient guests. In addition, the Company
intends to reappoint rooms where such upgrades will enhance the
competitive position of the properties. These minor improvements
are expected to result in improved portfolio performance.

Elimination of Third-Party Managers. Consistent with the
Company's strategy of self-management, the Company intends to
terminate as soon as practicable the seven remaining third-party
management contracts on its existing and newly acquired hotels. Of
such management contracts, all but two may be terminated in 1995.
The management contracts are all subject to certain performance
standards. The Company has been and is assuming management of
those properties which were or are managed by third parties.
Management expects to open an Atlanta office during the second
quarter of 1995, the cost of which has been included in calculated
pro forma general and administrative expenses.

Improvements to Assets Acquired in Reorganization. Consistent
with the Company's acquisition strategy, each of the Owned Hotels
which the Company acquired pursuant to the Reorganization, as well
as each of the Note Hotels securing the Mortgage Note Receivables
which the Company acquired pursuant to the Reorganization, are
upscale hotels and well positioned in relatively attractive
markets. Such Owned Hotels were acquired during late 1993 and 1994
by Starwood Capital using a variety of techniques for gaining
control of the properties, such as: the acquisition of debt at a
discount followed by the purchase of the equity; acquisition at a
courthouse foreclosure sale; negotiated acquisition from a bank
which previously foreclosed on the asset; and the acquisition from
an insurance company of a money-losing hotel which had previously
lost its franchise affiliation. Each hotel was acquired during a
period of operational disruption from owners inexperienced in hotel
operation, and the Company has controlled these properties for a
limited time. Nevertheless, the Company increased REVPAR and
EBITDA by 13.0% and 85.4%, respectively, at these properties during
the first quarter of 1995 over the corresponding quarter of 1994.

Upon completion of the Offerings, the Company may attempt to
acquire two Note Hotels which secure Mortgage Notes Receivable
which the Company acquired pursuant to the Reorganization. The
Ramada Suites in Secaucus, New Jersey, is an eight-story, 151 all
suites hotel built in 1990 which is located near the New Jersey
Meadowlands complex. The Quality Inn is a 203-room high-rise hotel
located approximately two blocks from the Trump Taj Mahal and the
Resorts International Casinos in Atlantic City, New Jersey. The
Company is currently pursuing the acquisition of other hotel first
mortgages as a strategy to acquire fee interests in upscale and
mid-scale hotel properties which meet the Company's acquisition
criteria. See "Business and Strategies - Acquisition Strategy."

STARWOOD CAPITAL

Starwood Capital was formed to identify and acquire real
estate related assets on behalf of its principals, employees and
certain co-investing limited partners. These initial co-investors
primarily included several private families each with a net worth
exceeding $100 million. Today, Starwood Capital manages in excess
of $525 million on behalf of its principals, employees, twelve
domestic and international high net worth families and three of the

<PAGE>

ten largest U.S. corporate pension funds. Starwood Capital has
become one of the most active opportunistic buyers of real estate
assets in the United States.

Each of the Company's pending and completed acquisitions was
identified by Starwood Capital, which will continue to assist the
Company in identifying and structuring opportunistic hotel
acquisitions and in accessing alternative sources of potentially
lower cost capital, such as secured and unsecured corporate debt.

Starwood Capital and its predecessor ("Starwood") have
previously implemented aggressive acquisition strategies with
respect to various recovering real estate asset classes. For
example, in 1991, Starwood recognized improving trends in the
United States multi-family markets, which, like the hotel industry
today, included dramatic reductions in the growth of new supply,
increasing demand, the ability to acquire assets at significant
discounts to replacement cost, and ultimately increasing rents,
industry profitability and property values. Between 1992 and 1993,
Starwood was one of the most active multi-family buyers in the
United States, aggressively acquiring approximately 6,000
properties throughout the United States in 23 separate
transactions. Starwood contributed substantially all of such
portfolio at the initial public offering of Equity Residential
Properties Trust, a New York Stock Exchange listed company ("EQR"),
and at the consummation of the EQR offering was the second largest
equity holder. Mr. Sternlicht is a member of the Board of
Directors of EQR. Starwood utilized similar investment techniques
in acquiring multi-family properties as it has used in acquiring
hotels.

In addition to its hotel and multi-family investment
activities, Starwood has acquired interests in nine single family
land developments, seven office buildings and two industrial
properties through 80 separate transactions. In total, Starwood
has acquired in excess of $1 billion (at cost) of real estate-
related assets and has produced substantial returns for its
investors. There can be no assurance that Starwood will continue
to achieve substantial returns on its investments.

BUSINESS AND PROPERTIES

THE HOTEL INDUSTRY

The hotel industry, which is one of the most management
intensive sectors of the real estate industry, has been
characterized over the last 15 years by increased product
segmentation and by greater marketing and cost control
sophistication. However, even as the importance of sophisticated
management has grown, it has continued to be common in the industry
for hotel owners to rely on fee-oriented third parties to manage
their hotels. The Company believes that, as an integrated
owner/operator focused on maximizing long-term operating profits
and asset values, rather than maximizing fees, will distinguish
itself from owners who rely on third-party managers.

The hotel industry is now recovering from severe disparity in
the growth of supply and demand that produced decreases in real
ADRs, widening losses, and numerous hotel failures. The rapid rise
in room supply that occurred throughout the 1980s drove ADRs and
ultimately industry profitability downward; however, 1993 marked
the reversal of this trend and real ADRs have been rising since
that time, as shown below.

[INSERT TABLES]

The oversupply in the hotel industry resulted from special
circumstances in the early 1980s, including readily available
financing and tax incentives which were favorable for the
development of new hotels. Market conditions in terms of
occupancy, ADR and demand growth based upon projected national
economic expansion supported the cost of new development. However,
the greatest contributors to new hotel development were readily

<PAGE>

available financing from a recently deregulated banking industry
and certain tax incentives prior to the Tax Reform Act of 1986
which were not dependent upon the financial success of the
underlying asset. In the late 1980s, equity financing sources
became scarce due to the changes in the tax law and the withdrawal
of traditional lending sources. Between 1991 and 1994, new hotel
room supply has increased at an annual rate of only 1.2%, as shown
below.

Historically, demand for hotel rooms has depended upon the
overall health of the national economy as measured by Gross
Domestic Product ("GDP") and employment. During the 1980s, demand
for rooms grew steadily; however, room demand fell sharply as the
national economy entered a recession in 1990. Compound annual
growth in GDP averaged only 1.3% from 1989 to 1992, and
unemployment increased from 5.3% to 7.4%. The weak overall economy
resulted in lower individual wages and reduced corporate profits
and inhibited both individual and corporate travel. Coupled with
the effects of the Gulf War conflict in 1991, these factors
contributed to an industry-wide hotel occupancy rate of 60.8%, the
lowest rate in more than a decade. Since early 1992, the economy
has rebounded, compound annual growth in GDP has averaged 3.4%, and
by 1994, industry-wide occupancy has risen to 65.2%. The positive
effects of minimal new room supply and steadily increasing demand
over the last three years upon occupancy and ADR is shown in the
tables below.

If the trends shown were to continue, the Company believes
that further increases in ADR and occupancy would result.
[INSERT NEW GRAPHS]

THE HOTEL ASSETS

The Hotel Assets consist of a diversified portfolio located
throughout the United States and represent several industry
segments and numerous franchise affiliations. Although the Company
intends to focus its future growth primarily in the upscale and
mid-scale segments, the Company has investments in upscale, mid-
scale, economy and gaming properties. The Hotel Assets are located
near a variety of demand generators, including major employment
centers, universities, airports, and tourist-oriented markets with
convenient access to interstate highways, airports and rail
transportation.

OWNED HOTELS

The table on the following page sets forth certain summary
information regarding the Owned Hotels.

For the year ended December 31,
----------------------------------------------------------------
ADR Occupancy % REVPAR
--------------------- --------------------- ---------------------
# of Year Year
Hotel Location Rooms Opened Acq'd 1992 1993 1994 1992 1993 1994 1992 1993 1994
- ----- -------- ----- ------ ----- ---- ---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Upscale:
Embassy
Suites Phoenix, AZ 227 1981 1983 $70.63 $74.04 $80.23 68.1% 71.8% 75.6% $48.08 $53.16 $60.00
Embassy
Suites(1) Tempe, AZ 224 1984 1995 72.93 76.24 83.37 75.5 81.7 82.8 85.06 62.29 68.99
Doubletree(2) Rancho Bernardo, CA 209 1988 1995 63.77 63.62 65.68 60.3 60.8 65.6 38.45 38.68 43.00
Capitol Hill
Suites(2) Washington, DC 152 1981 1995 84.93 89.60 91.93 52.9 63.3 64.1 44.96 56.72 58.93
Radisson
Hotel(2) Gainesville, FL 195 1974 1986 57.00 56.63 59.89 55.1 62.2 59.3 31.46 35.22 35.57
Sheraton
Colony
Square(1) Atlanta, GA 462 1973 1995 77.88 81.47 86.57 66.9 67.4 72.4 51.71 54.91 62.64
Harvey
Wichita
(3)(2) Wichita, KS 259 1974 1995 57.10 43.92 50.62 54.4 58.6 57.7 31.06 25.74 29.21
French
Quarter
Suites(2) Lexington, KY 155 1989 1995 77.07 81.64 84.40 51.2 71.5 69.4 39.44 58.37 58.57
Omni Chapel
Hill Chapel Hill, NC 168 1981 1995 59.94 63.10 74.54 48.9 52.7 64.8 29.31 33.25 48.28
Omaha
Marriott(4) Omaha, NE 303 1979 1979 82.57 82.56 87.21 70.8 76.2 76.2 58.46 62.91 66.45
Milwaukee
Marriott(5) Milwaukee, WI 393 1972 1990 69.63 71.99 67.91 58.2 54.5 69.4 40.50 39.00 47.13
Residence
Inn Tysons Corner, VA 96 1984 1984 97.51 102.87 99.47 84.1 78.2 83.0 81.97 80.44 82.56

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

Subtotal/Weighted 2,843 $71.83 $72.90 $76.55 62.3% 65.9% 70.0% $44.72 $48.02 $53.60
===== ====== ====== ===== ==== ==== ==== ===== ===== =====

Mid-scale:

Plaza Hotel Tucson, AZ 149 1971 1983 $47.22 $45.05 $46.12 63.6% 74.5% 77.1% $30.04 $33.56 $35.56
(6)
Holiday Inn Albany, GA 151 1989 1989 55.00 56.96 56.06 74.0 73.6 78.9 40.72 41.92 44.23
Best Western
Riverfront Savannah, GA 142 1971 1986 43.40 46.21 47.27 55.2 54.6 56.9 23.95 25.00 26.90
Bay Valley
Resort Bay City, MI 151 1973 1984 65.33 66.39 62.22 53.8 52.1 63.5 35.17 34.59 39.51
Best Western
Airport Inn
(6) Albuquerque, NM 123 1980 1984 50.90 52.38 54.45 76.1 80.1 86.4 38.72 41.96 47.04
Best Western
Mesilla
Valley Inn Las Cruces, NM 166 1974 1982 40.41 41.67 42.74 58.4 70.6 71.2 23.58 29.42 30.43
Best Western
North(2) Columbus, OH 180 1974 1992 41.61 42.00 42.34 72.1 66.2 70.3 30.00 27.88 29.77
Riverside
Inn Portland, OR 137 1964 1984 62.17 63.76 64.57 78.5 78.5 78.0 48.82 50.05 50.36
Dallas Park
Central(6) Dallas, TX 445 1972 1972 62.29 62.52 59.97 58.8 62.4 42.3 36.63 39.01 25.37
Best Western
Airport El Paso, TX 175 1974 1985 34.67 35.56 34.76 73.9 70.3 80.4 25.60 25.00 27.95
Meany Tower
Hotel Seattle, WA 155 1932 1984 81.04 76.29 70.40 59.0 61.5 71.2 47.78 46.92 50.12
Sixth Avenue
Inn(6) Seattle, WA 166 1959 1984 72.85 72.20 69.93 57.1 61.7 75.1 41.61 44.55 52.52
WestCoast
Tyee Hotel Olympia, WA 155 1961 1987 54.79 56.28 60.63 66.6 61.8 57.4 36.49 34.78 34.80

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

Subtotal/Weighted 2,295 $55.46 $55.84 $55.07 64.2% 66.0% 66.3% $35.63 $36.86 $36.51
===== ===== ====== ===== ==== ==== ==== ===== ===== =====

Economy:
Vagabond
Inn(7) Rosemead, CA 102 1974 1973 $37.06 $38.14 $37.47 52.5% 43.7% 36.6% $19.46 $16.67 $14.00
Vagabond
Inn(7) Sacramento, CA 108 1975 1975 51.48 52.18 55.89 67.4 60.0 62.5 34.70 31.31 34.93
Vagabond
Inn(7) Woodland Hills, CA 101 1973 1973 42.15 43.00 46.72 69.1 61.0 69.0 29.13 26.66 32.24
Days Inn Portland, OR 173 1962 1984 60.00 57.50 53.12 60.1 63.2 70.6 36.25 36.34 37.50
Days Inn
Towne
Centre(6) Seattle, WA 90 1957 1984 60.81 60.71 60.99 70.6 75.3 79.4 42.96 45.71 48.43
--- ----- ----- ----- ---- ---- ---- ----- ----- -----

Subtotal/Weighted 574 $51.40 $51.13 $50.97 63.4% 60.6% 64.5% $32.57 $31.01 $32.89
=== ===== ===== ===== ==== ==== ==== ===== ===== =====
Gaming:
Bourbon Street
Hotel &
Casino Las Vegas, NV 150 1964 1988 $30.24 $30.65 $32.08 86.5% 92.2% 90.1% $26.00 $28.26 $28.90
King 8
Gambling Hall
Hotel/Casino Las Vegas, NV 300 1974 1988 25.00 27.71 31.66 75.3 83.0 81.6 19.00 23.00 25.83

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

Subtotal/Weighted 450 26.90 28.00 31.80 79.0 86.0 84.4 21.26 24.69 26.85
===== ===== ===== ===== ==== ==== ==== ===== ===== =====

Total/Weighted 6,166 $60.56 $61.30 $62.91 64.3% 66.9% 69.1% $38.95 $41.02 $43.52
===== ===== ===== ===== ==== ==== ==== ===== ===== =====

</TABLE>
- ------------------------
(1) Acquisition of this hotel is pending.
(2) This hotel is currently managed by third parties. The
Corporation intends to terminate these management arrangements
by the end of 1995. See "Business and Properties - Operations."
(3) Starwood Capital has guaranteed that the cash flow of this hotel
(which is defined for purposes of the guarantee as gross
revenues (on a cash basis) received by the Operating Partnership
from the hotel, less management fees and capital expenditures
of the hotel) will be at least $700,000 in the first year after
January 1, 1995, $800,000 in the second year and $900,000 in the
third year (with such cash flow in excess of those amounts being
applied to reduce the guaranteed amounts in later years.
(4) The Corporation owns a 5% general partnership interest in
this hotel.
(5) The Corporation has a 51% general partnership interest in this
hotel and, following the Offerings, the Trust will hold $27.2
million in first mortgages on this hotel.
(6) These hotels are owned subject to ground leases expiring between
1999 through 2029.
(7) These hotels are leased to a third party and are the only
existing hotel assets not leased to the Corporation.

<PAGE>

For 1994 compared to 1993, the average occupancy rate of the Owned Hotels
increased from 64.8% to 67.1%; average ADR increased from $61.43 to $61.67;
and average REVPAR increased from $39.83 to $41.43. For the twelve months
ended March 31, 1995, the Company derived 87% of total gross revenues for
the Owned Hotels from the upscale and mid-scale market segments. During
1994, revenues and EBITDA at the Company's owned hotels were $91.4 million
and $26.7 million, respectively.

MORTGAGE NOTE RECEIVABLES

The Company owns 13 performing mortgage notes (the "Mortgage Note
Receivables") secured by 15 hotels. The following table summarizes
information pertaining to the Mortgage Note Receivables and the hotels
securing the notes:

MORTGAGE NOTES/HOTELS SECURING NOTES

For the year ended December 31, 1994
Mortgage Notes Hotels Securing Notes
-------------------------------------------------------------- --------------------------------------
3/31/95 Stated 3/31/95 REVPAR
Balance Interest Basis (1) Maturity ADR Occupancy
<S> <C> <C> <C> <C> <C> <C> <C>
Harvey Hotel
- Addison(3) 10,402,849 8.0% 7,426,362 12/31/02 $64.90 78.6% $51.00
Harvey Bristol
Suite -
Dallas(3) 16,644,558 8.0% 11,870,769 12/31/02 85.00 79.4 67.50
Harvey Hotel
- DFW(3) 25,891,535 8.0% 18,465,418 12/31/02 73.60 81.1 59.70
Quality Inn
- - Atlantic City 8,763,400 80% x Prime 4,470,031 10/1/10 66.50 60.8 40.40
Ramada Suites
- Secaucus 12,426,727 LIBOR + 1.25% 7,993,316 9/1/99 90.50 73.1 66.10
Other Seller
Financing(2) 12,573,931 9.6% 12,573,931 3/31/00 41.90 52.0 21.80
__________ __________ _______ _____ ______

Total/Wtd. Avg. 86,703,060 62,799,927 $71.90 73.1% $53.60
========== ==========
</TABLE>

(1) Represents the Company's carrying value as of 3/31/95.
(2) Total and weighted averages for 8 Notes secured by 10 hotels
(see "Seller Financing").
(3) Notes are cross-collateralized and cross-defaulted.

ATLANTIC CITY QUALITY INN/SECAUCUS RAMADA SUITES

The Atlantic City and Secaucus Mortgage Note Receivables are
secured by a mid-scale and an upscale hotel, respectively, control
of which the Company may acquire after completion of the Offerings.
The underlying assets are well located, fundamentally sound hotel
properties that are overleveraged as a result of indebtedness
incurred during the 1980s, which debt the Company acquired at a
discount from par in the Reorganization. The note on the Atlantic
City Quality Inn is a tax-exempt note issued by a municipal
authority.

HARVEY NOTES

The Harvey Mortgage Note Receivables are cross-collateralized
and cross-defaulted and the related collateral are very high
quality assets. The Harvey Notes have EBITDA interest coverage
exceeding 2:1, and are guaranteed by several individuals whose
certified financial statements indicate combined net worths
exceeding $50 million. These notes amortize over a 15-year life
and mature in 2002. The Company acquired these notes in the
Reorganization at a discount to par, and believes that there is a
high likelihood that these notes may be repaid prior to maturity.
Furthermore, the Company believes that there is an active secondary
market for quality mortgages of this type which may represent an
opportunity to redeploy the Company's capital with higher expected
returns.

SELLER FINANCING

The Company has historically provided seller financing as a
means of disposing of low growth, limited upside hotels. The
current portfolio of seller notes is comprised of 7 first mortgages
and 1 second mortgage. All notes are currently performing and the
Company's collection ratio has historically been in excess of 90%,
despite the generally high leverage ratio of seller financing.

<PAGE>

INDUSTRY SEGMENTATION

The Company segments the hotel industry into the following
categories: luxury, upscale, mid-scale, budget, economy and
gaming. These segments and the Company's involvement in each are
described below:

Luxury. The luxury segment generally includes such chains as
Ritz Carlton, Four Seasons and Regent. The Company believes luxury
properties generally have the highest replacement cost, generate
the highest ADRs, have the highest fixed costs and are the most
cyclical of all hotel segments. While these assets can generally
be acquired in today's environment at substantial discounts to
replacement cost and do enjoy high barriers to new supply, the
Company believes the high-profile nature of such properties and
their current investment appeal as trophy properties make them
difficult to acquire at attractive current or projected EBITDA
multiples. According to Smith Travel and Coopers & Lybrand, this
segment comprises only 13% of total industry rooms with an average
ADR and occupancy of $109.83 and 72.0%, respectively, for the year
ended December 31, 1994. The Company does not currently own any
luxury properties.

Upscale. Upscale hotel chains generally include such chains
as Marriott, Embassy Suites, Radisson, Sheraton, Omni, Doubletree,
Crown Plaza, and, at the highest end of this segment, Hyatt and
Westin. The Company believes this is generally the most attractive
segment in which to own, operate and acquire hotels. These
properties are predominantly full service, operationally more
complex, more expensive to build and hence enjoy stronger barriers
to new supply and are generally more desirable than economy, budget
and mid-scale properties.

The Company believes minimal construction is occurring in this
industry segment, while demand is increasing. The Company also
believes that upscale hotel properties can generally be purchased
at significant discounts to replacement cost, and in general at
greater discounts than mid-scale, economy and budget hotels. The
Company also believes that it is difficult to justify the cost of
new construction of an upscale hotel in a submarket where
competitive properties are trading for significant discounts to
replacement cost. The demand profile of this segment is also
attractive. These types of properties largely cater to business
travelers, who the Company believes may be less price sensitive,
more predictable, and hence more desirable customers than the
transient/leisure travelers. According to Smith Travel and Coopers
& Lybrand, upscale hotels comprise approximately 24% of all rooms
in the United States with an average ADR and occupancy of $74.32
and 68.0%, respectively, for the year ended December 31, 1994.

The Company believes that each of the Owned Hotels contributed
to the Company by Starwood Capital in the Reorganization may be
classified as an upscale hotel. In addition, each hotel acquired
or expected to be acquired since the Reorganization (i.e., the Omni
Chapel Hill, the Tempe Embassy Suites and the Sheraton Colony
Square) may be classified as an upscale hotel. The Company
believes 46% of the Owned Hotels' rooms fall within this segment
with an average ADR and occupancy of $76.55 and 70.0%,
respectively, for the year ended December 31, 1994. The Company
expects to increase this upscale room share as it continues
implementing its acquisition strategy.

Mid-scale. Mid-scale hotel chains generally include such
chains as Holiday Inn, Hampton Inn, Ramada Inn, Courtyard and
higher quality Best Westerns. These hotels generally include both
full and limited service facilities, have moderate barriers to new
supply, are generally less operationally complex than upscale
properties (particularly in the case of limited service
facilities), are somewhat cheaper and easier to plan and construct
than upscale hotels, and cater to both business and leisure
customers. The Company believes that this segment is experiencing
minimal new construction in its full service component, but
moderate growth in new supply in the limited service component. In
general, these assets can be purchased for smaller discounts to
replacement cost than upscale properties. According to Smith
Travel and Coopers & Lybrand, the mid-scale segment comprises
approximately 27% of all rooms in the United States with an average
ADR and occupancy of $56.78 and 65.3%, respectively, for the year
ended December 31, 1994.

The Company believes 37% of the Owned Hotels' rooms fall in
this category, with an average ADR of $55.07, including several
independent hotels which the Company believes may affiliate with
mid-scale chains. In its acquisition strategy, the Company has
targeted this segment albeit with less emphasis than the upscale
segment.

<PAGE>

Budget and Economy Segments. These segments include such
chains as Days Inn, Shoney's Inn, Fairfield Inn, Super 8, Knights
Inn, Motel 6, Red Roof Inn and Budgetel. They are generally
limited service, the lowest in operational complexity and have the
lowest barriers to new supply. The Company believes these segments
are experiencing the highest levels of new construction in the
industry. The Company believes these levels of new supply, if
demand growth slows, may eventually place downward pressures on
REVPAR and profitability for these hotels. Furthermore, the
Company believes that average prices paid for hotels in these
segments are approaching estimated replacement costs which may make
new development appear to be an attractive alternative investment
to the purchase of existing properties. The Company believes that
these assets typically have the lowest level of operating leverage
and exhibit lower construction quality and hence more rapid
deterioration than higher end properties. According to Smith
Travel and Coopers & Lybrand, the economy and budget segments
comprise approximately 17% and 20% of all rooms, respectively, with
average ADRs of $44.21 and $33.99, respectively, and occupancies of
62.1% and 61.6%, respectively, for the year ended December 31,
1994.

Prior to the Offerings, the Company has sold 12 hotels in past
3 years which operate primarily in these segments. The Company
believes only 9% of the Owned Hotels' rooms currently fall within
these segments and does not intend to acquire budget or economy
hotels.

Gaming. The Company owns two fee simple interests in gaming
hotels which comprise approximately 5% of the total rooms in the
Company's portfolio. Both properties are located in Las Vegas and
target local customers, tourists and, at the King 8 Hotel (which
features 280 available semi-trailer parking spaces), truckers.
Both properties attract customers through their casual, friendly
environment, low-priced food and wide variety of popular slot
machines. Combined, the properties contained approximately 21,500
square feet of gaming space. The King 8 is located on
approximately 20 acres of land (including eight acres of
undeveloped land) approximately 1,000 yards from the new 5,000-room
MGM Grand Hotel. The Company intends to explore various strategic
alternatives with regard to its gaming assets designed to minimize
the Company's exposure to this segment.

The following table summarizes certain information with
respect to the distribution of the Owned Hotels within the three
primary market segments:
<TABLE>
<CAPTION>

FOR THE 12 MONTHS ENDED MARCH 31, 1995
---------------------------------------------
Number Number Pro Forma % of Total
Market Segment of Hotels of Rooms Gross Revenues Gross Revenues
- -------------------- --------- -------- -------------- --------------
<S> <C> <C> <C> <C>
Upscale 12 2,847 $83,653,565 57.3%
Mid-scale 13 2,295 44,273,677 30.3%
Economy 5 574 8,931,077 6.1%
Gaming 2 450 9,145,376 6.3%
-- ----- ---------- -----
TOTAL 32 6,166 $146,003,695 100.0%
== ===== ============ ======

</TABLE>

HOTEL OPERATING LEVERAGE

Because a large percentage of hotel costs are fixed, hotels
generally possess significant operating leverage. Operating
leverage enables a property to increase profits more rapidly than
revenues, and to increase profit margins as revenues rise.
According to PKF Consulting Trends in the Hotel Industry hotel
income in 1992 and 1993 grew more rapidly than room sales, as shown
below.

<PAGE>

[INSERT CHART]

In general, upscale and mid-scale hotels generally possess
greater fixed costs and therefore greater operating leverage than
lower scale hotels. Because 83% of the Company's Owned Hotel rooms
fall in the upscale and mid-scale segments, and because management
intends to continue to acquire additional hotels in these segments,
management believes its portfolio is well positioned to improve
cash flow and margins as its revenues increase.

GEOGRAPHIC DIVERSIFICATION

The geographic distribution of the Hotel Assets throughout the
United States reflects the Company's belief that geographic
diversification, especially with respect to hotels, helps to
insulate the portfolio from local market fluctuations that are
typical for the hotel industry.

The following table summarizes certain information with
respect to the distribution of the Hotels throughout the United
States:

NUMBER NUMBER $ OF
STATE OF ASSETS OF ROOMS TOTAL ROOMS
_____ _________ ________ ___________

Texas 6 2,058 21.8%
Georgia 6 1,233 13.1
California 6 720 7.6
Florida 3 628 6.6
Arizona 3 600 6.4
Washington 4 566 6.0
Nevada 2 450 4.8
Wisconsin 1 393 4.2
New Jersey 2 354 3.7
North Carolina 2 310 3.3
Oregon 2 310 3.3
Nebraska 1 303 3.2
New Mexico 2 289 3.1
Kansas 1 259 2.7
Missouri 1 237 2.5
Ohio 1 180 1.9
Kentucky 1 155 1.6
Washington, D.C. 1 152 1.6
Michigan 1 151 1.6
Virginia 1 96 1.0%
__ _____ _____

TOTALS 47 9,444 100.0%
== ===== ======

NATIONAL FRANCHISE AFFILIATIONS

The Company generally believes that franchise affiliations
provide certain advantages to hotels. Such advantages include
brand recognition; access to national reservations systems,
national direct sales efforts and

<PAGE>

national volume purchasing agreements; and technical and business
assistance. Thirty-six of the Company's hotel properties are
represented by a national or regional franchise system. The use of
multiple franchise systems provides the Company with further
diversification, less dependence on the continued popularity of one
brand and less vulnerability to new requirements of any individual
franchise system. The Company expects to focus its franchise
affiliations on upscale and mid-scale hotel chains. The following
chart summarizes certain information with respect to the franchise
affiliations of the Owned Hotels:

12 months
ending
Franchise Number of 3/31/95 % of Gross
Systems Rooms Gross Revenues Revenues
_________ _________ ______________ __________

Marriott 696 $ 25,465,836 17.1%
Sheraton 462 16,594,987 11.1
Embassy Suites 451 13,131,850 8.8
Best Western 786 12,210,533 8.2
Radisson 640 9,089,427 6.1
Days Inn 263 5,904,993 4.0
Omni 172 4,771,197 3.2
Harvey 259 4,429,749 3.0
West Coast 155 4,226,464 2.8
Double Tree 209 3,958,817 2.7
Residence Inn 96 3,120,770 2.1
Vagabond 311 3,026,084 2.0
Holiday Inn 151 2,919,788 2.0
_____ ____________ ____
Subtotal 4,651 $108,850,495 73.1%

OPERATIONS

The Company employs over 2,200 on-site personnel and an
aggregate of 20 corporate staff with expertise in all facets of
hotel operations, including operations, marketing, facilities
management, management, accounting, acquisitions, human resources,
management information systems and other areas.

Leases. All but three of the Realty Partnership's Owned
Hotels are leased to the Operating Partnership or HIC Nevada. Each
of the leases between the Realty Partnership and the Operating
Partnership (the "Intercompany Leases") provide for the lessee's
payment of annual minimum rent in a specified amount plus
additional rent based on a percentage of the gross revenues (or
items thereof) of the leased property. The Intercompany Leases
existing in December 1992 were amended and restated at such time
and have an average term of seven years. The Intercompany Leases
are "triple-net" - i.e., the lessee is generally responsible for
paying all operating expenses of the hotel property, including
maintenance and repair costs, insurance premiums and real estate
and personal property taxes, and for making all rental and other
payments required pursuant to any underlying ground lease. The
lessee is also generally responsible for any payments required
pursuant to underlying ground leases. As lessee, the Operating
Partnership retains all of the profits, net of rents and other
expenses, and bears all risk of losses, generated by the hotel
property's operations.

In addition to the Intercompany Leases to the Corporation, the
Realty Partnership's three Vagabond Inns are leased to a third
party. The leases expire in 2001, 2007 and 2008. The lease
expiring in 2001 has options to extend the term of the lease for
two additional five year periods. Each of these leases provides
for the payment of percentage rent equal to 26% of room revenues
against specified minimum rents. The leases are "triple net."

Management. Twenty-two of the 29 hotel properties leased by
the Realty Partnership to the Operating Partnership are operated
directly by the Operating Partnership, and the remaining seven are
managed by six independent hotel management companies. The Company
intends where feasible to terminate these managers and to have the
Operating Partnership manage all of the Realty Partnership's hotel
properties. All but two of the

<PAGE>

agreements expire during 1995. The Operating Partnership, the
general partner of the partnership that owns that Milwaukee
Marriott, also operates the Milwaukee Marriott.

Each management agreement with a third party provides that the
management company has the exclusive right to direct the operations
of the hotel subject to that agreement. The management company is
responsible for maintaining and making all necessary repairs to the
managed hotel, hiring, training and supervising all hotel
employees, and performing all hotel bookkeeping and other
administrative duties.

Each management company is required to submit to the Operating
Partnership for its approval an annual budget that includes
proposed capital expenditures, and the management company makes
only those capital expenditures that are approved by the Operating
Partnership. The Operating Partnership is required to make
available to each management company sufficient working capital to
permit that company to operate the managed property.

For their services in managing the Company's hotels, each
third-party management company receives a management fee that
equals a specified percentage (generally 2-3%) of the gross
revenues of the managed hotel, plus additional incentive fees based
upon the hotel's operating profits. Two management agreements
expire in 1995, one in 1996, one may be terminated on 30 days'
notice, two may be terminated on 60 days' notice and one has a
remaining term in excess of two years. A majority of these
agreements may be canceled by the Operating Partnership prior to
expiration if, among other things, the managed hotel is sold or
fails to make a specified operating profit.

Franchise Agreements. All but eleven of the Company's hotel
properties are currently operated pursuant to the Franchise
Agreements. The Company believes that franchises (including hotel
licenses) generally provide advantages to hotels through the use of
advertising on a much broader scale than would be possible for an
individual hotel or small group of hotels, nationally recognized
brand names, nationally accessible reservations systems, technical
and business assistance to the individual franchisee and
substantial buying power over approved suppliers.

The Franchise Agreements generally require the payment of a
monthly royalty fee based on gross sales and various other
marketing fees associated with certain marketing or advertising and
centralized reservation service funds, usually based on gross
sales. Such fees may vary between individual hotels within a
franchise system based on the type of marks, restaurants or other
aspects of the franchise system used.

The Franchise Agreements generally contain specific standards
for, and restrictions and limitations on, the operation and
maintenance of the hotels which are established by the franchisors
to maintain uniformity in the system created by each such
franchisor. Such standards generally regulate the hours of
operation, maintenance, appearance and cleanliness, quality and
type of goods and services offered, signage and protection of
marks. Compliance with such standards could require significant
expenditures for capital improvements.

Ongoing training costs, requirements to purchase only from
approved suppliers, financial reporting requirements, insurance
requirements and various covenants not to compete imposed upon the
franchisee are other common terms in the Franchise Agreements.
Such financial reporting requirements often stipulate the
maintenance of books and records, the monthly reporting of sales
and other operating data, quarterly or semi-annual unaudited
financial statements and, in some cases, annual financial
statements audited by an independent certified public accountant.
Required insurance usually must cover both the franchisor and
franchisee with respect to certain specified liabilities, must fall
within certain approved coverage limits and be written by an
approved insurance company.

The Franchise Agreements generally require the consent of the
franchisor to a transfer of an interest in the applicable
franchise, and both the consent of the franchisor and the execution
of a new franchise agreement in the event of a transfer of all or
controlling portion of the franchisee under the relevant Franchise
Agreement. In addition, some franchise agreements may require
payment of an initial fee upon establishment of a franchise
relationship.

<PAGE>

EXCLUDED ASSETS AND RELATED MATTERS

Certain properties and other assets (the "Excluded Assets")
were not contributed by Starwood Capital to the Company in the
Reorganization because they either (i) are subject to contractual
restrictions preventing transfers or (ii) are inconsistent with the
investment objectives of the Company. The Excluded Assets consist
of the following:

DESCRIPTION OF EXCLUDED ASSETS STARWOOD CAPITAL OWNERSHIP %
- ------------------------------ -----------------------------

Portfolio of one hotel and
subperforming
Mortgage Notes secured by nine hotels 50%
Portfolio of 14 Hotels 49%
Portfolio of 3 Subordinated Mortgage
Notes 83-98%(1)
Portfolio of Subordinated REMIC pass-
through certificates secured by
nine hotels. 73-100%
Equity Participation Interest in the
Boca Raton Resort, Boca Raton,
Florida 5%
$500,000 Subordinated Note Secured by
the Boca Raton Resort, Boca Raton,
Florida 100%
Minority Partnership Interest in
Marriott Residence Inn, Houston,
Texas 25%
Minority Partnership Interest in
Arlington Hilton, Arlington, Texas 23%
Hampton Inn, Colchester, Vermont 80%

_________________
(1) The Company owns a 2% interest in these assets.

The Partnerships have an option (the "Partnership Option"),
exercisable at any time or times prior to the earlier of January
31, 2000 and the expiration of the Starwood Noncompete, subject to
receipt of required third-party consents and approvals, to acquire
the interests of Starwood Capital in one or more Excluded Assets
for a cash purchase price equal to the fair market value of such
Excluded Assets, as determined by agreement between the
Partnerships and Starwood Capital (or, if they are unable to agree,
by independent appraisers selected by the Trust, the Corporation
and Starwood Capital).

The Company has adopted a policy that, as a general matter, it
does not intend to acquire the Excluded Assets, except that
consideration may be given at the appropriate time and under
appropriate circumstances to the exercise of the Partnership Option
in respect of (i) the 49% interest in a portfolio of 14 hotels or
(ii) one or more other Excluded Assets where failure to exercise
the option is likely to result in the Company owning hotel assets
that compete with Excluded Assets. Any exercise of the Partnership
Option will be subject to the Company's receipt of an opinion from
a qualified, independent third party advisor to the Company that
the purchase price being paid by the Company and the other terms of
such acquisition are fair to the shareholders of the Company other
than Starwood Capital and its affiliates and related parties.

Certain co-partners' equity interests in the 14 fee simple-
owned hotels referred to above may be acquired (or Starwood
Capital's interest could be sold) pursuant to the exercise of a
buy/sell agreement between Starwood Capital and such co-partners
after June, 1995. Starwood Capital has agreed that if the buy/sell
is exercised, during the term of the Starwood Noncompete, and
Starwood Capital becomes obligated to acquire such co-partners'
equity interests, then, during the term of the Starwood Noncompete,
the Company may elect, by majority vote of the Independent Trustees
and Directors, to acquire such co-partner's equity interests at the
buy/sell price. The Partnership Option may be employed to acquire
Starwood Capital's interest in this portfolio as described in the
preceding paragraph.

The portfolio of three subordinated notes (the "Harvey Second
Mortgages") are secured by the same hotels which secure three first
mortgage notes that were contributed by Starwood Capital to the
Company as part of the Reorganization. In addition, the Company
owns a 2% interest in the Harvey Second Mortgages which it acquired
in the Reorganization. The Company and Starwood Capital have
entered into an intercreditor agreement with

<PAGE>

respect to such mortgage notes which gives the Company control over
the exercise of remedies in the event of a default under the Harvey
Second Mortgages.

Starwood Capital also owns other interests in hotels which are
not subject to the Partnership Option. Starwood Capital has an
agreement in principle to acquire an interest in the Westin Hotel
Company and certain affiliates ("Westin"), which own equity
interests in U.S. and international hotels and which manage,
franchise or represent hotels worldwide, in a joint venture with an
affiliate of Goldman Sachs & Co. The Company agreed, as a part of
the Reorganization, that Starwood Capital's interest in Westin
would not be acquired by the Company and would not be an Excluded
Asset or subject to the Partnership Option or the Starwood
Noncompete. Such determination was based on the following: the
investment objectives are different, as Westin is primarily seeking
third-party management, franchise or representation agreements;
Westin will be highly leveraged and does not expect to generate
cash for distribution; and Westin's structure primarily generates
income which does not qualify for REIT purposes. So long as
Starwood Capital co-controls Westin and the Starwood Noncompete is
in effect, Starwood Capital will not approve the acquisition by
Westin of new domestic hotel equity interests other than:
(i) minority equity investments made in connection with Westin's
acquiring, extending or modifying management contracts or franchise
or representation agreements, (ii) equity interests acquired by
Westin that are incidental to its acquisition of a hotel management
company, or (iii) acquisitions where the Company co-invests with
the other owner or owners of Westin (collectively, the "Permitted
Westin Investments").

Starwood Capital is the sponsor of an investment fund that
has, as its principal investment purpose, the origination or
acquisition of performing real estate debt and debt-related
interests, which may include performing debt interests
collateralized by hotel assets (such entity, together with any
future similar such entity being herein referred to as the
"Starwood Debt Funds"). Interests from time to time held by the
Starwood Debt Funds shall not be subject to the aforesaid purchase
option and are not included in the above description of Excluded
Assets. However, during any period in which the Starwood
Noncompete is in force, Starwood Capital has agreed that the
Starwood Debt Funds shall not initiate or acquire loans where it is
anticipated that the underlying equity will be acquired by the debt
holder within one year from the acquisition of such debt. In
addition, during such period, Starwood Capital has agreed that it
will not allow any Starwood Debt Funds to sell or contribute any
interests to the Company, including debt positions or equity
interests obtained by the Starwood Debt Funds under, pursuant to or
by reason of the holding of debt positions.

ENVIRONMENTAL MATTERS

In the latter part of 1991, the Company obtained preliminary
or "Phase I" environmental site assessments with respect to the
Trust's hotel properties and the Milwaukee Marriott Hotel. These
assessments covered all of the Company's fee interests (excluding
interests acquired from Starwood Capital and the Additional
Hotels), as well as hotels securing mortgage interests other than
Dallas Viscount, Modesto Vagabond and Jefferson City Ramada Inn.

The potential for environmental impairment was assessed as
moderate to high only at the Embassy Suites Hotel in Phoenix,
Arizona. According to the assessment of that property, petroleum
hydrocarbons are present in the land beneath this hotel; however,
the Trust could not determine without further investigation the
extent of the potential contamination or whether this contamination
resulted from the underground storage tanks placed on the property
by the property's former owner or from similar tanks located on
land adjacent to the property, which tanks are known to have
suffered leakage. A magnetic survey conducted on the property did
not detect the continuing existence of the underground storage
tanks on the Company's property, and the environmental consultant
did not recommend that any further action be taken. Phoenix
municipal authorities have indicated an awareness of possible
groundwater contamination in the area, but to date have taken no
action.

<PAGE>

The consultant has proposed to remedy the contamination through
installation of a groundwater pump and treatment system to capture
and treat impacted groundwater and excavation of about 390 cubic
yards of impacted soil. Amendments to the relevant environmental
clean-up laws, which have recently been introduced in the Michigan
Legislature, may reduce the extent or magnitude of the clean-up
that may be required at the site. The consultant's recommendations
were made upon the basis of existing law, and did not take into
account the proposed legislative amendments. After the Company
assesses the impact of any amendments that may be enacted to the
relevant statutes, the Company will perform whatever remediation is
required by law. Any further remediation costs that are incurred
may be reimbursed by a Michigan environmental fund, although there
can be no assurance that the fund will have sufficient resources to
pay all claims made against it. If the Company does not receive
reimbursement for future remediation costs, the Company will bear
those costs.

"Phase I" environmental site assessments were performed
between 1992 and 1994 in connection with the mortgage assets
contributed to the Realty Partnership by Starwood Capital. In
addition, Starwood Capital has contributed to the Realty
Partnership fee interests in four hotels for which "Phase I"
environmental site assessments were performed between 1993 and
1994. The potential for environmental impairment was assessed as
low to moderate at each of the four hotels.

The Company has not been identified by the U.S. Environmental
Protection Agency or any similar state agency as a responsible or
potentially responsible party for, nor has it been the subject of
any governmental proceeding with respect to, any hazardous waste
contamination. If the Trust or the Corporation were to be
identified as a responsible party, it would in most circumstances
be strictly liable, jointly and severally with other responsible
parties, for environmental investigation and clean-up costs
incurred by the government and, to a more limited extent, by
private persons.

Based upon the environmental reports described above, the
Company believes that a substantial number of its Hotels
incorporate potentially asbestos-containing materials. Under
applicable current Federal, state and local laws, asbestos need not
be removed from or encapsulated in a hotel unless and until the
hotel is renovated or remodeled.

Based upon the above-described environmental reports and
testing and facts known to the management of the Company, future
remediation costs are not expected to have a material adverse
effect on the Company's results of operations or financial position
or cash flows and compliance with environmental laws has not had
and is not expected to have a material effect on the capital
expenditures, earnings or competitive position of the Company.

REGULATION AND LICENSING

The ownership and operation of the Company's casino gaming
facilities in Nevada are subject to extensive licensing and
regulatory control of the Nevada Gaming Commission (the "Nevada
Commission"), the Nevada State Gaming Control Board (the "Nevada
Board") and the Clark County Liquor and Gaming Licensing Board (the
"Clark County Board," and together with the Nevada Commission and
the Nevada Board, the "Nevada Gaming Authorities").

The Corporation is registered with the Nevada Commission as a
publicly traded corporation and has been found suitable by the
Nevada Gaming Authorities as the sole shareholder of HI Nevada to
own all of the outstanding capital stock of HI Nevada. HI Nevada,
which operates two non-restricted gaming facilities in Las Vegas,
Nevada, must be licensed by the Nevada Gaming Authorities. The
Corporation and HI Nevada have obtained from the Nevada Commission
the various registrations, approvals, permits and licenses required
in order to engage in gaming activities in Nevada. The Trust was
found suitable by the Nevada Commission to be the landlord of HI
Nevada.

No person may become a stockholder of, or receive any
percentage of profits from, HI Nevada without first obtaining
licenses and approvals from the Nevada Gaming Authorities.
Officers, directors and key employees of the Corporation who are
actively and directly involved in gaming activities of HI Nevada
may be required to be licensed or found suitable by the Nevada
Gaming Authorities. The Nevada Gaming Authorities may deny an
application for licensing or a finding of suitability for any cause
they deem reasonable. If the Nevada Gaming

<PAGE>

Authorities were to find an officer, director or key employee
unsuitable for licensing or continued association with the
Corporation or HI Nevada, the companies involved would have to
sever all relationships with such person. Prior approval of the
Nevada Commission is required for the sale, assignment, transfer,
pledge or other disposition of any security issued by HI Nevada.

Any beneficial holder of the Corporation's voting securities,
regardless of the number of shares owned, may be required to file
an application, be investigated, and have his suitability as a
holder of such securities determined if the Nevada Commission has
reason to believe that such ownership would be inconsistent with
the policies of the State of Nevada. Any person who acquires more
than 5% of the Corporation's voting securities must report such
acquisition to the Nevada Commission. Beneficial owners of more
than 10% of the Corporation's voting securities must apply to the
Nevada Commission for a finding of suitability within 30 days after
the Chairman of the Nevada Board mails written notice requiring
such filing. If the beneficial owner of voting securities who must
be found suitable is a corporation, partnership, trust, or other
business entity, it must submit detailed business and financial
information including a list of beneficial owners. The applicant
for such a finding of suitability must pay all costs incurred by
the Nevada Gaming Authorities in conducting any such investigation.

Under certain circumstances, an "institutional investor," as
defined in the regulations of the Nevada Commission, that acquires
more than 10%, but not more than 15%, of the Corporation's voting
securities may apply to the Nevada Commission for a waiver of such
finding of suitability if such institutional investor holds the
voting securities only for investment purposes. An institutional
investor shall not be deemed to hold voting securities for
investment purposes unless the voting securities were acquired and
are held in the ordinary course of business as an institutional
investor and not for the purposes of causing, directly or
indirectly, the election of a majority of the members of the Board
of Directors of the Corporation, or any change in the Corporation's
corporate charter, bylaws, management, policies or operations of
the Corporation, or any of its gaming affiliates, or any other
action that the Nevada Commission finds to be inconsistent with
holding the Corporation's voting securities only for investment
purposes.

Changes in the control of the Corporation or HI Nevada through
a merger, consolidation, acquisition of assets, management or
consulting agreements or any form of takeover cannot occur without
the prior approval of the Nevada Commission. Entities or persons
seeking to acquire control of the Corporation must satisfy the
Nevada Board and Nevada Commission in a variety of stringent
standards prior to assuming control of the Corporation. The Nevada
Commission may also require controlling stockholders, officers,
directors and other persons having a material relationship or
involvement with the entity proposing to acquire control, to be
investigated and licensed as part of the approval process relating
to the transaction.

As described herein, the contribution by HI Nevada to the
Operating Partnership of its gaming assets (and the transfer of
certain liabilities retained by HI Nevada) not contributed or
transferred to the Operating Partnership upon consummation of the
Reorganization is subject to receipt of certain licenses and
approvals from the Nevada Gaming Authorities. Likewise, the
Directors of the Corporation elected on December 15, 1994 will not
take office until either of certain licenses and approvals are
received from the Nevada Commission or until such licenses and
approvals shall no longer be required. Upon the receipt of such
licenses and approvals, such gaming assets will be transferred to
a partnership 99% owned by the Operating Partnership, as the
limited partner and 1% by HI Nevada, as the general partner and the
Directors of the Corporation elected on December 15, 1994 will take
office. If all or any portion of the gaming assets are disposed of
prior to the receipt of such gaming approvals, then the net
proceeds of such disposition will be contributed to such limited
partnership upon receipt thereof. If the required licenses and
approvals of the Nevada Gaming Authorities are not received on or
before December 31, 1996, the gaming assets and related liabilities
retained by HI Nevada will not be contributed to such Partnership
and on such date HI Nevada will contribute to the Operating
Partnership cash equal to the value of the gaming assets not
disposed of prior to such date. No additional interests in the
Operating Partnership will be issued upon the transfer of either
the gaming assets or proceeds of the disposition thereof or upon
the contribution of cash to the Operating Partnership in lieu of
such transfers. See "Structure of the Company - Formation of the
Partnerships and the Reorganization."

<PAGE>

Approvals may be required from the Nevada Commission before
the Corporation may make exceptional repurchases of securities
above current market price, and before a corporate acquisition
opposed by management can be consummated. Nevada's gaming
regulations also require prior approval of the Nevada Commission in
the event of a Corporation plan of recapitalization proposed by the
board of directors in opposition to a tender offer made directly to
shareholders for the purpose of acquiring control of the
Corporation.

Nevada law prohibits the Corporation from making a public
offering of its securities without the approval of the Nevada
Commission if any part of the proceeds of the offering is to be
used to finance the construction, acquisition or operation of
gaming facilities in Nevada, or to retire or extend obligations
incurred by the Corporation for one or more such purposes. The
Offerings are not subject to the requirement of prior approval by
the Nevada Commission because as discussed herein none of the
proceeds will be used by the Corporation to construct, acquire or
finance gaming facilities in Nevada or to retire or extend the
Corporation's obligations incurred for such purposes.

Starwood Capital has agreed with the Nevada Gaming Authorities
that prior to such time as the required licenses and approvals are
obtained or are no longer required, it will not own, directly or
indirectly, more than 4.9% of the issued and outstanding Paired
Shares at any time.

INSURANCE

The Company intends to continue to carry comprehensive
liability, fire (at replacement cost), flood, extended coverage and
business interruption insurance with respect to each of its
properties, with policy specifications, limits, and deductibles
customarily carried for similar properties. See "Business and
Properties - Operations - Franchise Agreements." While the Company
believes that its insurance coverage is adequate, there are certain
types of extraordinary losses, which may be either uninsurable or
not economically insurable. Should an uninsured loss occur, the
Company could lose both its investment in and anticipated profits
and cash flow from a property and would continue to be obligated on
any mortgage indebtedness on the property. See "Risk Factors -
Real Estate Investment Risks - Uninsured Loss." The Company does
not carry earthquake insurance.

EMPLOYEES

As of March 31, 1995, the Trust had 3 employees and the
Corporation had approximately 2,240 employees. The Company is
subject to two collective bargaining agreements at one of its
hotels.

THE MORTGAGE LOAN AND ACQUISITION FACILITY

THE MORTGAGE LOAN

Concurrently with the consummation of the Offerings, the
Realty Partnership will borrow $41 million (the "Mortgage Loan")
from an institutional lender. The Mortgage Loan will be secured by
first mortgage liens on certain properties which are owned by the
Realty Partnership. The Mortgage Loan will mature on the
anniversary of the consummation of the Offerings, and will bear
interest at a fixed rate of ___% per annum.

<PAGE>

THE ACQUISITION FACILITY

The Realty Partnership is negotiating a 3-year, $150 million
secured revolving credit facility to be provided by an
institutional lender (the "Acquisition Facility") under which the
Company, through the Realty Partnership, may borrow to finance the
acquisition of additional hotel properties, hotel renovations,
capital improvements and for general corporate purposes. The
Acquisition Facility will be secured by certain properties not
securing the Mortgage Loan and may be secured by other properties
acquired by the Company.

Upon consummation of the Offerings, the Realty Partnership
will have sufficient collateral to enable it to borrow
approximately $______ million under the Acquisition Facility. The
maximum amount that may be borrowed will depend on the amount of
additional collateral provided by the Realty Partnership. The
Acquisition Facility may be retired in whole or in part from the
proceeds of public or private issuances of equity or debt
securities by the Company and may be refinanced in whole or in part
with fixed-rate financing.

STRUCTURE OF THE COMPANY

GENERAL

The Trust and the Corporation are separate entities, the
shares of which are owned, through the "Paired Share" structure, by
the same shareholders. See "Principal Shareholders" and "Capital
Stock - The Pairing Agreement." The Company's ownership interests
in the Hotel Assets are held through the Realty Partnership and all
operating functions for the Hotel Assets, other than certain gaming
assets described below, are performed through the Operating
Partnership. The Trust controls the Realty Partnership as the sole
general partner, and the Corporation controls the Operating
Partnership as the managing general partner (subject, in the case
of the Gaming Assets, to receipt of certain regulatory approvals
and subject to the rights of the management committee until the
receipt of such approval). Starwood Capital is a limited partner
of the Partnerships. Units held by Starwood Capital are (subject
to certain restrictions) exchangeable one-for-one for Paired
Shares. See "- Limited Partner Rights - Exchange Rights."

FORMATION OF THE PARTNERSHIPS AND THE REORGANIZATION

Each of the Partnerships was formed under the Delaware Revised
Uniform Limited Partnership Act ("RULPA"). Pursuant to the
Reorganization, the Trust contributed to the Realty Partnership all
of its properties and assets, subject to substantially all of its
liabilities (although the Trust agreed to indemnify the Realty
Partnership and Starwood Capital against certain liabilities) (the
"Trust Assets") in exchange for a general partner interest in the
Realty Partnership and Starwood Capital contributed to the Realty
Partnership cash, certain hotel properties and first mortgage notes
(the "Starwood Realty Assets") and certain indebtedness of the
Realty Partnership in exchange for a limited partner interest in
the Realty Partnership. In addition, the Corporation and its
subsidiaries contributed to the Operating Partnership certain
properties and operating assets, subject to certain liabilities
(the "Corporation Assets") in exchange for general partner
interests in the Operating Partnership and Starwood Capital
contributed to the Operating Partnership cash, furnishings and
equipment of the hotel properties included in the Starwood Realty
Assets, and other hotel operating assets (the "Starwood Operating
Assets") in exchange for a limited partner interest in the
Operating Partnership. The remaining assets and properties of the
Corporation will be contributed to an affiliate of the Operating
Partnership upon receipt of certain regulatory approvals. See
"Business and Properties - Regulation and Licensing."

The aggregate number of Units allocated to Starwood Capital
and the interests of the Trust and the Corporation and their
subsidiaries and the other terms of the Reorganization were
determined by arm's length negotiation among the Trust, the
Corporation and Starwood Capital. Independent appraisals were not
obtained for the purpose of determining the terms of the
Reorganization. The Reorganization was approved by the
shareholders of the Trust and the Corporation at meetings held on
December 15, 1994 and was consummated on January 31, 1995.

<PAGE>

As part of the Reorganization, (i) the name of the Trust was
changed to "Starwood Lodging Trust" from "Hotel Investors Trust"
and the name of the Corporation was changed to "Starwood Lodging
Corporation" from "Hotel Investors Corporation" and (ii) the
Declaration of Trust of the Trust and the Articles of Incorporation
of the Corporation were amended to (a) create classified Boards for
the Trust and the Corporation, (b) increase the authorized shares
of capital of the Trust and the Corporation, and (c) to effect
certain other changes to such documents. After completion of the
Reorganization, three of the mortgages owned by the Realty
Partnership (together with the indebtedness related thereto) were
contributed to SLT Realty Company, a Delaware limited liability
company (the "LLC"). The Realty Partnership is the managing member
of the LLC and holds a 99% interest. The Trust and Starwood
Capital hold the remaining 1% interest.

<PAGE>

The ownership structure of the Company after the completion of
the Offerings will be as follows:

THE TRUST THE CORPORATION

Starwood Capital 0.4% 33.2%(1) Starwood Capital 0.4%(1) 33.2%(1)

Purchasers in the 83.3% 55.9% Purchasers in the
Offering Offering 83.3% 55.9%

general partner general partner
</TABLE>
<TABLE>
<CAPTION>

Percentage Percentage Percentage
Before After Percentage After
Unit Unit Before Unit Unit
Owners Exchange Exchange Owners Exchange Exchange
- ------ ----------- ----------- ------ ------------ ----------
<S> <C> <C> <C> <C> <C> <C>
The Trust 66.8% 100% The Corporation 66.8% 100%

Starwood Capital 33.2% 0% Starwood Capital 33.2% 0%

limited partner limited partner

STARWOOD
CAPITAL

</TABLE>

(1) The percentages in this table set forth under the heading
"Percentage After Unit Exchange" assume that all remaining
Units held by Starwood Capital have been exchanged for
Paired Shares. However, because of the Ownership
Limitation, Starwood Capital can only exchange Units which
will cause Starwood Capital to receive in exchange therefor
not more than an additional 7.6% of the outstanding Paired
Shares, bringing its Paired Share ownership to 8.0%.

MANAGEMENT OF THE PARTNERSHIPS

The Trust is the sole general partner of, and conducts all of
its business and operations, including all real estate
acquisitions, through, the Realty Partnership. Upon receipt of the
Gaming Approvals, the Corporation will be the managing general
partner of, and will conduct all of its business and operations
through, the Operating Partnership. Prior to receipt of the Gaming
Approvals, the Operating Partnership is being managed by a
management committee the members of which are identical to the
members of the Corporation Board of Directors that will hold office
upon receipt of the Gaming Approvals. While awaiting the Gaming
Approvals, the Corporation's existing management and Board of
Directors will be responsible for the operation and control of the
Gaming Assets and the management committee will be prohibited from
any influence or control of the Gaming Assets. After receipt of
the Gaming Approvals, the management committee will be disbanded,
the Corporation will be the managing general partner of the
Operating Partnership and the Board of Directors of the Corporation
will

<PAGE>

have authority to make decisions on behalf of the Corporation with
respect to the Operating Partnership. See "Business and Properties
- - Regulation and Licensing."

As the general partner and, once the management committee has
been disbanded, managing general partner of the Realty Partnership
and the Operating Partnership, respectively, the Trust and the
Corporation manage all of the business and affairs of the Realty
Partnership and the Operating Partnership, respectively. The Trust
and the Corporation (or the management committee of the Operating
Partnership) have full and complete power, authority and discretion
to make all decisions on behalf of the Realty Partnership and the
Operating Partnership and to take all action necessary or
appropriate to carry out the business of the Realty Partnership and
the Operating Partnership, respectively.

Pursuant to the noncompetition agreement with Starwood Capital
(the "Starwood Noncompete"), Starwood Capital will not compete,
directly or indirectly, with the Partnerships and will present to
the Partnerships all acquisitions of (i) fee or ground lease
interests and other equity interests in hotels in the United States
and (ii) debt interests in hotels in the United States where it is
anticipated that the equity will be acquired by the debt holder
within one year from the acquisition of such debt. During the term
of the Starwood Noncompete, Starwood Capital will not acquire any
such interest. The foregoing restrictions do not apply to: (i) the
Excluded Assets and additional investments by Starwood Capital
therein; (ii) the Permitted Westin Investments; and (iii)
acquisitions of warrants, equity participations or similar rights
incidental to a debt investment by a Starwood Debt Fund. The term
of the Starwood Noncompete is until the later of (i) the third
anniversary of the closing of the Offerings or (ii) the time at
which no officer, director, general partner or employee of Starwood
Capital is on either the Board of Trustees of the Trust or the
Board of Directors of the Corporation.

Pursuant to the Partnership Agreements, the limited partners
agree that in the event of any conflict in the fiduciary duties
owed by the Company to its shareholders and, as the general partner
of the Partnerships, to such limited partners, the Company will
fulfill its fiduciary duties to such limited partners by acting in
the best interest of the Company's shareholders.

TERM AND DISSOLUTION

The term of each of the Partnerships shall be until December
31, 2094 unless sooner dissolved and terminated in the case of (i)
the sale or other disposition of all or substantially all of the
assets of such Partnership (unless such Partnership elects to
continue the business of such Partnership as provided in its
Partnership Agreement), (ii) the written election to dissolve such
Partnership by the general partners thereof, (iii) the dissolution,
termination, withdrawal, retirement, expulsion or bankruptcy of the
last remaining general partner of such Partnership, unless such
Partnership's business is continued as provided in its Partnership
Agreement and (iv) the entry of a decree of judicial dissolution of
such Partnership pursuant to the RULPA.

DISTRIBUTIONS AND REIMBURSEMENT

The Trust has the authority in its discretion to cause the
Realty Partnership to make distributions from time to time to the
partners of the Realty Partnership. The Corporation has the
authority in its discretion to cause the Operating Partnership to
make distributions from time to time to the partners of the
Operating Partnership.

The Realty Partnership will reimburse the Trust for all
expenses of the Trust incurred in connection with the business of
the Realty Partnership, and the Operating Partnership will
reimburse the Corporation for all expenses of the Corporation
incurred in connection with the business of the Operating
Partnership.

In the event of a dissolution of either of the Partnerships,
the assets of such Partnership will be liquidated and (after
payment of creditors and establishment of any reserves to provide
for contingent liabilities) distributed to holders of Units in
accordance with the positive balances in their capital accounts.

<PAGE>

OFFERINGS OF PAIRED SHARES

Each of the Partnership Agreements provides that the net
proceeds of all offerings of Paired Shares by the Company
(including the Offerings) will be contributed to the Partnerships
in accordance with the Issuance Percentages (as defined below) from
time to time. Upon such contribution, the Realty Partnership will
issue to the Trust and the Operating Partnership will issue to the
Corporation an additional number of Units in such Partnership equal
to the number of such Paired Shares so offered. The Partnership
Agreements provide that upon the contribution of cash to a
Partnership (other than in connection with such an offering of
Paired Shares) by a partner, such Partnership will issue Units of
such Partnership equal to the amount of such cash divided by the
fair market value of such a Unit prior to such contribution.

The Partnership Agreements also provide that the net proceeds
of all offerings of debt securities by the Trust or the Corporation
will be loaned by the Trust or the Corporation, as the case may be,
to the Realty Partnership or the Operating Partnership, as the case
may be.

LIMITED PARTNER RIGHTS

Pursuant to agreements entered into in connection with the
Reorganization, Starwood Capital, as holder of Units, has certain
rights to tender all or a portion of the Units held by it to the
Company for exchange, and certain rights to require the Company to
register under the Securities Act of 1933, as amended (the
"Securities Act"), any Paired Shares which may be issued upon such
exchange. The Partnership Agreements provide that Starwood Capital
may transfer such rights upon a transfer of Units.

Exchange Rights. Pursuant to an Exchange Rights Agreement
(the "Exchange Rights Agreement") entered into among the Company,
Starwood Capital, the Realty Partnership and the Operating
Partnership, subject to the limitations described below, Starwood
Capital will have the right to tender to the Company all or a
portion of the Units held by such holder. Each tender must consist
of an equal number of Realty Units and Operating Units. The
Company will have the option to pay for such tendered Units either
(i) by delivering Paired Shares to such tendering holders as
described below (the "Paired Share Option"), (ii) with available
cash or borrowed funds (the "Cash Option") or (iii) by delivering
a combination of Paired Shares and cash (the "Combined Option").
The Company currently intends, to the extent permitted, to pay for
tendered Units by electing the Paired Share Option.

The election by the Company among those options must be made
by a majority of each of their respective Disinterested Members
(defined below). See "Description of Paired Shares." If the Trust
and the Corporation are unable to agree on the option to be elected
within 15 days after the tender of Units, they shall be deemed to
have elected the Cash Option. If the Paired Share Option or the
Combined Option is elected and if, as a result of the Ownership
Limitation, the tendering holder cannot receive the full number of
Paired Shares otherwise issuable pursuant to such Option, such
tender shall be automatically reduced so that after such tender the
tendering holder receives the maximum number of Paired Shares that
such holder can receive without violating the Ownership Limitation
plus cash for those of the Paired Shares with respect to which the
Company has elected the Cash Option. In such circumstance, a
tendering holder may, subject to certain limitations, require the
Company to effect a registered public offering of a number of
Paired Shares equal to the number of Paired Shares which could not
be so issued as a result of the Ownership Limitation. The proceeds
of such offering would be used to purchase such tendered Units as
described below under "- Registration Rights."

Prior to receipt of Gaming Approval, Starwood Capital must, as
a condition to the tender of Units, give not less than 90 days'
notice to the Company of their intent to tender Units which would
result in Starwood Capital holding more than 4.9% of the
outstanding Paired Shares. After receipt of Gaming Approval, no
such 90 days notice will be required. See "Business and Properties
- - Regulation and Licensing."

Paired Share or Combined Option. If the Paired Share Option
or the Combined Option is elected, the Company will deliver to the
tendering holder within 15 days after the related tender (the
"Exchange Date"), for each Realty Unit and Operating Unit tendered
for which Paired Shares are to be delivered, one Trust Share and
one

<PAGE>

Corporation Share, respectively, subject to adjustment as described
below. The Trust Shares and the Corporation Shares so delivered
will be "paired" to the same extent as other outstanding Paired
Shares.

The Partnership Agreements also provide that if the Company
grants, issues or sells, on a pro rata basis to all holders of
Paired Shares, options, convertible securities or rights
(collectively, "Purchase Rights") to purchase shares of stock,
warrants, securities or other property, then each holder of Units
shall be entitled to acquire rights that are substantially similar
in amount, tone and tenor to the Purchase Rights which such holder
would have received if its Units had been exchanged for Paired
Shares immediately prior to such grant, issue or sale.

The Exchange Rights Agreement provides that no Units shall be
accepted for exchange (i) if as a result of such exchange the Trust
would violate the Ownership Limitation or (ii) prior to the
expiration or termination of any applicable waiting period under
the Hart Scott Rodino Antitrust Improvements Act of 1976, as
amended.

Cash or Combined Option. If the Cash Option or the Combined
Option is elected, the Company will deliver to the tendering holder
within 20 days after the related tender, an amount of cash in
respect of each Paired Share for which cash is to be paid equal to
the average closing price per share of the Paired Shares on the
NYSE for the ten trading day period ending on the day before the
date of the related tender.

In connection with any such payment of cash, unless otherwise
agreed by the Trust and the Corporation from time to time by action
of a majority of each of their respective Disinterested Members,
the Trust will pay 95% of such aggregate cash payment and the
Corporation will pay 5% of such aggregate cash payment (such
percentages, as they may be amended from time to time pursuant to
such agreement, being called the "Issuance Percentages").

Registration Rights. Pursuant to a Registration Rights
Agreement (the "Registration Rights Agreement") entered into
between the Company and Starwood Capital, the Company has granted
registration rights with respect to Paired Shares which may be
acquired upon exchange of Units. Pursuant to such registration
rights Starwood Capital may, subject to certain limitations,
require the Company to effect up to four registrations of Paired
Shares under the Securities Act including shelf registrations of
Paired Shares under the Securities Act (any shelf registrations to
be maintained until no Paired Shares are required to be registered
under the Registration Rights Agreement), in each case at the
expense of the Company (other than underwriting discounts and
selling commissions and fees and expenses of counsel to Starwood
Capital).

In addition, if the Company does not issue Paired Shares upon
a tender of Units because of the Ownership Limitation, the
tendering holder may each such time, subject to certain
limitations, require the Company to effect a registered public
offering under the Securities Act of an equal number of Paired
Shares. The net proceeds of such offering (after underwriting
discounts and selling commissions) would be used to purchase such
tendered Units.

Starwood Capital also has rights, subject to certain
exemptions and limitations, to request that the Company include
such Paired Shares in other registrations of Paired Shares by the
Company under the Securities Act.

The Registration Rights Agreement specifies certain times
during which a registration of Paired Shares cannot be initiated,
including the 90-day period after the Company affects a
registration of Paired Shares and the 90-day period after a holder
of Units delivers a demand for registration that is not withdrawn.

ISSUANCE OF ADDITIONAL UNITS

Each Partnership may issue additional units of general and/or
limited partner interests. Such additional units may be issued
upon such terms and under such circumstances as the general partner
or managing general partner of the applicable Partnership may
determine. There are no limitations on the ability of the general
partner or managing general partner of the Partnerships to issue
additional units of partnership interest.

<PAGE>

POLICIES WITH RESPECT TO CERTAIN ACTIVITIES

The following is a discussion of the policies of the Company
with respect to investments, financing and certain other
activities. The policies with respect to these activities have
been determined by the Board of Trustees of the Trust and the Board
of Directors of the Corporation and may be amended or revised from
time to time at the discretion of the Board of Trustees or the
Board of Directors, as the case may be, without notice to or a vote
of the shareholders of the Company, except that changes in certain
policies with respect to conflicts of interest must be consistent
with legal requirements.

INVESTMENT POLICIES

The Board of Trustees and the executive officers of the Trust
are responsible for managing the Trust's investments. The Trust
does not intend to engage the services of an investment advisor.

Investments in Real Estate or Interests in Real Estate. The
investment objectives of the Company are to increase cash flow and
the value of the properties and, generally, to acquire established
income-producing hotel properties with cash flow growth potential.
Additionally, where prudent and possible, the Company will seek to
upgrade the existing properties and any newly acquired properties.
The business of the Company will be focused principally on hotel
properties. The policy of the Company is to acquire assets
primarily for current income generation and long-term value
appreciation. Although none is currently planned, the Company may
in the future engage in select development opportunities in certain
submarkets which may require the Company to add development staff.

The Company may purchase or lease properties for long-term
investment, expand and improve the properties presently owned, or
sell such properties, in whole or in part, when circumstances
warrant. The Company also may participate with other entities in
property ownership, through joint venture or other types of co-
ownership. Equity investments may be subject to existing mortgage
financing and other indebtedness or investments which have priority
over the equity interest of the Trust or the Corporation.

All the activities of the Company will be conducted through
the Partnerships, except that prior to the receipt of the Gaming
Approvals the gaming operations of the Corporation will be
conducted through HI Nevada. The Trust or the Corporation may also
hold temporary cash investments from time to time pending
investment or distribution to shareholders.

While the Company emphasizes equity real estate investments,
it may, in its discretion, invest in mortgages, stock of other
REITs or other entities engaged in real estate activities or
securities of other issuers, including for the purpose of
exercising control over such entities and other real estate
interests. Such mortgage investments may include participating or
convertible mortgages or secured or unsecured preferential advances
or loans. In any event, the Company does not intend that its
investments in securities will require it to register as an
"investment company" under the Investment Company Act of 1940, and
the Company would divest securities before such registration would
be required. In addition, the Company generally does not intend
(i) to acquire mortgage investments in the future except where it
provides seller financing on sales of its assets or where it is
likely that hotel equity can be acquired or controlled through the
acquisition of debt nor (ii) to pursue management of hotels in
which the Company will not own a substantial economic interest.

The Trust Declaration provides that the Board of Trustees
generally may amend the investment policies set forth in the Trust
Declaration at any time without the consent of the Trust's
shareholders.

Section 8-302 of the Maryland REIT Law provides that a real
estate investment trust must hold, either directly or through other
entities, at least 75% of the value of its assets in real estate
assets, mortgages or mortgage related securities, governmental
securities, cash and cash equivalent items, including high-grade
short-term securities and receivables.

<PAGE>

DISPOSITION

The Company continuously reviews its properties to determine
which properties should be retained and which should be disposed
of. The Company may decide to dispose of a particular property at
any time. The Company recently sold the Jacksonville, Florida
Holiday Inn and the Fayetteville, North Carolina Ramada Inn.

FINANCING

The Company currently has a policy of incurring not more than
a 50% Ratio of Debt-to-Total Market Capitalization. The Ratio of
Debt-to-Total Market Capitalization is equal to the total combined
debt of the Company (which does not include intercompany debt),
divided by the market value of all issued and outstanding Paired
Shares (assuming the exchange of all Units for Paired Shares) plus
the total combined debt of the Company. Upon completion of the
Offerings, the Ratio of Debt-to-Total Market Capitalization of the
Company will be approximately 9.5%, based on an assumed offering
price of $24 per Paired Share. Since the Ratio of Debt-to-Total
Market Capitalization may be affected by factors outside the
control of the Company, such as fluctuations in the market value of
the outstanding Paired Shares, the achievement of such ratio at the
time of incurrence of debt does not ensure that the Company will be
able to maintain such ratio. The organizational documents of the
Company do not limit the amount or percentage of indebtedness that
they may incur. The Company could borrow up to approximately $385
million, in addition to indebtedness expected to be outstanding
upon completion of the Offerings, without exceeding the 50% Ratio
of Debt-to-Total Market Capitalization, assuming a market value per
Paired Share equal to the public offering price set forth on the
cover page of this Prospectus. The Company may from time to time
modify its debt policy in light of then current economic conditions
and other factors. If the Board of Trustees of the Trust or the
Board of Directors of the Corporation determines that additional
funding is required, the Company may raise such funds through
additional equity offerings, debt financing or retention of cash
flow (subject to provisions in the Code concerning taxability of
undistributed REIT income), or a combination of these methods.

Additional borrowings may be made through any of the Company
or the Partnerships and may be incurred in the form of secured or
unsecured borrowings. Additional borrowings may be recourse, non-
recourse or cross-collateralized and may contain cross-default
provisions. The proceeds from any borrowings may be used for the
payment of distributions, for working capital, to make loans to the
Partnerships, to refinance existing indebtedness, to finance
acquisitions, expansions or development of new properties or for
other purposes. See "Federal Income Tax Considerations - Federal
Income Taxation of the Trust - Requirements for Qualification -
Annual Distribution Requirements."

As long as the Partnerships are in existence, the proceeds of
all common equity capital raised by the Company will be contributed
to the Partnerships in exchange for Units in the Partnerships in
accordance with the Issuance Percentages, as they may be amended
from time to time.

CONFLICTS OF INTEREST

Policies of Board of Trustees and Board of Directors. The
Board of Trustees of the Trust and the Board of Directors of the
Corporation have adopted a policy that any contract or transaction
between the Trust or the Corporation, as the case may be, and one
or more of its trustees, directors or officers, or between the
Trust or the Corporation, as the case may be, and any other entity
in which one or more of its trustees, directors or officers are
directors or officers, or have a financial interest, must be
approved by the disinterested trustees, directors or shareholders
after the material facts as to the relationship or interest and as
to the contract or transaction are disclosed or are known to them.

Independent Board Approval. The Trust's Trustees' Regulations
and the Corporation's Bylaws provide that a majority of the Board
of the Trust and a majority of the Board of the Corporation, as the
case may be, will be Independent Trustees/Directors, as applicable.
An "Independent Trustee/Director" is a director or trustee, as the
case may be, who is not employed by or affiliated with Starwood
Capital or the Company.

<PAGE>

In addition, the Trust's Declaration of Trust and the
Corporation's Bylaws, in each case, provide that, in addition to
any affirmative vote required either by law, the Partnership
Agreements, the Declaration of Trust of the Trust or the Articles
of Incorporation of the Corporation, any Transaction (as described
below) involving the Trust, the Corporation (or any of their
respective subsidiaries) or either of the Partnerships shall
require the affirmative vote of a majority of the members
("Disinterested Members") of the Board of Trustees of the Trust (in
the case of a Transaction involving the Trust or the Realty
Partnership) or the Board of Directors of the Corporation (in the
case of a Transaction involving the Corporation or the Operating
Partnership following receipt of Gaming Approval) who are not
employees, officers, directors, Affiliates or Associates (as each
is defined in the Securities Exchange Act of 1934) of, the
Interested Person who or which is a party to the Transaction.

A "Transaction" is defined as any contract, sale, lease,
exchange, mortgage, transfer or disposition to or with, or any
other transaction with, any Interested Person (including, without
limitation, any election with respect to the method of payment for
an exchange of Units). An "Interested Person" is any person or
entity who or which is the beneficial owner, directly or
indirectly, of 5% or more of the outstanding Paired Shares or the
outstanding Realty Units or Operating Units or who or which is an
Affiliate or Associate of the Trust, the Corporation or either of
the Partnerships.

The Declaration of Trust of the Trust requires that at least
a majority of the Board of Trustees be independent of any national
hotel chain.

The foregoing provisions may be amended or repealed only by a
majority of trustees or directors, as the case may be, who are not
employees, officers, directors, trustees, Affiliates or Associates
of the Trust, the Corporation, the Partnerships or any Interested
Person.

Policies Applicable to All Trustees and Directors. Under the
law of Maryland, each trustee of the Trust and each director of the
Corporation is obligated to offer to the Trust or the Corporation,
as the case may be, any business opportunity (with certain limited
exceptions) which comes to him and which the Trust or the
Corporation, as the case may be, could reasonably be expected to
have an interest in developing or acquiring. In addition, under
the MGCL, any contract or transaction between a corporation and any
director or any entity in which the director has a material
financial interest will be void or voidable unless (a) it is
approved, after disclosure of the interest, by the affirmative vote
of a majority of disinterested directors or by the affirmative vote
of a majority of the votes cast by disinterested stockholders, or
(b) it is fair and reasonable to the corporation. While the
Maryland law governing the Trust does not have a comparable
statutory provision, the Trust has adopted a comparable policy.

OTHER POLICIES

At all times, the Trust intends to make investments in such a
manner as to be consistent with the requirements of the Code to
qualify as a REIT unless, because of circumstances or changes in
the Code (or other applicable law, rules or regulations), the Board
of Trustees determines to revoke the Trust's REIT election.

The Trust and the Corporation do not intend to underwrite
securities of other issuers or actively trade in loans or other
investments.

The Trust and the Corporation have authority to offer Paired
Shares or other securities and to repurchase or otherwise re-
acquire their shares or any other securities and may engage in such
activities in the future. In addition, the Partnerships have the
authority to issue additional Units or other securities and to
repurchase Units or other securities and may do so in the future.
None of the Trust, the Corporation or the Partnerships have any
outstanding loans to their respective officers, directors or
trustees. The Trust, the Corporation and the Partnerships have
made and may make loans to joint ventures in which they participate
in order to meet working capital needs.

<PAGE>

MANAGEMENT

TRUSTEES AND EXECUTIVE OFFICERS OF THE TRUST

The following table sets forth certain information with
respect to each of the members of the Trust's Board of Trustees and
each of the Trust's executive officers:

POSITION(S)
NAME AND AGE AGE WITH THE TRUST TERM EXPIRES
- ------------ --- -------------- ------------
<S> <C> <C> <C>
Barry S. Sternlicht 34 Chairman, Trustee and Chief Executive Officer 1997
Jeffrey C. Lapin 38 President, Chief Operating Officer and Trustee 1996
Michael W. Mooney 48 Vice President and Chief Financial Officer N/A
Jonathan D. Eilian 27 Trustee 1996
Madison F. Grose 41 Trustee 1995
Earle F. Jones 68 Trustee 1995

</TABLE>

(1) Will become a Trustee at the completion of the Offering.

The Trust will appoint additional Independent Trustees prior
to the completion of the Offerings. The principal occupation for
the last five years of each trustee or executive officer of the
Trust is set forth below:

Barry S. Sternlicht. Mr. Sternlicht is Chairman and Chief
Executive Officer of the Trust. He was founder of Starwood Capital
(and co-founder of its predecessor entity in September 1991) and
has been the President and CEO of Starwood Capital Group, L.P.
since its formation. Prior to forming Starwood Capital, he was
Vice President and then Senior Vice President (from 1989 to 1991)
of JMB Realty Corporation, a real estate investment firm. Mr.
Sternlicht is currently a Trustee of each of Equity Residential
Properties Trust, a multifamily REIT, and Angeles Participating
Mortgage Trust, a REIT.

Jeffrey C. Lapin. Mr. Lapin is President and Chief Operating
Officer of the Trust. Mr. Lapin was the President and Chief
Executive Officer of the Trust from May 1991 to December, 1994 and
has been a Trustee since September 1992. Prior to that time he was
Vice President (from January 1988) and Secretary (from September
1986) of the Trust. Prior to 1986 Mr. Lapin was a real estate
attorney at Mitchell, Silberberg & Knupp in Los Angeles. Mr. Lapin
is a director of THQ, Inc., a licensee of Nintendo products. Mr.
Lapin has over ten years of experience in the hotel REIT industry.

Michael W. Mooney. Mr. Mooney has been Vice President and
Chief Financial Officer since July 1992. From March 1992 to July
1992 he was a Director of Finance of RELCO Industries, a real
estate development company. From August 1990 to March 1992, he was
Director of Finance of Dorn-Platz, Inc., a real estate brokerage
company. From July 1989 to August 1990, Mr. Mooney was an
independent real estate consultant. Prior to that time, he was
Executive Vice President and Chief Financial Officer of Gibraltar
Savings. Mr. Mooney's career reflects a total of 23 years of
experience in real estate finance.

Jonathan D. Eilian. Mr. Eilian has been Vice President and
then Senior Vice President of Starwood Capital (and its predecessor
entity) since its formation in September 1991. Prior to that time
he was Acquisitions Associate for the JMB Realty Corporation, a
private real estate investment firm, and The Palmer Group, L.P., a
private investment firm specializing in corporate acquisitions.
Mr. Eilian received an MBA from the Wharton Graduate School of
Business in 1991.

<PAGE>

Madison F. Grose. Mr. Grose has been Executive Vice President
and General Counsel of Starwood Capital (and its predecessor
entity) since July 1992. From November 1983 through June 1992, he
was a partner in the law firm of Pircher, Nichols & Meeks.

Earle F. Jones. Mr. Jones has been a Director of the
Corporation since 1985 and Chairman of the Board of Directors of
the Corporation since February 1989. He has been Co-Chairman of
MMI Hotel Group, a hotel company, since 1988. From 1967 to 1968,
Mr. Jones was President of the International Association of Holiday
Inns and served two terms as a Director. Mr. Jones is a Trustee
and Chairman of Communications Improvement Trust, whose
beneficiaries are public broadcasting and Tougaloo College Trust,
a member of the Board of Trustees for Millsaps College and the
Catholic Foundation, and Co-Chairman of the Mississippi Olympic
Committee.

DIRECTORS AND EXECUTIVE OFFICERS OF THE CORPORATION

The following table sets forth certain information with
respect to each of the members of the Corporation's Board of
Directors, and each of the Corporation's current executive
officers.

POSITION(S)
NAME AND AGE AGE WITH THE TRUST TERM EXPIRES
- ------------ --- -------------- ------------
<S> <C> <C> <C>
Earle F. Jones 68 Chairman of the Board of Directors and Director (1) 1995
Kevin E. Mallory 36 Executive Vice President N/A
Leslie R. King 52 Vice President of Operations N/A
Bruce M. Ford 54 Director (3) 1995
Steven Robert Goldman 33 Director and Senior Vice President (2) 1996
Barry S. Sternlicht 34 Director (2) 1997
Graeme W. Henderson 61 Director (1) 1995

</TABLE>

(1) Serves as a director until Gaming Approval received.
(2) Becomes a director upon Gaming Approval.
(3) Current director who continues in office after receipt of
Gaming Approval.

The Corporation will appoint additional Independent Directors
prior to the completion of the Offerings. The principal occupation
for the last five years of each director or executive officer of
the Corporation is set forth below.

Kevin E. Mallory. Mr. Mallory has been Executive Vice
President since July 1992. From December 1991 to July 1992 he was
President of Merit Hotel Group, a hotel development and consulting
company. From September 1989 to November 1991, he was Development
Director, Westin Hotels & Resorts, a hotel management Company.
Prior to that time he was Assistant Vice President and Asset
Manager, VMS Realty Partners, a real estate syndicator. Mr.
Mallory's career reflects 15 years of experience in the hotel
industry.

Leslie R. King. Mr. King has been Vice President of
Operations of the Corporation since 1992. From June 1991 to August
1992, Mr. King was Chief Operating Officer of Spring Garden Brewing
Company, a restaurant and brewery service company. From May 1988
to June 1991, Mr. King was Chief Executive Officer of and
Consultant to eight single hotel companies under common management.
Prior to 1988, Mr. King was Senior Vice President of Operations
Support for Red Lion Hotels & Inns. (He was named Vice President
in 1982 and Executive Vice President in 1984.) Mr. King's career
comprises 26 years of hotel and restaurant industry experience.

Bruce M. Ford. Mr. Ford has been a Director of the
Corporation since 1983. He has been President and Managing Partner
of F.K.B. Management Corporation, a restaurant management company,
since January 1988 and President of Ford Management Corporation, a
hotel/motel management and development company, since June 1988.
Prior to that time, Mr. Ford was Senior Vice President of
Operations of Ramada Inns. Mr. Ford's career reflects 34 years of
experience in the hotel industry.

<PAGE>

Steven Robert Goldman. Mr. Goldman has been a Senior Vice
President of the Corporation since March 1995. Mr. Goldman was a
Vice President of Starwood Capital, specializing in hotel
acquisitions and hotel asset management, from August 1993 to
February 1995. From 1990 to 1993 he was Senior Development Manager
of Disney Development Company, the real estate investment
development and management division of the Walt Disney Company.
From 1986 to 1990, Mr. Goldman was Director of Development of The
Hyatt Development Corporation.

Graeme W. Henderson. Mr. Henderson has been a Director of the
Corporation since March 1990. He was Chairman of the Trust from
July 1989 to December 1994 and Trustee of the Trust from September
1986 to December 1994. He has been an independent financial
consultant since January 1990. Prior to January 1990, Mr.
Henderson has been President of Henderson Consulting, Inc., a
private financial consulting firm. Mr. Henderson has been a
President of Capstan, Inc. (Formerly Seymour, Inc.), a manufacturer
of machine tool controls, since 1982. Mr. Henderson is currently
a Director of Capital Southwest Corporation.

For information with respect to the principal occupation and
business experience of Messrs. Sternlicht and Jones, see "-
Trustees and Executive Officers of the Trust," above.

Prior to receipt of Gaming Approvals, the Operating
Partnership will be managed by a management committee of the
Operating Partnership consisting of the members of the Board of
Directors who will take office upon receipt of the Gaming
Approvals. After receipt of the Gaming Approvals, the Corporation
will have authority to make decisions with respect to the Operating
Partnership. See "Structure of the Company - Management of the
Partnerships."

CLASSIFIED BOARDS; REMOVAL

The Boards of the Trust and the Corporation are divided into
three classes serving staggered terms so that the terms expire
either at the 1995, 1996 or 1997 annual shareholders meetings.
Starting with the 1995 annual meetings, one class will be elected
each year for three-year terms. Holders of Paired Shares have no
cumulative voting rights for the election of trustees and
directors. The executive officers of the Trust and the Corporation
serve at the pleasure of the Board of Trustees or the Board of
Directors, as the case may be, subject in the case of Messrs.
Lapin, Mooney and Mallory to the provisions of their respective
employment agreements with the Trust and the Corporation. See "-
Agreements with Executive Officers" below. There is no family
relationship among any of the Trustees, Directors or executive
officers of the Trust or the Corporation.

Directors of the Corporation may be removed only for cause
upon the affirmative vote of two-thirds of the votes entitled to be
cast for election. Trustees of the Trust may be removed with or
without cause by the affirmative vote of two-thirds of the votes
entitled to be cast for election. Any Trustee or Director
appointed to a vacant trusteeship or directorship will hold office
for a term expiring at the annual meeting at which the class to
which they have been appointed expires. These provisions preclude
shareholders of the Corporation from removing incumbent directors
without cause. Maryland law grants shareholders of a Maryland
corporation the right, together with the board of directors, to
fill vacancies created by the removal of a director. In the case
of the Trust, however, the shareholders may not fill vacancies
created by such removal with their own nominees.

INDEPENDENT BOARD APPROVAL

For information regarding independent board approval
requirements, see "Policies with Respect to Certain Activities -
Conflict of Interest - Independent Board Approval."

BOARD COMMITTEES

The Board of Trustees of the Trust and the Board of Directors
of the Corporation has established Executive, Audit, Compensation
and Nominating Committees, the principal functions of which are
described below.

<PAGE>

Executive Committee. To the extent permitted by law, the
Executive Committee is authorized to exercise the powers of the
applicable Board with respect to the management of the business and
affairs of the Trust or the Corporation, as the case may be,
between meetings of the Board, except that the Executive Committee
of the Corporation may not declare dividends or distributions on
stock, issue stock, recommend to the stockholders any action which
requires stockholder approval, adopt, amend or repeal the
Corporation's Bylaws, or approve any merger or share exchange which
does not require stockholder approval. The Board of Directors of
the Corporation does not currently have an Executive Committee.
The members of the Executive Committee of the Trust are Messrs.
___________ and ___________ and the members of the Executive
Committee of the Corporation are Messrs. ___________ and
___________.

Audit Committee. The Audit Committee has the following
powers, duties and functions: (i) to select the firm of independent
public accountants to audit the consolidated financial statements
of the Company and its subsidiaries, subject to the approval of the
applicable Board, (ii) to discuss with such independent public
accountants the scope and results of their audit, (iii) to discuss
with such independent public accountants, and with the management
of the Company, the Company's financial accounting and reporting
principles, policies and practices and the adequacy of the
Company's accounting, financial and operating controls and (iv) to
report to the applicable Board with respect to the foregoing, at
such times and in such manner as such Board shall determine. The
members of the Audit Committee of the Trust are Messrs. ___________
and ___________ and the members of the Audit Committee of the
Corporation are Messrs. Ford and Jones.

Compensation Committee. The Compensation Committee has the
authority to make recommendations to the applicable Board with
respect to the salaries and other compensation to be paid to the
executive officers of the Company and to administer the Company's
employee benefit plans. The members of the Compensation Committee
of the Trust are Messrs. __________ and __________ and the members
of the Compensation Committee of the Corporation are Messrs. Ford
and Jones.

Nominating Committee. The Nominating Committee recommends to
the applicable Board nominees for trustees of the Trust and
directors of the Corporation. The members of the Nominating
Committee of the Trust are Messrs. __________ and __________ and
the member of the Nominating Committee of the Corporation is Mr.
Jones.

In connection with the settlement of two purported class
actions, the Trust's Board of Trustees and the Corporation's Board
of Directors have established a joint transaction committee of
Independent Trustees and Directors to make recommendations to those
Boards with respect to any transaction proposed by management
having a fair market value of $20 million or more.

COMPENSATION OF TRUSTEES/DIRECTORS

Each Trustee or Director who is not also an officer of the
Trust or the Corporation receives annual trustee's or director's
fees of $6,000 and is reimbursed for any out-of-pocket expenses
incurred in attending meetings of the Board of Trustees or the
Board of Directors. Each Trustee and Director will also receive
options to purchase Paired Shares at the public offering price.
See "- Stock Options." The Chairman of each Board receives an
additional fee of $2,500 per year. In addition, each non-officer
Trustee or Director receives a fee of $750 for each meeting in
which he participates (or, in the case of telephonic meetings,
$500) and a fee of $500 for each committee meeting in which he
participates ($1,000 per meeting for committee chairman). Trustees
and Directors may also receive options to purchase Paired Shares.
See "- Options and Other Awards" below.

LIABILITY AND INDEMNITY OF DIRECTORS AND TRUSTEES

Maryland law provides that a corporation's charter or a real
estate investment trust's declaration of trust may include a
provision eliminating or limiting the personal liability of a
director, trustee or officer to the corporation or real estate
investment trust or its shareholders, as the case may be, for money
damages except (i) to the extent that it is proved that the person
actually received an improper benefit or profit in money, property,
or services, for the amount of the benefit or profit in money,
property, or services actually received or (ii) to the

<PAGE>

extent that a judgment or other final adjudication adverse to the
person is entered in a proceeding based on a finding that the
person's action, or failure to act, was the result of active and
deliberate dishonesty and was material to the cause of action
adjudicated in the proceeding. The Corporation's Articles of
Incorporation and the Trust's Declaration of Trust provide that the
Corporation's directors and officers and the Trust's trustees and
officers are shielded from personal liability for money damages to
the fullest extent permitted by the Maryland law.

Under the MGCL, a corporation and under the Maryland REIT Law,
a real estate investment trust may indemnify any director, officer
or trustee made a party to any proceeding unless it is established
that (i) the director's, officer's or trustee's act or omission was
material to the cause of action and was committed in bad faith or
resulted from active and deliberate dishonesty, (ii) the director,
officer or trustee actually received an improper benefit in money,
property or services, or (iii) in the case of criminal proceedings,
the director, officer or trustee had reasonable cause to believe
the act or omission was unlawful. The Corporation's Articles of
Incorporation and the Trust's Declaration of Trust provide that the
Corporation and the Trust will indemnify their officers, directors
and trustees. The Company has entered into indemnification
agreements with its directors, trustees and executive officers
providing for the maintenance of directors and officers liability
insurance subject to certain conditions, and the indemnification of
and advancement of expenses to such directors, trustees and
executive officers and the Company intends to enter into such
indemnification agreement with its directors, trustees and
executive officers in the future.

As part of the Reorganization, each of the Trust and the
Corporation agreed to, and Starwood Capital agreed to use its best
efforts to cause the Trust and the Corporation to, indemnify,
defend and hold harmless the respective officers, trustees,
directors and employees of the Trust and the Corporation and any of
their respective subsidiaries (at the time the Formation Agreement
was executed) against all losses, expenses, claims, damages or
liabilities arising out of actions or omissions occurring on or
prior to the Reorganization (including, without limitation, the
Reorganization) to the full extent permitted or required under
applicable law (and to advance expenses as incurred to the fullest
extent permitted under applicable law, provided that the person to
whom expenses are advanced provides an undertaking to repay such
advances if it is ultimately determined that such person is not
entitled to indemnification). Each of the Trust and the
Corporation also agreed to, and Starwood Capital agreed to use its
best efforts to cause the Trust and the Corporation to, maintain in
effect for not less than seven years the current policies of
directors' and officers' liability insurance maintained by the
Trust and the Corporation with respect to matters occurring prior
to the consummation of the Reorganization. The foregoing
indemnification provisions may include indemnification for
securities law liabilities and, to the extent permitted under
Maryland law, for wilful misconduct and criminal violations.
Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers or
persons controlling the Company pursuant to the foregoing
provisions, the Company has been informed that in the opinion of
the Securities and Exchange Commission such indemnification is
against public policy as expressed in the Act and is therefore
unenforceable. Maryland law provides for certain limitations on
indemnification. In addition to the foregoing, the Formation
Agreement also provides that all rights to indemnification,
including provisions relating to advances of expenses incurred in
defense of any action or suit, existing in favor of directors,
officers and employees of the Trust and the Corporation or any of
their respective subsidiaries at the time the Formation Agreement
was executed would survive the consummation of the Reorganization
and continue in full force and effect.

SUMMARY OF CASH AND CERTAIN OTHER COMPENSATION

The Trust. The following table provides certain summary
information concerning the compensation paid to the Trust's
President and Chief Executive Officer and each other executive
officer of the Trust whose total compensation for 1994 exceeded
$100,000 for services rendered in all capacities to the Trust for
the fiscal years ended December 31, 1994, 1993 and 1992.

<PAGE>

SUMMARY COMPENSATION TABLE

LONG TERM ALL OTHER
ANNUAL COMPENSATION COMPENSATION
------------------- ------------ ----------
NAME AND AWARDS
PRINCIPAL OPTIONS/
POSITION YEAR SALARY BONUS SARS (#)
- ---------- ----- ------ ----- ---------

Jeffrey C. Lapin 1994 $190,000 $75,000 2,000(2)
President and Chief 1993 170,834 20,000
Executive Officer(1) 1992 150,792 8,333(2) $23,585(3)

Michael W. Mooney 1994 150,000 20,000 1,500(2)
Vice President and 1993 140,416 11,667
Chief Financial 1992 61,026 4,167(2)
Officer
___________________
(1) On January 31, 1995, Mr. Lapin became President and Chief
Operating Officer of the Trust and Barry S. Sternlicht
became Chairman and Chief Executive Officer of the Trust.
(2) For information with respect to this option, see "- Stock
Options," below. Share amount has been adjusted for an
assumed one-for-six reverse stock split.
(3) Amount shown reflects cash paid for unused vacation.

The Corporation. The following table provides certain summary
information concerning the compensation paid to each executive
officer of the Corporation whose total compensation for 1994
exceeded $100,000 for services rendered in all capacities to the
Corporation for the fiscal years ended December 31, 1994, 1993 and
1992.

SUMMARY COMPENSATION TABLE

LONG TERM
ANNUAL COMPENSATION COMPENSATION
------------------- ------------
NAME AND AWARDS
PRINCIPAL OPTIONS/
POSITION YEAR SALARY BONUS SARS (#)
- ---------- ----- ------ ----- ---------
Kevin E. Mallory 1994 $150,000 $37,500 1,500(1)
Executive Vice 1993 140,416 11,667
President 1992 63,718 4,167(1)

_________________
(1) For information with respect to this option, see "- Stock
Options," below. Share amount has been adjusted for an
assumed one-for-six reverse stock split.

STOCK OPTIONS

As of December 31, 1994, employee stock options issued by the
Corporation to purchase 49,880 Paired Shares were outstanding and
employee stock options issued by the Trust to purchase 49,880
Paired Shares were outstanding.

<PAGE>

The following table provides information with respect to the
options held as of December 31, 1994 by the executive officers of
the Trust and the executive officers of the Corporation named in
the Summary Compensation Tables above. No options were exercised
by any of those executive officers during 1994.
<TABLE>
<CAPTION>

AGGREGATED OPTION/SAR EXERCISES IN 1994
AND DECEMBER 31, 1994 OPTION VALUES

NUMBER OF SHARES
UNDERLYING UNEXERCISED
OPTIONS/SARS AT FISCAL VALUE OF UNEXERCISED
YEAR-END (#)(1) IN-THE-MONEY OPTIONS/SARs ($)(2)
--------------------------- --------------------------------
Name Exercisable Unexercisable Exercisable Unexercisable
<S> <C> <C> <C> <C>
Jeffrey C. Lapin 13,333 2,000 109,500 2,280
Michael W. Mooney 4,167 1,500 54,750 1,710
Kevin E. Mallory 4,167 1,500 54,750 1,710

</TABLE>
____________________
(1) Share amounts have been adjusted for an assumed one-for-six
reverse stock split.
(2) Value is defined as market price of the Paired Shares at
December 31, 1994 less exercise price of the option. The
average of the high and low market prices of the Paired Shares
at December 31, 1994 was $17.64 (adjusted to reflect an
assumed one-for-six reverse stock split).

The Company adopted, effective upon the closing of the
Offerings, its 1995 Share Option Plan (the "1995 Option Plan").
Pursuant to the 1995 Option Plan, certain officers, trustees,
directors and key employees of the Company, as well as certain
principals of Starwood Capital, may be offered the opportunity to
acquire an aggregate of up to 1,450,000 Paired Shares through the
grant of share options ("Options"), including non-qualified share
options and, for key employees, incentive share options within the
meaning of Section 422 of the Code. The Board of Trustees, in the
case of the Trust, and the Board of Directors, in the case of the
Corporation, will determine the vesting schedule, if any, of each
Option and the term, which term shall not exceed ten years from the
date of grant; provided, however, that each Board may, in its sole
discretion, delegate such determinations to its respective
Compensation Committee. No Options granted pursuant to the 1995
Option Plan after completion of the Offerings shall be exercisable
at a price per Paired Share less than fair market value at the date
of grant.

All Options granted under the 1995 Option Plan will vest as
follows: one-third, one year after the date of initial grant; one-
third two years following such date; and the remaining one-third
three years following such grant.

The Compensation Committee intends to make initial grants to
key employees of the Company and others of Options to purchase up
to _____ Paired Shares. It is expected that the Options will be
exercisable at an exercise price equal to the initial public
offering price of the Paired Shares in the Offerings. The
following table sets forth the Options to be granted to the
Company's trustees, directors, executive officers and others on the
closing of the Offerings.

[Insert Table]

The 1995 Option Plan will terminate at such time as no further
Paired Shares are available for issuance upon the exercise of
Options and all outstanding Options have expired or been exercised.
The Board of Trustees of the Trust and the Board of Directors of
the Corporation, acting jointly, may at any time amend or terminate
the 1995 Option Plan, but termination will not affect Options
previously granted. Any Options which had vested prior to such a
termination would remain exercisable by the holder thereof.
Shareholder approval of the 1995 Option Plan or of any amendment to
the 1995 Option Plan may be required, including in connection with
compliance with Rule 16b-3 promulgated under Section 16(b) of the
Securities Exchange Act of 1934, as amended (the "Exchange Act").

<PAGE>

The Paired Shares available under the 1995 Option Plan will be
registered under a Form S-8 registration statement to be filed
within 12 months after the effective date of the registration
statement relating to the Paired Shares offered hereby.

The 1995 Option Plan shall be administered by the Boards or
their respective Compensation Committees. The Boards or their
Compensation Committees will interpret the 1995 Option Plan, adopt
rules relating thereto and determine the terms and provisions of
Options. The Boards or their respective Compensation Committees
will also have the authority to accelerate Option exercise rights
or make other adjustments if the Company is merged or consolidated,
the property or other shares of beneficial interest of the Company
are acquired by another corporation or the Company is reorganized,
liquidated or impacted by an extraordinary transaction.

AGREEMENTS WITH EXECUTIVE OFFICERS

Employment Agreements. The Trust has employment agreements
with Messrs. Lapin and Mooney, and the Corporation has an
employment agreement with Mr. Mallory which provide that they will
receive annual salaries in 1995 of $200,000, $150,000 and $150,000,
respectively, and such annual bonuses, if any, as the Boards of the
Trust and the Corporation may determine. Mr. Lapin's employment
agreement expires on January 31, 1997; Mr. Mooney's employment
agreement expires June, 1995; and Mr. Mallory's employment
agreement expires June, 1995. Mr. Lapin is entitled to an annual
bonus of not less than $75,000 and was granted options to purchase
41,667 Paired Shares at an exercise price equal to $16.30 per
Paired Share (the fair market value of the Paired Shares on the
date of grant) and will vest at a rate no longer than the most
rapid rate of vesting of options granted to any other executive
during the term of his employment agreement. Mr. Lapin's annual
salary will increase to $225,000 in 1996. Each of Messrs. Lapin,
Mooney and Mallory also is eligible to participate in all employee
benefit plans and fringe benefits, if any, the Trust or the
Corporation makes available to its other executive officers. The
employment of Messrs. Mooney and Mallory pursuant to the employment
agreements may be terminated by the Trust or Corporation,
respectively at any time; provided, however, that if either such
officer's employment is terminated without cause (as defined) the
terminated officer will be entitled to receive the lesser of (i)
that officer's salary for the then-remaining term of the employment
agreement or (ii) $75,000 (in the case of Messrs. Mooney or
Mallory). Mr. Lapin may terminate his employment for "Good Reason"
as defined in the employment agreement including an assignment of
duties inconsistent with his position, a substantial alteration of
his responsibilities, a breach of the agreement by the Trust,
removal from office without cause (as defined), relocation of the
Trust's principal executive offices, a change in the composition of
51% of the Trustees, a decision by the Board of Trustees that the
Trust shall merge, sell or dispose of all or substantially all of
its assets, dissolve or liquidate, or the failure of Mr. Lapin to
be a member of the Board of Trustees other than for cause (as
defined). If Mr. Lapin so terminates his employment, he will be
entitled to receive a lump sum payment equal to the base salary and
bonuses that would have been payable had he continued to be
employed for the remainder of the term of the employment agreement,
and all fringe benefits to which he would have been entitled
through the remainder of the term of the employment agreement
(other than stock options or stock loans not granted prior to the
date of termination).

Non-Competition Agreements. The Company has entered into non-
competition agreements with its executive officers, which prohibits
them from engaging directly or indirectly in the hotel business
during the period they are officers of the Company. The Company
has also entered into the Starwood Noncompete Agreement with
Starwood Capital (see "Structure of the Company - Management of the
Partnerships") and a similar agreement with Barry S. Sternlicht.

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Reorganization. See "Structure of the Company - Formation of
the Partnerships and the Reorganization" for a description of
certain transactions between Starwood Capital and the Company in
connection with the Reorganization. Barry S. Sternlicht, the
President and Chief Executive Officer of the general partners of
Starwood Capital is also the Chairman and Chief Executive Officer
of the Trust and is a trustee of the Trust, a director of the
Corporation and on the management committee of the Operating
Partnership.

<PAGE>

Certain Reimbursements and Payments to Starwood Capital. The
Company has reimbursed or will reimburse Starwood Capital for
approximately $1 million out-of-pocket expenses and other costs
incurred by Starwood Capital in connection with services rendered
on behalf of the Company. Starwood Capital and the Company have
agreed that Starwood Capital will be reimbursed for costs and
expenses for any services provided to the Company, subject to
approval by the Independent Trustees or Directors, as appropriate,
provided that such costs and expenses do not exceed the market
rates therefor.

Starwood Capital provided to the Company $3.6 million of
interim subordinated financing in order to enable the Company to
acquire the Omni Chapel Hill Hotel in Chapel Hill, North Carolina.
See "Business Objectives and Growth Strategy - Implementation of
Strategies." Such subordinated indebtedness bears interest at a
rate of LIBOR plus 3%, which is being paid currently, and such
subordinated indebtedness will be repaid from the proceeds of the
Offerings. See "Use of Proceeds."

As part of the consideration to Starwood Capital in connection
with the Reorganization (which was approved by the shareholders of
the Trust and the Corporation in December 1994), the Partnerships
agreed to pay an amount to Starwood Capital only if the Trust and
the Corporation consummated a public offering of Paired Shares
prior to July 31, 1996, which offering results in the receipt by
the Trust and the Corporation of gross proceeds of not less than
$150 million. Assuming a public offering price of $24 per Paired
Share, such payment would be approximately $3.6 million. Such
payment will be made from the proceeds of the Offerings. See "Use
of Proceeds."

Ross Agreement. In November, 1994, Starwood Capital entered
into an agreement (the "Ross Agreement") with Leonard Ross and his
affiliates ("Ross"). Ross held approximately 9.8% of the
outstanding Paired Shares and had opted out of the settlement by
the Company of certain shareholder litigation unrelated to the
Reorganization or Starwood Capital. Virtually all other
shareholders of the Company were bound by such settlement. In
addition to preserving his rights to institute an action against
the Company with respect to the matters covered by such settlement,
Ross had threatened to assert other alleged causes of action
against the Company.

The Ross Agreement was entered into in settlement of the
threatened litigation by Ross and provides for an assignment to
Starwood Capital of Ross' claims. Starwood Capital also received
a proxy to vote Ross' Paired Shares and Starwood Capital has agreed
to purchase those Paired Shares, at Ross' election, in a 60-day
period beginning on December 15, 1995, at a price of $33.75 (as
adjusted for an assumed one-for-six reverse stock split) per Paired
Share. Starwood Capital may also elect to purchase such Paired
Shares at the same time and on the same terms. In December 1994,
Ross sold 33,167 (as adjusted for the reverse stock split) of the
Paired Shares, which remain subject to such purchase agreement.
Ross has agreed not to purchase or sell any Paired Shares during
the period specified for the purchase of his Paired Shares and not
more than 4.9% thereafter.

The Company agreed to indemnify and hold harmless Starwood
Capital (and its subsidiaries, affiliates and successors) against
liabilities, losses or damages and reasonable out-of-pocket
expenses (i) incurred in connection with any action, suit or
proceeding brought by a holder of Paired Shares against Starwood
Capital relating to the Reorganization or (ii) under or in respect
of the Ross Agreement (other than, in each case, to the extent such
liabilities, losses, damages or expenses arose from a breach by
Starwood Capital of any agreement entered into in connection with
the Reorganization, or the Ross Agreement or a breach of any
fiduciary duty by Starwood Capital); provided that the aggregate
indemnification obligation of the Company under the provisions
described in clause (ii) is limited to $1,800,000. The
Partnerships have agreed to reimburse the Company for costs
incurred pursuant to such indemnification obligation.

Senior Debt Related Transactions. In May 1994, Starwood
Capital purchased (at a discount) approximately $21 million of the
Company's senior debt at a public auction by the institutional
holder of such debt. In August 1994, an affiliate of Merrill Lynch
(the "New Lender") purchased $74 million of the Company's senior
debt, including the senior debt previously held by Starwood
Capital, pursuant to a privately negotiated transaction and at a
discount. In conjunction with such purchase by the New Lender, it
entered into an agreement (the "Swap Agreement") providing that (i)
Starwood Capital could acquire such senior debt within a specified
period at the New Lender's cost basis and (ii) the excess of debt
service payments made by the Company on such senior debt over the

<PAGE>

New Lender's cost basis, together with a specified return thereon,
would be payable to Starwood Capital. In March 1995, the Company's
senior debt was refinanced by the New Lender and the Swap Agreement
was terminated, with Starwood Capital receiving (a) the return of
$13.1 million of cash collateral which it had deposited as security
for its obligations in respect of the Swap Agreement, (b)
additional cash of $2.7 million, (c) $12 million of the Company's
senior debt and (d) certain warrants attendant to the senior debt.
As required by the Formation Agreement, Starwood Capital
contributed such senior debt to the Partnerships in exchange for
813,880 Units of the Partnerships (see "Structure of the Company -
Formation of the Partnerships and the Reorganization"). The
Company will also pay a $786,000 note to Starwood Capital issued to
cancel certain warrants relating to the senior debt in accordance
with the requirements of such senior debt.

Share Purchase Agreements. Prior to December 1989, the
Company maintained share purchase plans pursuant to which Trustees,
Directors, officers and employees of the Company were granted
rights to purchase Paired Shares from the Trust and the Corporation
at prices based upon the then fair market value of the Paired
Shares. A purchaser of Paired Shares under a share purchase plan
made a cash down payment equal to 10% of the purchase price and
executed a promissory note in favor of the Company for the balance.
Certificates evidencing Paired Shares purchased under a share
purchase plan were pledged to the Company as collateral to secure
payment of the promissory note. Prior to the satisfaction of the
obligations represented by the note, the purchaser was entitled to
vote the Paired Shares held in pledge, but could not transfer the
purchaser's interest in those shares. During 1994, the share
purchase agreements between the Company and each of Messrs.
Henderson, Samuels and Ford were terminated and the non-recourse
indebtedness thereunder was cancelled (an aggregate of $56,250 with
respect to Mr. Henderson, $82,391 with respect to Mr. Samuels,
$108,784 with respect to Mr. Ford). In addition, the Paired Shares
pledged in respect of such indebtedness were either released from
such pledge, to the extent that such indebtedness had been repaid
(an aggregate of 224 Paired Shares for which $20,625 was paid with
respect to Mr. Henderson, 357 Paired Shares for which $39,922 was
paid with respect to Mr. Samuels, and 466 Paired Shares for which
$45,279 was paid with respect to Mr. Ford) or were forfeited by the
individual, to the extent such indebtedness had not been repaid.

PRINCIPAL SHAREHOLDERS

The following table sets forth information as of April __,
1995, but after giving effect to the Offerings, regarding the
beneficial ownership of the Paired Shares by (i) each person known
by the Company to be the beneficial owner of more than five percent
of the Paired Shares, (ii) each director and executive officer of
the Corporation and (iii) each trustee and executive officer of the
Trust. Each beneficial owner has sole voting and investment power
with respect to all Paired Shares beneficially owned, except as
otherwise set forth in the notes to the table. All share amounts
have been adjusted for an assumed one-for-six reverse stock split.

<TABLE>

<CAPTION>
PAIRED SHARES TO BE
BENEFICIALLY
OWNED ASSUMING
EXCHANGE BY
STARWOOD CAPITAL
OF ALL OF ITS
UNITS FOR PAIRED
PAIRED SHARES TO SHARES AND
BE BENEFICIALLY CONSUMMATION OF
OWNED (1) THE OFFERINGS(1)

PERCENT
NAME AND ADDRESS OF OF
BENEFICIAL OWNER AMOUNT CLASS
_____________________ ______ _______
<S> <C> <C>
Starwood Capital and
Barry S.
Sternlicht(2). . . . . . . . . . . 49,933 (7)
U.S. Bancorp(4). . . . . . . . . . 166,000 8.2%
Leonard M. Ross(3) . . . . . . . . 165,233 8.2%
Edward J. Okay
and
Dorothy P. Okay(5) . . . . . . . 125,000 6.2%
Jeffrey C. Lapin . . . . . . . . . 16,292(6) (7)
Michael W. Mooney. . . . . . . . . 4,167(8) (7)
Graeme W. Henderson. . . . . . . . 7,974(9) (7)
Kevin E. Mallory . . . . . . . . . 4,275(10) (7)
Bruce M. Ford. . . . . . . . . . . 736(11) (7)
Earle F. Jones . . . . . . . . . . 1,083(12) (7)
All Trustees, Directors
and Officers as a Group. . . . . 538,693(13) __%
</TABLE>

<TABLE>
<CAPTION>
PAIRED SHARES TO BE
BENEFICIALLY
OWNED ASSUMING
EXCHANGE BY
STARWOOD CAPITAL
OF ALL OF ITS
UNITS FOR PAIRED
SHARES AND
CONSUMMATION OF
THE OFFERINGS(1)
PERCENT
NAME AND ADDRESS OF OF
BENEFICIAL OWNER AMOUNT CLASS
_____________________ ______ _______
<S> <C> <C>
Starwood Capital and
Barry S.
Sternlicht(2). . . . . . . . . . . 5,993,514 33.2%
U.S. Bancorp(4). . . . . . . . . . 166,000 (7)
Leonard M. Ross(3) . . . . . . . . 165,223 (7)
Edward J. Okay
and
Dorothy P. Okay(5) . . . . . . . 125,000 (7)
Jeffrey C. Lapin . . . . . . . . . 16,292 (7)
Michael W. Mooney. . . . . . . . . 4,167 (7)
Graeme W. Henderson. . . . . . . . 7,974 (7)
Kevin E. Mallory . . . . . . . . . 4,275 (7)
Bruce M. Ford. . . . . . . . . . . 736 (7)
Earle F. Jones . . . . . . . . . . 1,083 (7)
All Trustees, Directors
and Officers as a Group. . . . . 6,026,041 33.4%

</TABLE>

(1) Does not include _______ Paired Shares subject to Options to
be granted pursuant to the 1995 Option Plan. See "Management
- Stock Options."
(2) The business address for Starwood Capital and Mr. Sternlicht
is c/o Starwood Capital Group, L.P., Three Pickwick Plaza,
Suite 250, Greenwich, CT 06830. Based on information
contained in a Schedule 13D dated January 31, 1995, filed by
Starwood Capital, Barry S. Sternlicht and the following
Starwood Capital entities: Starwood Opportunity Fund II, L.P.
("SOFI II"), Firebird Consolidated Partners, L.P., Woodstar
Partners, I, L.P., Starwood-Huntington Partners, L.P.,
Starwood/Wichita Investors, L.P., Starwood-Nomura Hotel
Investors, L.P., Starwood-Apollo Hotel Partners IX, L.P.,
Starwood Apollo Hotel Partners VIII, L.P. and Berl Holdings,
L.P. Such Schedule 13D reports that SOFI II owns 49,933
Paired Shares and that SOFI II and Mr. Sternlicht have the
power to vote and dispose of such shares and that the Starwood
Capital entities hold units in the Realty Partnership and the
Operating Partnership which are, subject to the 8.0% Ownership
Limit, exchangeable for an aggregate of 5,943,578 Paired
Shares (approximately 74.6% of the outstanding Paired Shares
after such exchange, without giving effect to the Offerings).
Such Schedule 13D reports that because of the 8.0% Ownership
Limit, the Starwood Capital entities cannot beneficially own
more than 8.0% of the outstanding Paired Shares. The amount
beneficially owned and the percent of class assumes that
Starwood Capital entities exchange units for Paired Shares to
the maximum extent permitted within the ownership limit
provisions. Does not include Paired Shares beneficially owned
by Mr. Ross. See Note (3) below.
(3) The business address for Mr. Ross is 1011-1/2 N. Beverly Dr.,
Beverly Hills, CA. Based on information contained in
Amendment No. 10 to Schedule 13D dated February 22, 1991.
151,633 of these shares are pledged to the Pacific Bank, along
with other securities, as collateral for a previously
unsecured loan. Pursuant to the Ross Agreement, Starwood
Capital has agreed to purchase Ross' Paired Shares (and, in
addition 33,167 Paired Shares sold by Ross in December 1994)
at Ross' election during a 60-day period beginning in December
1995, at a price of $33.75 per Paired Share. Starwood Capital
has a proxy from Ross to vote all of such Paired Shares, and
may also elect to purchase such Paired Shares at the same time
on the same terms. See "Certain Relationships and Related
Transactions."
(4) The business address for U.S. Bancorp is 111 S.W. Fifth
Avenue, Portland, OR 97204. Based on information contained in
Schedule 13G dated February 10, 1995, the securities are held
by Qualivest Capital Management, Inc. (a wholly-owned
subsidiary of U.S. Bancorp) and the Trust Group of the United
States Bank of Oregon in the amount of 79,950 and 86,050
shares, respectively. U.S. Bancorp has sole dispositive power
with respect to 154,250 shares and sole voting power with
respect to all of these shares.
(5) The address for Edward J. and Dorothy P. Okay is 111 Quayside
Drive, Jupiter, FL 33477. Based on information contained in
a Schedule 13D dated January 4, 1995. Edward J. Okay has sole
voting power and shares dispositive power with Dorothy P. Okay
with respect to all of these shares.
(6) Includes 14,000 shares subject to presently exercisable
options and 2,167 shares owned in a pension plan of which
Mr. Lapin is sole trustee and beneficiary.
(7) Less than 1%.
(8) Includes 4,167 shares subject to presently exercisable
options.
(9) Includes 50 shares owned in a Keogh plan and 2,667 shares
subject to paired warrants issued by the Trust and the
Corporation.
(10) Includes 4,167 shares subject to presently exercisable
options.
(11) Includes 404 shares subject to paired warrants issued by the
Trust and the Corporation, 29 of which are owned by Mr. Ford's
wife.
(12) Includes 83 shares subject to paired warrants issued by the
Trust and the Corporation.
(13) Includes 31,000 shares that may be acquired upon the exercise
of presently exercisable options, ______ shares issued or to
be issued pursuant to the 1995 Option Plan and 3,320 shares
subject to the 1986 Warrants.

SHARES AVAILABLE FOR FUTURE SALE

Upon the completion of the Offerings, there will be 12,122,158
outstanding Paired Shares, 5,943,578 Paired Shares reserved for
issuance upon

<PAGE>

exchange of Units and 276,662 Paired Shares reserved for issuance
upon the exercise of the 1986 Warrants. Starwood Capital is
entitled to exchange its Units for Paired Shares on a one-for-one
basis or, at the option of the Company, cash or a combination of
Paired Shares and cash. Upon exchange of its Units, Starwood
Capital would, subject to the Ownership Limitation, be entitled to
the receipt of an additional 5,943,578 Paired Shares. The Paired
Shares issued in the Offerings will be freely tradeable by persons
other than "Affiliates" of the Company without restriction under
the Securities Act, subject to the Ownership Limitation. See
"Capital Stock - Ownership Limits; Restrictions on Transfer;
Repurchase and Redemption of Shares."

The Paired Shares which may be issued to Starwood Capital upon
exchange of its Units will be "restricted" securities under the
meaning of Rule 144 promulgated under the Securities Act ("Rule
144") and may not be sold in the absence of registration under the
Securities Act unless an exemption from registration is available,
including exemptions contained in Rule 144. As described below,
the Company granted Starwood Capital registration rights with
respect to its Paired Shares. Starwood Capital has entered into a
Lock-Up Agreement with the Underwriters pursuant to which, with
limited exceptions, it is not permitted to offer, sell, contract to
sell or otherwise dispose of any Units or Paired Shares for a
twelve month period from the closing of the Offerings without the
consent of Merrill Lynch and the Company. See "Underwriting."

In general, under Rule 144 as currently in effect, if two
years have elapsed since the later of the date of acquisition of
restricted shares from the Company or any "Affiliate" of the
Company, as that term is defined under the Securities Act, the
acquiror or subsequent holder thereof is entitled to sell within
any three month period a number of shares that does not exceed the
greater of 1% of the then outstanding Paired Shares or the average
weekly trading volume of the Paired Shares during the four calendar
weeks preceding the date on which notice of the sale is filed with
the Securities and Exchange Commission. Sales under Rule 144 also
are subject to certain manner of sale provisions, notice
requirements and the availability of current public information
about the Company. If three years have elapsed since the date of
acquisition of restricted shares from the Company or from any
"Affiliate" of the Company, and the acquiror or subsequent holder
thereof is deemed not to have been an "Affiliate" of the Company at
any time during the 90 days preceding a sale, such person would be
entitled to sell such shares in the public market under Rule 144(k)
without regard to the volume limitations, manner of sale
provisions, public information requirements or notice requirements.

The Company has agreed to file, as soon as practicable after
the request of Starwood Capital, subject to certain limitations,
one or more registration statements with the Commission for the
purpose of registering the sale of Paired Shares issuable to
Starwood Capital upon the exchange of its Units. Upon
effectiveness of such registration statement, Starwood Capital may
sell such shares in the secondary market without being subject to
the volume limitations or other requirements of Rule 144. See
"Structure of the Company - Limited Partner Rights - Exchange
Rights."

No prediction can be made as to the effect, if any, that
future sales of Paired Shares, or the availability of Paired Shares
for future sale, will have on the market price prevailing from time
to time. Sales of substantial amounts of Paired Shares, or the
perception that such sales could occur, may affect adversely
prevailing market prices of the Paired Shares. See "Risk Factors -
Effect of Various Factors on Share Price."

CAPITAL STOCK

GENERAL

The Trust's Declaration of Trust authorizes the Trust to issue
135 million shares of beneficial interests in the Trust, including
(i) 100 million Trust Shares, with a par value of $0.01 per share,
(ii) 10 million preferred Shares, with a par value of $0.01 per
share ("Preferred Shares"), (iii) 20 million excess trust shares,
with a par value of $0.01 per share ("Excess Common Trust Shares")
and (iv) 5 million excess Preferred Shares, with a par value of
$0.01 per share ("Excess Preferred Trust Shares" and, together with
the Excess Common Trust Shares, the "Excess Trust Shares"). The
Trust's Declaration of Trust grants the Board of Trustees the power
to create and authorize the issuance of Preferred Shares in one or
more classes or series, having such voting rights, such rights to
dividends and distribution and rights in Liquidation, such
conversion, exchange and redemption rights and such

<PAGE>

designations, preferences and participations and other limitations
and restrictions as are not prohibited by the Declaration of Trust
or applicable law and as are specified by the Board of Trustees in
its discretion. The Board of Trustees has not created or
authorized any class or series of Preferred Shares. No Excess
Trust Shares are outstanding.

The Articles of Incorporation of the Corporation authorize the
Corporation to issue 135 million shares, consisting of (i) 10
million shares of preferred stock, with a par value of $0.01 per
share ("Corporation Preferred Stock"), (ii) 100 million Corporation
Shares, (iii) 20 million shares of excess common stock, with a par
value of $0.01 per share ("Excess Corporation Common Stock"), and
(iv) 5 million shares of excess preferred stock, with a par value
of $0.01 per share, ("Excess Corporation Preferred Stock" and,
together with the Excess Corporation Common Stock, the "Excess
Corporation Stock"). The Corporation Preferred Stock is issuable
in classes or series with such rights, preferences, privileges and
restrictions as the Board of Directors of the Corporation may
determine, including voting rights, redemption provisions, dividend
rates, liquidation preferences and conversion rights. No such
class or series of Corporation Preferred Stock has been
established. No Excess Corporation Stock is outstanding.

As of May 1, 1995 there were 2,022,158 (adjusted for an
assumed one-for-six reverse stock split) Paired Shares outstanding.
Each outstanding Paired Share entitles the holder to one vote on
all matters presented to shareholders for a vote. The Trust and
the Corporation have reserved for issuance 5,943,578 Paired Shares
upon exchange of Units currently held by Starwood Capital.

PAIRED SHARES

All Paired Shares offered hereby will be duly authorized,
fully paid and nonassessable. Subject to the preferential rights
of any other shares or series of shares of beneficial interest and
to the provisions of the Trust's Declaration of Trust regarding
Excess Trust Shares and the Corporation's Articles of Incorporation
regarding Excess Corporation Stock, holders of Paired Shares will
be entitled to receive dividends if, as and when authorized and
declared by the Board of Trustees of the Trust or the Board of
Directors of the Corporation, as the case may be, out of assets
legally available therefor and to share ratably in the assets of
the Trust or the Corporation legally available for distribution to
its shareholders in the event of its liquidation, dissolution or
winding-up after payment of, or adequate provision for, all known
debts and liabilities of the Trust or the Corporation.

Subject to the provisions of the Trust's Declaration of Trust
regarding Excess Trust Shares and the Corporation's Articles of
Incorporation regarding Excess Corporation Stock, each outstanding
Paired Share entitles the holder to one vote on all matters
submitted to a vote of shareholders, including the election of
trustees or directors, and, except as otherwise required by law or
except as provided with respect to any other class or series of
shares of beneficial interest, the holders of such Paired Shares
will possess the exclusive voting power. There is no cumulative
voting in the election of trustees or directors, which means that
the holders of a majority of the outstanding Paired Shares can
elect all of the trustees or directors then standing for election
and the holders of the remaining shares of beneficial interest, if
any, will not be able to elect any trustees or directors.

Holders of Paired Shares have no conversion, sinking fund,
redemption or preemptive rights to subscribe for any securities of
the Trust or the Corporation, as the case may be.

Subject to the provisions of the Trust's Declaration of Trust
regarding Excess Shares and the Corporation's Articles of
Incorporation regarding Excess Corporation Stock, Paired Shares
will have equal dividend, distribution, liquidation and other
rights, and will have no preference, exchange or, except as
expressly required by the Maryland REIT Law and the MGCL, appraisal
rights.

THE PAIRING AGREEMENT

The Trust and the Corporation have entered into an agreement
dated June 25, 1980, as amended (the "Pairing Agreement") pursuant
to which all outstanding Trust Shares and Corporation Shares are
"paired" on a one-for-one basis. The following is a summary of
certain provisions of the Pairing Agreement. This summary does

<PAGE>

not purport to be complete and is qualified in its entirety by
reference to the text of the Pairing Agreement, a copy of which is
incorporated by reference as an exhibit to the Registration
Statement.

Transfer of Paired Shares. Under the Pairing Agreement, Trust
Shares are transferable only together with an equal number of
Corporation Shares, and Corporation Shares are transferable only
together with an equal number of Trust Shares. Certificates
evidencing Trust Shares and Corporation Shares are required by the
Pairing Agreement to include a reference to this transfer
restriction. The Declaration of Trust of the Trust and the
Corporation's Articles of Incorporation contain similar
restrictions on the transfer of Trust Shares and Corporation
Shares, as well as other restrictions on the transfer and ownership
of Trust Shares and Corporation Shares. The Pairing Agreement also
provides that any Excess Trust Shares and any Excess Corporation
Stock which may be issued will be paired in the same manner as the
Trust Shares and Corporation Shares are paired. See "- Ownership
Limits; Restrictions on Transfer; Repurchase and Redemption of
Shares" below.

Issuance of Shares. Under the Pairing Agreement, the Trust
may not issue Trust Shares and the Corporation may not issue
Corporation Shares unless provision is made for the acquisition by
the same person of the same number of shares of the other entity.
The Trust and the Corporation must agree on the manner and basis of
allocating the consideration to be received upon such issuance, or
on the payment by one entity to the other of cash or other
consideration in lieu of a portion of the consideration to be
received upon issuance of such Paired Shares.

Share Dividends, Reclassification and Other Similar Events.
Neither the Trust nor the Corporation may declare or pay any
dividend or other distribution payable in Trust Shares or
Corporation Shares, issue any rights or warrants to purchase Trust
Shares or Corporation Shares, or subdivide, combine or otherwise
reclassify such Shares, unless the other entity concurrently takes
the same action.

Amendment and Termination. The Pairing Agreement may be
amended by the Board of Trustees of the Trust and the Board of
Directors of the Corporation, provided that an amendment permitting
the separate issuance and transfer of Trust Shares and Corporation
Shares must be approved by a majority of each of the outstanding
Trust Shares and the outstanding Corporation Shares. The Pairing
Agreement may be terminated only with the affirmative vote of the
holders of a majority of each of the outstanding Trust Shares and
the outstanding Corporation Shares. Upon such termination, the
Trust Shares and the Corporation Shares could be delisted by the
NYSE if the Trust and the Corporation, respectively, did not as
separate entities then meet the listing requirements of such
Exchange.

The Paired Shares currently outstanding are listed for trading
on the NYSE. The Trust and the Corporation have applied to the
NYSE to list the additional Paired Shares to be sold pursuant to
the Offerings and the Trust and the Corporation anticipate that
such shares will be so listed.

Preferred Shares. The Trust may authorize and issue other
classes or series of shares of beneficial interest in addition to
the Trust Shares without the issuance by the Corporation of
corresponding shares, and the Corporation may authorize and issue
shares of Corporation Preferred Stock without the issuance by the
Trust of corresponding shares. Furthermore, the Pairing Agreement
does not limit the power of the Boards of the Trust and the
Corporation to independently determine the rights, preferences and
restrictions of such shares.

EXCHANGE RIGHTS

See "Structure of the Company - Limited Partner Rights -
Exchange Rights" for a description of certain rights to tender
Units to the Trust and the Corporation in exchange for Paired
Shares.

1986 WARRANTS

The 1986 Warrants consist of warrants of the Trust (the "1986
Trust Warrants") to purchase up to an aggregate of 276,662 Trust
Shares at a purchase price of $98.64 per Trust Share, subject to
adjustment upon certain events, and warrants of the Corporation
(the "1986 Corporation Warrants") to purchase up to an aggregate of
the

<PAGE>

same number of Corporation Shares at a purchase price of $3.06 per
Corporation Share, subject to similar adjustment upon such events.
The 1986 Trust Warrants and the 1986 Corporation Warrants are
"paired" in the same manner as the Trust Shares and the Corporation
Shares pursuant to the Pairing Agreement and may be held,
transferred and exercised only in units consisting of one 1986
Trust Warrant and one 1986 Corporation Warrant (a "1986 Paired
Warrant"). A holder of 1986 Paired Warrants, upon exercise
thereof, must pay a purchase price of $101.70 per Paired Share
purchased upon such exercise. The certificates representing 1986
Trust Warrants and 1986 Corporation Warrants ("Warrant
Certificates") are "back-to-back" certificates pursuant to which
the certificates evidencing 1986 Trust Warrants are printed on the
reverse side of the certificates evidencing 1986 Corporation
Warrants. The 1986 Paired Warrants expire in 1996, at which time
each 1986 Paired Warrant is exchangeable for 1/100 of a Paired
Share.

OPTIONS

See "Management - Stock Options" for a description of certain
options to purchase Paired Shares issued to employees of the Trust
and the Corporation.

PREEMPTIVE RIGHTS

Holders of Trust Shares and Corporation Shares do not have
preemptive rights with respect to the issuance of additional
shares. Accordingly, any issuance of authorized but unissued
shares could have the effect of diluting the earnings per share and
book value per share of currently outstanding shares. Neither the
Trust nor the Corporation currently has plans to issue any shares,
other than upon exchange of Units, upon exercise of warrants and
employee, trustee, director or other stock options and pursuant to
the Offerings.

MARYLAND TAKEOVER LEGISLATION

Under the MGCL, certain "business combinations" (including
mergers, consolidations, share exchanges, or, in certain
circumstances, asset transfers or issuances or reclassifications of
equity securities) between a Maryland corporation or a Maryland
real estate investment trust and any person who beneficially owns
10% or more of the voting power of the corporation's or trust's
shares or an affiliate of the corporation or trust who, at any time
within the two-year period prior to the date in question, was the
beneficial owner of 10% or more of the voting power of the then-
outstanding voting shares of the corporation or trust (an
"Interested Stockholder") or an affiliate thereof, are prohibited
or restricted unless exempted. The Company has exempted all
"business combinations" involving any party from the business
combination provisions of the MGCL.

Under Maryland law, under certain circumstances "control
shares" of a Maryland corporation or a Maryland real estate
investment trust acquired in a "control share acquisition" may have
no voting rights. The Company has exempted all control share
acquisitions involving any person from the MGCL.

OWNERSHIP LIMITS; RESTRICTIONS ON TRANSFER; REPURCHASE AND
REDEMPTION OF SHARES

The Trust's Declaration of Trust and the Corporation's
Articles of Incorporation provide that, subject to certain
exceptions specified in the Declaration of Trust and the Articles
of Incorporation, no shareholder may own, or be deemed to own by
virtue of the attribution provisions of the Code, more than 8.0% of
the capital stock, whether measured by vote, value or number of
Paired Shares (other than for shareholders who owned in excess of
8.0% as of the date the Reorganization closed, who may not so own
or be deemed to own more than the lesser of 9.9% or the number of
Paired Shares they held on such date) of the outstanding Paired
Shares, Corporation Preferred Stock or Trust Preferred Stock
(collectively, "Preferred Stock") which may be issued, or any
combination thereof ("Ownership Limitation"). The Board of
Trustees and the Board of Directors may waive the Ownership
Limitation if evidence satisfactory to the Board of Trustees and
the Board of Directors and the tax counsel to the Trust and the
Corporation is presented that such ownership will not jeopardize
the Trust's status as a REIT. As a condition of such waiver, each
of the Board of Trustees and the Board of Directors may require
opinions of counsel satisfactory to it and/or an undertaking from
the applicant with respect to preserving the REIT status of the
Trust. If shares which would cause the Trust to be beneficially
owned by fewer than 100 persons are issued or

<PAGE>

transferred to any person, such issuance or transfer shall be null
and void and the intended transferee will acquire no rights to the
stock. Any acquisition of capital stock of the Trust or the
Corporation and continued holding or ownership of capital stock of
the Trust or the Corporation constitutes, under the Declaration of
Trust of the Trust and the Articles of Incorporation of the
Corporation, a continuous representation of compliance with the
Ownership Limitation.

In the event of a purported transfer or other event that
would, if effective, result in the ownership of Paired Shares or
shares of Preferred Stock in violation of the Ownership Limitation,
such transfer with respect to that number of shares that would be
owned by the transferee in excess of the Ownership Limitation would
be deemed void ab initio and such Paired Shares or shares of
Preferred Stock would automatically be exchanged for Excess Shares
or Excess Preferred Stock, respectively (collectively, "Excess
Stock"), authorized by the Declaration of Trust and the Articles of
Incorporation, according to rules set forth in the Declaration of
Trust and the Articles of Incorporation, to the extent necessary to
ensure that the purported transfer or other event does not result
in ownership of Paired Shares or shares of Preferred Stock or
Excess Stock in violation of the Ownership Limitation. Any
purported transferee or other purported holder of Excess Stock is
required to give written notice to the Trust and the Corporation of
a purported transfer or other event that would result in the
issuance of Excess Stock.

Any Excess Trust Shares and Excess Corporation Stock which may
be issued will be "paired" in the same manner that the Trust Shares
and the Corporation Shares are currently paired. Excess Stock is
not treasury stock but rather continues as issued and outstanding
capital stock of the Trust and the Corporation. While outstanding,
Excess Stock will be held in trust. The trustees of such trusts
shall be appointed by the Trust and the Corporation and shall be
independent of the Trust, the Corporation and the holder of Excess
Stock. The beneficiary of such trust shall be one or more
charitable organizations selected by the trustee. If, after the
purported transfer or other event resulting in an exchange of
Paired Shares or shares of Preferred Stock for Excess Stock and
prior to the discovery by the Trust and the Corporation of such
exchange, dividends or distributions are paid with respect to the
Paired Shares or shares of Preferred Stock that were exchanged for
Excess Stock, then such dividends or distributions are to be repaid
to the trustee upon demand for payment to the charitable
beneficiary. While Excess Stock is held in trust, an interest in
that trust may be transferred by the trustee only to a person whose
ownership of Paired Shares or shares of Preferred Stock will not
violate the Ownership Limitation, at which time the Excess Stock
will be automatically exchanged for the same number of Paired
Shares or shares of Preferred Stock of the same type and class as
the Paired Shares or shares of Preferred Stock for which the Excess
Stock was originally exchanged. The Trust's Declaration of Trust
and the Articles of Incorporation of the Corporation contain
provisions that are designed to ensure that the purported
transferee or other purported holder of the Excess Stock may not
receive in return for such a transfer an amount that reflects any
appreciation in the Paired Shares or shares of Preferred Stock for
which such Excess Stock was exchanged during the period that such
Excess Stock was outstanding. Any amount received by a purported
transferee or other purported holder in excess of the amount
permitted to be received must be turned over to the charitable
beneficiary of the trust. If the foregoing restrictions are
determined to be void or invalid by virtue of any legal decision,
statute, rule or regulation, then the intended transferee or holder
of any Excess Stock may be deemed, at the option of the Trust and
the Corporation, to have acted as an agent on behalf of the Trust
and the Corporation in acquiring or holding such Excess Stock and
to hold such Excess Stock on behalf of the Trust and the
Corporation.

The Trust's Declaration of Trust and the Articles of
Incorporation of the Corporation further provide that the Trust and
the Corporation may purchase, for a period of 90 days during the
time the Excess Stock is held in trust, all or any portion of the
Excess Stock from the original transferee-shareholder at the lesser
of the price paid for the Paired Shares or shares of Preferred
Stock by the purported transferee (or if no notice of such purchase
price is given, at a price to be determined by the Board of
Trustees and the Board of Directors, in their sole discretion, but
no lower than the lowest market price of such stock (based on the
market price of the Paired Shares or shares of Preferred Stock) at
any time during the period in which the Excess Stock is held in
trust) and the closing market price for the Paired Shares or shares
of Preferred Stock on the date the Trust and the Corporation
exercise their option to purchase. The 90-day period begins on the
date of the violative transfer if the original transferee-
shareholder gives notice to the Trust and the Corporation of the
transfer or (if no notice is given) the date the Board of Trustees
and the Board of Directors determine that a violative transfer has
been made.

<PAGE>

The Ownership Limitation will not be removed automatically
even if the REIT provisions of the Code are changed so as to no
longer contain any ownership concentration limitation or if the
ownership concentration limitation is increased. Except as
otherwise described above, any change in the Ownership Limitation
would require an amendment to the Declaration of Trust and the
Articles of Incorporation. Amendments to the Declaration of Trust
and the to the Articles of Incorporation generally require the
affirmative vote of holders owning a majority of the outstanding
Trust Shares and Corporation Shares respectively, except that
changes to the Ownership Limitation require two-thirds approval.
In addition to preserving the Trust's status as a REIT, the
Ownership Limitation may have the effect of precluding an
acquisition of control of the Trust and the Corporation without the
approval of the Board of Trustees and the Board of Directors.

All persons who own, directly or by virtue of the attribution
provisions of the Code, 5% or more (or such other percentage as may
be required by the Code or regulations promulgated thereunder) of
the outstanding Paired Shares, Preferred Stock or Excess Stock must
file an affidavit with the Trust and the Corporation containing the
information specified in the Declaration of Trust and the Articles
of Incorporation before January 30 of each year. In addition, each
shareholder shall upon demand be required to disclose to the Trust
and the Corporation in writing such information with respect to the
direct, indirect and constructive ownership of shares as the Board
of Trustees or the Board of Directors deems necessary to comply
with the provisions of the Declaration of Trust and the Articles of
Incorporation or the Code applicable to a REIT or to comply with
the requirements of any taxing authority or governmental agency.

All certificates representing Paired Shares or Preferred
Shares will bear a legend referring to the restrictions described
above.

DISSOLUTION OF TRUST

Pursuant to its Declaration of Trust, the Trust cannot
dissolve, unless approved by the affirmative vote or written
consent of shareholders holding at least two-thirds of the shares
entitled to vote on the matter.

AMENDMENT TO THE DECLARATION OF TRUST

The Trust's Declaration of Trust, including its provisions on
classification of the Board of Trustees and removal of trustees,
may be amended only by the affirmative vote of the holders of a
majority of all of the votes entitled to be cast on the matter
except in the case of amendments of the Ownership Limitation which
requires the approval of the holders of two-thirds to the Trust
Shares and the Corporation Shares, respectively. Pursuant to the
Maryland REIT Law, a real estate investment trust generally cannot
amend its Declaration of Trust, unless approved by the affirmative
vote or written consent of shareholders holding at least two-thirds
of the shares entitled to vote on the matter unless a lesser
percentage (but not less than a majority of all the votes entitled
to be cast on the matter) is set forth in the real estate
investment trust's declaration of trust. A declaration of trust
may permit the trustees to amend a declaration of trust from time
to time to qualify as a real estate investment trust under the Code
or the Maryland REIT Law without the affirmative vote or written
consent of the shareholders. In addition the Board of the Trust
may alter or modify the investment policies and restrictions
contained in the Trust's Declaration of Trust without the consent
of the Trust's the shareholders. The Trust's Declaration of Trust
permits such action by a majority vote of the Board of Trustees.

TRANSFER AGENT FOR PAIRED SHARES

The Transfer Agent for the Paired Shares is First Interstate
Bank, Ltd., Los Angeles, California.

FEDERAL INCOME TAX CONSIDERATIONS

The following is a summary of the material federal income tax
considerations that may be relevant to a prospective holder of
Paired Shares. Sidley & Austin has acted as tax counsel to the
Trust and the Corporation in connection with the Offerings and the
Trust's election to be taxed as a REIT, has reviewed the following
discussion

<PAGE>

and is of the opinion that it fairly summarizes the material
federal income tax considerations to a holder of Paired Shares.
This summary is for information purposes only and is not tax
advice. Except as discussed below, no ruling or determination
letters from the Internal Revenue Service ("IRS") have been or will
be requested by the Company on any tax issue connected with the
Offerings. The Company has received opinions of Sidley & Austin as
to certain federal income tax consequences. The opinions of Sidley
& Austin are based upon the Internal Revenue Code of 1986, as
amended (the "Code"), as currently in effect, applicable Treasury
Regulations thereunder and judicial and administrative
interpretations thereof, all of which are subject to change,
including changes that may be retroactive, and upon certain
customary assumptions and representations. Opinions of counsel are
not binding on the IRS or the courts. Accordingly, no assurance
can be given that the IRS will not challenge the propriety of one
or more of the tax opinions or positions described herein or that
such a challenge would not be successful.

This summary does not purport to deal with all aspects of
taxation that may be relevant to particular holders of Paired
Shares in light of their personal investment or tax circumstances.
Except as specifically provided, the discussion below does not
address foreign, state, or local tax consequences, nor does it
specifically address the tax consequences to taxpayers subject to
special treatment under the federal income tax laws (including
dealers in securities, foreign persons, life insurance companies,
tax-exempt organizations, financial institutions, and taxpayers
subject to the alternative minimum tax). The discussion below
assumes that the Paired Shares are or will be held as capital
assets within the meaning of Section 1221 of the Code. No
assurance can be given that legislative, judicial or administrative
changes will not affect the accuracy of any statements in this
Prospectus with respect to transactions entered into or
contemplated prior to the effective date of such changes.

EACH PROSPECTIVE PURCHASER OF PAIRED SHARES IS ADVISED TO
CONSULT HIS OR HER OWN TAX ADVISOR REGARDING THE SPECIFIC TAX
CONSEQUENCES TO HIM OR HER OF THE PURCHASE, OWNERSHIP AND SALE OF
PAIRED SHARES, INCLUDING THE FEDERAL, STATE, LOCAL, FOREIGN AND
OTHER TAX CONSEQUENCES OF SUCH PURCHASE, OWNERSHIP, SALE AND OF
POTENTIAL CHANGES IN THE APPLICABLE TAX LAWS.

FEDERAL INCOME TAXATION OF THE TRUST

BACKGROUND

In 1980, prior to the establishment of the Corporation and the
pairing of its shares with the shares of the Trust, the IRS issued
a Private Letter Ruling (the "Ruling") to the Trust in which the
IRS held that the pairing of the Trust Shares and the Corporation
Shares and the operation of the Corporation would not preclude the
Trust from qualifying as a REIT. Subsequent to the issuance of the
Ruling (i) the IRS announced that it would no longer issue rulings
to the effect that a REIT whose shares are paired with those of a
non-REIT will qualify as a REIT if the activities of the paired
entities are integrated, and (ii) Congress, in 1984, enacted
Section 269B of the Code, which treats a REIT and a non-REIT, the
paired shares of which were not paired on or before June 30, 1983,
as one entity for purposes of determining whether either company
qualifies as a REIT. Section 269B of the Code has not applied to
the Trust and the Corporation (since the Trust Shares and the
Corporation Shares were paired prior to that date), and the
Ruling's conclusions were not adversely affected thereby.

The Trust recently discovered that it may not have met all of
the requirements for maintenance of REIT status for prior years. In
order to resolve this problem and be able to complete the
Reorganization and the Offerings in a timely fashion, in 1994, the
Trust requested and received a determination letter from the IRS
(the "IRS Letter"). The IRS Letter provides that the Trust's
failure to comply with certain requirements for maintenance of REIT
status terminated its election to be taxed as a REIT beginning with
the Trust's taxable year ended December 31, 1991 and permits the
Trust to re-elect to be taxed as a REIT commencing with its taxable
year ending December 31, 1995. The IRS Letter also directed the
Trust to file amended federal income tax returns for its taxable
years ended December 31, 1991 and 1992 as a C corporation (and not
as a REIT) and to file its federal income tax returns for its
taxable years ended December 31, 1993 and 1994 as a C corporation.
The Trust has filed such returns for its taxable years ended
December 31, 1991, 1992 and 1993 and has received an extension of
the time for filing such return for its taxable year ended
December 31, 1994. Because the Trust had net losses for federal
income tax

<PAGE>

purposes and did not pay any dividends during its taxable years
ended December 31, 1991, 1992, 1993 and 1994, the IRS Letter did
not result in the Trust owing any federal income tax and the
holders of Paired Shares should not be adversely affected for these
years.

GENERAL

The Trust plans to make an election to be taxed as a REIT
under Sections 856 through 860 of the Code and applicable Treasury
Regulations (the "REIT Requirements" or "REIT Provisions"),
commencing with its taxable year ending December 31, 1995. The
Trust believes that, commencing with its taxable year ending
December 31, 1995, it will be organized and will operate in such a
manner as to qualify for taxation as a REIT under the Code. The
Trust intends to continue to operate in such a manner, but no
assurance can be given that it will operate in a manner so as to
qualify or remain qualified as a REIT.

The REIT Provisions are highly technical and complex. The
following sets forth the material aspects of the REIT Provisions
that govern the federal income tax treatment of a REIT and its
stockholders. This summary is qualified in its entirety by the
REIT Provisions and administrative and judicial interpretations
thereof.

In the opinion of Sidley & Austin, commencing with the Trust's
taxable year ending December 31, 1995, the Trust will be organized
in conformity with the requirements for qualification as a REIT,
and its proposed method of operation will enable it to meet the
requirements for qualification and taxation as a REIT under the
Code. It must be emphasized that Sidley & Austin's opinion is
based on the IRS Letter and various assumptions and is conditioned
upon certain representations made by the Trust and the Corporation
as to factual matters. In particular, Sidley & Austin's opinion is
based upon factual representations of the Trust concerning its
business and properties. Moreover, such qualification and taxation
as a REIT depends upon the Trust's ability to meet, through actual
annual operating results, certain distribution levels, specified
diversity of stock ownership, and various other qualification tests
imposed under the REIT Provisions, as discussed below. The Trust's
annual operating results will not be reviewed by Sidley & Austin.
Accordingly, no assurance can be given that the actual results of
the Trust's operation for any particular taxable year will satisfy
such requirements. Further, the anticipated federal income tax
treatment described in this Prospectus may be changed, perhaps
retroactively, by legislative, administrative, or judicial action
at any time. For a discussion of the tax consequences of failure
to qualify as a REIT, see "- Failure to Qualify."

As long as the Trust qualifies for taxation as a REIT, it
generally will not be subject to federal corporate income taxes on
net income that it currently distributes to stockholders. This
treatment substantially eliminates the "double taxation" (once at
the corporate level and again at the stockholder level) that
generally results from investment in a regular corporation.

Even if the Trust qualifies for taxation as a REIT, however,
it may be subject to federal income or excise tax as follows.
First, the Trust will be taxed at regular corporate rates on any
undistributed REIT taxable income (as discussed below), including
undistributed net capital gains. Second, under certain
circumstances, the Trust may be subject to the "alternative minimum
tax" on its items of tax preference, if any. Third, if the Trust
has (i) net income from the sale or other disposition of
"foreclosure property" (which is, in general, property acquired on
foreclosure or otherwise on default on a loan secured by such
property or a lease of such property) or (ii) other non-qualifying
income from foreclosure property, it will be subject to tax at the
highest corporate rate on such income. Fourth, if the Trust has
net income from "prohibited transactions" (which are, in general,
certain sales or other dispositions of property, other than
foreclosure property, held primarily for sale to customers in the
ordinary course of business), such income will be subject to a 100%
tax. Fifth, if the Trust should fail to satisfy the 75% gross
income test or the 95% gross income test (as discussed below), but
has nonetheless maintained its qualification as a REIT because
certain other requirements have been met, it will be subject to a
100% tax on the net income attributable to the greater of the
amount by which the Trust fails the 75% or 95% test, multiplied by
a fraction intended to reflect the Trust's profitability. Sixth,
if the Trust should fail to distribute during each calendar year at
least the sum of (i) 85% of its REIT ordinary income for such year,
(ii) 95% of its REIT capital gain net income for such year, and
(iii) any undistributed taxable income from prior periods, the
Trust will be subject to a 4% excise tax on the excess of such
required distributions over the amounts actually distributed.
Seventh, pursuant to IRS

<PAGE>

Notice 88-19, if the Trust has a net unrealized built-in gain, with
respect to any asset (a "Built-in Gain Asset") held by the Trust on
January 1, 1995 or acquired by the Trust from a corporation that is
or has been a C corporation (i.e., generally a corporation subject
to full corporate-level tax) in certain transactions in which the
basis of the Built-in Gain Asset in the hands of the Trust is
determined by reference to the basis of the asset in the hands of
the C corporation, and the Trust recognizes gain on the disposition
of such asset through the Realty Partnership during the 10-year
period (the "Recognition Period") beginning on January 1, 1995 with
respect to assets held by the Trust on such date or, with respect
to other assets, the date on which such asset was acquired by the
Trust, then, to the extent of the Built-in Gain (i.e., the excess
of (a) the fair market value of such asset over (b) the Trust's
adjusted basis in such asset, determined as of the beginning of the
Recognition Period), such gain will be subject to tax at the
highest regular corporate rate pursuant to Treasury Regulations
that have not yet been promulgated. The results described above
with respect to the recognition of Built-in Gain assume that the
Trust will make an election pursuant to IRS Notice 88-19. The
Trust believes that it will have Built-In-Gain Assets as of January
1, 1995 and, thus, sales of assets by the Trust or the Realty
Partnership after 1994 could result in a federal income tax
liability to the Trust.

REQUIREMENTS FOR QUALIFICATION

To qualify as a REIT, the Trust must elect to be so treated
and must meet on a continuing basis certain requirements (as
discussed below) relating to the Trust's organization, sources of
income, nature of assets, and distribution of income to
shareholders.

The Code defines a REIT as a corporation, trust or
association: (i) that is managed by one or more trustees or
directors; (ii) the beneficial ownership of which is evidenced by
transferable shares, or by transferable certificates of beneficial
interest; (iii) that would be taxable as a domestic corporation,
but for the REIT Provisions; (iv) that is neither a financial
institution nor an insurance company subject to certain provisions
of the Code; (v) the beneficial ownership of which is held by 100
or more persons; (vi) during the last half of each taxable year not
more than 50% in value of the outstanding stock of which is owned,
directly or indirectly, by five or fewer individuals (defined in
the Code to include certain entities); (vii) as of the close of the
taxable year, has no earnings and profits accumulated in any non-
REIT year; (viii) is not electing to be taxed as a REIT prior to
the fifth taxable year which begins after the first taxable year
for which its REIT status terminated or was revoked or the IRS has
waived the applicability of such waiting period; and (ix) that
meets certain other tests, described below, regarding the nature of
its income and assets. The REIT Provisions provide that conditions
(i) to (iv), inclusive, must be met during the entire taxable year
and that condition (v) must be met during at least 335 days of a
taxable year of 12 months, or during a proportionate part of a
taxable year of less than 12 months. Conditions (v) and (vi) will
not apply until after the first taxable year for which an election
is made by the REIT to be taxed as a REIT.

The Trust has sufficient shareholders to satisfy condition (v)
and believes its shareholders satisfy condition (vi). In addition,
the Trust's Declaration of Trust and the Corporation's Articles of
Incorporation provide for restrictions regarding the transfer and
ownership of shares, which restrictions are intended to assist the
Trust in continuing to satisfy the share ownership requirements
described in conditions (v) and (vi) above. Such transfer and
ownership restrictions are described in "Capital Stock - Ownership
Limits; Restrictions on Transfer; Repurchase and Redemption of
Shares." The Trust believes that, as of January 1, 1995, it
satisfied condition (vii) and, based on the IRS Letter, it
satisfied condition (viii).

Pursuant to applicable Treasury Regulations, in order to elect
to be taxed as a REIT, the Trust must maintain certain records and
request certain information from its stockholders designed to
disclose the actual ownership of its stock. The Trust has
represented that it will comply with these requirements.

The Trust may not elect to become a REIT unless its taxable
year is the calendar year. The Trust's taxable year is the
calendar year.

In the case of a REIT that is a partner in a partnership,
Treasury Regulations provide that the REIT is deemed to own its
proportionate share of the assets of the partnership and is deemed
to be entitled to the income of the partnership attributable to
such share. In addition, the character of the assets and gross
income of the partnership shall retain the same character in the
hands of the REIT for purposes of the REIT Requirements,

<PAGE>

including satisfying the gross income tests and the asset tests,
described below. Similar treatment applies with respect to lower-
tier partnerships which the REIT indirectly owns through its
interests in the higher-tier partnerships. Thus, the Trust's
proportionate share of the assets, liability and items of income of
the Realty Partnership will be treated as assets, liabilities and
items of income of the Trust for purposes of applying the
requirements described herein, provided that the Realty Partnership
is treated as a partnership for federal income tax purposes. See
"- Federal Income Tax Aspects of the Partnerships below."

Paired Shares. Section 269B of the Code provides that if the
shares of a REIT and a non-REIT are paired then the REIT and the
non-REIT shall be treated as one entity for purposes of determining
whether either company qualifies as a REIT. If Section 269B
applied to the Trust and the Corporation, then the Trust would not
be able to satisfy the gross income tests (described below) and
thus would not be eligible to be taxed as a REIT. Section 269B
does not apply, however, if the shares of the REIT and the non-REIT
were paired on or before June 30, 1983 and the REIT was taxable as
a REIT on or before June 30, 1983. As a result of this
grandfathering rule, Section 269B has not applied to the Trust and
the Corporation. This grandfathering rule does not, by its terms,
require that the Trust be taxed as a REIT at all times after
June 30, 1983. In the opinion of Sidley & Austin, the IRS letter
and the termination of the Trust's REIT election for the taxable
years ended December 31, 1991 through 1994 will not result in
Section 269B becoming applicable to the Trust. There are, however,
no judicial or administrative authorities interpreting this
grandfathering rule. Therefore, the opinion of Sidley & Austin is
based solely on the literal language of the statutory
grandfathering rule.

Even though Section 269B of the Code does not apply to the
Trust and the Corporation, the IRS could assert that the Trust and
the Corporation should be treated as one entity under general tax
principles. In general, such an assertion should only be upheld if
the separate corporate identities are a sham or unreal. Not all of
the trustees of the Trust are also directors of the Corporation and
no individual serves as an officer of both the Trust and the
Corporation. In addition, the Trust, and the Corporation and each
Partnership have separate creditors and are subject to different
state law licensing and regulatory requirements. The Trust and the
Corporation have represented that they and the Partnerships will
each maintain separate books and records and all material
transactions among them have been and will be negotiated and
structured with the intention of achieving an arm's-length result.
Based on the foregoing, Sidley & Austin is of the opinion that the
separate corporate identities of the Trust and the Corporation will
be respected.

Due to the paired structure, the Trust, the Corporation and
the Partnerships are controlled by the same interests. As a
result, the IRS could, pursuant to Section 482 of the Code, seek to
distribute, apportion or allocate gross income, deductions, credits
or allowances between or among the Trust, the Corporation and the
Partnerships if it determines that such distribution, apportionment
or allocation is necessary in order to prevent evasion of taxes or
to clearly reflect income. The Trust and the Corporation have
represented that all material transactions between them and among
them and the Partnerships have been and will be negotiated and
structured with the intention of achieving an arm's length result.
As a result, the potential application of Section 482 of the Code
should not have a material effect on the Trust or the Corporation.

Income Tests. In order to maintain qualification as a REIT,
the Trust must annually satisfy three gross income requirements
(the "gross income tests"). First, at least 75% of the Trust's
gross income (excluding gross income from prohibited transactions)
for each taxable year must consist of defined types of income
derived directly or indirectly from investments relating to real
property or mortgages on real property (including "rents from real
property," as described below, and in certain circumstances,
interest) or from certain types of qualified temporary investments.
Second, at least 95% of the Trust's gross income (excluding gross
income from prohibited transactions) for each taxable year must be
derived from the same items which qualify under the 75% income test
and from dividends, interest, and gain from the sale or disposition
of stock or securities that do not constitute dealer property or
from any combination of the foregoing. Third, short-term gain from
the sale or other disposition of stock or securities, gain from
prohibited transactions and gain on the sale or other disposition
of real property held for less than four years (apart from
involuntary conversions and sales of foreclosure property) must
represent less than 30% of the Trust's gross income (including
gross income from prohibited transactions) for each taxable year.

<PAGE>

Rents received or deemed to be received by the Trust (or the
Realty Partnership) will qualify as "rents from real property" for
purposes of the gross income tests only if several conditions are
met. First, the amount of rent must not be based in whole or in
part on the income or profits of any person. However, an amount
received or accrued generally will not be excluded from the term
"rents from real property" solely by reason of being based on a
fixed percentage or percentages of receipts or sales (or items
thereof). Second, the Code provides that rents received from a
tenant will not qualify as "rents from real property" in satisfying
the gross income tests if the REIT, or a direct or indirect owner
of 10% or more of the REIT, directly or indirectly, owns 10% or
more of such tenant (a "Related Party Tenant"). Third, if rent
attributable to personal property, leased in connection with a
lease of real property, is greater than 15% of the total rent
received under the lease, then the portion of rent attributable to
such personal property will not qualify as "rents from real
property." Finally, a REIT may provide services to its tenants and
the income will qualify as "rents from real property" only if the
services are of a type that a tax-exempt organization can provide
to its tenants without causing its rental income to be unrelated
business taxable income under the Code. Services that would give
rise to unrelated business taxable income if provided by a tax-
exempt organization ("Prohibited Services") must be provided by an
"independent contractor" who is adequately compensated and from
whom the REIT does not derive any income. Payments for services
furnished (whether or not rendered by an independent contractor)
that are not customarily provided to tenants in properties of a
similar class in the geographic market in which the REIT's property
is located will not qualify as "rents from real property."

Substantially all of the Trust's income will be derived from
its partnership interest in the Realty Partnership. The Realty
Partnership leases for a fixed period all but three of its fee and
leasehold interests in its hotels and associated property to the
Operating Partnership and leases three hotels and associated
property to an unrelated person (the "Leases"). The Leases are net
leases which generally provide for payment of rent equal to the
greater of a fixed rent or a percentage rent. The percentage rent
is calculated by multiplying fixed percentages of the gross room
revenues and, for certain hotels, fixed percentages of other types
of gross revenues in excess of certain levels.

In order for the rents paid under the Leases to constitute
"rents from real property," the Leases must be respected as true
leases for federal income tax purposes and not treated as service
contracts, joint ventures or some other type of arrangement. The
determination of whether the Leases are true leases depends upon an
analysis of all of the surrounding facts and circumstances. In
making such a determination, courts have considered a variety of
factors, including the intent of the parties, the form of the
agreement, the degree of control over the property that is retained
by the property owner and the extent to which the property owner
retains the risk of loss with respect to the property. In
addition, Section 7701(e) of the Code provides that a contract that
purports to be a service contract (or a partnership agreement) is
treated instead as a lease of property if the contract is properly
treated as such, taking into account all relevant factors,
including whether or not: (i) the service recipient is in physical
possession of the property; (ii) the service recipient controls the
property; (iii) the service recipient has a significant economic or
possessory interest in the property; (iv) the service provider does
not bear any risk of substantially diminished receipts or
substantially increased expenditures if there is nonperformance
under the contract; (v) the service provider does not use the
property concurrently to provide significant services to entities
unrelated to the service recipient; and (vi) the total contract
price does not substantially exceed the total rental value of the
property for the contract period. Since the determination whether
a service contract should be treated as a lease is inherently
factual, the presence or absence of any single factor may not be
dispositive in every case.

Sidley & Austin is of the opinion that the Leases will be
treated as true leases for federal income tax purposes. This
opinion is based, in part, on the following facts: (i) the Realty
Partnership and the lessees intend for their relationship to be
that of lessor and lessee and each such relationship will be
documented by a lease agreement; (ii) the lessees will have the
right to exclusive possession and use and quiet enjoyment of the
leased premises during the term of the Leases; (iii) the lessees
will bear the cost of, and be responsible for, day-to-day
maintenance and repair of the leased premises, other than the cost
of certain capital expenditures, and will dictate how the leased
premises are operated and maintained; (iv) the lessees will bear
all of the costs and expenses of operating the leased premises
during the term of the Leases; (v) the term of the Leases is less
than the economic life of the leased premises and the lessees do
not have purchase options with respect to the leased premises; (vi)
the lessees are required to pay substantial fixed rent during the
term of the Leases; and (vii) each lessee stands to incur
substantial losses or reap substantial profits depending on how
successfully it operates the leased premises.

<PAGE>

Investors should be aware, however, that there are not
controlling authorities involving leases with terms substantially
the same as the Leases. Therefore, the opinion of Sidley & Austin
is based upon an analysis of the facts and circumstances and upon
rulings and judicial decisions involving situations that are
analogous. If any significant Lease is recharacterized as a
service contract or a partnership agreement, rather than as a true
lease, the Trust would not be able to satisfy either the 75% or 95%
gross income tests and, as a result, would lose its REIT status.

In order for rent payments under the Leases to qualify as
"rents from real property," the rent must not be based on the
income or profits of any person. The percentage rent under the
Leases will qualify as "rents from real property" if it is based on
percentages of receipts or sales and the percentages (i) are fixed
at the time the Leases are entered into, (ii) are not renegotiated
during the term of the Leases in a manner that has the effect of
basing percentage rent on income or profits, and (iii) conform with
normal business practice. More generally, percentage rent will not
qualify as "rents from real property" if, considering the Leases
and all the surrounding circumstances, the arrangement does not
conform with normal business practice, but is in reality used as a
means of basing the percentage rent on income or profits. Since
the Trust and the Corporation have represented that there is no
plan or arrangement to renegotiate any of the Leases and the Leases
conform with normal business practice, the percentage rent will be
treated as "rents from real property" under this requirement. The
Trust has further represented with respect to hotel properties that
the Realty Partnership may acquire in the future that it will not
charge rent that is based in whole or in part on the income or
profits of any person (except by reason of being based on a fixed
percentage of receipts or sales, as described above).

Another requirement for rent payments under a Lease to
constitute "rents from real property" is that the rent attributable
to personal property under the Lease must not be greater than 15%
of the rent received under the Lease. For this purpose, rent
attributable to personal property is the amount that bears the same
ratio to the total rent for the taxable year as the average of the
adjusted basis of the personal property at the beginning and at the
end of the taxable year bears to the average of the aggregate
adjusted basis of both the real property and personal property
leased under, or in connection with, such lease. Under the Leases,
the Realty Partnership leases certain personal property to the
Operating Partnership. The Trust believes that under each of the
Leases less than 15% of the total rent is attributable to personal
property and, as a result, no portion of such rent will be treated
as being for rental of personal property for purposes of the 75%
and 95% gross income tests. If the IRS were to successfully assert
that with respect to one or more of the Leases rent attributable to
personal property is greater than 15% of the total rent, then it is
possible that the Trust would not be able to satisfy either the 75%
or 95% gross income tests and, as a result, would lose its REIT
status. With respect to both the Leases and future acquisitions,
the Trust has represented that it will monitor the 15% test to
ensure continued qualification as a REIT.

A third requirement for qualification of rent under the Leases
as "rents from real property" is that the Trust must not own,
directly or constructively, 10% or more of the Operating
Partnership. If the Trust were to own directly or indirectly, 10%
or more of the Operating Partnership, the rent paid to the Realty
Partnership by the Operating Partnership with respect to property
leased by the Realty Partnership to the Operating Partnership would
not qualify as income of the type that can be received by a REIT.
In order to prevent such a situation, which would likely result in
the disqualification of the Trust as a REIT, the Trust Declaration
of Trust and the Articles of Incorporation contain restrictions on
the amount of Trust Shares and Corporation Shares that any one
person can own. These restrictions generally provide that any
attempt by any one person to actually or constructively acquire
8.0% or more of the outstanding Paired Shares will be ineffective.
See "Capital Stock - Ownership Limits; Restrictions on Transfer;
Repurchase, and Redemption of Shares." However, notwithstanding
such restrictions, because the Code's constructive ownership rules
for purposes of the 10% ownership limit are broad and it is not
possible to continually monitor direct and indirect ownership of
Paired Shares, it is possible that some person may at some time own
sufficient Paired Shares to cause the termination of the Trust's
REIT status.

Finally, rent under the Leases will not qualify as "rents from
real property" if either the Trust or the Realty Partnership
renders or furnishes Prohibited Services to the occupants of the
Realty Partnership's properties. So long as the Leases are treated
as true leases, neither the Trust nor the Realty Partnership should
be treated as rendering or furnishing Prohibited Services to the
occupants of the Realty Partnership's properties.

<PAGE>

Based on the foregoing, Sidley & Austin is of the opinion
that, the rent payable under the Leases will be treated as "rents
from real property" for purposes of the 75% and 95% gross income
tests. There can, however, be no assurance that the IRS will not
successfully assert a contrary position or that there will be a
change in circumstances (such as the entering into of new leases)
which would result in a portion of the rent received to fail to
qualify as "rents from real property." In such case, it is
possible that the Trust would not be able to satisfy either the 75%
or 95% gross income test and, as a result, would lose its REIT
status.

For purposes of the gross income tests, the term "interest"
generally does not include any amount received or accrued (directly
or indirectly) if the determination of such amount depends in whole
or in part on the income or profits of any person. However, an
amount received or accrued generally will not be excluded from the
term "interest" solely by reason of being based on a fixed
percentage or percentages of receipts or sales. The Realty
Partnership holds notes and may advance money from time to time to
tenants for the purpose of financing tenant improvements, making
real estate loans or holding or acquiring additional notes. None
of the notes currently held by the Realty Partnership or the LLC
provide for the payment of any amount based on the income or
profits of any person other than amounts based on a fixed
percentage or percentage of receipts or sales. In addition, the
Trust has represented that neither the Trust nor the Realty
Partnership intends to charge interest that will depend in whole or
in part on the income or profits of any person or to make loans
(not secured in substantial part by real estate mortgages) in
amounts that could jeopardize the Trust's compliance with the 75%
and 5% asset tests, discussed below. To the extent the notes held
by the Realty Partnership are secured by real property, the
interest received or accrued with respect to such notes should be
treated as qualifying income for both the 75% and the 95% gross
income tests. Certain of the notes held by the Realty Partnership
are not secured by real property. Interest received or accrued
with respect to such notes should be treated as qualifying income
for the 95% gross income test but should not be treated as
qualifying income for the 75% gross income tax.

Any gross income derived from a prohibited transaction is
taken into account in applying the 30% income test necessary to
qualify as a REIT, and the net income from that transaction is
subject to a 100% tax. The Trust believes that no asset owned by
it or by the Realty Partnership is held for sale to customers and
that sale of any such property will not be in the ordinary course
of business of the Trust or the Realty Partnership. Whether
property is held "primarily for sale to customers in the ordinary
course of a trade or business" and, therefore, is subject to the
100% tax, depends on the facts and circumstances in effect from
time to time, including those related to a particular property.
The Trust and the Realty Partnership will attempt to comply with
the terms of safe-harbor provisions in the Code prescribing when
asset sales will not be characterized as prohibited transactions.
Complete assurance cannot be given, however, that the Trust can
comply with the safe-harbor provisions of the Code or that the
Trust or the Realty Partnership can avoid owning property that may
be characterized as property held "primarily for sale to customers
in the ordinary course of business."

If the Trust fails to satisfy one or both of the 75% or 95%
gross income tests for any taxable year, it may nevertheless
qualify as a REIT for such year if it is entitled to relief under
certain provisions of the Code. These relief provisions generally
will be available if the Trust's failure to meet such tests is due
to reasonable cause and not willful neglect, the Trust attaches a
schedule of the sources of its income to its tax return, and any
incorrect information on the schedule was not due to fraud with
intent to evade tax. It is not possible to state whether in all
circumstances the Trust would be entitled to the benefit of these
relief provisions. As discussed above in "Certain Federal Income
Tax Considerations - Federal Income Taxation of the Trust -
General," even if these relief provisions apply, a tax would be
imposed with respect to the excess net income. No similar
mitigation provision applies if the Trust fails the 30% income
test. In such case, the Trust will cease to qualify as a REIT.

Asset Tests. In order to maintain qualification as a REIT,
the Trust, at the close of each quarter of its taxable year, must
also satisfy three tests relating to the nature of its assets.
First, at least 75% of the value of the Trust's total assets must
be represented by real estate assets (including (i) its allocable
share of real estate assets held by partnerships in which the Trust
owns a direct or indirect interest and (ii) stock or debt
instruments held for not more than one year purchased with the
proceeds of a stock offering or long-term (at least five years)
debt offering of the Trust), cash, cash items and government
securities. Second, not more than 25% of the Trust's total assets
may be represented by securities other than those in the 75% asset
class. Third, of the investments included in the

<PAGE>

25% asset class, the value of any one issuer's securities owned by
the Trust may not exceed 5% of the value of the Trust's total
assets, and the Trust may not own more than 10% of any one issuer's
outstanding voting securities.

The Trust anticipates that commencing with its taxable year
ending December 31, 1995 it will be able to comply with the asset
tests. Substantially all of the Trust's investments will be in
properties owned by the Realty Partnership, at least 75% of which
will represent qualifying real estate assets. A substantial
portion of the indebtedness of the Operating Partnership to the
Realty Partnership may not be qualifying assets under the 75% asset
test. However, such portion does not exceed 5% of the value of the
assets of the Realty Partnership and, thus, will not cause the
Trust to fail the 5% asset test.

After initially meeting the asset tests at the close of any
quarter, the Trust will not lose its status as a REIT for failure
to satisfy the asset tests at the end of a later quarter solely by
reason of changes in asset values. If the failure to satisfy the
asset tests results from an acquisition of securities or other
property during a quarter, the failure can be cured by disposition
of sufficient non-qualifying assets within 30 days after the close
of that quarter. The Trust intends to maintain adequate records of
the value of its assets to ensure compliance with the asset tests
and to take such actions within 30 days after the close of any
quarter as may be required to cure any non-compliance.

Annual Distribution Requirements. The Trust, in order to
qualify as a REIT, is required to distribute dividends (other than
capital gain dividends) to its stockholders in an amount at least
equal to (i) the sum of (a) 95% of the Trust's "REIT taxable
income" (computed without regard to the dividends paid deduction
and the Trust's net capital gain) and (b) 95% of the net income
(after tax), if any, from foreclosure property, minus (ii) the sum
of certain items of non-cash income. In addition, if the Trust (or
the Realty Partnerships) disposes of any Built-in Gain Asset during
its Recognition Period, the Trust will be required, pursuant to IRS
regulations that have not yet been promulgated, to distribute at
least 95% of the Built-in Gain (after tax), if any, recognized on
the disposition of such asset. Distributions must be paid in the
taxable year to which they relate, or in the following taxable year
if declared before the Trust timely files its tax return for such
year and if paid on or before the first regular dividend payment
after such declaration. To the extent that the Trust does not
distribute all of its net capital gain or distributes at least 95%,
but less than 100%, of its "REIT taxable income," as adjusted, it
will be subject to tax thereon at regular ordinary and capital gain
corporate tax rates.

Furthermore, if the Trust should fail to distribute during
each calendar year at least the sum of (i) 85% of its REIT ordinary
income for such year, (ii) 95% of its REIT capital gain income for
such year, and (iii) any undistributed taxable income from prior
periods, the Trust will be subject to a 4% excise tax on the excess
of such required distribution over the amounts actually
distributed.

The Trust intends to make timely distributions sufficient to
satisfy the annual distribution requirements and to the extent
practical, avoid payment of material amounts of federal income or
excise tax by the Trust.

It is possible, however, that the Trust, from time to time,
may experience timing differences between the actual receipt of
income and actual payment of deductible expenses and the inclusion
of such income and deduction of such expenses in arriving at REIT
taxable income. In addition, it is also possible that, from time
to time, the Trust may be allocated a share of net capital gain
attributable to the sale of depreciated property that exceeds its
allocable share of cash attributable to that sale. In such cases,
the Trust may not have sufficient cash or other liquid assets to
meet the distribution requirements described above. In order to
meet the distribution requirements in such cases, the Trust (or the
Realty Partnership) may find it necessary to arrange for short-term
or possible long-term borrowings or to pay dividends in the form of
taxable stock dividends.

Under certain circumstances, the Trust may be able to rectify
a failure to meet the above distribution requirements for a year by
paying "deficiency dividends" to stockholders in a later year,
which may be included in the Trust's deduction for dividends paid
for the earlier year. Thus, the Trust may be able to avoid being
taxed on amounts distributed as deficiency dividends; however, the
Trust will be required to pay interest based upon the amount of any
deduction taken for deficiency dividends.

<PAGE>

FAILURE TO QUALIFY

If the Trust fails to qualify for taxation as a REIT in any
taxable year, and the relief provisions do not apply, the Trust
will be subject to tax (including any applicable alternative
minimum tax) on its taxable income at regular corporate rates.
Distributions to shareholders in any year in which the Trust fails
to qualify will not be deductible by the Trust nor will they be
required to be made. As a result, the Trust's failure to qualify
as a REIT could reduce the cash available for distribution by the
Trust to its shareholders. In addition, if the Trust fails to
qualify as a REIT, all distributions to shareholders will be
taxable as ordinary income to the extent of the Trust's current and
accumulated earnings and profits, and, subject to certain
limitations of the Code, corporate distributees may be eligible for
the dividends-received deduction. Unless entitled to relief under
specific statutory provisions, the Trust will also be disqualified
from taxation as a REIT for the four taxable years following the
year during which qualification was lost. It is not possible to
state whether in all circumstances the Trust would be entitled to
such statutory relief.

FEDERAL INCOME TAXATION OF THE CORPORATION

The Corporation is the common parent of an affiliated group of
corporations filing a consolidated return (the "Corporation
Group"). After the Gaming Approvals are received (see "Business
and Properties - Regulation and Licensing"), substantially all of
the Corporation Group's taxable income will consist of its
distributive share of the Operating Partnership's taxable income.
The Corporation Group will be subject to federal income tax on its
taxable income.

FEDERAL INCOME TAXATION OF HOLDERS OF PAIRED SHARES

FEDERAL INCOME TAXATION OF TAXABLE U.S. HOLDERS

As used herein, the term "U.S. Stockholder" means a holder of
Paired Shares who: (i) is a citizen or resident of the United
States; (ii) is a corporation, partnership, or other entity created
or organized in or under the laws of the United States or of any
political subdivision thereof; or (iii) is an estate or trust the
income of which is subject to U.S. federal income taxation
regardless of its source. As long as the Trust qualifies as a
REIT, distributions made to the Trust's U.S. Stockholders up to the
amount of the Trust's current or accumulated earnings and profits
(and not designated as capital gain dividends) will be taken into
account by them as ordinary income and will not be eligible for the
dividends-received deduction for corporations. Distributions that
are properly designated by the Trust as capital gain dividends will
be taxed as long-term capital gain (to the extent they do not
exceed the Trust's actual net capital gain for the taxable year)
without regard to the period for which the holder has held its
stock. However, corporate holders may be required to treat up to
20% of certain capital gain dividends as ordinary income, and
capital gains dividends are not eligible for the dividends-received
deduction. Distributions in excess of the Trust's current and
accumulated earnings and profits will not be taxable to a holder to
the extent that they do not exceed the adjusted basis of the
holder's Trust Shares, but rather will reduce the adjusted basis of
such Trust Shares. To the extent that such distributions exceed
the adjusted basis of a holder's Trust Shares they will be included
in income as long-term capital gain (or short-term capital gain if
the shares have been held for one year or less). In addition, any
dividend declared by the Trust in October, November or December of
any year payable to a holder of record on a specified date in any
such month shall be treated as both paid by the Trust and received
by the holder on December 31 of such year, provided that the
dividend is actually paid by the Trust during January of the
following calendar year.

The Trust will be treated as having sufficient earnings and
profits to treat as a dividend any distribution by the Trust up to
the amount required to be distributed in order to avoid imposition
of the 4% excise tax discussed above. As a result, holders may be
required to treat certain distributions that would otherwise result
in a tax-free return of capital as taxable distributions.
Moreover, any "deficiency dividend" will be treated as a "dividend"
(either as ordinary or capital gain dividend, as the case may be),
regardless of the Trust's earnings and profits.

Distributions from the Trust and gain from the disposition of
the Trust Shares will not be treated as passive activity income
and, therefore, stockholders may not be able to apply any "passive
losses" against such income.

<PAGE>

Dividends from the Trust (to the extent they do not constitute a
return of capital) will generally be treated as investment income
for purposes of the investment interest expense limitation. Gain
from the disposition of shares and capital gains dividends will not
be treated as investment income unless the holders elect to have
the gain taxed at ordinary income rates.

Distributions from the Corporation up to the amount of
Corporation's current or accumulated earnings and profits will be
taken into account by U.S. Stockholders as ordinary income and will
be eligible for the dividends received deduction for corporations.
Distributions in excess of the Corporation's current and
accumulated earnings and profits will not be taxable to a holder to
the extent that they do not exceed the adjusted basis of the
holder's Corporation Stock, but rather will reduce the adjusted
basis of such Corporation Stock. To the extent that such
distributions exceed the adjusted basis of a holder's Corporation
Stock they will be included in income as long-term capital gain (or
short-term capital gain if the stock has been held for one year or
less).

In general, a U.S. Stockholder will realize capital gain or
loss on the disposition of Paired Shares equal to the difference
between the amount realized on such disposition and the holder's
adjusted basis in such Paired Shares. Such gain or loss will
generally constitute long-term capital gain or loss if the holder
held such Paired Shares for more than one year. However, any loss
upon a sale or exchange of Trust Shares by a holder who has held
such shares for six months or less (after applying certain holding
period rules) will be treated as a long-term capital loss to the
extent of distributions from the Trust required to be treated by
such holder as long-term capital gain.

U.S. Stockholders may not include in their individual income
tax returns any net operating losses or capital losses of the Trust
or the Corporation.

FEDERAL TAXATION OF TAX-EXEMPT HOLDERS OF PAIRED SHARES

The IRS has ruled that amounts distributed as dividends by a
REIT to a tax-exempt employee's pension trust do not constitute
unrelated business taxable income ("UBTI"). Based on this ruling
and the analysis therein, distributions by the Trust should not,
subject to certain exceptions described below, be UBTI to a
qualified plan, IRA or other tax-exempt entity (a "Tax-Exempt
Stockholder") provided the Tax-Exempt Stockholder has not held its
shares as "debt financed property" within the meaning of the Code
and the shares are not otherwise used in an unrelated trade or
business of the Tax-Exempt Stockholder. Similarly, income from the
sale of Trust Shares should not, subject to certain exceptions
described below, constitute UBTI unless the Tax-Exempt Stockholder
has held such Trust Shares as a dealer (under Section 512(b)(5)(B)
of the Code) or as "debt-financed property" within the meaning of
Section 514 of the Code. Revenue rulings are interpretive in
nature and subject to revocation or modification by IRS.

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

Notwithstanding the above, however, a portion of the dividends
paid by a "pension held REIT" shall (subject to a de minimis
exception) be treated as UBTI as to any trust that (i) is described
in Section 401(a) of the Code, (ii) is tax-exempt under Section
501(a) of the Code, and (iii) holds more than 10% (by value) of the
interests in the REIT. Tax-exempt pension funds that are described
in Section 401(a) of the Code are referred to below as "qualified
trusts." A REIT is a "pension held REIT" if (i) it would not have
qualified as a REIT but for the fact that Section 856(h)(3) of the
Code provides that stock owned by qualified trusts shall be
treated, for purposes of the "not closely held" requirement, as
owned by the beneficiaries of the trust (rather than by the trust
itself), and (ii) either (a) at least one such qualified trust hold
more than 25% (by value) of the interests in the real estate
investment trust, or (b) one or more such qualified trusts, each of
whom owns more than 10% (by value) of the interests in the REIT,
hold in the aggregate more than 50% (by value) of the interests in
the REIT. Due to the Ownership Limitation, the Trust should not be
a "pension held REIT" within the meaning of the Code.

<PAGE>

FEDERAL TAXATION OF NON-U.S. HOLDERS OF PAIRED SHARES

The rules governing United States federal income taxation of
the ownership and disposition of stock by persons that are, for
purposes of such taxation, non-resident alien individuals, foreign
corporations, foreign partnerships, or foreign estates or trusts
(collectively, "Non-U.S. Stockholders") are complex, and no attempt
is made herein to provide more than a brief summary of such rules.
Accordingly, the discussion does not address all aspects of United
States federal income tax and does not address state, local or
foreign tax consequences that may be relevant to a Non-U.S.
Stockholder in light of its particular circumstances. Prospective
Non-U.S. Stockholders should consult with their own tax advisers to
determine the effect of federal, state, local, and foreign income
tax laws with regard to an investment in Paired Shares, including
any reporting requirements.

In general, a Non-U.S. Stockholder will be subject to regular
United States income tax with respect to its investment in Paired
Shares if such investment is "effectively connected" with the Non-
U.S. Stockholder's conduct of a trade or business in the United
States. A corporate Non-U.S. Stockholder that receives income that
is (or is treated as) effectively connected with a United States
trade or business may also be subject to the branch profits tax
under Section 884 of the Code, which is payable in addition to
regular United States corporate income tax. The following
discussion will apply to Non-U.S. Stockholders whose investment in
Paired Shares is not so effectively connected.

Distributions. Distributions by the Trust to a Non-U.S.
Stockholder that are neither attributable to gain from sales or
exchanges by the Trust of United States real property interests nor
designated by the Trust as capital gains dividends and
distributions by the Corporation will be treated as dividends of
ordinary income to the extent that they are made out of current or
accumulated earnings and profits of the Trust or the Corporation,
as the case may be. Such distributions ordinarily will be subject
to withholding of United States federal income tax on a gross basis
(that is, without allowance of deductions) at a 30% rate or such
lower rate as may be specified by an applicable income tax treaty,
unless the dividends are treated as effectively connected with the
conduct by the Non-U.S. Stockholder of a United States trade or
business. Distributions in excess of current or accumulated
earnings and profits of the Trust or the Corporation, as the case
my be, will not be taxable to a Non-U.S. Stockholder to the extent
that they do not exceed the adjusted basis of the Non-U.S.
Stockholder's Trust Shares or Corporation Stock, as the case may
be, but rather will reduce the adjusted basis of such shares. To
the extent that such distributions exceed the adjusted basis of a
Non-U.S. Stockholder's Trust Shares or Corporation Stock, as the
case may be, they will give rise to gain from the sale or exchange
of Non-U.S. Stockholder's Paired Shares if the Non-U.S. Stockholder
otherwise would be subject to tax on any gain from the sale or
other disposition of Paired Shares, as described below. If it
cannot be determined at the time a distribution is made whether or
not such distribution will be in excess of current or accumulated
earnings and profits, the distribution will generally be treated as
a dividend for withholding purposes. However, amounts thus
withheld are generally refundable if it is subsequently determined
that such distribution was, in fact, in excess of current or
accumulated earnings and profits of the Trust or the Corporation,
as the case may be. The Trust and the Corporation expect to
withhold United States income tax at the rate of 30% on the gross
amount of any such distributions made to a Non-U.S. Stockholder
unless (i) a lower rate is provided for under an applicable tax
treaty and the stockholder files the required form evidencing
eligibility for that reduced rate with the Trust and the
Corporation, or (ii) the Non-U.S. Stockholder files an IRS Form
4224 with the Trust and the Corporation claiming that the
distribution is "effectively connected" income.

Distributions to a Non-U.S. Stockholder that are attributable
to gain from sales of exchanges by the Trust of United States real
property interests will cause the Non-U.S. Stockholder to be
treated as recognizing such gain as income effectively connected
with a United States trade or business. Non-U.S. Stockholders
would thus generally be taxed at the same rates applicable to U.S.
Stockholders (subject to any applicable alternative minimum tax and
a special alternative minimum tax in the case of non-resident alien
individuals). Also, such gain may be subject to a 30% branch
profits tax in the hands of a Non-U.S. Stockholder that is a
corporation, that is not entitled to an exemption under a tax
treaty. The Trust is required to withhold and remit to the IRS 35%
of any distribution that could be designated a capital gains
dividend. That amount is creditable against the Non-U.S.
Stockholder's United States federal income tax liability.

<PAGE>

Sale of Paired Shares. Gain recognized by a Non-U.S.
Stockholder upon a sale or other disposition of Paired Shares
generally will not be subject to United States federal income tax,
if (i) in the case of Trust Shares, the Trust is a "domestically
controlled REIT" or (ii) (A) the Paired Shares are regularly traded
on an established securities market (e.g., the NYSE where the
Paired Shares are currently traded) and (B) the Selling Non-U.S.
Stockholder held 5% or less of the outstanding Paired Shares at all
times during a specified period, unless, in the case of a Non-U.S.
Stockholder who is a non-resident alien individual, such individual
is present in the United States for 183 days or more and certain
other conditions apply. A domestically controlled REIT is defined
generally as a REIT in which at all times during a specified
testing period less than 50% in value of the stock was held
directly or indirectly by foreign persons. The Trust believes that
it qualifies as a domestically controlled REIT.

INFORMATION REPORTING REQUIREMENTS AND BACKUP WITHHOLDING

Under certain circumstances, U.S. Stockholders may be subject
to backup withholding at a rate of 31% on payments made with
respect to, or on cash proceeds of a sale or exchange of, Paired
Shares. Backup withholding will apply only if the holder: (i)
fails to furnish its taxpayer identification number ("TIN") (which,
for an individual, would be his or her Social Security number);
(ii) furnishes an incorrect TIN; (iii) is notified by the IRS that
it has failed to report properly payments of interest and
dividends; or (iv) under certain circumstances, fails to certify,
under penalty of perjury, that it has furnished a correct TIN and
has not been notified by the IRS that it is subject to backup
withholding for failure to report interest and dividend payments.
Backup withholding will not apply with respect to payments made to
certain exempt recipients, such as corporations and tax-exempt
organizations. In addition, the Trust and the Corporation may be
required to withhold a portion of capital gain distributions made
to any holders who fail to certify their non-foreign status.
Additional issues may arise pertaining to information reporting and
withholding with respect to Non-U.S. Stockholders and each Non-U.S.
Stockholder should consult his or her tax advisor with respect to
any such information reporting and withholding requirements.

PARTNERSHIP ANTI-ABUSE RULE

The IRS recently published regulations that provide an anti-
abuse rule (the "Anti-Abuse Rule") under the partnership provisions
of the Code (the "Partnership Provisions"). Under the Anti-Abuse
Rule, if a partnership is formed or availed of in connection with
a transaction a principal purpose of which is to reduce
substantially the present value of the partners' aggregate federal
tax liability in a manner that is inconsistent with the intent of
the Partnership Provisions, the IRS can recast the transaction for
federal tax purposes to achieve tax results that are consistent
with the intent of the Partnership Provisions. This analysis is to
be made based on all facts and circumstances. The Anti-Abuse Rule
states that the intent of the Partnership Provisions incorporates
the following requirements: (i) the partnership must be bona fide
and each partnership transaction or series of related transactions
must be entered into for a substantial business purpose; (ii) the
form of each partnership transaction must be respected under
substance over form principles; and (iii) with certain exceptions,
the tax consequences under the Partnership Provisions to each
partner of partnership operations and the transactions between the
partner and the partnership must accurately reflect the partner's
economic agreement and clearly reflect the partner's income.

Sidley & Austin is of the opinion that the structure of the
Company is not inconsistent with the intent of the Partnership
Provisions and that, therefore, the IRS should not be able to
invoke the Anti-Abuse Rule to recast the structure of the Company
for federal income tax purposes. This opinion is based on examples
contained in the Anti-Abuse Rule. However, no assurance can be
given that the IRS or a court will concur with such opinion.

The Anti-Abuse Rule also provides that, unless a provision of
the Code or the Treasury Regulations prescribes the treatment of a
partnership as an entity, in whole or in part, and that treatment
and the ultimate tax results, taking into account all the relevant
facts and circumstances, are clearly contemplated by that
provision, the IRS can treat a partnership as an aggregate of its
partners, in whole or in part, as appropriate to carry out the
purpose of any provision of the Code or the Treasury Regulations.
Treatment of either Partnership, in whole or in part, as an
aggregate rather than an entity is unlikely to materially change
the federal tax consequences to any partner. In addition, the REIT
Provisions generally treat a partnership as an aggregate rather
than an entity for purposes of applying the REIT Requirements.
Sidley & Austin is therefore of the opinion that the Anti-Abuse
Rule

<PAGE>

should not have a material adverse effect on the federal income tax
consequences to any partner or on the ability of the Trust to
qualify as a REIT.

FEDERAL INCOME TAX ASPECTS OF THE PARTNERSHIPS

GENERAL

Substantially all of the Trust's assets are held directly or
indirectly through the Realty Partnership and, once the Gaming
Approvals are received, substantially all of the Corporation's (and
its subsidiaries') assets will be held through the Operating
Partnership. In general, partnerships are "pass-through" entities
that are not subject to federal income tax. Rather, partners are
allocated their proportionate shares of the items of income, gain,
loss, deduction and credit of a partnership, and are subject to tax
thereon, without regard to whether the partners receive a
distribution from the partnership. The Trust will include in its
income its allocable share of the foregoing partnership items for
purposes of the various REIT income tests and in the computation of
its REIT taxable income. Moreover, for purposes of the REIT asset
tests, the Trust will include its proportionate share of assets
held by the Realty Partnership and of the limited liability company
owned by the Trust, and of the LLC.

ENTITY CLASSIFICATION

The Trust's interest in the Realty Partnership, the Corporation's
(and its subsidiaries') interest in the Operating Partnership, and
the Trust's and the Realty Partnership's interests in the LLC, involve
special tax considerations, including the possibility of a challenge
by the IRS of the status of either Partnership or the LLC as a partnership
(as opposed to an association taxable as a corporation) for federal
income tax purposes. If a Partnership or the LLC were to be
treated as an association, it would be taxable as a corporation
and, therefore, subject to an entity level tax on its income. Such
an entity level tax would substantially reduce the amount of cash
available for distribution to holders of Paired Shares. See "-
Federal Income Taxation of the Corporation" below. In addition, if
the Realty Partnership or the LLC were to be taxable as a
corporation, the character of the Trust's assets and items of gross
income would change and preclude the Trust from satisfying the
asset tests and possibly the income tests under the Code, and in
turn would prevent the Trust from qualifying as a REIT.
Furthermore, any change in the status of the Realty Partnership,
the Operating Partnership or the LLC for tax purposes might be
treated as a taxable event in which case the Trust or the
Corporation might incur a tax liability without any related cash
distributions.

An organization formed as a partnership or as a limited
liability company will be treated as a partnership for federal
income tax purposes rather than as a corporation only if it has no
more than two of the four corporate characteristics that the
applicable Treasury Regulations use to distinguish a partnership
from a corporation for federal income tax purposes. Neither the
Partnerships nor the LLC has requested or intends to request, a
ruling from the IRS that it will be treated as a partnership for
federal income tax purposes. Instead, Sidley & Austin has
delivered its opinion that, based on the provisions of the
Partnership Agreements, and the Operating Agreement of the LLC and
certain factual assumptions and representations described in the
opinion, the Realty Partnership, the Operating Partnership and the
LLC will be classified as partnerships for federal income tax
purposes. Unlike a private letter ruling, an opinion of counsel is
not binding on the IRS, and no assurance can be given that the IRS
will not challenge the status of a Partnership or the LLC as a
partnership for federal income tax purposes. If such a challenge
were sustained by a court, the subject Partnership or the LLC could
be treated as an association taxable as a corporation for federal
income tax purposes. In addition, the opinion of Sidley & Austin
is based on existing law, which is to a great extent the result of
administrative and judicial interpretation. No assurance can be
given that administrative or judicial changes would not modify the
conclusions expressed in the opinion.

PARTNERSHIP ALLOCATIONS

Although a partnership agreement will generally determine the
allocation of income and losses among partners, such allocations
will be disregarded for tax purposes if they do not comply with the
provisions of Section 704(b) of the Code and the Treasury
Regulations promulgated thereunder. Generally, Section 704(b) of
the Code

<PAGE>

and the Treasury Regulations promulgated thereunder require that
partnership allocations must respect the economic arrangement of
the partners.

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

TAX ALLOCATIONS WITH RESPECT TO CONTRIBUTED PROPERTIES

Pursuant to Section 704(c) of the Code, income, gain, loss and
deduction attributable to appreciated or depreciated property that
is contributed to a partnership in exchange for an interest in the
partnership, must be allocated in a manner such that the
contributing partner is charged with, or benefits from,
respectively, the unrealized gain or unrealized loss associated
with the property at the time of the contribution. The amount of
such unrealized gain or unrealized loss is generally equal to the
difference between the fair market value of the contributed
property at the time of contribution and the adjusted tax basis of
such property at the time of contribution (a "Book-Tax
Difference"). Such allocations are solely for federal income tax
purposes and do not affect the book capital accounts or other
economic or legal arrangements among the partners. The Realty
Partnership has been formed by way of contributions of the Trust's
property and certain property held by Starwood Capital. The
Operating Partnership has been formed by way of contributions of
the Corporation's (and its subsidiaries') property and cash and
assets from Starwood Capital. Consequently, allocations with
respect to such contributed property must be made in a manner
consistent with Section 704(c) of the Code.

In general, the partners of the Partnerships will be allocated
depreciation deductions for tax purposes that are different than
such deductions would be if determined on a pro rata basis. The
effect of such allocations likely will be to reduce the
depreciation deductions allowed to the Trust as compared with the
depreciation allowed if the Reorganization had not taken place.
However, the Trust still will not have a liability for federal
income tax on its net income provided it qualifies as a REIT and
distributes an amount equal to its net income as discussed above.
In addition, in the event of the disposition of any of the
contributed assets that have a Book-Tax Difference, all income
attributable to such Book-Tax Difference will generally be
allocated to the contributing partner, and other partners will
generally be allocated only their share of capital gains
attributable to appreciation, if any, occurring after the creation
of the Partnerships. The foregoing allocations will tend to
eliminate the Book-Tax Difference over the life of the
Partnerships. However, the special allocation rules of Section
704(c) of the Code do not always entirely eliminate the Book-Tax
Difference on an annual basis or with respect to a specific taxable
transaction such as a sale. Thus, the carryover basis of the
contributed assets in the hands of the Partnerships may cause the
Trust or the Corporation, as the case may be, to be allocated lower
depreciation and other deductions, and possibly an amount of
taxable income in the event of a sale of such contributed assets in
excess of the economic or book income allocated to it as a result
of such sale. This may cause the Trust or the Corporation to
recognize taxable income in excess of cash proceeds, which, in the
case of the Trust, might adversely affect the Trust's ability to
comply with the REIT distribution requirements. See "- Federal
Income Taxation of the Trust - Requirements For Qualification -
Annual Distribution Requirements" herein. The foregoing principles
also apply in determining the earnings and profits of the Trust and
the Corporation for purposes of determining the portion of
distributions taxable as dividend income. See "- Federal Income
Taxation of Holders of Paired Shares" herein. The application of
these rules over time may result in a higher portion of
distributions being taxed as dividends than would have occurred had
the Trust and the Corporation contributed assets at their agreed
values.

The Treasury Regulations under Section 704(c) of the Code
allow partnerships to use any reasonable method of accounting for
Book-Tax Differences so that the contributing partner receives the
tax benefits and burdens of any built-in gain or loss associated
with the contributed property. The Partnerships have determined to
use the "traditional method" (which is specifically approved in the
Treasury Regulations) for accounting for Book-Tax Differences with
respect to the properties initially contributed to the
Partnerships. The Partnerships have not determined which of the
alternative methods of accounting for Book-Tax Differences will be
elected with respect to any properties contributed to the
Partnerships in the future.

<PAGE>

SALE OF THE PARTNERSHIPS' PROPERTY

Generally, any gain realized by a partnership on the sale of
property held by it for more than one year will be long-term
capital gain, except for any portion of such gain that is treated
as depreciation recapture. However, the Trust's share of any gain
realized by the Realty Partnership or the LLC on the sale of any
property held by it as inventory or other property held primarily
for sale to customers in the ordinary course of its trade or
business will be treated as income from a prohibited transaction
that is subject to a 100% penalty tax. See "- Federal Income
Taxation of the Trust - Requirements for Qualification - Income
Tests." Such prohibited transaction income may also have an
adverse effect upon the Trust's ability to satisfy the income tests
for qualification as a REIT. Under existing law, whether property
is held as inventory or primarily for sale to customers in the
ordinary course of a partnership's trade or business is a question
of fact that depends on all the facts and circumstances with
respect to the particular transaction. The Realty Partnership and
the LLC intend to hold their properties for investment with a view
to long-term appreciation, to engage in the business of acquiring,
developing, owning, and operating the properties (and other hotel
properties) and to make such occasional sales of its properties,
including peripheral land, as are consistent with their investment
objectives.

OTHER TAX CONSEQUENCES

The Company and the holders of Paired Shares may be subject to
state or local taxation in various jurisdictions, including those
in which it or they transact business or reside. The state and
local tax treatment of the Trust, the Corporation and the holders
of Paired Shares may not conform to the federal income tax
consequences discussed above. CONSEQUENTLY, HOLDERS OF PAIRED
SHARES SHOULD CONSULT THEIR OWN TAX ADVISORS REGARDING THE EFFECT
OF STATE AND LOCAL TAX LAWS ON THE PURCHASE, OWNERSHIP AND SALE OF
PAIRED SHARES.

ERISA CONSIDERATIONS

This section is a summary of certain matters arising under the
Employee Retirement Income Security Act of 1974, as amended,
together with applicable regulations ("ERISA"), and Section 4975 of
the Code which a fiduciary of an "employee benefit plan" as defined
in and subject to ERISA or of a "plan" as defined in Section 4975
of the Code who has investment discretion should consider before
deciding to purchase Paired Shares (such "employee benefit plans"
and "plans" being referred to herein as "Plans" and such
fiduciaries with investment discretion being referred to herein as
"Plan Fiduciaries"). The discussion below under "Plan Asset Issue"
also should be considered by a prospective purchaser of Paired
Shares that is not a Plan. This section is not intended to deal
with all matters arising under ERISA or Section 4975 of the Code
that may be relevant to a prospective purchaser of Paired Shares
and does not include state law or other legal requirements
applicable to governmental or church plans. The following
statements regarding certain matters arising under ERISA and the
Code are based on the provisions of ERISA and the Code as currently
in effect and the existing administrative and judicial
interpretations thereunder. No assurance can be given that
administrative, judicial or legislative changes will not occur that
could make such statements incorrect or incomplete.

In general, the terms "employee benefit plan" as defined in
ERISA and "plan" as defined in Section 4975 of the Code together
refer to any plan or account of various types that provide
retirement or welfare benefits to an individual or to an employer's
employees and their beneficiaries. Such plans include, but are not
limited to, corporate pension and profit sharing plans, so-called
KEOGH plans for self-employed individuals (including partners),
simplified employee pension plans and individual retirement
accounts described in Section 408 of the Code, medical benefit
plans, and bank commingled trust funds and insurance company
separate accounts for such plans and accounts and, under certain
circumstances, the general account of an insurance company.

FIDUCIARY AND PROHIBITED TRANSACTION CONSIDERATIONS

Each Plan Fiduciary, before deciding to purchase Paired
Shares, must be satisfied that such an investment is a prudent
investment for the Plan, that the investments of the Plan,
including an investment in Paired Shares, are

<PAGE>

diversified so as to minimize the risks of large losses, that an
investment in Paired Shares complies with the documents of the Plan
and related trust, and that an investment in Paired Shares complies
with any other applicable requirements of ERISA or the Code. Plan
Fiduciaries should also consider the entire discussion concerning
federal income taxes under "Federal Income Tax Considerations" and
the discussion concerning shareholders' liability for obligations
of the Trust under "Risk Factors - Possible Liability of Trust's
Shareholders," which are relevant to any decision by a Plan
Fiduciary to purchase Paired Shares.

Each Plan Fiduciary, before deciding to purchase Paired
Shares, must also give appropriate consideration as to whether a
prohibited transaction described in Section 406 of ERISA or Section
4975 of the Code would result from the Plan's purchase of Paired
Shares and, if so, the availability of an exemption. Those
prohibited transactions include various direct and indirect
transactions, such as sales and loans, between a Plan and any
person who with respect to the Plan is a "party in interest" as
defined in Section 3(14) of ERISA or "disqualified person" as
defined in Section 4975 of the Code, the use of the Plan's assets
for the benefit of any such person, and any fiduciary of the Plan
dealing with the Plan's assets in the fiduciary's own interest.
The consequences of any such prohibited transaction, if no
exemption applies, can include the imposition of excise taxes on
the party in interest or disqualified person, the persons involved
in the transaction having to rescind the transaction and pay an
amount to the Plan for any losses realized by the Plan or profits
realized by such persons, disqualification of any individual
retirement account involved in the transaction with adverse tax
consequences to the owner of such account, and other liabilities
that can have a significant, adverse effect on such persons.

For example, the Trust and the Corporation will contribute the
entire net proceeds received by each of them from the sale of the
Paired Shares to the Realty Partnership and Operating Partnership,
respectively, which in turn will use such proceeds, in part, to
repay indebtedness. See "Use Of Proceeds." Certain of the lenders
with respect to such debt ("Third Party Lenders") may be parties in
interest or disqualified persons with respect to some Plans.
Therefore, if any Paired Shares are purchased by a Plan or for the
benefit of a Plan with respect to which a Third Party Lender is a
party in interest or a disqualified person, a prohibited
transaction within the meaning of Section 406 of ERISA or Section
4975 of the Code might be considered to occur. If such a purchase
does result in a prohibited transaction, the Plan Fiduciary should
not make the purchase unless an exemption applies.

PLAN ASSET ISSUE

The following paragraphs describe the rules applicable in
determining whether the assets of the Trust or the Corporation will
for purposes of ERISA and Section 4975 of the Code be considered
assets of the Plans which purchase Paired Shares or for whose
benefit Paired Shares are purchased (i.e., whether Trust and
Corporation assets will be considered "Plan assets"). If the
assets of the Trust or Corporation will be considered to be assets
of such Plans, the assets of the Partnerships will also be
considered to be assets of such Plans. If assets of the Trust and
Corporation will be considered Plan assets, (i) a Plan Fiduciary
must consider whether a purchase of Paired Shares will result in a
violation of any of the fiduciary rules under ERISA and (ii) any
prospective purchase of Paired Shares must consider that prohibited
transactions within the meaning of Section 406 of ERISA or Section
4975 of the Code will occur if assets of the Trust, Corporation or
either of the Partnerships are involved in transactions that
include persons who are "parties in interest" as defined in Section
3(14) of ERISA or "disqualified persons" as defined in Section 4975
of the Code with respect to such Plans or if a person who manages
or controls assets of the Trust, Corporation or either of the
Partnerships deals with those assets in that person's own interest.
The possible consequences of any such prohibited transaction, if an
exemption does not apply, are described above in the second
paragraph under the heading "Fiduciary and Prohibited Transaction
Considerations" and can have a significant adverse effect on the
Partnerships, the Trust and the Corporation.

A regulation issued by the United States Department of Labor
under ERISA (the "Plan Asset Regulation") contains rules for
determining when an investment by a Plan or for the benefit of a
Plan in an equity interest in an entity, such as the Paired Shares,
will result in the underlying assets of the entity being deemed
assets of the Plan for purposes of ERISA and Section 4975 of the
Code. Those rules provide that assets of the entity will not be
assets of a Plan that purchases an equity interest therein if the
equity interest qualifies as a "publicly-offered security" or any
of certain other exceptions apply.

<PAGE>

Under the Plan Asset Regulation, a "publicly-offered security"
is a security that is (i) "freely transferable," (ii) part of a
class of securities that is "widely-held," and (iii) either (a)
part of a class of securities that is registered under Section
12(b) or 12(g) of the Securities Exchange Act of 1934 (the
"Exchange Act") or (b) sold to a Plan as part of an offering of
securities to the public pursuant to an effective registration
statement under the Securities Act and the class of securities of
which such security is a part is registered under the Exchange Act
within 120 days (or such later time as may be allowed by the
Securities and Exchange Commission) after the end of the fiscal
year of the issuer during which the offering of such securities to
the public occurred. Whether a security is considered "freely
transferable" depends on the facts and circumstances of each case.
If the security is part of an offering of which the minimum
investment is $10,000 or less, any restriction on or prohibition
against any transfer or assignment of such security for the
purposes of preventing a termination or reclassification of the
entity for federal or state tax purposes will not of itself
ordinarily prevent the security from being considered freely
transferable. A class of securities is considered "widely-held"
only if it is a class of securities that is owned by 100 or more
investors independent of the issuer and of one another. A class of
securities will not fail to be widely-held solely because after the
initial offering the number of independent investors falls below
100 as a result of events beyond the control of the issuer.

The Trust and the Corporation believe that the Paired
Shares to be sold pursuant to the Offerings meet the criteria to be
"publicly-offered securities" so that assets of the Trust and the
Corporation should not be deemed assets of the Plans purchasing
Paired Shares. First, the Trust and the Corporation believe that
the Paired Shares will be considered to be freely transferable, as
the minimum investment is less than $10,000 and the only
restriction on their transfer is the Ownership Limitation. Second,
the Trust and Corporation expect the Paired Shares to immediately
after this offering be held by substantially more than 100
investors and at least 100 or more of such investors to be
independent of the Trust and the Corporation and of one another.
Third, the Paired Shares are (i) part of a class of securities that
is registered under Section 12(b) or 12(g) of the Exchange Act and
(ii) are being sold pursuant to the Offerings as part of an
offering of securities to the public pursuant to an effective
registration statement under the Securities Act and the class of
securities of which the Paired Shares are a part is registered
under the Exchange Act within 120 days after the end of the year of
the Trust and the Corporation during which the offering of such
securities to the public occurs.

NEITHER THE TRUST NOR THE CORPORATION REPRESENT THAT A
PURCHASE OF PAIRED SHARES MEETS THE RELEVANT LEGAL REQUIREMENTS
WITH RESPECT TO OR IS APPROPRIATE FOR ANY PARTICULAR "EMPLOYEE
BENEFIT PLAN" AS DEFINED IN ERISA OR ANY "PLAN" AS DEFINED IN
SECTION 4975 OF THE CODE. THE FIDUCIARY WITH INVESTMENT DISCRETION
CONCERNING ANY EMPLOYEE BENEFIT PLAN OR PLAN SHOULD CONSULT WITH
ITS OWN LEGAL ADVISOR AND OTHER APPROPRIATE ADVISORS REGARDING
SPECIFIC CONSIDERATIONS ARISING UNDER ERISA, SECTION 4975 OF THE
CODE AND STATE AND OTHER LAW WITH RESPECT TO THE PURCHASE,
OWNERSHIP OR SALE OF PAIRED SHARES BY SUCH EMPLOYEE BENEFIT PLAN OR
PLAN IN LIGHT OF THE CIRCUMSTANCES OF THAT PARTICULAR EMPLOYEE
BENEFIT PLAN OR PLAN.

CONVERTIBLE NOTES

In order to facilitate the Offerings by the Company of Paired
Shares, the Underwriters will purchase the Starwood Lodging
Convertible Notes due ____, 1995 (the "Notes"). The Notes will be
automatically converted into Paired Shares (at a conversion price
equal to the public offering price of the Paired Shares) upon
certification to the Trustee (defined below) of the transfer of
beneficial ownership of the Notes to any person or entity which is
not an Underwriter or a selected dealer in the offering or an
affiliate of any of either. The automatic conversion will take
place without physical delivery of the Notes to any transferee of
an Underwriter, selected dealer or affiliate: such transferee will
receive only a certificate for the Paired Shares issued upon such
conversion. The structure of the Offerings is designed to avoid
the possibility that the Underwriters, selected dealers and the
affiliates of either, or any of them, acquire 8.0% or more of the
Paired Shares in violation of the Ownership Limitation. See
"Capital Stock - Ownership Limits; Restrictions on Transfer;
Repurchase and Redemption of Shares."

<PAGE>

Because the Notes automatically will be converted into Paired
Shares upon sale to the public, no market for the Notes is expected
to develop. The following description of the Notes is provided in
the event that any Notes are acquired and held by any Underwriter,
selected dealer or affiliate of any of either, in whose hands the
Notes do not automatically convert into Paired Shares.

The Notes are to be issued under an indenture (the
"Indenture") to be dated as of _____________, 1995 between the
Company and __________________ as trustee (the "Trustee"). The
following statements relating to the Notes and the Indenture are
summaries, do not purport to be complete and are qualified in their
entirety by reference to the Notes and the Indenture.

The Notes will not bear interest. The Notes will be issued in
registered form in denominations of the same dollar amount as a
multiple of the public offering price of the Paired Shares and will
be unsecured, several obligations of the Trust and the Corporation
maturing on ____________, 1995. At the option of the Company, the
maturity date of the Notes may be extended at any time or from time
to time, by written notice to the Trustee prior to the maturity
date, including any extension thereof, to a date not later than
___________, 1997. The Trust will be obligated to pay 95% of the
Notes and the Corporation the balance in accordance with the
allocation of the proceeds of the offering of the Paired Shares set
forth under "Use of Proceeds."

There are no redemption or sinking fund provisions applicable
to the Notes and the Notes are not subject to redemption prior to
maturity by the Company or either of them.

The following are Events of Default under the Indenture:
failure of the Trust or the Corporation to pay principal owing by
it in respect of any Note when due; failure of Trust or the
Corporation to comply with any of its other agreements in the Notes
or the Indenture, continued for 90 days after notice is given as
provided in the Indenture; and certain events of bankruptcy,
insolvency or reorganization. If an Event of Default occurs and is
continuing, either the Trustee or the holders of at least 25% in
aggregate principal amount of the Notes outstanding may declare the
entire principal amount of the Notes to be due and payable
immediately.

The Indenture provides that, subject to the duty of the
Trustee during default to act with the required standard of care,
the Trustee will be under no obligation to perform any duty or
exercise any of its rights or powers under the Indenture unless it
shall have received satisfactory indemnity from the holders of the
Notes against any loss, liability or expense. Subject to such
provisions for the indemnification of the Trustee, the holders of
a majority in aggregate principal amount of the outstanding Notes
will have the right to direct the time, method and place of
conducting any proceeding for any remedy available to the Trustee
or exercising any trust or power conferred on the Trustee.

The Indenture does not require the Company to furnish to the
Trustee any periodic evidence as to the absence of any default
under the Indenture or the compliance by the Company with the terms
of the Indenture.

The Indenture or the Notes may be amended or supplemented
without the consent of the noteholders in certain circumstances and
with the consent of holders at least 51% of the principal amount of
the Notes at the time outstanding, subject to certain exceptions.
Any past default, or compliance with any provision may be waived
with the consent of the holders of a majority of the principal
amount of the Notes at the time outstanding.

<PAGE>

UNDERWRITING

Subject to the terms and conditions set forth in a United
States purchase agreement (the "U.S. Purchase Agreement") among the
Company and each of the underwriters named below (the "U.S.
Underwriters"), and concurrently with the sale to the International
Managers (as defined below) of Notes convertible into an aggregate
of 1,515,000 Paired Shares, the Company has agreed to sell to each
of the U.S. Underwriters named below for whom Merrill Lynch,
Pierce, Fenner & Smith Incorporated ("Merrill Lynch"), Lehman
Brothers Inc. and Smith Barney Inc. are acting as representatives
(the "U.S. Representatives"), and each of the U.S. Underwriters
severally has agreed to purchase from the Company, Notes
convertible into the respective number of Paired Shares set forth
below opposite their respective names.

U.S. Underwriter Number of Paired
Shares
________________ ________________

Merrill Lynch, Pierce
Fenner & Smith
Incorporated
Lehman Brothers Inc. . . . . . . . . .
Smith Barney Inc.. . . . . . . . . . . _________
Total. . . . . . . . . . . . . . . 8,585,000
=========

The Company has also entered into a purchase agreement (the
"International Purchase Agreement" and, together with the U.S.
Purchase Agreement, the "Purchase Agreements") with certain
underwriters outside the United States and Canada (the
"International Managers" and, together with the U.S. Underwriters,
the "Underwriters") for whom Merrill Lynch International Limited is
acting as lead manager. Subject to the terms and conditions set
forth in the International Purchase Agreement, and concurrently
with the sale to the U.S. Underwriters pursuant to the U.S.
Purchase Agreement of Notes convertible into an aggregate of
8,585,000 Paired Shares, the Company has agreed to sell to the
International Managers, and the International Managers severally
have agreed to purchase from the Company, Notes convertible into an
aggregate of 1,515,000 Paired Shares. The public offering price
per Paired Share and the total underwriting discount per Paired
Share are identical under the International Purchase Agreement and
the U.S. Purchase Agreement.

In each Purchase Agreement, the U.S. Underwriters and the
International Managers have agreed, subject to the terms and
conditions set forth therein, to purchase all of the Notes being
sold pursuant to such Purchase Agreement if any of such Notes are
purchased. Under certain circumstances, the commitments of non-
defaulting U.S. Underwriters or International Managers (as the case
may be) may be increased. The closings with respect to the sale of
the Notes to be purchased by the International Managers and U.S.
Underwriters are conditioned upon one another.

The U.S. Representatives have advised the Company that the
U.S. Underwriters propose initially to offer such Notes (which will
automatically be converted into Paired Shares for purchase by the
public) to the public at the initial price per Paired Share into
which the Notes are convertible set forth on the cover page of this
Prospectus, and to certain dealers at such price less a concession
not in excess of $. per Paired Share issuable upon conversion of
the Notes purchased by such dealers. The U.S. Underwriters may
allow, and such dealers may reallow, a discount not in excess of $.
per Paired Share issuable upon conversion of the Notes purchased by
such dealers on sales to certain other dealers. Upon completion of
the Offerings, the offering price per Paired Share issuable upon
conversion of the Notes purchased by such dealers to the public and
the concession and discount to dealers may be changed.

The Company has been informed that the U.S. Underwriters and
the International Managers have entered into an intersyndicate
agreement (the "Intersyndicate Agreement") that provides for the
coordination of their activities. Under the terms of the
Intersyndicate Agreement, the U.S. Underwriters and the
International Managers are permitted to sell Notes to each other
for purposes of resale at the initial public offering price per
Paired Share issuable upon conversion of the Notes purchased by
such dealers, less an amount not greater than the selling

<PAGE>

concession. Under the terms of the Intersyndicate Agreement, the
International Managers and any dealer to whom they sell Notes
convertible into Paired Shares will not offer to sell or sell such
Notes to persons who are United States persons or Canadian persons
or to persons they believe intend to resell to persons who are
United States persons or Canadian persons, and the U.S.
Underwriters and any dealer to whom they sell Notes will not offer
to sell or sell Notes or Paired Shares to persons who are non-
United States and non-Canadian persons or to persons they believe
intend to resell to persons who are non-United States and non-
Canadian persons, except in each case for transactions pursuant to
the Intersyndicate Agreement.

The Company has granted an option to the U.S. Underwriters,
exercisable during the 30-day period after the date of this
Prospectus, to purchase additional Notes convertible into up to
1,287,750 Paired Shares solely to cover over-allotments, if any, at
the initial price per Paired Share into which the Notes are
convertible to the public less the underwriting discount set forth
on the cover page of this Prospectus. To the extent that the U.S.
Underwriters exercise this option, each U.S. Underwriter will be
obligated, subject to certain conditions, to purchase approximately
the same percentage of such additional Notes which the number of
Paired Shares into which Notes to be purchased by it are
convertible shown in the foregoing table bears to the Paired Shares
initially offered hereby. The Company also has granted an option
to the International Managers, exercisable during the 30-day period
after the date of this Prospectus, to purchase additional Notes
convertible into up to 227,250 Paired Shares to cover over-
allotments, if any, on terms similar to those granted to the U.S.
Underwriters.

In the Purchase Agreements, the Company has agreed to
indemnify the several Underwriters against certain civil
liabilities, including liabilities under the Securities Act, or to
contribute to payments the Underwriters may be required to make in
respect thereof. The Purchase Agreements contain certain
provisions that are designed to ensure that the underwriting
complies with the Ownership Limitation.

The executive officers of the Company and the Trustees and
Directors of the Company and Starwood Capital have agreed not to
offer, sell, contract to sell or otherwise dispose of any Paired
Shares or any securities convertible into or exercisable for Paired
Shares (except for issuances by the Company pursuant to the
exchange of Units and for distribution of Units to parties who have
direct or indirect interests in Starwood Capital who agree to be
bound by the foregoing restrictions) for a period of one year after
the closing of the Offerings without the prior written consent of
Merrill Lynch and the Company (which consent of the Company must be
approved by a majority of the Independent Trustees/Directors). The
Company has agreed, subject to certain exceptions (including the
exceptions referenced above, the issuance of Paired Shares pursuant
to existing options and warrants, the grant of options under the
1995 Option Plan and in connection with acquisitions), not to
offer, sell, contract to sell or otherwise dispose of any Paired
Shares for a one-year period after the date of this Prospectus,
without the prior written consent of Merrill Lynch.

The Company and Starwood Capital have retained Merrill Lynch
for financial advisory services in connection with the
Reorganization and the Company owes Merrill Lynch a fee of
$100,000. The Company is also obligated to pay Merrill Lynch an
additional $50,000 in July 1995 and $50,000 in reimbursement of
out-of-pocket expenses incurred in connection with its engagement.
The Company has agreed to pay Merrill Lynch a fee for advisory
services in connection with the Reorganization equal to 0.75% of
the gross proceeds realized from the Offerings, less $250,000. The
Company retained Smith Barney for financial advisory services in
connection with the Reorganization and paid Smith Barney a fee of
$200,000 and owes Smith Barney additional fees of $350,000.

Following a refinancing in March 1995 of senior debt of the
Company previously held by the New Lender, an affiliate of Merrill
Lynch, such New Lender is an owner of $130.4 million of the
Company's senior indebtedness. As part of such transaction, the
Company paid to the New Lender a fee of approximately $2.3 million.
All of the Company's senior debt is either being repaid from the
proceeds of the Offerings or is being refinanced as part of the
Mortgage Loan. See "Use of Proceeds" and "Certain Transactions."

Merrill Lynch from time to time provides investment banking
and financial advisory services to Starwood Capital and has
explored and continues to explore other business activities with
Starwood Capital.

<PAGE>

EXPERTS

The separate and combined financial statements and financial
statement schedules of Starwood Lodging Trust and Starwood Lodging
Corporation as of December 31, 1994 and 1993 and for each of the
three years in the period ended December 31, 1994, and the
financial statements of the Doubletree Club Hotel of Rancho
Bernardo included in this prospectus, have been audited by Deloitte
and Touche LLP, independent auditors, as stated in their reports
appearing herein. Such financial statements and financial
statement schedules have been included herein in reliance upon the
reports of such firm given upon their authority as experts in
accounting and auditing.

The financial statements of Starwood Wichita Investors, L.P.,
Capital Hill Suites, and French Quarter Square and the Schedules of
Operating Revenue and Certain Expenses for the French Quarter
Square to the extent and for the periods included in their reports
(which, with respect to French Quarter Square, contain an
explanatory paragraph relating to certain litigation disputing the
ownership of the underlying real property as more fully described
in Note 7 to the financial statements), have been audited by Price
Waterhouse LLP, independent accountants, given on the authority of
said firm as experts in auditing and accounting.

LEGAL MATTERS

Sidley & Austin, Chicago, Illinois, has passed upon the
validity of the issuance of the Paired Shares offered pursuant to
this Prospectus. In addition, the description of federal income
tax consequences contained in this Prospectus entitled "Federal
Income Tax Considerations" is based upon the opinion of Sidley &
Austin. Certain legal matters related to the Offerings will be
passed upon for the Underwriters by Rogers & Wells, New York, New
York. Rogers & Wells acted as counsel to Starwood Capital in
connection with the Reorganization. Sidley & Austin and Rogers &
Wells will rely upon the opinion of Piper & Marbury, Baltimore,
Maryland, as to matters of Maryland law.

ADDITIONAL INFORMATION

The Company has filed with the Commission a Registration
Statement (of which this Prospectus is a part) on Form S-2 under
the Securities Act with respect to the Paired Shares offered
hereby. This Prospectus does not contain all the information set
forth in the Registration Statement, certain portions of which have
been omitted as permitted by the rules and regulations of the
Commission. Statements contained in this Prospectus as to the
content of any contract or other document are not necessarily
complete, and in each instance reference is made to the copy of
such contract or other document filed as an exhibit to the
Registration Statement, each such statement being qualified in all
respects by such reference and the exhibits and schedules thereto.
For further information regarding the Trust and the Corporation and
the Paired Shares offered hereby, reference is hereby made to the
Registration Statement and such exhibits and schedules.

The Trust and the Corporation are subject to the informational
requirements of the Securities Exchange Act of 1934 and, in
accordance therewith, file reports, proxy or information statements
and other information with the Commission. The Registration
Statement, as well as such reports, proxy or information
statements, schedules and other information filed by the Trust and
the Corporation with the Commission can be inspected and copies
obtained from the Commission at Room 1024, Judiciary Plaza, 450
Fifth Street, N.W., Washington, D.C. 20549, and at the following
regional offices of the Commission: 75 Park Place, Room 1400, New
York, New York 10007 and Northwestern Atrium Center, 500 West
Madison Street, Suite 1400, Chicago, Illinois 60661-2511. Copies
of such material can be obtained from the Public Reference Section
of the Commission, 450 Fifth Street, N.W., Washington, D.C. 20549,
at prescribed rates. Such reports, proxy or information statements
and other information concerning the Trust and the Corporation can
also be inspected at the offices of the New York Stock Exchange,
Inc., Public Reference Section, 20 Broad Street, New York, New York
10005.

<PAGE>

The Trust and the Corporation intend to continue to furnish
their shareholders with annual reports containing consolidated
financial statements audited by its independent certified public
accountants and with quarterly reports containing unaudited
condensed consolidated financial statements for each of the first
three quarters of each fiscal year.

INFORMATION INCORPORATED BY REFERENCE

The Company's Annual Report on Form 10-K for the year ended
December 31, 1994, which have been filed by the Company with the
Commission, is incorporated in this Prospectus by reference and is
made a part hereof.

Any statement contained in a document incorporated by
reference herein shall be deemed to be modified or superseded for
all purposes to the extent that a statement contained in this
Prospectus modifies or supersedes such statement.

Copies of all documents incorporated by reference, other than
exhibits to such documents not specifically incorporated by
reference therein, will be provided without charge to each person
to whom this Prospectus is delivered upon oral or written request
by such person to Jayne Gordon, Starwood Lodging Trust, 11845 West
Olympic Blvd., Suite 550, Los Angeles, CA 90064.

<PAGE>

GLOSSARY

"ACMs" means asbestos-containing materials.

"Acquisition Facility" means a line of credit of the Company
which will be available to finance acquisitions by the Realty
Partnership and for other corporate purposes, including working
capital.

"ADA" means the American with Disabilities Act of 1990.

"ADR" means average daily rate.

"Anti-Abuse Rule" means regulations of the IRS that provide an
anti-abuse rule under the Partnership Provisions.

"Assets" means the hotel assets of the Company.

"Book-Tax Difference" means the difference between the fair
market value of a contributed property at the time of contribution
and the adjusted tax basis of such property at the time of
contribution.

"Built-in-Gain Asset" means an asset held by the Trust on
January 1, 1995 or acquired by the Trust from a current or former
C corporation in certain transactions in which the basis of such
asset in the hands of the Trust is determined by reference to the
basis of the asset in the hands of the current or former C
corporation, which asset has a fair market value in excess of its
adjusted basis.

"Clark County Board" means the Clark County Liquor and Gaming
Licensing Board.

"Code" means Internal Revenue Code of 1986, as amended,
together with applicable regulations.

"Commission" means the Securities and Exchange Commission.

"Company" means collectively the Trust and the Corporation and
those entities respectively owned or controlled by the Trust and
the Corporation, including the Realty Partnership, the Operating
Partnership and the LLC, respectively.

"Corporation" means Starwood Lodging Corporation, a Maryland
corporation and its subsidiaries.

"Corporation Assets" means certain properties and assets of
the Corporation, subject to certain liabilities, contributed to the
Operating Partnership.

"Corporation Group" means the affiliated group of corporations
of which the Corporation is the common parent.

"Corporation Preferred Stock" means preferred stock, with a
par value of $0.01 per share, of the Corporation.

"Corporation Shares" means the shares of common stock, par
value $0.01 per share, of the Corporation.

"EBITDA" means earnings before interest, taxes, depreciation
and amortization.

"ERISA" means the Employee Retirement Income Securities Act of
1974, as amended, together with applicable regulations.

"Excess Common Trust Shares" means the Excess Shares, with a
par value of $0.01 per share, of the Trust.

<PAGE>

"Excess Corporation Common Stock" means the Excess Common
Stock, with a par value of $0.01 per share, of the Corporation.

"Excess Corporation Preferred Stock" means the Excess
Preferred Stock, with a par value of $0.01 per share, of the
Corporation.

"Excess Preferred Trust Shares" means the Excess Preferred
Shares, with a par value of $0.01 per share, of the Trust.

"Excess Trust Shares" means the Excess Trust Shares with a par
value of $0.01 per share.

"Exchange Act" means the Securities Exchange Act of 1934, as
amended.

"Exchange Rights Agreement" means the Exchange Rights
Agreement dated as of January 1, 1995 among the Trust, the
Corporation, Starwood Capital, the Realty Partnership and the
Operating Partnership.

"Excluded Assets" means certain properties and other assets of
Starwood Capital not contributed to the Company at the closing of
the Reorganization.

"Formation Agreement" means the Formation Agreement dated as
of November 11, 1994 among Hotel Investors Trust, Hotel Investors
Corporation, Starwood Capital Group, L.P., Berl Holdings L.P.,
Starwood Apollo Hotel Partners I, L.P., Starwood Apollo Hotel
Partners VIII, L.P., Starwood Apollo Hotel Partners IX, LP and
Starwood Nomura Hotel Investors, L.P. and the related side letter.

"Gaming Approval" means certain necessary licenses and
regulatory approvals of the Clark County Board, the Nevada Board,
the Nevada Commission and local gaming authorities.

"Gaming Assets" means the gaming assets and operations of a
subsidiary of the Corporation.

"GAAP" means generally accepted accounting principles.

"gross income tests" means the three gross income requirements
the Trust must annually satisfy to maintain qualification as a
REIT.

"HI Nevada" means Hotel Investors Corporation of Nevada, a
wholly-owned subsidiary of the Corporation.

"Hotel Assets" means the fee or long-term leasehold interests
of the Company in 32 hotels, including two hotel/casinos and 13
third-party promissory notes secured by mortgages on 15 additional
hotels.

"Independent Trustee/Director" means a director or trustee, as
the case may be, who is not employed by or affiliated with Starwood
Capital or the Company.

"Intercompany Leases" means the leases between the Realty
Partnership and the Operating Partnership.

"Interested Person" means any person or entity who or which is
the beneficial owner, directly or indirectly, of 5% or more of the
outstanding Paired Shares or the outstanding Realty Units or
Operating Units or who or which is an Affiliate or Associate of the
Trust, the Corporation or either of the Partnerships.

"International Managers" means the underwriters in the
International Offering.

"International Offering" means the offering of 1,515,000
Paired Shares initially outside the United States and Canada by the
International Managers.

<PAGE>

"International Prospectus" means the prospectus to be used in
connection with the International Offering outside of the United
States and Canada.

"International Underwriting Agreement" means the underwriting
agreement among the Company and the International Managers.

"Intersyndicate Agreement" means the agreement between the
U.S. Underwriters and the International Managers.

"IRS" means the Internal Revenue Service.

"IRS Letter" means the determination letter dated August 15,
1994 from the IRS to the Trust.

"Issuance Percentages" means 95% with respect to the Trust and
5% with respect to the Corporation, as such percentages may be
amended from time to time.

"Leases" means the Intercompany Leases and the leases for
three hotels and associated property between the Realty Partnership
and an unrelated person.

"LLC" means SLT Realty Company, L.L.C.

"Maryland REIT Law" means the Maryland statute governing real
estate investment trusts formed under Maryland law.

"Merrill Lynch" means Merrill Lynch, Pierce, Fenner & Smith
Incorporated.

"MGCL" means the Maryland General Corporation Law, as amended.

"Nevada Board" means the Nevada State Gaming Control Board.

"Nevada Commission" means the Nevada Gaming Commission.

"Nevada Corporation" means Hotel Investors Corporation of
Nevada, Inc.

"Nevada Gaming Authorities" means the Clark County Liquor and
Gaming Licensing Board, the Nevada State Gaming Control Board and
the Nevada Gaming Commission.

"Non-U.S. Stockholders" means non-resident alien individuals,
foreign corporations, foreign partnerships, or foreign estates or
trusts for purposes of federal income taxation of the ownership and
disposition of stock.

"Notes" means the Convertible Notes Due ________, 1995 to be
issued by the Trust and the Corporation.

"NYSE" means the New York Stock Exchange.

"Offerings" means the U.S. Offering and the International
Offering.

"Operating Partnership" means SLC Operating Limited
Partnership, a Delaware limited partnership.

"Owned Hotels" means fee or long-term leasehold interests of
the Company in 32 hotels including two hotel/casinos.

"Ownership Limitation" means the prohibition of actual or
constructive ownership of more than 8.0% of the Paired Shares
contained in the Corporation's Articles of Incorporation and the
Trust's Declaration of Trust.

<PAGE>

"Paired Share" means a unit consisting of one Trust Share and
one Corporation Share.

"Pairing Agreement" means the Pairing Agreement dated June 25,
1980 between the Trust and the Corporation, as amended.

"Partnership Agreements" means the partnership agreements of
the Realty Partnership and the Operating Partnership.

"Partnership Provisions" means the partnership provisions of
the Code.

"Partnerships" means the Realty Partnership and the Operating
Partnership.

"PCBs" means polychlorinated biphenyls.

"Prohibited Services" means services that would give use to
unrelated business taxable income if provided by a tax-exempt
organization.

"Ratio of Debt-to-Total Market Capitalization" means total
consolidated debt of the Company as a percentage of the market
value of all outstanding shares, assuming the exchange of all
exchangeable securities for shares, plus total consolidated debt.

"Registration Rights Agreement" means the Registration Rights
Agreement dated as of January 1, 1995 among the Trust, the
Corporation, and Starwood Capital.

"Realty Partnership" means SLT Realty Limited Partnership, a
Delaware limited partnership.

"Recognition Period" means the ten-year period beginning on
January 1, 1995 with respect to assets held by the Trust on such
date or, with respect to other Built-in Gain Assets, the date on
which such assets were acquired by the Trust.

"REIT" means a real estate investment trust as defined in the
Code.

"REIT Provisions" means Sections 856 through 860 of the Code
and applicable treasury regulations.

"Related Party Tenant" means a tenant of which a REIT, or a
direct or indirect owner of 10% or more of the REIT, directly or
indirectly owns 10% or more.

"Reorganization" means a series of transactions between the
Company and Starwood Capital, consummated as of January 1, 1995.

"REVPAR" means room revenue per available room calculated as
room revenues divided by rooms available.

"Ruling" means the Private Letter Ruling of the IRS to the
Trust, dated January 4, 1980.

"RULPA" means the Delaware Revised Uniform Limited Partnership
Act.

"Securities Act" means the Securities Act of 1933, as amended.

"Shareholder" means a holder of shares of beneficial interest
in the Trust and a holder of shares of stock of the Corporation.

"Starwood Affiliate" means any person or entity which
controls, is controlled solely by or is under common control with,
Starwood Capital Group, L.P.

100

<PAGE>

"Starwood Capital" means Starwood Capital Group, L.P., and the
Starwood Affiliates.

"Starwood Operating Assets" means cash, leases and other
assets contributed by Starwood Capital and certain affiliates to
the Operating Partnership.

"Starwood Prospectus" means the prospectus to be used in
connection with the registration of shares to be used to Starwood
Capital Group, L.P. and its affiliates.

"Starwood Realty Assets" means the cash, certain hotel
properties and first mortgage hotel notes contributed by Starwood
Capital to the Realty Partnership in the Reorganization.

"Tax-Exempt Stockholder" means a qualified plan, IRA or other
tax exempt entity.

"TIN" means taxpayer identification number.

"Transaction" means any contract, sale, lease, exchange,
mortgage, transfer or disposition to or with, or any transaction
with, any Interested Person.

"Trust" means Starwood Lodging Trust, a Maryland real estate
investment trust.

"Trust Assets" means all the properties and assets of the
Trust, subject to substantially all of its liabilities, contributed
to the Realty Partnership.

"Trust Shares" means the shares of beneficial interest, par
value $0.01 per share, of the Trust.

"UBTI" means unrelated business taxable income, as defined in
Section 512 of the Code and applicable treasury regulations.

"Units" means limited partnership units of the Partnerships.

"Underwriters" means the U.S. Underwriters and the
International Manager.

"Underwriting Agreements" means, collectively, the U.S.
Underwriting Agreement and the International Underwriting
Agreement.

"U.S. Offering" means the offering of 8,585,000 Paired Shares
to the public inside the United States and Canada.

"U.S. Prospectus" means the prospectus to be used in
connection with a United States and Canadian offering.

"U.S. Underwriters" means the underwriters in the U.S.
Offering.

"U.S. Underwriting Agreement" means the underwriting agreement
among the Company the U.S. Underwriters.

"1986 Corporation Warrants" means warrants of the Corporation
to purchase up to an aggregate of 276,662 Corporation Shares at a
purchase price of $3.06 per Corporation Share.

"1986 Paired Warrant" means a unit consisting of one 1986
Trust Warrant and one 1986 Corporation Warrant. Each 1986 Paired
Warrant is exercisable at a price equal to $101.70 per Paired
Share.

"1986 Trust Warrants" means warrants of the Trust to purchase
up to an aggregate of 276,662 Trust Shares at a purchase price of
$98.64 per Trust Share.

101

<PAGE>

INDEX TO FINANCIAL STATEMENTS AND FINANCIAL
STATEMENT SCHEDULES

STARWOOD LODGING TRUST AND STARWOOD LODGING
CORPORATION - PRO FORMA

Separate and Combined Balance Sheets at March 31, 1995 . . F-4
Notes to Pro Forma Balance Sheets . . . . . . . . . . . . F-8
Separate and Combined Statements of Operations for the
three months ended March 31, 1995 and the year ended
December 31, 1994. . . . . . . . . . . . . . . . . . . . F-10
Notes to Pro Forma Statements of Operations . . . . . . . F-17

STARWOOD LODGING TRUST AND STARWOOD LODGING
CORPORATION - HISTORICAL

STARWOOD LODGING TRUST AND STARWOOD LODGING CORPORATION:

Combined Balance Sheets as of March 31, 1995 and
December 31, 1994 . . . . . . . . . . . . . . . . . . . F-19
Combined Statements of Operations for the three months
ended March 31, 1995 and 1994 . . . . . . . . . . . . . . F-20
Combined Statements of Cash Flows for the three months
ended March 31, 1995 and 1994 . . . . . . . . . . . . . . F-21

STARWOOD LODGING TRUST:

Balance Sheets as of March 31, 1995 and
December 31, 1994 . . . . . . . . . . . . . . . . . . . . F-22
Statements of Operations for the three months ended
March 31, 1995 and 1994 . . . . . . . . . . . . . . . . . F-23
Statements of Cash Flows for the three months ended
March 31, 1995 and 1994 . . . . . . . . . . . . . . . . . F-24

STARWOOD LODGING CORPORATION:

Balance Sheets as of March 31, 1995 and
December 31, 1994 . . . . . . . . . . . . . . . . . . . . F-25
Statements of Operations for the three months ended
March 31, 1995 and 1994 . . . . . . . . . . . . . . . . . F-26
Statements of Cash Flows for the three months ended
March 31, 1995 and 1994 . . . . . . . . . . . . . . . . . F-27

SLT REALTY LIMITED PARTNERSHIP AND SLC OPERATING
LIMITED PARTNERSHIP:

Combined Balance Sheet as of March 31, 1995 . . . . . . . . F-28
Combined Statement of Operations for the three months
ended March 31, 1995. . . . . . . . . . . . . . . . . . . F-29
Combined Statements of Cash Flows for the three months ended
March 31, 1995. . . . . . . . . . . . . . . . . . . . . . F-30

<PAGE>

SLT REALTY LIMITED PARTNERSHIP:

Balance sheet as of March 31, 1995. . . . . . . . . . . . . F-31

Statement of Operations for the three months
ended March 31, 1995. . . . . . . . . . . . . . . . . . . F-32

Statement of Cash Flows for the three months ended
March 31, 1995. . . . . . . . . . . . . . . . . . . . . . F-33

SLT OPERATING LIMITED PARTNERSHIP:

Balance Sheet as of March 31, 1995. . . . . . . . . . . . . F-34
Statement of Operations for the three months
ended March 31, 1995. . . . . . . . . . . . . . . . . . . F-35
Statements of Cash Flows for the three months ended
March 31, 1995. . . . . . . . . . . . . . . . . . . . . . F-36

NOTES TO THE FINANCIAL STATEMENTS . . . . . . . . . . . . . F-37

STARWOOD LODGING TRUST AND STARWOOD LODGING
CORPORATION - HISTORICAL

Independent Auditors' Report. . . . . . . . . . . . . . . . F-40

STARWOOD LODGING TRUST AND STARWOOD LODGING CORPORATION:

Combined Balance Sheets as of December 31, 1994 and 1993. . F-41
Combined Statements of Operations for each of the three years
in the period ended December 31, 1994 . . . . . . . . . . F-42
Combined Statements of Cash Flows . . . . . . . . . . . . . F-43
Combined Statements of Shareholders' Equity . . . . . . . . F-44

STARWOOD LODGING TRUST:

Balance Sheets as of December 31, 1994 and 1993 . . . . . . F-45
Statements of Operations for each of the three years
in the period ended December 31, 1994 . . . . . . . . . . F-46
Statements of Cash Flows. . . . . . . . . . . . . . . . . . F-47
Statements of Shareholders' Equity. . . . . . . . . . . . . F-48

STARWOOD LODGING CORPORATION:

Balance Sheets as of December 31, 1994 and 1993 . . . . . . F-49
Statements of Operations for each of the three years
in the period ended December 31, 1994 . . . . . . . . . . F-50
Statements of Cash Flows. . . . . . . . . . . . . . . . . . F-51
Statements of Shareholders' Deficit . . . . . . . . . . . . F-52

NOTES TO FINANCIAL STATEMENTS . . . . . . . . . . . . . . . F-53

SCHEDULES:

Schedule III - Real Estate and Accumulated Depreciation . . F-74
Schedule IV - Mortgage Loans on Real Estate . . . . . . . . F-78

F-2
<PAGE>

MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS . . . . . . . F-80

STARWOOD WICHITA INVESTORS, L.P.:
Reports of Independent Accountants. . . . . . . . . . . . . F-90
Balance Sheets as of December 31, 1994 and 1993 . . . . . . F-92
Statements of Operations. . . . . . . . . . . . . . . . . . F-93
Statements of Changes in Partners' Capital/Division Equity
(Deficit) . . . . . . . . . . . . . . . . . . . . . . . . . F-94
Statements of Cash Flows. . . . . . . . . . . . . . . . . . F-95
Notes to Financial Statements . . . . . . . . . . . . . . . F-97

THE FRENCH QUARTER SQUARE LIMITED:
Report of Independent Accountants . . . . . . . . . . . . . F-102
Balance Sheet as of December 31, 1994 . . . . . . . . . . . F-103
Statements of Operations. . . . . . . . . . . . . . . . . . F-104
Statements of Changes in Partners' Capital/Division Equity
(Deficit) . . . . . . . . . . . . . . . . . . . . . . . . . F-105
Statements of Cash Flows. . . . . . . . . . . . . . . . . . F-106
Notes to Financial Statements . . . . . . . . . . . . . . . F-107
Report of Independent Accountant . . . . . . . . . . . . . F-110
Schedules of Operating Revenue and Certain Expenses . . . . F-111
Notes to Financial Statements . . . . . . . . . . . . . . . F-112

CAPITOL HILL HOLDINGS, INC.:
Reports of Independent Accountants. . . . . . . . . . . . . F-114
Balance Sheets as of December 31, 1994 and 1993 . . . . . . F-116
Statements of Operations . . . . . . . . . . . . . . . . . F-117
Statement of Changes in Division/Stockholders' Equity . . . F-118
Statements of Cash Flows. . . . . . . . . . . . . . . . . . F-119
Notes to Financial Statements . . . . . . . . . . . . . . . F-120

DOUBLETREE CLUB HOTEL OF RANCHO BERNARDO:
Independent Auditors' Report. . . . . . . . . . . . . . . . F-122
Balance Sheets as of December 31, 1994 and 1993 . . . . . . F-123
Statements of Operations and Owners' Equity . . . . . . . . F-124
Statements of Cash Flows. . . . . . . . . . . . . . . . . . F-125
Notes to Financial Statements . . . . . . . . . . . . . . . F-127

F-3
<PAGE>

STARWOOD LODGING TRUST AND
STARWOOD LODGING CORPORATION

PRO FORMA SEPARATE AND COMBINED
BALANCE SHEETS

March 31, 1995
(Unaudited)

The following unaudited Pro Forma Separate and Combined
Balance Sheets are presented as if the Offerings of 10,100,000
paired shares at an assumed initial offering price of $24 per
paired shared and the use of the net proceeds therefrom, certain
property acquisitions, and the initial funding of the Mortgage Loan
had all occurred on March 31, 1995.

The unaudited Pro Forma Separate and Combined Balance Sheets
should be read in conjunction with the Separate and Combined
Historical Financial Statements of Starwood Lodging Trust and
Starwood Lodging Corporation and Notes thereto which are included
elsewhere in this Prospectus. In management's opinion, all
adjustments necessary to reflect the effects of the Offerings, the
property acquisitions, and the initial funding of the Mortgage Loan
have been made.

The unaudited Pro Forma Separate and Combined Balance Sheets
are not necessarily indicative of what the actual financial
position of the Companies would have been at March 31, 1995, nor
does it purport to represent the future financial position of the
Companies.

F-4
<PAGE>
<TABLE>
<CAPTION>

STARWOOD LODGING TRUST AND STARWOOD LODGING CORPORATION
UNAUDITED COMBINED PRO FORMA BALANCE SHEETS
MARCH 31, 1995

Historical Pro Forma
Starwood Starwood
Lodging Acquired Pro Forma Lodging
Combined Properties Adjustments Combined
---------- ----------- ---------------- -------------
<S> <C> <C> <C> <C>
(A) (B)
ASSETS
Hotel assets held for sale -
net.. . . . . . . . . . . . . . $ 8,495,000 $ $ $ 8,495,000
Hotel assets - net. . . . . . . . 174,868,000 64,973,000 239,841,000
------------ ----------- --------------- -------------
183,363,000 64,973,000 248,336,000
Mortgage notes receivable - net . 62,479,000 62,479,000
Investment in joint venture
hotel properties. . . . . . . . . 271,000 271,000
------------ ------------ --------------- -------------
Total real estate investments. 246,113,000 64,973,000 311,086,000

Cash and cash equivalents . . . . 12,120,000 (1,070,000) 74,000(C) 11,124,000
Accounts receivable . . . . . . . 6,927,000 241,000 7,168,000
Notes receivable - net. . . . . . 1,607,000 1,607,000
Prepaid expenses and other assets 12,998,000 98,000 (2,185,000)(C)(D) 10,911,000
------------ ------------ ----------------- -------------
$279,765,000 $ 64,242,000 $ (2,111,000) $341,896,000
============ ============ ================= =============

LIABILITIES AND SHAREHOLDERS' EQUITY

LIABILITIES
Secured notes payable . . . . . . $130,360,000 $ $ (130,360,000)(C) $
Mortgage and other notes payable. 68,195,000 63,999,000 40,700,000 (C) 45,668,000
(127,226,000)(C)
Accounts payable and other
liabilities . . . . . . . . . . 14,567,000 243,000 (786,000)(C) 14,024,000
------------ ------------- ---------------- -------------
213,122,000 64,242,000 (217,672,000) 59,692,000
------------ ------------- ---------------- -------------

MINORITY INTEREST . . . . . . . . 58,887,000 33,956,000 (E) 92,843,000
------------ ------------- ---------------- -------------
SHAREHOLDERS' EQUITY

Trust shares of beneficial interest,
$0.01 par value; authorized
100,000,000 shares; outstanding
2,022,158 shares; 12,122,158
pro forma shares. . . . . . . . 20,000 101,000 (C) 121,000
Corporation common stock, $0.01
par value; authorized
100,000,000 shares;
outstanding 2,022,158 shares;
12,122,158 pro forma shares . . 20,000 101,000 (C) 121,000
Additional paid-in capital. . . . 222,257,000 218,882,000 (C) 407,183,000
(33,956,000) (E)
Accumulated deficit . . . . . . .(214,541,000) (515,000) (C) (218,064,000)
(3,008,000) (D)
------------ -------------- ------------- -------------
7,756,000 181,605,000 189,361,000
------------ -------------- ------------- -------------
$279,765,000 $64,242,000 $ (2,111,000) $ 341,896,000
============ ============== ============== =============

The accompanying notes are an integral part of the pro forma balance sheets.

</TABLE>
F-5

STARWOOD LODGING TRUST
UNAUDITED PRO FORMA BALANCE SHEETS
MARCH 31, 1995

Historical Pro Forma
Starwood Starwood
Lodging Acquired Pro Forma Lodging
Combined Properties Adjustments Trust
---------- ----------- ---------------- -------------
<S> <C> <C> <C> <C>
(A) (B)
ASSETS
Hotel assets held for sale -
net.. . . . . . . . . . . . . . $ 8,215,000 $ $ $ 8,215,000
Hotel assets - net. . . . . . . . 137,583,000 61,724,000 199,307,000
------------ ----------- --------------- -------------
145,798,000 61,724,000 207,522,000
Mortgage notes receivable - net . 64,479,000 62,479,000
Investment in joint venture
hotel properties. . . . . . . . . 254,000 254,000
------------ ------------ --------------- -------------
Total real estate investments. 208,531,000 61,724,000 270,255,000
Cash and cash equivalents . . . . 3,939,000 (384,000) 2,606,000 (C) 3,293,000
(2,868,000)(F)
Accounts receivable . . . . . . . 1,825,000 1,825,000
Notes receivable - Corporation 28,941,000 2,868,000 (F) 31,809,000
Notes receivable - net. . . . . . 998,000 998,000
Prepaid expenses and other assets 6,311,000 96,000 (2,185,000)(C)(D) 4,222,000
------------ ------------ ----------------- -------------
$250,545,000 $ 61,436,000 $ (421,000) $312,402,000
============ ============ ================= =============

LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES

Secured notes payable . . . . . . $130,360,000 $ $ (130,360,000)(C) $
Mortgage and other notes payable. 54,549,000 61,285,000 40,700,000 (C)
(113,740,000)(C)
Accounts payable and other
liabilities . . . . . . . . . . 3,271,000 151,000 (786,000)(C) 2,636,000
------------ ------------- ---------------- -------------
188,180,000 61,436,000 (204,186,000) 45,430,000
------------ ------------- ---------------- -------------

MINORITY INTEREST . . . . . . . . 52,498,000 35,334,000 (E) 87,832,000
------------ ------------- ---------------- -------------
SHAREHOLDERS' EQUITY

Trust shares of beneficial interest,
$0.01 par value; authorized
100,000,000 shares; outstanding
2,022,158 shares; 12,122,158
pro forma shares. . . . . . . . 20,000 101,000 (C) 121,000
Additional paid-in capital. . . . 156,937,000 208,029,000 (C) 329,632,000
(35,334,000) (E)
Accumulated deficit . . . . . . .(147,090,000) (515,000) (C) (150,613,000)
(3,008,000) (D)
------------ -------------- ------------- -------------
9,867,000 169,273,000 179,140,000
------------ -------------- ------------- -------------
$250,545,000 $61,436,000 $ (421,000) $ 312,402,000
============ ============== ============== =============

The accompanying notes are an integral part of the pro forma balance sheets.

</TABLE>
F-6

STARWOOD LODGING TRUST
UNAUDITED PRO FORMA BALANCE SHEETS
MARCH 31, 1995

Historical Pro Forma
Starwood Starwood
Lodging Acquired Pro Forma Lodging
Combined Properties Adjustments Corporation
---------- ----------- ---------------- -------------
<S> <C> <C> <C> <C>
(A) (B)
ASSETS
Hotel assets held for sale -
net.. . . . . . . . . . . . . . $ 280,000 $ $ $ 280,000
Hotel assets - net. . . . . . . . 37,285,000 3,249,000 40,534,000
------------ ----------- --------------- -------------
37,565,000 3,249,000 40,814,000
Mortgage notes receivable - net .
Investment in joint venture
hotel properties. . . . . . . . . 17,000 17,000
------------ ------------ --------------- -------------
Total real estate investments. 37,582,000 3,249,000 40,831,000
Cash and cash equivalents . . . . 8,181,000 (686,000) 7,336,000 (C) 7,831,000
(7,000,000)(F)
Accounts receivable . . . . . . . 5,102,000 241,000 5,343,000
Notes receivable - net. . . . . . 609,000 609,000
Prepaid expenses and other assets 6,687,000 2,000 6,689,000
------------ ------------ ----------------- -------------
$ 58,161,000 $ 2,806,000 $ 336,000 $ 61,303,000
============ ============ ================= =============

LIABILITIES AND SHAREHOLDERS' EQUITY
(DEFICIT)

LIABILITIES
Mortgage and other notes payable. 13,646,000 $ 2,714,000 $(3,618,000)(C) $2,874,000
(9,868,000)(F)
Notes payable - Trust 28,941,000 2,868,000 (F) 31,809,000
Accounts payable and other
liabilities . . . . . . . . . . 11,296,000 92,000 11,388,000
------------ ------------- ---------------- -------------
53,883,000 2,806,000 (10,618,000) 46,071,000
------------ ------------- ---------------- -------------

MINORITY INTEREST . . . . . . . . 6,389,000 (1,378,000)(E) 5,011,000
------------ ------------- ---------------- -------------
SHAREHOLDERS' EQUITY (DEFICIT)
Corporation common stock
$0.01 par value; authorized
100,000,000 shares; outstanding
2,022,158 shares; 12,122,158
pro forma shares. . . . . . . . 20,000 101,000 (C) 121,000

Additional paid-in capital. . . . 65,320,000 10,853,000 (C) 77,551,000
1,378,000 (E)
Accumulated deficit . . . . . . . (67,451,000) (67,451,000)
------------ -------------- ------------- -------------
(2,111,000) 12,378,000 10,221,000
------------ -------------- ------------- -------------
$ 58,161,000 $ 2,806,000 $ 336,000 $ 61,303,000
============ ============== ============== =============

The accompanying notes are an integral part of the pro forma balance sheets.

</TABLE>
F-7

STARWOOD LODGING TRUST AND
STARWOOD LODGING CORPORATION

Notes to the Unaudited Separate and Combined Pro Forma
Balance Sheets at March 31, 1995

Historical Starwood Lodging Combined

A. The Trust and the Corporation are the general partner and the
managing general partner of the Realty Partnership and the
Operating Partnership, respectively. As a condition to the
Reorganization, Starwood received the right to nominate
a majority of the respective Board members of the Trust and
the Corporation. Neither the Trust nor the Corporation is
currently considered to have unilateral control of the Realty
Partnership or the Operating Partnership for accounting
purposes. Therefore the Trust and the Corporation have
accounted for their investments in the Realty Partnership
and the Operating Partnership under the equity method of
accounting. At the time of the Offerings, the respective
Boards will be expanded to include additional independent
members and the Starwood nominees will no longer represent
a majority. Subsequent to the Offerings, the Trust and
the Corporation will have unilateral control of the respective
Partnerships and therefore, the historical financial
statements of the Partnerships will be consolidated with those of
the Trust and the Corporation. The Trust's and the
Corporation's equity investment in the Partnerships have been
eliminated in such consolidated balance sheets.
Historical paired share information has been adjusted to
reflect a one-for-six reverse split to be effective prior
to the Offerings.

Acquired Properties

B. Subsequent to March 31, 1995 the Trust and the Corporation acquired
the Omni Chapel Hill Hotel, a 168-room upscale hotel located in Chapel
Hill, North Carolina and the Company expects to acquire the Sheraton
Colony Square, a 462-room upscale high-rise hotel in Atlanta,
Georgia and the Embassy Suites, a 224 all-suite upscale hotel located
in Tempe, Arizona.

The following summarizes the cost basis and related indebtedness
of the properties acquired or to be acquired subsequent to
March 31, 1995:

Cost Basis
----------

Combined Trust Corporation
-------- ----- -----------
Omni Hotel $10,701,000 $10,166,000 $535,000
Embassy Suites 19,845,000 18,853,000 992,000
Colony Square 34,427,000 32,705,000 1,722,000
----------- ----------- ----------

$64,973,000 $61,724,000 $3,249,000
=========== =========== ==========

Indebtedness
------------

Combined Trust Corporation
-------- ----- -----------
Omni Hotel $ 9,727,000 $9,727,000(1)
Embassy Suites 19,845,000 18,853,000 $ 992,000
Colony Square 34,427,000 32,705,000 1,722,000
----------- ----------- ------------
$63,999,000 $61,285,000 $2,714,000

(1) Includes a subordinated mortgage loan of $3.6 million due
to an affiliate of Starwood Capital which loan is to be
repaid with the proceeds of the Offerings.

F-8
<PAGE>

Pro Forma Adjustments

C. The Company has filed a registration statement on Form S-2 with
the Securities and Exchange Commission for the public offering
(collectively, the "Offerings") of 10,100,000 paired shares
(exclusive of 1,515,000 paired shares subject to the Underwriters
overallotment options) at an assumed initial offering price of $24
per paired share. Concurrent with the consummation of the Offerings,
the Realty Partnership will borrow $40,700,000 from an institutional
lender (the "Mortgage Loan"). The Mortgage Loan will be secured by
a first mortgage lien on the Realty Partnership's properties,
will mature in years, and will bear interest at % per annum.
Application of the net proceeds from the Offerings and the Mortgage
Loan is as follows:

Combined Trust Corporation
-------- ----- -----------

Gross proceeds from Offerings $242,400,000 $230,280,000 $12,120,000
Less offering costs
(including $3,594,000 to
Starwood Capital) 23,316,000 22,150,000 1,166,000
------------ ------------ -----------
Net proceeds from the
Offerings 219,084,000 208,130,000 10,954,000

Proceeds from Mortgage Loan 40,700,000 40,700,000

Less:
Repayment of secured
notes payable (130,360,000) (130,360,000)
Repayment or purchase
of other mortgage
notes payable (127,226,000) (123,608,000) (3,618,000)
Prepayment penalties
on retired debt (515,000) (515,000)
Payment of warrant
purchase obligation (786,000) (786,000)
Other (823,000) (823,000)
------------- ------------- -----------
Net cash from proceeds 74,000 (7,262,000) 7,336,000
Payment to Trust by
Corporation 7,000,000 (7,000,000)
------------- ------------- ------------
$ 74,000 $ (262,000) $ 336,000
============== ============== ============

D. Reflects the write-off of deferred financing costs of $3,008,000
principally related to the New Credit Agreement. Debt incurred under
the New Credit Agreement will be retired with the net proceeds from the
Offerings.

E. Reflects a reallocation between minority interest and shareholders'
equity to reflect Starwood's 32.9% minority interest in the Partnerships
after the Offerings.

F. The Trust will purchase from a third party the first mortgage note on
the Milwaukee Marriott property which is owned by a partnership in
which the Operating Partnership is a 51% general partner for $9,986,000
and the Corporation will pay $7,000,000 to the Trust.

F-9

<PAGE>

STARWOOD LODGING TRUST AND
STARWOOD LODGING CORPORATION

PRO FORMA SEPARATE AND COMBINED STATEMENTS OF OPERATIONS

For the Year Ended December 31, 1994
and the Three Months Ended March 31, 1995
(Unaudited)

The following unaudited Pro Forma Separate and Combined Statements of
Operations are presented as if the Reorganization, the Offerings, certain
additional property acquisitions, and the initial funding of the Mortgage
Loan had all occurred at the beginning of the periods presented.

The unaudited Pro Forma Separate and Combined Statements of Operations
should be read in conjunction with the Separate and Combined Historical
Financial Statements of Starwood Lodging Trust and Starwood Lodging
Corporation and Notes thereto which are included elsewhere in this
Prospectus. In management's opinion, all adjustment necessary to reflect
the effects of the Reorganization, the Offerings, certain additional property
acquisitions, and the initial funding of the Mortgage Loan have been made.

The unaudited Pro Forma Separate and Combined Statements of Operations
are not necessarily indicative of what actual results of operations of the
Companies would have been nor do they purport to represent the Companies'
results of operations for future periods.

F-10

<PAGE>

STARWOOD LODGING TRUST AND STARWOOD LODGING CORPORATION
UNAUDITED COMBINED PRO FORMA STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1994
Historical Pro Forma
Starwood Starwood
Lodging Acquired Pro Forma Lodging
Combined Starwood Capital Properties Adjustments Combined
---------- ---------------- ---------- ----------- ---------
(A) (B) (C)

<S> <C> <C> <C> <C> <C>
REVENUE
Hotel $ 82,668,000 $16,467,000 $26,743,000 $ $125,878,000
Gaming 27,981,000 27,981,000
Interest from mortgage and other notes 1,554,000 8,496,000 10,050,000
Rents from leased hotel properties 927,000 927,000
Management fees and other income 411,000 411,000
Gain (loss) on sales of hotel assets 456,000 456,000
----------- ----------------- ------------ ------------ ------------
113,997,000 24,963,000 26,743,000 165,703,000
----------- ----------------- ------------ ------------ ------------

EXPENSES
Hotel operations 60,829,000 13,625,000 19,593,000 $(2,447,000) (D) 91,600,000
Gaming operations 24,454,000 24,454,000
Interest 17,606,000 4,297,000 5,516,000 (27,265,000) (E) 3,614,000
3,460,000 (F)
Depreciation and amortization 8,161,000 2,368,000 4,990,000 1,220,000 (G) 16,739,000
Administrative and operating 4,203,000 86,000 (D) 4,289,000
Shareholder litigation expense 2,648,000 2,648,000
Provision for losses 759,000 759,000
------------- ------------------ ------------ ------------- -------------
118,660,000 20,290,000 30,099,000 (24,946,000) 144,103,000
------------- ------------------ ------------ -------------- -------------
Income (loss) before minority
interest in Partnership $(4,663,000) $ 4,673,000 $(3,356,000) $24,946,000 21,600,000
================== ============ ==============
Minority interest in Partnerships (H)------------- 7,106,000
=============

NET INCOME (LOSS) $(4,663,000) $ 14,494,000
============= =============

NET INCOME (LOSS) PER PAIRED
SHARE (I) $ (2.31) $ 1.20
============== =============

The accompanying notes are an integral part of the pro forma statements of operations.
</TABLE>

F-11

<PAGE>

STARWOOD LODGING TRUST
UNAUDITED PRO FORMA STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1994

Historical Pro Forma
Starwood Starwood
Lodging Acquired Pro Forma Lodging
Trust Starwood Capital Properties Adjustments Trust
---------- ---------------- ---------- ----------- ---------
(A) (B) (C)

REVENUE
Rents from Corporation $16,906,000 5,087,000 $8,353,000(J) $30,346,000
Interest from Corporation 1,730,000 1,430,000(K) 3,160,000
Interest from mortgage and other notes 1,512,000 8,496,000 10,008,000
Rents from other leased hotel properties 927,000 927,000
Management fees and other income 164,000 164,000
Gain (loss) on sales of hotel assets 432,000 432,000
------------ ----------------- ----------- ------------ -----------
21,671,000 8,496,000 5,087,000 9,783,000 45,037,000
------------ ----------------- ----------- ------------ -----------

EXPENSES
Interest 16,265,000 4,297,000 5,516,000 (26,011,000)(E) 3,527,000
3,460,000 (F)
Depreciation and amortization 5,205,000 1,152,000 3,046,000 610,000 (G) 10,013,000
Administrative and operating 1,583,000 1,583,000
Shareholder litigation expense 1,324,000 1,324,000
Provision for losses 759,000 759,000
------------ ------------------ ----------- ------------- -----------
25,136,000 5,449,000 8,562,000 (21,941,000) 17,206,000
------------ ------------------ ----------- ------------- -----------
Income (loss) before minority interest in
Partnership $(3,465,000) $3,047,000 $(3,475,000) $31,724,000 27,831,000
9,156,000
Minority interest in Partnerships (H) ------------ ------------------ ----------- ------------- ===========

NET INCOME (LOSS) $(3,465,000) 3,047,000 (3,475,000) $31,724,000 $18,675,000
============ ================== =========== ============= ===========
NET INCOME (LOSS) PER SHARE (I) $ (1.71) $ 1.54
========== ========

The accompanying notes are an integral part of the pro forma statements of operations.

</TABLE>
F-12
<PAGE>

STARWOOD LODGING CORPORATION
UNAUDITED PRO FORMA STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1994

Historical Pro Forma
Starwood Starwood
Lodging Acquired Pro Forma Lodging
Corporation Starwood Capital Properties Adjustments Corporation
----------- ---------------- ---------- ----------- -----------
(A) (B) (C)

<S> <C> <C> <C> <C> <C>
REVENUE
Hotel $82,668,000 $16,467,000 $26,743,000 $ $125,878,000
Gaming 27,981,000 27,981,000
Interest from mortgage and other notes 42,000 42,000
Management fees and other income 247,000 247,000
Gain (loss) on sales of hotel assets 24,000 24,000
------------ ---------------- ----------- ------------ ------------
110,962,000 16,467,000 26,743,000 154,172,000
------------ ---------------- ----------- ------------ ------------
EXPENSES
Hotel operations 60,829,000 13,625,000 19,593,000 (2,447,000)(D) 91,600,000
Gaming operations 24,454,000 24,454,000
Rent - Trust 16,906,000 5,087,000 8,353,000 (J) 30,346,000
Interest - Trust 1,730,000 1,430,000 (K) 3,160,000
Interest - other 1,341,000 (1,254,000)(E) 87,000
Depreciation and amortization 2,956,000 1,216,000 1,944,000 610,000 (G) 6,726,000
Administrative and operating 2,620,000 86,000 (D) 2,706,000
Shareholder litigation expense 1,324,000 1,324,000
------------- ----------------- ------------ -------------- ------------
112,160,000 14,841,000 26,264,000 6,778,000 160,403,000
------------- ----------------- ------------ -------------- ------------

Income (loss) before minority interest in
Partnership (1,198,000) 1,626,000 119,000 (6,778,000) (6,231,000)
Minority interest in Partnership (H) (2,050,000)
-------------- ----------------- ------------ -------------- ------------
NET INCOME (LOSS) $(1,198,000) $1,626,000 $119,000 $(6,778,000) $(4,181,000)
============== ================= ============ ============== ============
NET INCOME (LOSS) PER
SHARE (I) $ (0.59) $ (0.34)
=========== ==========

The accompanying notes are an integral part of the pro forma statements of operations.

</TABLE>

F-13

<PAGE>

<TABLE>
<CAPTION>
STARWOOD LODGING TRUST AND STARWOOD LODGING CORPORATION
UNAUDITED COMBINED PRO FORMA STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 1995

Historical Pro Forma
Starwood Starwood
Lodging Acquired Pro Forma Lodging
Combined Properties Adjustments Combined
---------- ------------ ---------- -----------
(A) (C)
<S> <C> <C> <C> <C>

REVENUE
Hotel $22,781,000 $ 8,113,000 $ 30,894,000
Gaming 6,669,000 6,669,000
Interest from mortgage and other notes 2,581,000 2,581,000
Rents from other leased hotel properties 159,000 159,000
Management fees and other income 61,000 61,000
Gain (loss) on sales of hotel assets (113,000) (113,000)
------------ ---------------- ------------ ------------
32,138,000 8,113,000 40,251,000
------------ ---------------- ------------ ------------
EXPENSES
Hotel operations 16,280,000 5,319,000 ( 363,000)(D) 21,236,000
Gaming operations 6,021,000 6,021,000
Interest 5,827,000 1,379,000 (7,167,000)(E) 904,000
865,000 (F)
Depreciation and amortization 2,863,000 1,248,000 4,111,000
Administrative and operating 1,068,000 4,000 (D) 1,072,000
----------- ---------------- -------------- -------------
32,059,000 7,946,000 (6,661,000) 33,344,000
----------- ---------------- -------------- -------------

Income (loss) before minority interest in
Partnerships $ 79,000 $ 167,000 $(6,661,000) $ 6,907,000
Minority interest in Partnerships (H) 94,000 ================ ============== 2,272,000
------------ --------------

NET INCOME (LOSS) $ (15,000) $ 4,635,000
============= =============

NET INCOME (LOSS) PER SHARE (I) $(0.01) $0.38
============= =============
</TABLE>

The accompanying notes are an integral part of the pro forma statements
of operations.

F-14
<PAGE>

<TABLE>
<CAPTION>
STARWOOD LODGING TRUST
UNAUDITED PRO FORMA STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 1995

Historical Pro Forma
Starwood Starwood
Lodging Acquired Pro Forma Lodging
Trust Properties Adjustments Trust
---------- ------------ ---------- -----------
(A) (C)
<S> <C> <C> <C> <C>

REVENUE
Rents from Corporation $5,163,000 $ $1,313,000(J) $ 6,476,000
Interest from Corporation 767,000 358,000(K) 1,125,000
Interest from mortgage and other notes 2,556,000 2,566,000
Rents from other leased hotel properties 159,000 159,000
Management fees and other income 34,000 34,000
Gain (loss) on sales of hotel assets (113,000) (113,000)
------------ ------------- ----------- -------------
8,576,000 1,671,000 10,247,000
------------ ------------- ------------ -------------
EXPENSES
Interest 5,509,000 1,379,000 (6,871,000)(E) 882,000
865,000 (F)
Depreciation and amortization 1,691,000 762,000 2,453,000
Administrative and operating 355,000 355,000
------------- ------------- ------------- ------------
7,555,000 2,141,000 (6,006,000) 3,690,000
------------- ------------- ------------- ------------
Income (loss) before minority interest
in Partnership $1,021,000 (2,141,000) 7,677,000 6,557,000
Minority interest in Partnerships (H) 732,000 2,157,000
------------- ------------- ------------- ------------
NET INCOME (LOSS) $289,000 $(2,141,000) $7,677,000 $4,400,000
============== ============= ============= =============

NET INCOME (LOSS) PER SHARE (I) $ 0.14 $ 0.36
============== =============

</TABLE>

The accompanying notes are an integral part of the pro forma statements
of operations.

F-15

<PAGE>

<TABLE>
<CAPTION>
STARWOOD LODGING CORPORATION
UNAUDITED PRO FORMA STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 1995

Historical Pro Forma
Starwood Starwood
Lodging Acquired Pro Forma Lodging
Corporation Properties Adjustments Corporation
----------- ------------ ---------- -----------
(A) (C)
<S> <C> <C> <C> <C>

REVENUE
Hotel $22,781,000 $8,113,000 $ $30,894,000
Gaming 6,669,000 6,669,000
Interest from mortgage and other notes 15,000 15,000
Management fees and other income 27,000 27,000
-------------- ------------ ----------- -------------
29,492,000 8,113,000 37,605,000
-------------- ------------ ----------- --------------
EXPENSES
Hotel operations 16,280,000 5,319,000 (363,000)(D) 21,236,000
Gaming operations 6,021,000 6,021,000
Rent - Trust 5,163,000 1,313,000 (J) 6,476,000
Interest - Trust 767,000 358,000 (K) 1,125,000
Interest - other 318,000 (296,000)(E) 22,000
Depreciation and amortization 1,172,000 486,000 1,658,000
Administrative and operating 713,000 4,000 (D) 717,000
-------------- --------------- ------------- ---------------
30,434,000 5,805,000 1,016,000 37,255,000
============== =============== ============= ===============
Income (loss) before minority interest in
Partnership (942,000) 2,308,000 (1,016,000) 350,000
Minority interest in Partnership (H) (638,000) (115,000)
-------------- --------------- -------------- ---------------
NET INCOME (LOSS) $ (304,000) $2,308,000 $(1,016,000) $235,000
============== =============== ============== ===============
NET INCOME (LOSS) PER
SHARE (I) $ (0.15) $ 0.02
============= ============

</TABLE>

The accompanying notes are an integral part of the pro forma statements
of operations.

F-16

<PAGE>

STARWOOD LODGING TRUST AND
STARWOOD LODGING CORPORATION

Notes to the Unaudited Separate and Combined Pro Forma
Statements of Operations for the
Year Ended December 31, 1994
and the Three Months Ended March 31, 1995

A. Subsequent to the Offerings, the Trust and the Corporation will
have unilateral control of the Partnerships and, therefore,
the historical financial statements of the Partnerships will
be consolidated with those of the Trust and the Corporation.
The Trust's and the Corporation's equity in income (loss) of
the Partnerships have been eliminated in such consolidated
statements of operations.

B. Reflects the pro forma statements of operations (reflecting
Starwood's cost basis) of the assets and liabilities contributed
by the Starwood Partners in the Reorganization.

C. Reflects the pro forma statements of operations (reflecting the
Companies' cost basis) of the three properties acquired or
to be acquired by the Trust and the Corporation subsequent
to March 31, 1995.

D. The Corporation intends to operate all of the Companies'
hotels and terminate all existing third party management contracts
for properties currently owned or to be acquired at the earliest
practicable date. Accordingly certain costs directly attributable
to existing third party management contracts included in the
pro forma statements of operations have been eliminated. Such
cost savings are reflected in the pro forma statements of
operations as if such contracts had been cancelled as of the
beginning of the periods presented. Listed below are the
hotels on which third party management contracts have been
or are anticipated to be terminated and the related management
and other fees incurred in each period.

Fees Paid (1)

12 Months 3 Months
Hotel Ended 12/31/94 Ended 3/31/95 Status
----- -------------- ------------- ------

<S> <C> <C> <C>
Holiday Inn - Albany, Georgia $162,000 $15,000 Terminated
Best Western - Columbus, Ohio 156,000 30,000 Cancelable in 1995
Best Western - Savannah, Georgia 109,000 18,000 Cancelable in 1995
Radisson - Gainesville, Florida 149,000 19,000 Cancelable in 1996
Park Central - Dallas, Texas 342,000 40,000 Cancelable in 1995
Capital Hill - Washington, D.C. 143,000 32,000 Cancelable in 1995
French Quarter - Lexington, KY 432,000 21,000 Terminated
Doubletree - Rancho Bernardo,California 237,000 38,000 Cancelable in 1995
Colony Square - Atlanta 624,000 127,000 Cancelable upon Acquisition
Omni - Chapel Hill, North Carolina 93,000 23,000 Terminated
----------- ---------
$2,447,000 $363,000
=========== =========
</TABLE>
(1) Fees include base and incentive management fees as well as accounting
fee chargebacks and other corporate costs.

F-17

<PAGE>

Pro Forma Administrative and operating expenses reflect (i) increases in
operating expenses resulting principally from the opening
of a corporate office in Atlanta and (ii) decreases in operating
expenses resulting principally from a decrease in directors' and
officers' liability insurance and elimination of cash management
fees paid to the Company's former lender. Such cost adjustments
are reflected in the pro forma statements of operations as follows:

Administrative and Operating
Expenses
-----------------------------

12 Months 3 Months
Ended 12/31/94 Ended 3/31/95
-------------- -------------
Additional personnel
costs and corporate
travel $ 386,000 $ 79,000
Decrease in directors
and officers liability
insurance (200,000) (50,000)

Decrease in cash
management fees (100,000) (25,000)
------------ ------------
$86,000 $4,000
======= ======

E. Reflects the elimination of historical and pro forma interest
expense related to the debt retired with the net proceeds of
the Offerings.

F. Reflects interest expense on the Mortgage Loan to be
outstanding subsequent to the Offerings at % per annum.

G. Reflects the amortization of organization costs related
to the formation of the Partnerships over a five-year period.

H. Reflects Starwood Capital's 32.9% minority interest in the
income of the Partnerships.

I. Net income (loss) per paired share has been computed using
the weighted average number of paired shares and equivalent paired
shares outstanding. All paired share information has been adjusted
to reflect a one-for-six reverse split to be effective prior to
the Offerings.

J. Reflects rents on the hotels contributed by Starwood Capital in
the Reorganization and hotels acquired or to be acquired by
the Company subsequent to March 31, 1995. The leases between
the Trust and the Corporation provide for annual base or minimum
rents plus contingent or percentage rents based on the gross
revenue of the properties and are accounted for as operating
leases.

K. Reflects interest on the notes payable from the Corporation
to the Trust at prime plus 3% for secured notes and prime plus
2% for unsecured notes.

F-18

STARWOOD LODGING TRUST AND STARWOOD LODGING CORPORATION
COMBINED BALANCE SHEETS
(Unaudited)

March 31, December 31,
1995 1994
------------ --------------
<S> <C> <C>
ASSETS
Investment in Partnerships $6,761,000 $
Gaming assets, net 995,000
Hotel assets held for sale, net 8,585,000
Hotel assets, net 142,600,000
----------- -----------
7,756,000 151,185,000
Mortgage notes receivable, net 14,049,000
Investment in joint venture hotel
properties 262,000
----------- -----------
Total real estate investments 7,756,000 165,496,000
Cash and cash equivalents 5,065,000
Accounts receivable 4,040,000
Notes receivable, net 1,627,000
Inventories, prepaid expenses and
other assets 7,727,000
Due from Partnerships 1,718,000
---------- ------------
$9,474,000 $183,955,000
========== ============
LIABILITIES AND SHAREHOLDERS' EQUITY

LIABILITIES

Secured notes payable and revolving
line of credit $ $113,896,000
Mortgage and other notes payable 46,586,000
Accounts payable and other
liabilities 1,178,000 14,765,000
----------- -------------
1,718,000 175,247,000
----------- -------------
Commitments and contingencies

SHAREHOLDERS' EQUITY
Trust shares of beneficial interest,
$0.01 par value; authorized
100,000,000 shares; outstanding
12,132,948 shares 121,000 12,133,000
Corporation Common stock,
$0.01 par value; authorized
100,000,000 shares; outstanding
12,132,948 shares 121,000 1,213,000
Additional paid-in-capital 222,055,000 210,251,000
Accumulated deficit (214,541,000) (214,889,000)
------------ -----------
7,756,000 8,708,000
------------ -----------
$9,474,000 $183,955,000

</TABLE>
See accompanying notes to financial statements.

F-19

<PAGE>

STARWOOD LODGING TRUST AND STARWOOD LODGING CORPORATION
COMBINED STATEMENTS OF OPERATIONS
(Unaudited)

Three Months Ended March 31,
1995 1994
---- ----
REVENUE
Equity in income of Partnerships
before extraordinary items $ 37,000 $
Hotel 20,586,000
Gaming 6,669,000 7,188,000
Interest from mortgage and other
notes 355,000
Rents from leased hotel
properties and
income from joint ventures 150,000
Management fees and other 59,000
------------ -----------
6,706,000 28,338,000
------------ -----------
EXPENSES
Hotel operations 15,568,000
Gaming operations 6,021,000 5,993,000
Rent - SLT Realty L.P. 600,000
Interest - other 4,125,000
Interest - SLT Realty L.P. 37,000
Depreciation and amortization 63,000 2,066,000
Administrative and operating 921,000
------------ -----------
6,721,000 28,673,000
------------ -----------
Income (loss) before
extraordinary items (15,000) (335,000)
Equity in extraordinary items of
Partnerships 363,000
------------ ------------
NET INCOME (LOSS) $348,000 $(335,000)

EARNINGS PER PAIRED SHARE
Income (loss) before
extraordinary items $0.00 $(0.03)
Extraordinary items 0.03
------------ ------------

NET INCOME (LOSS) PER PAIRED SHARE $0.03 $(0.03)
============ =============
Weighted average number of
paired shares 12,132,948 12,132,948
============ =============

See accompanying notes to financial statements.

F-20

STARWOOD LODGING TRUST AND STARWOOD LODGING CORPORATION
COMBINED STATEMENTS OF CASH FLOWS
(Unaudited)

Three Months Ended March 31,
1995 1994
------------ -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING
ACTIVITIES
Net income (loss) $348,000 $(335,000)
Adjustments to reconcile net
income (loss) to net cash
provided by (used in) operating
activities:
Equity in income (loss) of
Partnerships (400,000)
Depreciation and amortization 63,000 2,066,000
Deferred interest 478,000
Changes in assets and liabilities:
Accounts receivable, inventories,
prepaid expenses and other assets (120,000)
Accounts payable and other
liabilities (459,000)
------------- -------------
Net cash provided by (used in)
operating activities 11,000 1,630,000
------------- -------------
CASH FLOWS FROM INVESTING
ACTIVITIES
Cash contributed to Partnerships (3,189,000)
Additions to hotel assets (598,000)
Net change in gaming assets (1,887,000)
Principal received notes receivable 67,000
-------------- -------------
Net cash used in investing
activities (5,076,000) (531,000)

CASH FLOWS FROM FINANCING ACTIVITIES
Principal payments on mortgage and
other notes payable (237,000)
Increase in secured notes payable
and revolving line of credit 276,000
Principal received on share
purchase notes 11,000
--------------- -------------
Net cash provided by (used in)
financing activities 50,000
--------------- -------------

INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS (5,065,000) 1,149,000
CASH AND CASH EQUIVALENTS
AT BEGINNING OF PERIOD 5,065,000 5,652,000
--------------- --------------
CASH AND CASH EQUIVALENTS
AT END OF PERIOD $ --- $6,801,000
================ ===============

</TABLE>
F-21

See accompanying notes to financial statements.

<PAGE>

<TABLE>
<CAPTION>
STARWOOD LODGING TRUST
BALANCE SHEETS
(Unaudited)
March 31, December 31,
1995 1994
--------- ------------
<S> <C> <C>
ASSETS
Investment in Partnership $9,867,000 $
Hotel assets held for sale, net 8,281,000
Hotel assets, net 108,428,000
----------- ------------
9,867,000 116,709,000
Mortgage notes receivable, net 14,049,000
Investment in joint venture hotel
properties 240,000
----------- ------------

Total real estate investments 9,867,000 130,998,000
Cash and cash equivalents 255,000
Accounts receivable 698,000
Notes receivable - Corporation 26,916,000
Notes receivable, net 1,004,000
Inventories, prepaid expenses and
other assets 2,374,000
Due from Partnership 859,000
------------ ------------
$10,726,000 $162,245,000
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY

LIABILITIES
Secured notes payable and revolving
line of credit $ $113,896,000
Mortgage and other notes payable 32,838,000
Accounts payable and other
liabilities 859,000 5,061,000
------------ ------------
859,000 151,795,000
------------ ------------
Commitments and contingencies

SHAREHOLDERS' EQUITY
Trust shares of beneficial interest,
$0.01 par value; authorized
100,000,000 shares; outstanding
12,132,948 shares 121,000 12,133,000
Additional paid-in-capital 156,836,000 146,059,000
Accumulated deficit (147,090,000) (147,742,000)
-------------- --------------
9,867,000 10,450,000
-------------- --------------
$10,726,000 $162,245,000
============== ==============
</TABLE>

See accompanying notes to financial statements.

F-22
<PAGE>
STARWOOD LODGING TRUST
STATEMENTS OF OPERATIONS
(Unaudited)

Three Months Ended March 31,
-------------------------------
1995 1994
------------ -------------
REVENUE
Equity in income of Partnership
before extraordinary items $289,000 $
Rents from Corporation 4,313,000
Interest from Corporation 415,000
Interest from mortgage and other
notes 339,000
Rents from leased hotel properties
and income from joint ventures 150,000
Management fees and other and
income from joint venture 26,000
------------ ------------
289,000 5,243,000
------------ ------------
EXPENSES
Interest 3,779,000
Depreciation and amortization 1,252,000
Administrative and operating 366,000
------------ ------------
5,397,000
------------ ------------
Income (loss) before extraordinary items 289,000 (154,000)
Equity in extraordinary items of
Partnerships 363,000
------------ ------------
NET INCOME (LOSS) $652,000 $(154,000)
============ ============
EARNINGS PER SHARE
Income (loss) before extraordinary items $0.02 $(0.01)
Extraordinary items 0.03
------------ ------------

NET INCOME (LOSS) PER SHARE $0.05 $(0.01)
============ ============
Weighted average number of shares 12,132,948 12,132,948
============ ============
See accompanying notes to financial statements.

F-23
<PAGE>
<TABLE>
<CAPTION>

STARWOOD LODGING TRUST
STATEMENTS OF CASH FLOWS
(Unaudited)
Three Months Ended March 31,
------------------------------
1995 1994
------------ ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) $652,000 $(154,000)
Adjustments to reconcile net
income (loss) to net cash
provided by (used in) operating
activities:
Equity in income (loss) of
Partnership (652,000)
Depreciation and amortization 1,252,000
Deferred interest 478,000
Changes in assets and liabilities:
Accounts receivable, inventories,
prepaid expenses and other assets 550,000
Accounts payable and other
liabilities (1,079,000)
------------ ------------

Net cash provided by (used in)
operating activities 1,047,000
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES
Cash contributed to Partnership (255,000)
Additions to hotel assets (258,000)
Principal received on mortgage and
other notes receivable 54,000
Net changes in notes receivable -
Corporation (1,344,000)
------------ ------------
Net cash used in investing
activities (255,000) (1,548,000)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES
Principal payments on mortgage and
other notes payable (188,000)
Increase in secured notes payable
and revolving line of credit 276,000
Principal received on share
purchase notes 11,000
------------ ------------
Net cash provided by (used in)
financing activities 99,000
------------ ------------

DECREASE IN CASH AND CASH
EQUIVALENTS (255,000) (402,000)
CASH AND CASH EQUIVALENTS
AT BEGINNING OF PERIOD 255,000 918,000
------------ ------------
CASH AND CASH EQUIVALENTS
AT END OF PERIOD $ --- $516,000
============ ============
</TABLE>

See accompanying notes to financial statements.

F-24
<PAGE>

STARWOOD LODGING CORPORATION
BALANCE SHEETS
(Unaudited)
March 31, December 31,
1995 1994
------------ ------------
<S> <C> <C>
ASSETS
Investment in Partnership $(3,106,000) $
Gaming Assets, net 995,000
Hotel assets held for sale, net 304,000
Hotel assets, net 34,172,000
------------ ------------
(2,111,000) 34,476,000
Investment in joint venture hotel
properties 22,000
------------ ------------
Total real estate investments (2,111,000) 34,498,000
Cash and cash equivalents 4,810,000
Accounts receivable 3,342,000
Notes receivable, net 623,000
Inventories, prepaid expenses and
other assets 5,353,000
Due from Partnership 859,000
------------ ------------
$(1,252,000) $48,626,000
============ ============

LIABILITIES AND SHAREHOLDERS' DEFICIT

LIABILITIES
Mortgage and other notes payable $ $13,748,000
Notes payable - Trust 26,916,000
Accounts payable and other
liabilities 859,000 9,704,000
------------ ------------
859,000 50,368,000
------------ ------------
Commitments and contingencies

SHAREHOLDERS' DEFICIT
Corporation Common stock,
$0.01 par value; authorized
100,000,000 shares; outstanding
12,132,948 shares 121,000 1,213,000
Additional paid-in-capital 65,219,000 64,192,000
Accumulated deficit (67,451,000) (67,147,000)
------------ ------------
(2,111,000) (1,742,000)
------------ ------------
$(1,252,000) $48,626,000
============ ============
</TABLE>

See accompanying notes to financial statements.

F-25
<PAGE>

STARWOOD LODGING CORPORATION
STATEMENTS OF OPERATIONS
(Unaudited)
Three Months Ended March 31,
------------------------------
1995 1994
------------ ------------
<S> <C> <C>
REVENUE
Equity in loss of Partnership $(252,000) $
Hotel 20,586,000
Gaming 6,669,000 7,188,000
Interest from mortgage and other notes 16,000
Management fees and other 33,000
------------ ------------
6,417,000 27,823,000
------------ ------------
EXPENSES
Hotel operations 15,568,000
Gaming operations 6,021,000 5,993,000
Rent - Trust/Realty Partnership 600,000 4,313,000
Interest - Trust/Realty Partnership 37,000 415,000
Interest - other 346,000
Depreciation and amortization 63,000 814,000
Administrative and operating 555,000
------------ ------------
6,721,000 28,004,000
------------ ------------
NET INCOME (LOSS) $(304,000) $(181,000)
============ ============
NET INCOME (LOSS) PER SHARE $(0.03) $(0.01)
============ ============
Weighted average number of shares 12,132,948 12,132,948
============ ============
</TABLE>
See accompanying notes to financial statements.

F-26
<PAGE>

STARWOOD LODGING CORPORATION
STATEMENTS OF CASH FLOWS
(Unaudited)

Three Months Ended March 31,
------------------------------
1995 1994
------------ ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $(304,000) $(181,000)
Adjustments to reconcile net loss
to net cash provided by operating
activities:
Equity in loss of Partnership 252,000
Depreciation and amortization 63,000 814,000
Changes in assets and liabilities:
Accounts receivable, inventories,
prepaid expenses and other assets (670,000)
Accounts payable and other liabilities (620,000)
------------ ------------
Net cash provided by (used in)
operating activities 11,000 583,000
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES
Cash contributed to Partnership (2,934,000)
Net change in gaming assets (1,887,000)
Additions to hotel assets (339,000)
Principal received on notes
receivable 13,000
------------ ------------
Net cash used in investing
activities (4,821,000) (326,000)
------------ ------------

CASH FLOWS FROM FINANCING ACTIVITIES
Net change in notes payable -
Trust 1,344,000
Principal payments on mortgage and
other notes payable (49,000)
------------ ------------
Net cash provided by (used in)
financing activities 1,295,000
------------ ------------

INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS (4,810,000) 1,552,000
CASH AND CASH EQUIVALENTS
AT BEGINNING OF PERIOD 4,810,000 4,734,000
------------ ------------
CASH AND CASH EQUIVALENTS
AT END OF PERIOD $ --- $6,286,000
============ ============
</TABLE>

See accompanying notes to financial statements.

F-27

<PAGE>

SLT REALTY LIMITED PARTNERSHIP AND SLC OPERATING LIMITED PARTNERSHIP
COMBINED BALANCE SHEET
(Unaudited)
March 31,
1995
------------
ASSETS
Hotel assets held for sale, net $8,215,000
Hotel assets - net 174,660,000
------------
182,875,000
Mortgage notes receivable, net 62,479,000
Investment in joint venture hotel
properties 271,000
------------
Total real estate investments 245,625,000
Cash and cash equivalents 9,581,000
Accounts receivable 6,406,000
Notes receivable - Corporation 1,446,000
Notes receivable, net 1,607,000
Inventories, prepaid expenses and
other assets 12,268,000
------------
$276,933,000
============
LIABILITIES AND PARTNERS' EQUITY
LIABILITIES
Secured notes payable $130,360,000
Mortgage and other notes payable 68,155,000
Accounts payable and other liabilities 12,770,000
------------
211,285,000
------------
PARTNERS' EQUITY 65,648,000
------------
$276,933,000
============

See accompanying notes to financial statements.

F-28
<PAGE>

SLT REALTY LIMITED PARTNERSHIP AND SLC OPERATING LIMITED PARTNERSHIP
COMBINED STATEMENT OF OPERATIONS
(Unaudited)

Three Months
Ended
March 31,
1995
------------
REVENUE
Hotel $22,781,000
Interest from mortgage and other notes 2,581,000
Rent - Corporation 600,000
Interest from Corporation 37,000
Management fees and other 61,000
Rents from leased hotel properties 159,000
Gain (loss) on sale (113,000)
------------
26,106,000
------------
EXPENSES
Hotel operations 16,280,000
Interest 5,827,000
Depreciation and amortization 2,800,000
Administrative and operating 1,068,000
------------
25,975,000
------------
Income before extraordinary items 131,000
Extraordinary items 1,284,000
------------
NET INCOME $1,415,000
============

See accompanying notes to financial statements.

F-29
<PAGE>

SLT REALTY LIMITED PARTNERSHIP AND SLC OPERATING LIMITED PARTNERSHIP
COMBINED STATEMENT OF CASH FLOWS
(Unaudited)
Three Months
Ended
March 31,
1995
------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $1,415,000
Extraordinary items (1,284,000)
Adjustments to reconcile net
income to net cash used in
operating activities:
Depreciation and amortization 2,800,000
Accretion of discount on
mortgage notes receivable (753,000)
Deferred interest 649,000
Loss on sales 113,000
Changes in operating assets and
liabilities:
Accounts receivable, inventories,
prepaid expenses and other
assets (5,901,000)
Accounts payable and other
liabilities 1,726,000
------------
Net cash used in operating
activities (1,235,000)
------------
CASH FLOWS FROM INVESTING ACTIVITIES
Additions to hotel assets (453,000)
Decrease in mortgage notes receivable 1,460,000
Principal received on notes receivable 20,000
Increase in notes receivable -
Corporation (221,000)
Reorganization costs (2,786,000)
------------
Net cash used in investing
activities (1,980,000)
------------
CASH FLOWS FROM FINANCING ACTIVITIES
Principal payments on mortgage
and other notes payable (32,413,000)
Borrowings under secured notes
payable 27,461,000
Capital contributions 18,012,000
Borrowings under mortgage and
other notes payable 250,000
Purchase of warrants (514,000)
------------
Net cash provided by financing
activities 12,796,000
------------

INCREASE IN CASH AND CASH
EQUIVALENTS 9,581,000
CASH AND CASH EQUIVALENTS
AT BEGINNING OF PERIOD ---
------------
CASH AND CASH EQUIVALENTS
AT END OF PERIOD $9,581,000
============

See accompanying notes to financial statements.

F-30
<PAGE>

SLT REALTY LIMITED PARTNERSHIP
BALANCE SHEET
(Unaudited)
March 31,
1995
------------
ASSETS
Hotel assets held for sale, net $8,215,000
Hotel assets - net 137,583,000
------------
145,798,000
Mortgage notes receivable, net 62,479,000
Investment in joint venture hotel
properties 254,000
------------
Total real estate investments 208,531,000
Cash and cash equivalents 3,939,000
Accounts receivable 1,825,000
Notes receivable - SLC Operating L.P. 27,495,000
Notes receivable - Corporation 1,446,000
Notes receivable, net 998,000
Prepaid expenses and other assets 6,311,000
------------
$250,545,000
============
LIABILITIES AND PARTNERS' EQUITY
LIABILITIES
Secured notes payable $130,360,000
Mortgage and other notes payable 54,549,000
Accounts payable and other
liabilities 3,271,000
------------
188,180,000
------------
PARTNERS' EQUITY 62,365,000
------------
$250,545,000
============

See accompanying notes to financial statements.

F-31
<PAGE>

SLT REALTY LIMITED PARTNERSHIP
STATEMENT OF OPERATIONS
(Unaudited)
Three Months
Ended
March 31,
1995
------------

REVENUE
Rents from Corporation $600,000
Rents from SLC Operating L.P. 4,563,000
Interest from SLC Operating L.P. 730,000
Interest from Corporation 37,000
Interest from mortgage and other notes 2,566,000
Rent from other leased hotel properties 159,000
Other 34,000
Gain (loss) on sale (113,000)
------------
8,576,000
------------

EXPENSES
Interest 5,509,000
Depreciation and amortization 1,691,000
Administrative and operating 355,000
------------
7,555,000
------------
Income before extraordinary items 1,021,000
Extraordinary items 1,284,000
------------
NET INCOME $2,305,000
============
See accompanying notes to financial statements.

F-32

<PAGE>

SLT REALTY LIMITED PARTNERSHIP
STATEMENT OF CASH FLOWS
(Unaudited)
Three Months
Ended
March 31,
1995
------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $2,305,000
Extraordinary items (1,284,000)
Adjustments to reconcile net
income to net cash
used in operating activities:
Depreciation and amortization 1,691,000
Accretion of discount on
mortgage notes receivable (753,000)
Deferred interest 649,000
Loss on sale 113,000
Deferred interest - Corporation (463,000)
Changes in operating assets and
liabilities:
Accounts receivable, prepaid
expenses and other assets (3,656,000)
Accounts payable and other
liabilities 272,000
------------
Net cash used in operating
activities (1,126,000)
------------
CASH FLOWS FROM INVESTING ACTIVITIES
Additions to hotel assets (453,000)
Decrease in mortgage notes receivable 1,460,000
Principal received on mortgage
and other notes receivable 6,000
Net change in notes receivable -
SLC Operating L.P. (1,341,000)
Net change in notes receivable -
Corporation (221,000)
Reorganization costs (1,393,000)
------------
Net cash used in investing
activities (1,942,000)
------------
CASH FLOWS FROM FINANCING ACTIVITIES
Principal payments on mortgage
and other notes payable (32,413,000)
Borrowings under secured notes
payable 27,461,000
Capital contributions 12,223,000
Borrowings under mortgage and
other notes payable 250,000
Purchase of warrants (514,000)
------------
Net cash provided by financing
activities 7,007,000
------------
INCREASE IN CASH
AND CASH EQUIVALENTS 3,939,000
CASH AND CASH EQUIVALENTS
AT BEGINNING OF PERIOD ---
------------
CASH AND CASH EQUIVALENTS
AT END OF PERIOD $3,939,000
============

See accompanying notes to financial statements.

F-33

<PAGE>

SLC OPERATING LIMITED PARTNERSHIP
BALANCE SHEET
(Unaudited)
March 31,
1995
------------
ASSETS

Hotel assets - net $37,077,000
Investment in joint venture hotel
properties 17,000
------------
Total real estate investments 37,094,000
Cash and cash equivalents 5,642,000
Accounts receivable 4,581,000
Notes receivable 609,000
Inventories, prepaid expenses and
other assets 5,957,000
------------
$53,883,000
============

LIABILITIES AND PARTNERS' EQUITY

LIABILITIES
Mortgage and other notes payable $13,606,000
Notes payable - SLT Realty L.P. 27,495,000
Accounts payable and other
liabilities 9,499,000
------------
50,600,000
PARTNERS' EQUITY 3,283,000
------------
$53,883,000
============

See accompanying notes to financial statements.

F-34

<PAGE>

SLC OPERATING LIMITED PARTNERSHIP
STATEMENT OF OPERATIONS
(Unaudited)
Three Months
Ended
March 31,
1995
------------
REVENUE
Hotel $22,781,000
Interest from notes receivable 15,000
Management fees and other income 27,000
------------
22,823,000
------------

EXPENSES
Hotel operations 16,280,000
Rent - SLT Realty L.P. 4,563,000
Interest - SLT Realty L.P. 730,000
Interest - other 318,000
Depreciation and amortization 1,109,000
Administrative and operating 713,000
------------
23,713,000
------------
NET LOSS $(890,000)
============

See accompanying notes to financial statements.

F-35

<PAGE>

SLC OPERATING LIMITED PARTNERSHIP
STATEMENT OF CASH FLOWS
(Unaudited)
Three Months
Ended
March 31,
1995
------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $(890,000)
Adjustments to reconcile net loss
to net cash provided by operating
activities:
Depreciation and amortization 1,109,000
Deferred interest - SLT Realty L.P. 463,000
Changes in operating assets and
liabilities:
Accounts receivable,
inventories, prepaid expenses and
other assets (2,245,000)
Accounts payable and other liabilities 1,454,000
------------
Net cash used in operating
activities (109,000)
------------
CASH FLOWS FROM INVESTING ACTIVITIES
Principal received on notes
receivable 14,000
Reorganization costs (1,393,000)
------------
Net cash used in investing
activities (1,379,000)
------------
CASH FLOWS FROM FINANCING ACTIVITIES
Capital contributions 5,789,000
Net changes in notes payable -
SLT Realty L.P. 1,341,000
------------
Net cash provided by financing
activities 7,130,000
------------
INCREASE IN CASH AND CASH
EQUIVALENTS 5,642,000
CASH AND CASH EQUIVALENTS AT
BEGINNING OF PERIOD ---
------------
CASH AND CASH EQUIVALENTS AT END
OF PERIOD $5,642,000
============

See accompanying notes to financial statements.

F-36

<PAGE>

NOTE 1. INTERIM FINANCIAL STATEMENTS

The accompanying unaudited financial statements have been
prepared in accordance with generally accepted accounting
principles for interim financial information and with Rule 10-01 of
Regulation S-X. Accordingly, these statements do not include all
of the information and footnotes required by generally accepted
accounting principles for complete financial statements. In the
opinion of management of the Trust and the Corporation, all
adjustments necessary for a fair presentation have been included.
The financial statements presented herein have been prepared in
accordance with the accounting policies described in the
registrants' Joint Annual Report on Form 10-K for the year ended
December 31, 1994 (the "1994 Form 10-K"), and should be read in
conjunction therewith.

NOTE 2. REORGANIZATION

Effective January 1, 1995 (the "Closing Date"), the Trust and
the Corporation consummated the previously announced reorganization
(the "Reorganization") with Starwood Capital Group, L.P. ("Starwood
Capital") and certain affiliates of Starwood Capital (the "Starwood
Partners").

The Reorganization involved a number of related transactions
that occurred simultaneously as of the Closing Date. Such
transactions included (i) the contribution by the Trust to SLT
Realty Limited Partnership (the "Realty Partnership") of all of the
properties and assets of the Trust subject to substantially all of
the liabilities of the Trust (including the Senior Debt of the
Trust), in exchange for an approximate 28.3% interest as a general
partner in the Realty Partnership, (ii) the contribution by the
Starwood Partners to the Realty Partnership of approximately
$12,600,000 in cash and certain hotel properties and first mortgage
notes, in exchange for limited partnership units representing the
remaining approximate 71.7% interest in the Realty Partnership,
(iii) the contribution by the Corporation and its subsidiaries to
SLC Operating Limited Partnership (the "Operating Partnership") of
all of their properties and operating assets (except for their
gaming assets, which are to be contributed upon approval by Nevada
Gaming Authorities), subject to substantially all of their
liabilities, in exchange for an approximate 28.3% interest as a
general partner in the Operating Partnership, and (iv) the
contribution by the Starwood Partners to the Operating Partnership
of approximately $1,400,000 in cash and furnishing and equipment of
the hotel properties, in exchange for limited partnership units
representing the remaining approximate 71.7% interest in the
Operating Partnership. At March 31, 1995 gaming assets to be
contributed to the Operating Partnership upon approval of the
Nevada Gaming Authorities consist of assets of $4,278,000, net of
liabilities of $3,283,000 including notes payable to the Realty
Partnership of $1,446,000. In addition, on March 24, 1995 a
Starwood Partner exchanged $12 million of Senior Debt for
additional limited partnership units of the Realty Partnership and
the Operating Partnership.

After giving effect to the Reorganization and the subsequent
exchange of Senior Debt, the Trust has an approximate 25.4%
interest in the Realty Partnership and the Corporation has an
approximate 25.4% interest in the Operating Partnership, and the
Starwood Partners hold limited partnership interests representing
the remaining approximate 74.6% interest in each of the Realty
Partnership and the Operating Partnership.

NOTE 3. DEBT RESTRUCTURING

On March 24, 1995, the Realty Partnership and the Trust
entered into an Amended and Restated Credit Agreement (the "New
Credit Agreement") pursuant to which the Realty Partnership
borrowed approximately $132 million (the "Loan") which was used
primarily to refinance all outstanding Senior Debt (after the
exchange by a Starwood Partner of $12 million of Senior Debt for
units of the Realty Partnership and the Operating Partnership
described above) and approximately $27 million of first mortgage
debt. The Loan matures on April 1, 1997 (subject to the Realty
Partnership's option to extend such maturity for 12 months subject
to a principal payment of $10 million and on certain other
conditions) and bears interest at a rate based on LIBOR plus 3%.
In connection with the refinancing, the Realty Partnership paid
$514,000 to one of the Senior Lenders and a portion of the Lender
Warrants were cancelled. In connection with the New Credit
Agreement, the remaining Lender Warrants Issued in connection with
the prior Credit Agreement (the "Prior Credit Agreement") could be
cancelled upon the payment to a Starwood Partner of a $786,000
cancellation fee. Effective March 31, 1995 the Realty Partnership
issued an unsecured note payable to the Starwood Partner and the
remaining Lender Warrants were cancelled.

F-37
<PAGE>

Prior to maturity there are no mandatory principal payments on
the Loan, except that (i) if the Realty Partnership sells or
refinances a hotel property or mortgage note (other than certain
notes contributed by the Starwood Partners aggregating
approximately $53 million (the "Harvey Notes")), it must reduce the
principal of the Loan by at least 125% of the portion of the Loan
allocated to such property or note and (ii) the net proceeds of any
public offering (or private offerings to the extent the net
proceeds thereof exceed $60 million) of equity interests in the
Trust, the Corporation, the Realty Partnership or the Operating
Partnership must be used to reduce the principal of the Loan until
such principal is equal to or less than 50% of the fair mark value
of the assets which secure the Loan.

The Loan is secured by first priority liens on substantially
all of the assets of the Realty Partnership, other than the Harvey
Notes. Up to $58 million of the obligations under the Loan is
guaranteed by the Operating Partnership, which guaranty is secured
by first priority liens on substantially all of the assets of the
Operating Partnership. Each of the Trust and the Corporation, as
general partner, is secondarily liable for the obligations under
the Loan of the Realty Partnership and the Operating Partnership,
respectively.

The New Credit Agreement contains covenants that are similar
to, but in general less restrictive than, those contained in the
prior Credit Agreement, including (i) a requirement that the Realty
Partnership and the Operating Partnership maintain a minimum
combined net worth as defined ($40 million at March 31, 1995). The
New Credit Agreement also restricts the ability of the Realty
Partnership to incur other indebtedness.

The Realty Partnership may, prior to January 1, 1996, borrow
up to an additional $75 million to finance the acquisition of hotel
properties and to refinance debt that is senior to the Loan. Each
such acquisition loan will be in an amount equal to the lesser of
(i) 60% of the purchase price (in the case of an acquisition) or
(ii) 70% of the property's value (as determined by the lender),
will be made on the same terms as the Loan and will be secured by
a first priority lien on the related hotel property.

NOTE 4. INVESTMENT IN PARTNERSHIPS

The Trust and the Corporation will account for their
respective investment in the Realty Partnership and the Operating
Partnership under the equity method of accounting, in accordance
with generally accepted accounting principles. For accounting
purposes, neither the Trust nor Starwood Capital unilaterally
controls the Realty Partnership and neither the Corporation nor
Starwood Capital unilaterally controls the Operating Partnership.

The condensed unaudited separate and combined financial
information of the Realty Partnership and the Operating Partnership
as of March 31, 1995 and for the three months then ended are
presented on pages 13 through 21 contained herein.

NOTE 5. PRO FORMA FINANCIAL INFORMATION

The following unaudited pro forma separate and combined
condensed financial information for the three months ended
March 31, 1994 is presented as if the Reorganization had occurred
on January 1, 1994.

STARWOOD LODGING Trust Corporation Combined
-------- ------------ --------

Income (loss) from investment in
Partnership $423,000 $(228,000) $195,000
Net income (loss) per share $.04 $(.02) $0.02

SLT REALTY AND SLT OPERATING
PARTNERSHIPS Realty Operating Combined
---------- ------------- --------

Revenues $8,112,000 $31,581,000 $34,193,000
Expenses 6,617,000 32,387,000 33,504,000
----------- ------------- ----------
Net income (loss) $1,495,000 $ (806,000) $ 689,000
=========== ============= ==========

F-38
<PAGE>

NOTE 6. EXTRAORDINARY ITEM

Effective January 28, 1993, the Trust restructured its debt
under the terms of the Prior Credit Agreement. Management
concluded that this debt restructuring represented a "troubled debt
restructuring" as defined under generally accepted accounting
principles, and accordingly, upon execution of the Prior Credit
Agreement accrued all known current or future identifiable debt
restructuring costs as of December 31, 1992. In the first quarter
of 1995, upon execution of the New Credit Agreement the Realty
Partnership recognized extraordinary income of $1,284,000 relating
to the extinguishment of the debt under the terms of the Prior
Credit Agreement, representing the remaining amount of the accrual
recorded at March 24, 1995.

F-39

<PAGE>

INDEPENDENT AUDITORS' REPORT

To the Boards of Trustees and Directors and Shareholders of
Starwood Lodging Trust and Starwood Lodging Corporation:

We have audited the accompanying separate and combined financial
statements of Starwood Lodging Trust (a Maryland real estate
investment trust) (the "Trust") and Starwood Lodging Corporation (a
Maryland corporation) and its subsidiaries (the "Corporation"),
collectively the "Companies", as of December 31, 1994 and 1993, and
for each of the three years in the period ended December 31, 1994,
listed in the foregoing index to financial statements and financial
statement schedules. Our audits also included the financial
statement schedules listed in the foregoing index to financial
statements and financial statement schedules. These financial
statements and financial statement schedules are the responsibility
of the Trust's, the Corporation's and the Companies' managements.
Our responsibility is to express an opinion on these financial
statements and financial statement schedules 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, such separate and combined financial statements
present fairly, in all material respects, the financial position of
the Companies and the financial position of the Trust and the
Corporation at December 31, 1994 and 1993, and the respective
results of their operations and their cash flows for each of the
three years in the period ended December 31, 1994 in conformity
with generally accepted accounting principles. Also, in our
opinion, such financial statement schedules, when considered in
relation to the basic financial statements taken as a whole,
present fairly in all material respects the information set forth
therein.

DELOITTE & TOUCHE LLP

Los Angeles, California
March 24, 1995

F-40
<PAGE>

STARWOOD LODGING TRUST AND STARWOOD LODGING CORPORATION
COMBINED BALANCE SHEETS

December 31, December 31,
1994 1995
------------- -------------
ASSETS

Hotel assets held for sale - net $ 8,585,000 $ 16,631,000
Hotel assets - net 142,600,000 150,618,000
151,185,000 167,249,000
Mortgage notes receivable - net 14,049,000 11,649,000
Investment in joint venture hotel
properties 262,000 281,000
Total real estate investments 165,496,000 179,172,000
Cash and cash equivalents 5,065,000 5,652,000
Accounts receivable 4,040,000 4,360,000
Notes receivable - net 1,627,000 1,717,000
Inventories, prepaid expenses and
other assets 7,727,000 4,451,000
------------ ------------
$183,955,000 $195,352,000
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY

LIABILITIES
Secured notes payable and revolving
line of credit $113,896,000 $128,802,000
Mortgage and other notes payable 46,586,000 42,084,000
Accounts payable and other liabilities 14,765,000 11,140,000
------------ ------------
175,247,000 182,026,000
------------ ------------
Commitments and contingencies

SHAREHOLDERS' EQUITY
Trust shares of beneficial interest,
$1.00 par value; authorized
30,000,000 shares; outstanding
12,132,948 shares 12,133,000 12,133,000
Corporation common stock, $0.10 par
value; authorized 30,000,000 shares;
outstanding 12,132,948 shares 1,213,000 1,213,000
Additional paid-in capital 210,251,000 210,497,000
Share purchase notes (291,000)
Accumulated deficit (214,889,000) (210,226,000)
------------ ------------
8,708,000 13,326,000
------------ ------------
$183,955,000 $195,352,000
============ ============

See accompanying notes to financial statements.

F-41

<PAGE>

STARWOOD LODGING TRUST AND STARWOOD LODGING CORPORATION
COMBINED STATEMENTS OF OPERATIONS

Years Ended December 31,
--------------------------------------------
1994 1993 1992
-------------- ----------------- ------------
REVENUE
Hotel $ 82,668,000 $ 86,903,000 $ 88,812,000
Gaming 27,981,000 27,505,000 26,150,000
Interest from mortgage and
other notes 1,554,000 1,412,000 1,348,000
Management fees and other income 411,000 475,000 1,186,000
Rents from leased hotel properties
and income from joint ventures 927,000 839,000 947,000
Gain (loss) on sales of hotel
assets 456,000 21,000 (787,000)
--------------- ---------------- -------------
113,997,000 117,155,000 117,656,000
--------------- ---------------- -------------

EXPENSES
Hotel operations 60,829,000 68,132,000 68,620,000
Gaming operations 24,454,000 24,055,000 23,699,000
Interest 17,606,000 15,187,000 14,208,000
Depreciation and amortization 8,161,000 9,232,000 10,196,000
Administrative and operating 4,203,000 4,729,000 6,177,000
Loan restructuring costs 10,892,000
Shareholder litigation 2,648,000 4,483,000 188,000
Provision for losses 759,000 2,369,000 3,419,000
------------- ---------------- ------------
118,660,000 124,187,000 137,399,000
------------- ---------------- ------------
NET LOSS $ (4,663,000) $ (7,032,000) $(19,743,000)
============= ================ ============
NET LOSS PER PAIRED SHARE $ (0.38) $ (0.58) $ (1.63)

See accompanying notes to financial statements.

F-42

<PAGE>

STARWOOD LODGING TRUST AND STARWOOD LODGING CORPORATION
COMBINED STATEMENTS OF CASH FLOWS

Years Ended December 31,
--------------------------------------------
1994 1993 1992
-------------- ----------------- ------------

CASH FLOWS FROM OPERATING
ACTIVITIES
Net loss $(4,663,000) $(7,032,000) $(19,743,000)
Adjustments to reconcile
net loss to net cash
provided by (used in)
operating activities:
Depreciation and amortization 8,161,000 9,232,000 10,196,000
Deferred interest 3,610,000 3,287,000
(Gain) loss on sales of
hotel assets (456,000) (21,000) 787,000
Provision for investment losses 759,000 2,369,000 3,419,000
Changes in assets and liabilities:
Accounts receivable, inventories
and prepaid expenses (86,000) 2,118,000 14,000
Accounts payable and other
liabilities 1,568,000 (4,421,000) 10,017,000
------------- -------------- -------------
Net cash provided by (used in)
operating activities 8,893,000 5,532,000 4,690,000
------------- -------------- -------------

CASH FLOWS FROM INVESTING
ACTIVITIES
Additions to hotel assets (2,941,000) (6,577,000) (2,990,000)
Net proceeds from sales of
assets 12,536,000 6,130,000 488,000
Increase in notes receivable (6,270,000) (1,985,000)
Principal received on notes
receivable 2,451,000 409,000 1,006,000
Reorganization costs (1,287,000)
Other intangible assets (47,000) (18,000)
Acquisition of minority
interest/hotels (1,575,000)
-------------- ---------------- ------------
Net cash provided by (used in)
investing activities 4,489,000 (3,645,000) (1,514,000)
-------------- ---------------- ------------
CASH FLOWS FROM FINANCING
ACTIVITIES
Principal payments on mortgage
and other notes payable (1,498,000) (1,166,000) (1,146,000)
Borrowings under mortgage and
other notes 6,000,000 632,000
Principal payments on secured
notes payable and
revolving line of credit (18,516,000) (5,695,000)
Payments to minority
shareholders (28,000) (111,000)
Principal received on share
purchase notes 45,000 5,000 2,000
-------------- --------------- --------------
Net cash provided by
(used in) financing
activities (13,969,000) (6,752,000) (1,255,000)
-------------- --------------- --------------
INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS (587,000) (4,865,000) 1,921,000
CASH AND CASH EQUIVALENTS
AT BEGINNING OF YEAR 5,652,000 10,517,000 8,596,000
-------------- --------------- --------------
CASH AND CASH EQUIVALENTS
AT END OF YEAR $ 5,065,000 $ 5,652,000 $10,517,000
============== =============== ==============

See accompanying notes to financial statements.

F-43

STARWOOD LODGING TRUST AND STARWOOD LODGING CORPORATION
COMBINED STATEMENTS OF SHAREHOLDERS' EQUITY

Trust Shares
of Corporation Additional Share Total
Beneficial Common Paid-in Purchase Accumulated Shareholders'
Interest Stock Capital Notes Deficit Equity
------------ ------------ ---------- --------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C>
Balance January 1, 1992 $12,133,000 $1,213,000 $210,673,000 $(485,000) $(183,451,000) $ 40,083,000
Principal payments and
reductions of share purchase
notes 11,000 11,000
Net loss (19,743,000) (19,743,000)
------------ ------------- ----------- ---------- ------------- --------------
Balance December 31, 1992 12,133,000 1,213,000 210,673,000 (474,000) (203,194,000) 20,351,000
Principal payments and
reductions of share purchase
notes (176,000) 183,000 7,000
Net loss (7,032,000) (7,032,000)
------------ ------------- ------------ ---------- ------------ --------------
Balance December 31, 1993 12,133,000 1,213,000 210,497,000 (291,000) (210,226,000) 13,326,000
Principal payments and
reductions of share purchase
notes (246,000) 291,000 45,000
Net loss (4,663,000) (4,663,000)
------------ -------------- ------------- ---------- ------------ --------------
Balance December 31, 1994 $12,133,000 $1,213,000 $210,251,000 $0 $(214,889,000) $ 8,708,000
============ ============== ============= ========== ============ ==============

</TABLE>

See accompanying notes to financial statements.

F-44

<PAGE>

STARWOOD LODGING TRUST
BALANCE SHEETS

December 31, December 31,
1994 1993
------------ ------------
ASSETS

Hotel assets held for sale - net $ 8,281,000 $ 15,699,000
Hotel assets - net 108,428,000 114,219,000
------------ -----------
116,709,000 129,918,000
Mortgage notes receivable - net 14,049,000 11,642,000
Investment in joint venture
hotel properties 240,000 276,000
------------ ------------
Total real estate investments 130,998,000 141,836,000
Cash and cash equivalents 255,000 918,000
Accounts receivable 698,000 1,011,000
Notes receivable - Corporation 26,916,000 87,486,000
Notes receivable - net 1,004,000 1,025,000
Prepaid expenses and other assets 2,374,000 569,000
------------ ------------
$162,245,000 $232,845,000
============= =============

LIABILITIES AND SHAREHOLDERS' EQUITY

LIABILITIES
Secured notes payable and revolving line of
credit $113,896,000 $128,802,000
Mortgage and other notes payable 32,838,000 27,724,000
Accounts payable and other liabilities 5,061,000 4,114,000
------------ -------------
151,795,000 160,640,000
------------ -------------
Commitments and contingencies

SHAREHOLDERS' EQUITY
Trust shares of beneficial interest,
$1.00 par value; authorized
30,000,000 shares; outstanding
12,132,948 shares 12,133,000 12,133,000
Additional paid-in capital 146,059,000 204,640,000
Share purchase notes (291,000)
Accumulated deficit (147,742,000) (144,277,000)
------------- --------------
10,450,000 72,205,000
------------- --------------
$162,245,000 $232,845,000
============= ==============

See accompanying notes to financial statements.

F-45

<PAGE>

STARWOOD LODGING TRUST
STATEMENTS OF OPERATIONS

Years Ended December 31,
---------------------------------------------
1994 1993 1992
-------------- ----------------- ------------
REVENUE
Rents from Corporation $16,906,000 $16,481,000 $21,177,000
Interest from Corporation 1,730,000 1,534,000 4,123,000
Interest from mortgage and
other notes 1,512,000 1,288,000 1,101,000
Rents from other leased
hotel properties and
income from joint ventures 927,000 839,000 947,000
Other income 164,000 253,000 227,000
Gain (loss) on sales of
hotel assets 432,000 (53,000) (791,000)
--------------- ---------------- -------------
21,671,000 20,342,000 26,784,000
--------------- ---------------- -------------
EXPENSES
Interest 16,265,000 14,020,000 12,959,000
Depreciation and amortization 5,205,000 5,630,000 6,794,000
Administrative and operating 1,583,000 1,948,000 2,350,000
Shareholder litigation 1,324,000 264,000 188,000
Loan restructuring costs 10,892,000
Provision for losses 759,000 2,369,000 3,419,000
-------------- ---------------- -------------
25,136,000 24,231,000 36,602,000
-------------- ---------------- -------------
NET LOSS $(3,465,000) $(3,889,000) $(9,818,000)
============== ================ =============
NET LOSS PER SHARE $(0.28) $(0.32) $(0.81)

See accompanying notes to financial statements.

F-46
<PAGE>
<TABLE>
<CAPTION>

STARWOOD LODGING TRUST
STATEMENTS OF CASH FLOWS

Years Ended December 31,
---------------------------------------------
1994 1993 1992
-------------- ----------------- ------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING
ACTIVITIES
Net loss $(3,465,000) $(3,889,000) $(9,818,000)
Adjustments to reconcile
net loss to net cash
provided by (used in)
operating activities:
Depreciation and amortization 5,205,000 5,630,000 6,794,000
Deferred interest 3,610,000 2,243,000
(Gain)/loss on sales of
hotel assets (432,000) 53,000 791,000
Provision for losses 759,000 2,369,000 3,419,000
Changes in operating assets
and liabilities:
Rent and interest receivable -
Corporation (1,730,000) (1,519,000) (8,238,000)
Accounts receivable and
prepaid expenses (54,000) 1,037,000 115,000
Accounts payable and other
liabilities 562,000 (2,788,000) 9,710,000
------------- -------------- ------------
Net cash provided by (used in)
operating activities 4,455,000 3,136,000 2,773,000
------------- -------------- ------------

CASH FLOWS FROM INVESTING ACTIVITIES

Additions to hotel assets (2,270,000) (1,372,000) (1,700,000)
Net proceeds from sales of
assets 11,719,000 5,360,000 189,000
Increase in mortgage notes
receivable (6,270,000) (1,985,000)
Principal received on
mortgage and other notes
receivable 2,382,000 353,000 957,000
Reorganization costs (1,287,000)
Other intangible assets (18,000)
Net changes in notes
receivable - Corporation 3,965,000 1,693,000 411,000
Acquisition of minority interest (1,575,000)
------------- -------------- -------------
Net cash provided by (used in)
investing activities 8,239,000 2,474,000 (161,000)
------------- -------------- -------------

CASH FLOWS FROM FINANCING ACTIVITIES

Principal payments on mortgage
and other notes payable (886,000) (1,594,000) (754,000)
Principal payments on secured
notes payable and revolving
line of credit (18,516,000) (5,695,000)
Borrowings under mortgage
and other notes payable 6,000,000
Payments to minority
shareholders (18,000) (97,000)
Principal received on share
purchase notes 45,000 1,000
--------------- -------------- ---------------
Net cash provided by (used in)
financing activities (13,357,000) (7,307,000) (850,000)
--------------- -------------- ---------------
INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS (663,000) (1,697,000) 1,762,000
CASH AND CASH EQUIVALENTS
AT BEGINNING OF YEAR 918,000 2,615,000 853,000
--------------- -------------- ---------------
CASH AND CASH EQUIVALENTS
AT END OF YEAR $ 255,000 $ 918,000 $ 2,615,000
=============== ============== ===============

</TABLE>
See accompanying notes to financial statements.

F-47

STARWOOD LODGING TRUST
STATEMENTS OF SHAREHOLDERS' EQUITY

Shares
of Additional Share Total
Beneficial Paid-in Purchase Accumulated Shareholders'
Interest Shares Notes Deficit Equity
------------ ------------ ---------- --------- ------------
<S> <C> <C> <C> <C> <C>
Balance January 1, 1992 $12,133,000 $204,816,000 $(191,000) $(130,570,000) $86,188,000
Principal payments and
reductions of share purchase
notes 1,000 1,000
Net loss (9,818,000) (9,818,000)
------------ ------------- ----------- ------------- ------------
Balance December 31, 1992 12,133,000 204,816,000 (190,000) (140,388,000) 76,371,000
Principal payments,
reductions and transfer
of share purchase notes
from the Corporation - net (176,000) (101,000) (277,000)
Net loss (3,889,000) (3,889,000)
------------ ------------- ----------- ------------- ------------

Balance December 31, 1993 12,133,000 204,640,000 (291,000) (144,277,000) 72,205,000
Forgiveness of intercompany
debt (58,335,000) (58,335,000)
Principal payments and
reductions of share purchase
notes (246,000) 291,000 45,000
Net loss (3,465,000) (3,465,000)
------------- -------------- ----------- ------------ ------------
Balance December 31, 1994 $12,133,000 $146,059,000 $ 0 $(147,742,000) $10,450,000
============= ============== ============ ============= =============

</TABLE>

See accompanying notes to financial statements.

F-48

<PAGE>

STARWOOD LODGING CORPORATION
BALANCE SHEETS

December 31, December 31,
1994 1993
------------- -------------

ASSETS
Hotel assets held for sale - net $ 304,000 $ 932,000
Hotel assets - net 34,172,000 36,399,000
-------------- -------------
34,476,000 37,331,000
Investment in joint venture hotel
properties 22,000 5,000
-------------- -------------
Total real estate investments 34,498,000 37,336,000
Cash and cash equivalents 4,810,000 4,734,000
Accounts receivable 3,342,000 3,349,000
Notes receivable 623,000 692,000
Inventories, prepaid expenses
and other assets 5,353,000 3,882,000
--------------- -------------
$48,626,000 $49,993,000
=============== =============

LIABILITIES AND SHAREHOLDERS' DEFICIT

LIABILITIES
Mortgage and other notes payable $13,748,000 $14,360,000
Notes payable - Trust 26,916,000 87,486,000
Accounts payable and other liabilities 9,704,000 7,026,000
--------------- --------------
50,368,000 108,872,000
--------------- --------------
Commitments and contingencies

SHAREHOLDERS' DEFICIT
Corporation common stock, $0.10
par value; authorized 30,000,000
shares; outstanding 12,132,948
shares 1,213,000 1,213,000
Additional paid-in capital 64,192,000 5,857,000
Accumulated deficit (67,147,000) (65,949,000)
---------------- --------------
(1,742,000) (58,879,000)
---------------- --------------
$48,626,000 $49,993,000
================ ==============

See accompanying notes to financial statements.

F-49
<PAGE>

STARWOOD LODGING CORPORATION
STATEMENTS OF OPERATIONS

Years Ended December 31,
---------------------------------------------
1994 1993 1992
-------------- ----------------- ------------
REVENUE
Hotel $ 82,668,000 $ 86,903,000 $ 88,812,000
Gaming 27,981,000 27,505,000 26,150,000
Interest from notes receivable 42,000 124,000 247,000
Management fees and other income 247,000 222,000 959,000
Gain (loss) on sales of hotel
assets 24,000 74,000 4,000
-------------- ---------------- -------------
110,962,000 114,828,000 116,172,000
-------------- ---------------- -------------
EXPENSES

Hotel operations 60,829,000 68,132,000 68,620,000
Gaming operations 24,454,000 24,055,000 23,699,000
Rent - Trust 16,906,000 16,481,000 21,177,000
Interest - Trust 1,730,000 1,534,000 4,123,000
Interest - other 1,341,000 1,167,000 1,249,000
Depreciation and amortization 2,956,000 3,602,000 3,402,000
Administrative and operating 2,620,000 2,781,000 3,827,000
Shareholder litigation 1,324,000 219,000
-------------- ---------------- -------------
112,160,000 117,971,000 126,097,000
-------------- ---------------- -------------
NET LOSS $ (1,198,000) $ (3,143,000) $(9,925,000)
============== ================ =============
NET LOSS PER SHARE $ (0.10) $ (0.26) $ (0.82)

See accompanying notes to financial statements.

F-50
<PAGE>

STARWOOD LODGING CORPORATION
STATEMENTS OF CASH FLOWS

Years Ended December 31,
---------------------------------------------
1994 1993 1992
-------------- ----------------- ------------
CASH FLOWS FROM OPERATING
ACTIVITIES
Net loss $(1,198,000) $(3,143,000) $(9,925,000)
Adjustments to reconcile
net loss to net cash
provided by (used in)
operating activities:
Depreciation and amortization 2,956,000 3,602,000 3,402,000
Deferred interest 1,044,000
Gain on sales of hotel assets (24,000) (74,000) (4,000)
Changes in operating assets
and liabilities:
Accounts receivable, inventories
and prepaid expenses (32,000) 1,081,000 (101,000)
Rent and interest payable -
Trust 1,730,000 1,519,000 8,238,000
Accounts payable and other
liabilities 1,006,000 (1,633,000) 307,000
------------- ----------------- ------------
Net cash provided by (used in)
operating activities 4,438,000 2,396,000 1,917,000
------------- ----------------- ------------
CASH FLOWS FROM INVESTING
ACTIVITIES
Additions to hotel assets (671,000) (5,205,000) (1,290,000)
Net proceeds from sales
of hotel assets 817,000 770,000 299,000
Increase in other assets (47,000)
Principal received on notes
receivable 69,000 56,000 49,000
-------------- ----------------- -----------
Net cash provided by (used in)
investing activities 215,000 (4,426,000) (942,000)
-------------- ----------------- -----------

CASH FLOWS FROM FINANCING
ACTIVITIES
Net change in notes payable -
Trust (3,965,000) (1,693,000) (411,000)
Principal payments on
mortgage and other notes
payable (612,000) (72,000) (392,000)
Borrowings under mortgage
and other notes 632,000
Payments to minority shareholders (10,000) (14,000)
Principal received on share
purchase notes 5,000 1,000
-------------- ------------------ -----------
Net cash provided by (used
in) financing activities (4,577,000) (1,138,000) (816,000)
-------------- ------------------ -----------

INCREASE (DECREASE) IN
CASH AND CASH EQUIVALENTS 76,000 (3,168,000) 159,000
CASH AND CASH EQUIVALENTS
AT BEGINNING OF YEAR 4,734,000 7,902,000 7,743,000
-------------- ------------------ ----------
CASH AND CASH EQUIVALENTS
AT END OF YEAR $4,810,000 $4,734,000 $7,902,000
============== ================== ==========

See accompanying notes to financial statements.

F-51

<PAGE>

STARWOOD LODGING CORPORATION
STATEMENTS OF SHAREHOLDERS' DEFICIT

Additional Share Total
Common Paid-in Purchase Accumulated Shareholders'
Stock Capital Notes Deficit Deficit
------------ ------------ ---------- ------------ ------------
<S> <C> <C> <C> <C> <C>

Balance January 1, 1992 $1,213,000 $ 5,857,000 $(17,000) $(52,881,000) $(45,828,000)
Principal payments and reductions
of share purchase notes 1,000 1,000
Net loss (9,925,000) (9,925,000)
------------- -------------- ---------- ------------- -------------

Balance December 31, 1992 1,213,000 5,857,000 (16,000) (62,806,000) (55,752,000)
Principal payments, reductions
and transfer of share
purchase notes to the Trust 16,000 16,000
Net loss (3,143,000) (3,143,000)
------------- --------------- ----------- ------------ ------------

Balance December 31, 1993 1,213,000 5,857,000 0 (65,949,000) (58,879,000)
Forgiveness of intercompany debt 58,335,000 58,335,000
Net loss (1,198,000) (1,198,000)
------------- --------------- ----------- ------------ -------------
Balance December 31, 1994 $1,213,000 $64,192,000 $0 $(67,147,000) $ (1,742,000)
============= =============== =========== ============ =============

</TABLE>

See accompanying notes to financial statements.

F-52

<PAGE>

STARWOOD LODGING TRUST
AND STARWOOD LODGING CORPORATION

NOTES TO FINANCIAL STATEMENTS

1. Organization and Summary of Significant Accounting Policies.

GENERAL

The accompanying financial statements include the accounts of
Starwood Lodging Trust (the "Trust"), formerly Hotel Investors
Trust, and Starwood Lodging Corporation and its subsidiaries (the
"Corporation"), formerly Hotel Investors Corporation. The Trust
was formed as a real estate investment trust ("REIT") under the
Internal Revenue Code in 1969. In 1980, the Trust formed the
Corporation and made a distribution to the Trust's shareholders of
one share of common stock of the Corporation for each share of
beneficial interest of the Trust. The shares of the Trust and the
shares of the Corporation are paired on a one-for-one basis, and
can only be transferred in units ("Paired Shares") consisting of
the same number of shares of the Trust and of the Corporation.

The combined financial statements include the accounts of the
Trust and the Corporation (the "Companies"). All material
intercompany balances and transactions have been eliminated in the
combined and separate consolidated financial statements. The
intercompany balances and transactions which have been eliminated
in arriving at the combined balance sheets and combined statements
of operations include the elimination of notes receivable from the
Corporation recorded on the Trust's balance sheets, and the related
notes payable to the Trust recorded on the Corporation's balance
sheets. Rent and interest income recorded on the Trust's
statements of operations are eliminated against the related rent
and interest expense on the Corporation's statements of operations.

The Companies own and operate hotels located throughout the
United States and two hotel/casinos in Las Vegas, Nevada. The
hotels range in size from 90 to 445 rooms and offer services to
both business and transient travelers.

HOTEL ASSETS

Hotel assets are stated at the lower of cost or the amounts
described below and are depreciated using straight-line and
declining-balance methods over estimated useful lives of five to
forty years for buildings and improvements and three to twelve
years for furniture, fixtures and equipment. Amounts allocated to
leasehold interests are amortized using the straight-line method
over lease terms of ten to forty years.

The Trust and the Corporation estimate the fair values of each
of their hotel assets on a quarterly basis. For hotel assets not
held for sale, the expected undiscounted future cash flows of the
assets (generally over a five-year period), on a hotel-by-hotel
basis, are compared to the net book values of the assets. If the
expected undiscounted future cash flows are less than the net book
value of the assets, the excess of the net book value over the
estimated fair value is charged to current earnings. When it is
the opinion of management that the fair value of a hotel which has
been identified for sale is less than the net book value of the
hotel, a reserve for losses is established. Fair value is
determined based upon discounted cash flows of the properties at
rates (11.0% to 14.5%) deemed reasonable for the type of property
and prevailing market conditions, appraisals and, if appropriate,
current estimated net sales proceeds from pending offers. A gain
or loss is recorded to the extent the amounts ultimately received
differ from the adjusted book values of the hotel assets. Gains on
sales of hotel assets are recognized at the time the hotel assets
are sold provided there is reasonable assurance of the
collectability of the sales price and any future activities to be
performed by the Companies relating to the hotel assets sold are
insignificant. Losses on sales of hotel assets are recognized at
the time the hotel assets are sold.

F-53
<PAGE>

A summary of hotel assets at December 31, 1994 and 1993 is as
follows (in thousands):
Trust Corporation
--------------------- --------------------
1994 1993 1994 1993
----------- --------- ---------- ---------
Land and leasehold interests
in land $ 41,184 $ 47,204 $13,796 $ 15,378
Buildings and improvements 122,300 148,460 22,315 22,545
Furniture, fixtures and
equipment 25,124 28,506 15,630 16,867
Accumulated depreciation and
amortization (48,699) (51,487) (16,877) (14,828)
Reserve for losses (23,200) (42,765) (388) (2,631)
----------- ---------- ---------- ---------
Hotel assets - net $116,709 $129,918 $34,476 $ 37,331
=========== ========== ========== =========

Mortgage notes receivable
- --------------------------

If a loan becomes delinquent or upon the occurrence of other
events it becomes known that the collectability of a specific loan
is uncertain, interest income is no longer accrued and an allowance
for loss is established based upon an analysis of the net
realizable value of the underlying property collateralizing the
loan.

Provision for losses
- --------------------

Provision for losses for the years ended December 31, 1994,
1993 and 1992 are as follows:

Trust 1994 1993 1992
- --------------------- -------------- ----------- ------------
Hotel assets $439,000 $2,369,000 $3,196,000
Mortgage notes
receivable 320,000 223,000
--------------- ----------- ------------
$759,000 $2,369,000 $3,419,000
=============== =========== ============

Statements of cash flows
- ------------------------

Cash and cash equivalents are defined as cash on hand and in
banks plus all short-term investments with a maturity, at the date
of purchase, of three months or less.

Interest paid in cash by the Trust in the years ended December
31, 1994, 1993, and 1992 was $12,736,000, $13,205,000 and
$12,992,000, respectively.

Interest paid in cash by the Corporation in the years ended
December 31, 1994, 1993, and 1992 was $1,342,000, $140,000 and
$1,536,000, respectively.

The Corporation deferred interest of $1,730,000, $1,519,000
and $1,667,000 on its intercompany debt with the Trust in the years
ended December 31, 1994, 1993, and 1992 respectively.

In December 1993, the Corporation transferred $278,000 of
share purchase loans to the Trust and reduced notes payable -
Trust.

During 1993, $4,032,000 of accrued loan restructuring costs
(included in accounts payable and other liabilities at December 31,
1992) was added to the loan balance of the secured notes payable
and revolving line of credit.

During 1994, outstanding share purchase notes of $246,000 were
canceled and charged to additional paid-in capital. Paired Shares
which secured the portion of the principal canceled on the original
notes were returned to the Companies.

In December 1994, the Trust forgave $58,335,000 of notes
payable to the Trust by the Corporation and its subsidiaries.

F-54
<PAGE>

Because of the common ownership of the Trust and the Corporation,
the Trust charged the amount of debt forgiven and the Corporation
credited such amount to additional paid-in capital of the Trust and
Corporation, respectively.

Inventories
- ------------

Inventories are stated at the lower of cost or market with
cost determined on a first-in, first-out basis.

Organization Costs
- -------------------

Organization costs related to the formation of each of the
Partnerships in the amount of $1,672,000 for the Trust and
$1,672,000 for the Corporation are included in inventories, prepaid
expenses and other assets and will be amortized over a five-year
period beginning in January 1995. (See Note 12.)

Gaming revenue
- --------------

Gaming revenue relates to the two hotel/casinos and includes
the net win from gaming activities, as well as room, food, beverage
and other revenues, net of promotional allowances.

Fair value of financial instruments
- -----------------------------------

The following disclosure of estimated fair value was
determined by available market information and appropriate
valuation methodologies. However, considerable judgment is
necessary to interpret market data and develop the related
estimates of fair value. Accordingly, the estimates presented
herein are not necessarily indicative of the amounts that could be
realized upon disposition of the financial instruments. The use of
different market assumptions and/or estimation methodologies may
have a material effect on the estimated fair value amounts.

Cash and cash equivalents, accounts receivable and accounts
payable and other liabilities are carried at amounts which
reasonably approximate their fair value.

Fixed rate mortgage notes receivable of $14,049,000 for the
Trust at December 31, 1994 have a fair value of $13,488,000 as
estimated based upon debt with similar terms and maturities. The
carrying value of fixed rate mortgage notes receivable at
December 31, 1993 approximated their fair value as their interest
rates approximated rates available for similar transactions at that
date.

The carrying value of the secured notes payable and revolving
line of credit approximate fair value as the related interest rates
are variable.

Fixed rate notes payable with carrying values of $32,838,000
and $13,748,000 for the Trust and Corporation, respectively, at
December 31, 1994 have a fair value of $34,442,000 and $11,648,000
as estimated based on debt with similar terms and maturities.
Fixed rate notes payable with carrying values of $27,724,000 and
$14,360,000 for the Trust and Corporation, respectively, at
December 31, 1993 had a fair value of $28,507,000 and $13,110,000
as estimated based on debt with similar terms and maturities

Income taxes
- -------------

The Trust and the Corporation adopted Statement of Financial
Accounting Standards (SFAS) No. 109, "Accounting for Income Taxes,"
effective January 1, 1993. This Statement supersedes Accounting
Principles Board Opinion No. 11 which the Trust and the Corporation
had previously applied. The adoption of SFAS No. 109 did not have
a material effect on the financial statements of the Trust or the
Corporation.

The Trust was taxed as a REIT beginning in 1969 through and
including its taxable year ended December 31, 1990. During 1994,
the Trust discovered that it may not have qualified as a REIT in

F-55

<PAGE>

1991 through 1994 due to its failure to comply with certain
procedural requirements of the Internal Revenue Code. The Trust
requested and received a letter from the Internal Revenue Service
providing that the Trust's election to be taxed as a REIT
terminated beginning with the Trust's taxable year ended
December 31, 1991 and permitting the Trust to re-elect to be taxed
as a REIT commencing with its taxable year ending December 31,
1995. The Trust intends to elect to be taxed as a REIT, commencing
with its taxable year ending December 31, 1995. Because the Trust
had net losses for income tax purposes in 1991 through 1994, the
Trust does not owe any federal income tax for such years.

Components of deferred income taxes as of December 31, 1994
and 1993 are as follows:
1994 1993
--------------------- ---------------------
Trust Corporation Trust Corporation
--------- ----------- -------- -----------
Deferred income
tax assets:
Operating loss
carryforwards $28,910,000 $10,018,000 $19,740,000
Losses from investments
in partnerships $2,133,000 1,659,000
Property and equipment 3,041,000 6,586,000 1,224,000
Other 476,000 492,000 162,000
---------- ---------- ----------- ------------
Total deferred
income tax assets 32,427,000 2,625,000 16,604,000 22,785,000
---------- ---------- ----------- ------------
Total deferred
income taxes 32,427,000 2,625,000 16,604,000 22,785,000
---------- ---------- ----------- ------------
Valuation allowance (32,427,000)(2,625,000)(16,604,000)(22,785,000)
---------- ---------- ----------- ------------
Net deferred income tax $ - $ - $ - $ -
========== ========== =========== ============

Deferred income taxes reflect the net tax effects of temporary
differences between the carrying amount of assets and liabilities
for financial reporting purposes and income tax purposes and
operating loss and tax credit carryforwards. A valuation allowance
is recorded if, based on the weight of available evidence, it is
more likely than not that some portion or all of the deferred
income tax asset will not be realized.

As of December 31, 1994, the Trust had net operating loss
carryforwards for federal income tax purposes of approximately
$82,600,000 which expire in various years beginning in 2006 through
2009.

Loan restructuring costs
- ------------------------

Management of the Trust concluded that the debt restructuring
discussed in Note 2 represented a "troubled debt restructuring" as
defined under generally accepted accounting principles, and
accordingly, all restructuring costs have been expensed as
incurred. The Trust expensed loan restructuring costs of
$10,892,000 in the year ended December 31, 1992. In 1993, upon
execution of the definitive debt restructuring agreement, $700,000
was paid by the Trust to the certain institutional lenders and
$4,032,000 was added to the loan balance under the terms of a
credit agreement for restructuring costs due the institutional
lenders for legal and other experts. Previously accrued
restructuring costs of $778,000 and $3,152,000 were paid during the
years ended December 31, 1994 and 1993, respectively. At
December 31, 1994, $1,895,000 of accrued loan structuring costs are
included in accounts payable and other liabilities.

Net loss per share
- ------------------

Net loss per share is based on the weighted average number of
common and common equivalent shares outstanding during the year
which is on a Paired Share basis for purposes of the combined
financial statements. Outstanding options and warrants are
included as common equivalent shares using the treasury stock
method when the effect is dilutive. The weighted average number of
shares and Paired Shares used in determining net loss per share and
per Paired Share was 12,132,948 for the years ended December 31,
1994, 1993 and 1992.

Reclassifications
- ------------------

Certain reclassifications have been made to the 1993 and 1992
financial statements to conform with the 1994 financial statement
presentation.

F-56

<PAGE>

2. Senior Notes Payable and Revolving Line of Credit and Debt
Restructuring.

As of March 31, 1991, the Trust was in default under the
Trust's line of credit and the senior note agreements due to the
Trust's failure to comply with certain financial covenants and to
collect certain rents from the Corporation. As a result of such
defaults, upon the April 30, 1991 expiration of the revolving line
of credit provided by the Trust's line of credit, the five-year
secured term loan originally contemplated by the Trust's line of
credit was not made available to the Trust, and the entire amount
of borrowings then outstanding under the Trust's line of credit was
deemed due and payable.

Debt Restructuring - Effective January 28, 1993, the Trust
executed a definitive credit agreement (as subsequently amended,
the "Credit Agreement") that restructured the Trust's then
outstanding borrowings from two banks (the "Banks") and three
insurance companies (together with the Banks, the "Institutional
Lenders") as a $12,500,000 revolving line of credit with one of the
Banks (the "Revolving Line of Credit") and a $115,723,000 term loan
(the "Term Loan", and together with the Revolving Line of Credit,
the "Senior Debt").

The terms of the Credit Agreement required that the debt
restructuring take place in three phases, the first two of which
were completed in 1993. At the first closing (the "First
Closing"), effective January 28, 1993, the Institutional Lenders
were granted or assigned for security direct and indirect liens on
and security interests in substantially all of the assets of the
Trust and the Corporation (other than the assets held by United
States Equity & Mortgage Trust, the Trust's 95%-owned subsidiary
("U.S. Equity")).

At the First Closing, the Trust and the Corporation also
entered into a warrant agreement (as amended, the "Warrant
Agreement") that originally provided that the Trust and the
Corporation (or, if the merger of the Trust and the Corporation
described below (the "Merger") occurs, the surviving company) would
issue to the Institutional Lenders at the Third Closing (as defined
below) 10-year warrants (the "Warrants") to purchase that number of
shares equal to 9.9% (or if the Merger has occurred; 15%) of the
Paired Shares then outstanding at an exercise price of $.625 per
share.

The second closing under the Credit Agreement (the "Second
Closing") was held on March 29, 1993 at which time the Trust
acquired all of the assets of U.S. Equity for $1,575,000
eliminating the minority interest of $676,000 and increasing hotel
assets by $899,000. At the Second Closing, the Institutional
Lenders were granted liens on and security interests in the five
hotels and substantially all of the other assets formerly owned by
U.S. Equity and acquired by the Trust.

At an interim closing held on February 28, 1994 (the "Interim
Closing"), the Credit Agreement was amended to, among other things,
collaterally assign to the Institutional Lenders security
interests in and liens on substantially all of the intercompany
leases and the monies received by the Corporation in connection
with the operation of those hotels, and the Warrant Agreement was
amended to provide for the immediate issuance to the Institutional
Lenders of Warrants for an aggregate of 1,333,143 Paired Shares at
the exercise price originally provided for in the Warrant
Agreement. On August 31, 1994, one-third of the Warrants were
canceled as a result of the Trust's cumulative principal payments
in excess of $13,000,000.

Interest on the principal amounts outstanding under the Credit
Agreement notes was originally at a stated rate of prime plus 2%.
However, because the Merger had not occurred on or prior to the
300th day after the First Closing, the stated interest rate was
increased to prime plus 3% from November 24, 1993 until the Merger
takes place. The Trust has the option to pay interest at a lesser
rate, if applicable, of 8.0% per annum from September 1, 1994
through August 31, 1997, and 9.0% per annum from September 1, 1997
through April 30, 1998, with the difference between the interest
accrued and the interest paid being added monthly to the principal
amount of the Restructured Debt. The related weighted average
interest rate on borrowings outstanding as of December 31, 1994 and
1993 was 11.5% and 9%, respectively.

F-57

<PAGE>

The Credit Agreement requires the Companies to maintain a
specified minimum adjusted net worth and a specified minimum ratio
of cash to cash interest plus capital expenditures, as defined. At
December 31, 1994 the Trust was in compliance with these covenants.
In addition, the Credit Agreement contains covenants that restrict,
among other things, the Trust's ability to acquire or dispose of
assets, to make investments and to incur additional indebtedness,
and that prohibit the payment of distributions to shareholders.

In addition to imposing operating restrictions and reporting
requirements, the Credit Agreement establishes daily operating cash
thresholds, as defined. If these thresholds are exceeded by the
Trust and the Corporation, the excess amounts must be applied to
reduce the borrowings then outstanding under the Revolving Line of
Credit, but amounts so applied are available for future borrowings.

Subsequent to the Reorganization (see Note 12), all amounts
outstanding under the Credit Agreement were repaid with the
proceeds from the New Credit Agreement.

3. Hotel Sales and Reserve for Losses.

During the year ended December 31, 1992, the Trust and the
Corporation sold their interests in three hotel assets, the Days
Inn Texas Stadium, Irving, Texas, the Best Western Merrimack Inn,
Merrimack, New Hampshire and the Days Inn, Spartanburg, South
Carolina. The Irving property was sold in March 1992 for
$1,950,000, consisting of $172,000 in net cash proceeds and a
$1,650,000 promissory note secured by the hotel. The Merrimack
property was sold for $1,800,000, consisting of $259,000 in net
cash proceeds and a $1,440,000 promissory note secured by the
hotel. The Spartanburg property was sold for $875,000, consisting
of $57,000 in net cash proceeds and a $775,000 promissory note
secured by the hotel. The Irving note bears interest at 9% per
annum with accrued interest and principal due monthly based on a
30-year amortization schedule, with all unpaid principal and
interest due in March 1997. The Merrimack note, which was canceled
in December 1994 (see Note 4), bore interest at 9% per annum with
accrued interest and principal due monthly based on a 30-year
amortization schedule, with all unpaid principal and interest due
in July 1997. The Spartanburg note, which was paid off in May
1994, bore interest at 9% per annum with interest and principal due
monthly based on a 30-year amortization schedule, with all unpaid
principal and interest due in September 1998.

During 1992, the Trust recognized a loss of $791,000 and the
Corporation recognized a gain of $4,000 on sales of hotel assets,
including a $91,000 discount recorded by the Trust resulting from
the early payoff in 1992 of the mortgage note receivable relating
to the Brunswick, Georgia property sold in 1991. In 1992, the
Trust recorded a provision for investment losses of $3,196,000
which reflected the deterioration of hotel values located in the
Southeast, and the acceptance of offers for the sale of hotels at
amounts lower than net book value.

During the year ended December 31, 1993, the Companies sold
their interests in four hotel assets, the Best Western located in
Smyrna, Georgia, the Vantage Hotel located in Tucker, Georgia, the
Best Western Motor Hotel in Santa Maria, California, and the Ramada
Inn-Westport in St. Louis, Missouri. The Smyrna property was sold
for an all cash price of $1,600,000. The Tucker property was sold
for $2,485,000, consisting of approximately $500,000 in cash and a
$1,985,000 promissory note secured by the hotel. The Tucker note
bears interest at 9% per annum with accrued interest and principal
due monthly based upon a 25-year amortization schedule, with all
unpaid principal and interest due in June 1998. The Santa Maria
property was sold for an all cash price of $140,000. The St. Louis
property was sold for an all cash price of $2,500,000.

For the year ended December 31, 1993, the Trust recognized a
loss of $53,000 and the Corporation recognized a gain of $74,000 on
sales of hotel assets. In 1993, the Trust recorded a provision for
investment losses of $2,369,000 primarily as a result of the
acceptance of offers for the sale of hotels at amounts lower than
net book value.

During the year ended December 31, 1994, the Companies sold
their interests in five hotel assets, the Best Western South
located in Austin, Texas, the Sheraton Hotel located in New Port
Richey, Florida, the Holiday Inn in Brunswick, Georgia, the Holiday
Inn in Jacksonville, Florida and the Ramada Inn in Fayetteville,

F-58
<PAGE>

North Carolina. The Austin property was sold pursuant to eminent
domain proceedings for the purpose of highway construction to an
agency of the State of Texas for an all cash price of $3,594,000.
The New Port Richey and Brunswick properties were sold together for
$4,306,000, consisting of approximately $1,236,000 in cash and a
$3,070,000 promissory note secured by the hotels. The New Port
Richey/Brunswick note bears interest at 8% per annum for the first
twelve months and 9.25% thereafter, with accrued interest and
principal due monthly based upon a 25-year amortization schedule,
with all unpaid principal and interest due in August 2001. The
Jacksonville property was sold for $3,200,000, consisting of
approximately $900,000 in cash and a $2,300,000 promissory note
secured by the hotel. The Jacksonville note bears interest at 9%
per annum with accrued interest and principal due monthly based
upon a 30-year amortization schedule, with all unpaid principal and
interest due in December 2001. The Fayetteville property was sold
for $1,000,000, consisting of approximately $200,000 in cash and a
$800,000 promissory note secured by the hotel. The Fayetteville
note bears interest at 9% per annum with accrued interest and
principal due monthly based upon a 12-year amortization schedule,
with all unpaid principal and interest due in December 2006. In
connection with the Reorganization (see Note 12), the Holiday Inn
located in Albany, Georgia was sold to Starwood Capital Group, L.P.
for an all cash purchase price of $6,000,000. The transaction was
accounted for as a financing and Starwood Capital Group, L.P.
subsequently contributed the property to the Partnerships. No gain
or loss was recorded on the sale.

For the year ended December 31, 1994, the Trust recognized a
gain of $224,000 and the Corporation recognized a gain of $24,000
on sales of hotel assets, including a $55,000 discount recorded by
the Trust resulting from the early payoff in 1994 of the mortgage
note receivable related to the Spartanburg, South Carolina property
sold in 1992. In 1994, the Trust recorded a provision for
investment losses of $439,000 primarily as a result of the
acceptance of offers for the sale of hotels at amounts lower than
net book value.

4. Mortgage Notes Receivable.

Columbus Best Western North
- ---------------------------

In January 1992, in settlement of various disputes between the
Trust, the Corporation as the general partner of Columbus Hotel
Limited Partnership and its limited partners, and in lieu of
foreclosure by the Trust on a $6,127,000 mortgage, ownership of the
Columbus Best Western North was transferred to the Trust. The fair
value of the hotel assets received by the Trust upon cancellation
of its note approximated the net carrying value of the mortgage
note receivable at December 31, 1991.

Best Western Merrimack Inn
- ---------------------------

In 1992, the Trust sold the Best Western Merrimack Inn in
Merrimack, New Hampshire to Orient Investment Limited. In
connection with such sale, Orient executed and delivered to the
Trust a promissory note (the "Orient Note") in an original
principal amount of $1,440,000, secured by a first mortgage on the
property. The outstanding principal balance of the Orient Note was
due August 1997, and bore interest at 9%.

During 1994, Orient defaulted on the Orient Note and the Trust
accelerated the indebtedness evidenced by the Orient Note. In
September 1994, the Trust initiated foreclosure proceedings and
recorded a provision for investment losses of $320,000, resulting
in a net book value of $983,000. The property was subsequently
sold to a third party in December 1994 for net proceeds of
$1,191,000 and the Trust recorded a gain on sale of $208,000.

Other
- -----

At December 31, 1991, the Trust held a $223,000 note secured
by a second mortgage on a shopping center which was foreclosed upon
by the first mortgage holder during the year ended December 31,
1992, resulting in the cancellation of the Trust's second mortgage
and the recording of a provision for investment losses.

At December 31, 1994, in addition to the MHLP notes discussed
in Note 5, the Trust held nine promissory notes secured by
mortgages. Eight notes ($13,915,000 in aggregate principal amount
at December 31, 1994), representing nine hotels, are secured by
first mortgages, and one note ($234,000 in aggregate principal
amount at December 31, 1994), is secured by a second mortgage. The
notes have fixed interest rates ranging from 8% to 11% per annum,

F-59

<PAGE>

and two of the notes (representing three properties) provide for
contingent interest based on a percentage of gross revenues of the
properties securing such notes. The maturity dates of the notes
range from 1996 to 2017. Aggregate principal payments under the
mortgage notes receivable due within one year of December 31, 1994
are $256,000. As of December 31, 1994 and 1993, the reserve for
investment losses for the mortgage notes receivable amounted to
$100,000 and $140,000, respectively.

5. Milwaukee Marriott Hotel.

In December 1985, the Trust sold its interest in the Milwaukee
Marriott Hotel to Milwaukee Brookfield Limited Partnership
("Brookfield"). In connection with the sale, the Trust received a
second mortgage note from Brookfield.

In July 1991, ownership and operation of the Milwaukee
Marriott was reorganized and ownership of the hotel was transferred
from Brookfield to Moorland Hotel Limited Partnership, ("MHLP"), a
limited partnership in which the Corporation has a 51% interest and
is the sole general partner and Brookfield is the sole limited
partner. The operations of MHLP are consolidated into the
Corporation's financial statements from the date of reorganization
and, accordingly, the Trust has recorded the note receivable from
MHLP as a note receivable from the Corporation. The Corporation
and MHLP entered into an agreement for the Corporation to manage
the property.

In addition, MHLP entered into an assignment and forbearance
agreement with Marriott Corporation ("Marriott"), the franchisor.
This agreement, among other things, required MHLP to renovate the
hotel to Marriott standards. The renovation was completed in
January 1994.

During 1992, MHLP, Aetna Life Insurance Company ("Aetna"), the
holder of the first mortgage on the Milwaukee Marriott (the "Aetna
Note"), Marriott, the Trust, the Corporation, and Brookfield and
various partners of Brookfield reached agreements arranging
financing for the renovation of the Milwaukee Marriott and
restructuring of debt for MHLP.

Effective December 1, 1992, Aetna agreed to defer for the
period December 1, 1992 through November 30, 1993, the monthly
principal and interest payments on its first mortgage note, which
accrues interest at 11.25% per annum, with the deferred interest
added to principal monthly. Beginning December 1, 1993, the loan
amortizes in equal monthly installments over a period of 17 years
at 10% interest per annum until January 1, 1996, at which time all
unpaid interest and principal are due, including appreciation
interest ("Appreciation Interest") . Appreciation Interest is
defined as 50% of the aggregate principal reduction in the Aetna
mortgage from December 1, 1993 until the loan is due in full as
provided in the agreement. The amount of the Aetna Note
outstanding totaled $9,899,000 and $10,017,000 at December 31, 1994
and 1993, respectively.

Marriott agreed to loan MHLP $750,000 secured by a second deed
of trust on the hotel for the purchase of equipment from a Marriott
subsidiary. The second mortgage note bore interest at 9% per
annum, payable monthly beginning May 31, 1993 through April 30,
1994, at which time fixed monthly payments of principal and
interest of approximately $49,000 became due until December 31,
1994, at which time all unpaid interest and principal were due. In
1994, Marriott agreed to extend the note bearing interest at 10%
per annum beginning January 1, 1995 at which time fixed monthly
payments of principal and interest of approximately $31,000 become
due until June 30, 1995, at which time all unpaid interest and
principal are due.

The Trust agreed to loan MHLP $1,000,000 to be used to
complete the renovation of the Milwaukee Marriott. The loan is
secured by a third deed of trust on the hotel and bears interest at
10.5% per annum, payable monthly. Under certain circumstances as
defined in the agreement, interest is deferred and added to the
principal of the note monthly. The third mortgage note outstanding
totaled $1,225,000 and $1,102,000 as of December 31, 1994 and 1993,
respectively. The Trust may declare due and payable the principal
balance and any unpaid accrued interest thereon at any time through
the maturity date of the note of January 1, 1996.

The second mortgage note held by the Trust of $11,000,000 was
modified as of December 31, 1992 by adding deferred and previously
unpaid interest of $1,667,000 to principal due under the note and
converting the note to a fourth mortgage note. Further, $1,607,000

F-60
<PAGE>

and $1,417,000 of interest at 10.5% per annum for the years ended
December 31, 1994 and 1993, respectively, was deferred monthly and
added to principal due under the loan. The fourth mortgage note
outstanding totaled $15,691,000 and $14,084,000 as of December 31,
1994 and 1993. Interest is payable monthly unless deferred under
the provisions of the loan agreement until January 1, 1996, at
which time all remaining unpaid interest and principal are due.

The Corporation agreed to defer and convert to a note up to
$250,000 of management fees due under its management agreement with
MHLP for a period of up to twelve months commencing with base
management fees due after January 1, 1993. The deferred fees bear
interest at 9% per annum, which were added to the principal balance
of the note through December 1, 1993. Thereafter, the note is due
in twelve equal monthly installments of principal and interest
commencing on January 1, 1994 at 12% interest per annum. All
unpaid interest and principal was due and paid December 1, 1994.

The $600,000 original loan made by GSI Acquisition Company,
L.P., a limited partner of Brookfield, ("GSI"), was modified as of
December 31, 1992, by converting deferred and previously unpaid
interest of approximately $86,000 to principal. For the years
ending December 31, 1994 and 1993 interest at 10.5% per annum was
deferred monthly and added to the principal balance, which balance
totals $849,000 and $762,000 at December 31, 1994 and 1993,
respectively. Thereafter, interest is payable monthly unless
deferred under the provisions of the agreement until January 1,
1996, at which time all remaining unpaid interest and principal are
due.

The Trust evaluates the collectability of the notes receivable
secured by the Milwaukee Marriott Hotel at the end of each quarter.
Factors considered by the Trust in performing the evaluations
included the discounted estimated future cash flow (at 11.0%) over
a five-year period. The Corporation evaluates the recoverability
of the net book value of the property at the end of each quarter.
Factors considered by the Corporation in performing the evaluation
included the undiscounted estimated future cash flow of the
property over a five-year period. Based upon the evaluations no
provision for losses was required.

6. Real Estate Investments and Intercompany Transactions.

At December 31, 1994, the Trust owned equity interests in
twenty-four hotels, including two hotel/casinos. Of that number,
eighteen properties were owned in fee, five were held pursuant to
long-term leases and one was owned through a 5% general partnership
interest in a joint venture that owns the Omaha Marriott Hotel.

Twenty-one of the Trust's hotels (including the two
hotel/casinos) are leased to the Corporation or its subsidiaries.
Three hotels have been leased to and are operated by Imperial Hotel
Corporation, formerly Vagabond Inns, Inc. The Omaha Marriott Hotel
has been leased to an affiliate of the Corporation, and is managed
by Marriott pursuant to a long-term management agreement. As of
December 31, 1994, five of the hotels leased by the Corporation
from the Trust are being managed by third-party operators. The
third-party management agreements are generally for three-year
terms expiring in 1995, subject to certain cancellation provisions.
Base management fees range from 2% to 2-1/2% of gross revenues with
incentive management fees based upon hotel profitability.

The leases are generally long-term and generally provide for
annual base, or minimum rents, plus contingent, or percentage rents
based on the gross revenues of the properties and are accounted for
as operating leases. The leases are "triple-net" in that the
lessee is generally responsible for paying all operating expenses
of the properties, including maintenance, insurance and real
property taxes. The lessee is also generally responsible for any
payments required pursuant to underlying ground leases. Most
leases provide for cancellation by the Trust in the event that the
Trust does not earn a specified rent, or by the lessee (including
the Corporation) in the event the lessee does not earn a specified
net operating profit.

As of December 31, 1994 and 1993, the Corporation was indebted
to the Trust for an aggregate of $26,916,000 and $87,486,000,
respectively, (including the MHLP mortgage notes of $16,916,000 and
$15,186,000 as of December 31, 1994 and December 31, 1993,

F-61
<PAGE>

respectively - see Note 5). The debt to the Trust bore interest at
various rates ranging from 6.5% to 12% at December 31, 1992.
Effective January 1, 1993, the Trust and Corporation modified the
leases between the Trust and the Corporation to, among other
things, adjust the rents payable by the Corporation, and
restructured the Corporation's existing borrowings from the Trust
to include all outstanding borrowings plus accrued but unpaid rent
of $448,000 and interest as of December 31, 1992. The borrowings,
were non-interest bearing for the years ended December 31, 1994 and
1993.

In December 1994, the Trust forgave $58,335,000 of notes
receivable payable to the Trust by the Corporation and its
subsidiaries. Effective January 1, 1995 the remaining notes, which
are due on demand, bear interest at prime plus 2% with interest
payable monthly.

Rents accrued by the Trust from leased hotel properties are
summarized as follows (in thousands):
Years Ended December 31,
----------------------------------
1994 1993 1992
----------- ----------- ----------
Corporation:
Minimum $14,373 $14,184 $18,136
Contingent 2,533 2,297 3,041
----------- ---------- ----------
16,906 16,481 21,177
----------- ---------- ----------
Other:
Minimum 437 437 437
Contingent 490 402 510
----------- ---------- ----------
927 839 947
----------- ---------- ----------
Total $17,833 $17,320 $22,124
=========== ========== ==========

Minimum future rents at December 31, 1994 due under
non-cancelable operating leases for the years ending December 31
are as follows (in thousands):

1995 1996 1997 1998 1999 Thereafter
----- ------ ------ ------ ------- ----------

Corporation $12,982 $10,342 $10,342 $10,342 $10,342 $27,385
Other 437 437 437 426 178 105
------- ------- ------- ------- ------- ----------
Total $13,419 $10,779 $10,779 $10,768 $10,520 $27,490
======= ======= ======= ======= ======= ==========

The Corporation is committed under its leases with the Trust
to pay the rents payable with respect to seven ground leases which
expire in 1997 through 2029, including renewal options. The leases
generally provide for a minimum rent plus a percentage of gross
revenues of the properties in excess of the minimum rent. Future
minimum lease payments under the leases are approximately $319,000
per year through 1999, and $6,960,000 thereafter. The Trust is the
primary obligor under the leases; however, the Corporation as
lessee/operator of the hotels makes payments under these leases
directly to the lessors. Rent expense incurred by the Corporation
as a lessee/operator under these leases was $879,000, $854,000 and
$787,000, in the years ended December 31, 1994, 1993 and 1992,
respectively.

In addition, the Trust is committed under an office lease.
Future minimum lease payments under the office lease are $85,000 in
1995.

7. Mortgage and Other Notes Payable.

At December 31, 1994, the Trust had outstanding six mortgage
notes payable which are secured by seven of the Trust's hotels,
with a net book value at December 31, 1994 of $55,027,000. At
December 31, 1994 and 1993, the Trust had the following outstanding
debt obligations:

F-62

<PAGE>

December 31, December 31,
1994 1993
-------------- ---------------
Mortgage Notes:
11.75% first mortgage note,
due in 2015, callable by
lender in 1995, 2000, 2005,
or 2010 $ 6,349,000 $ 6,417,000
12.875% first mortgage note,
due in 1997 9,173,000 9,478,000
12.625% first mortgage note,
due in 1995 4,075,000 4,195,000
9.25% first mortgage note,
due in 1995 1,854,000 2,010,000
10.25% first mortgage note,
due in 2001 5,148,000 5,447,000
9.0% first mortgage note,
due in 1997 139,000 177,000
---------------- ----------------
Total mortgage notes payable 26,738,000 27,724,000
Advance from Starwood Capital
Group, L.P. 6,000,000
Other 100,000
---------------- -----------------
Total mortgage and other
notes payable $32,838,000 $27,724,000
================ =================

As described in Note 3, in August 1994 Starwood Capital Group,
L.P. acquired the Trust's Albany, Georgia property for $6,000,000.
Interest expense ($313,000 in 1994) related to the advance is the
greater of the net cash flow of the property or 10% until such time
as the property is contributed to the Partnerships (see Note 12).

Aggregate principal payments, excluding the advance from
Starwood Capital Group, L.P. due for the years ending December 31
are $14,499,000 in 1995, $2,290,000 in 1996, $5,994,000 in 1997,
$447,000 in 1998, $493,000 in 1999, and $3,115,000 thereafter.

At December 31, 1994 and 1993, the Corporation had the
following outstanding debt obligations:

December 31, December 31,
1994 1993
-------------- ---------------
Secured by Milwaukee Marriott
Hotel:

10.0% first mortgage note,
due 1996 $ 9,899,000 $10,017,000
9.0% second mortgage note,
due 1995 358,000 754,000
10.5% fifth mortgage note,
interest only, due 1996 849,000 762,000
12.0% sixth mortgage note,
interest only (to
the extent of available
cash flow), due 1996 2,000,000 2,000,000
9-10% notes payable, due
1995-1996 164,000 297,000
----------------- ---------------
13,270,000 13,830,000

Other:
9.75% first mortgage note,
due 1997 403,000 438,000
Obligations under capital
leases 75,000 92,000
------------------ ----------------
Total mortgage and other
notes payable $13,748,000 $14,360,000
================== =================

At December 31, 1994, the Milwaukee Marriott Hotel had a net
book value of $22,951,000.

F-63

<PAGE>

Minimum lease and principal payments on the Corporation's
indebtedness for the years ending December 31 are due as follows:

Minimum Future Principal Payments
Year Lease Payments Due Under Notes
---- -------------- -------------------
1995 $47,000 $ 792,000
1996 21,000 12,557,000
1997 6,000 324,000
1998 9,000
-------------- ------------------
Total 83,000 $13,673,000
Amount representing interest 8,000 ==================
--------------
Future Minimum lease payments $75,000
==============

At December 31, 1994 and 1993 the Corporation had $175,000 and
$1,222,000, respectively, in assets (less $117,000, and $828,000,
respectively, in accumulated amortization) recorded under capital
leases. Such amounts are included in furniture, fixtures and
equipment.

8. Shareholders' Equity.

Warrants to purchase Paired Shares
- -----------------------------------

At December 31, 1994, there were outstanding 1,659,974
warrants to purchase Paired Shares at an exercise price of $16.95
per Paired Share through September 1996. Additional warrants were
issued to the Institutional Lenders under the terms of the Credit
Agreement (See Note 2).

Share option plans
- -------------------

The Trust and the Corporation each have Incentive and
Non-Qualified Share Option Plans which provide for the purchase of
up to an aggregate of 700,000 Paired Shares by Trustees, Directors,
officers and employees pursuant to option grants. During the year
ended December 31, 1994, the Trust and the Corporation granted
options to purchase 99,000 Paired Shares at an exercise price of
$2.75 per Paired Share. During the year ended December 31, 1993,
the Trust and the Corporation granted options to purchase 20,000
Paired Shares at an exercise price of $2.625 per Paired Share.
During the year ended December 31, 1992, the Trust and Corporation
granted options to purchase 100,000 Paired Shares at an exercise
price of $.75 per Paired Share. Such options, which are granted at
fair market value on the date of grant, vest over three years. No
options have been exercised as of December 31, 1994.

At December 31, 1994, outstanding options granted under all
plans of the Trust and Corporation (including options granted to
officers and directors of a company previously acquired by the
Trust) aggregated 308,500 Paired Shares. At December 31, 1994,
options for 203,667 Paired Shares are fully vested with exercise
prices ranging from $.75 to $22.68 per Paired Share.

Share purchase plans
- --------------------

Prior to December 1989, the Trust and the Corporation each had
a Share Purchase Plan, whereby an aggregate of 200,000 Paired
Shares were available to be purchased by Trustees, Directors,
officers and employees at their fair market value on the date of
sale with monies borrowed from the Trust or Corporation.

In December 1989, the Trust's Board of Trustees and the
Corporation's Board of Directors voted to terminate the Share
Purchase Plans for purposes of prospective eligibility, and to
irrevocably waive the right of the Trust and the Corporation to
accelerate the payment of a note executed by a participating
Trustee or Director upon termination of such participant's
relationship with the Companies.

F-64

<PAGE>

In January 1991, the Companies entered into agreements with
certain Trustees and Directors who had agreements outstanding
pursuant to the Share Purchase Plans to which each such Board
member agreed to stand for re-election as a Trustee or Director at
the next annual shareholders' meeting if requested to do so by
their respective Boards, or if the Boards did not so request, to
act, for a period of up to two years and at mutually agreed upon
times and places, as an advisor to the Trust or the Corporation on
matters within such Board member's experience and expertise, and
the Trust or the Corporation agreed that any outstanding promissory
note executed by such Board member in partial payment for Paired
Shares purchased under the Share Purchase Plans would be amended to
cause such promissory note to be without recourse to the maker.

In March 1992, certain of the aforementioned notes were
restructured to bear an annual interest rate of 8% as of
February 2, 1992, with such notes to be payable interest only from
February 2, 1992 until February 15, 1995, at which time the
principal and interest accrued would become payable in equal
monthly installments over a ten-year period.

The share purchase agreement between a former officer and
director and the Corporation was terminated in connection with his
December 31, 1992 resignation as an officer of the Corporation, and
the 10,000 Paired Shares acquired pursuant to that agreement were
assigned by him to the Corporation. The share purchase note in the
amount of $112,500, was written off at December 31, 1993. The
share purchase notes of other former officers, directors and
employees aggregating $63,500 were also written off at December 31,
1993.

During 1994, the remaining outstanding share purchase notes of
$246,000 were canceled.

Preferred shares
- ----------------

The Corporation has 10,000,000 authorized preferred shares,
$1.00 par value, none of which are issued or outstanding.

9. Commitments and Contingencies.

Litigation
- ----------

In late 1991 and early 1992, three complaints were filed
against the Trust and the Corporation and certain other related
persons (the "Shareholder Actions"). As amended, two of the
complaints allege that the Trust and the Corporation, a Director
and officer of the Corporation and a former officer/Trustee of the
Trust violated the Racketeer Influenced and Corrupt Organizations
Act ("RICO") and Federal and California securities laws and acted
fraudulently in connection with the Trust's and the Corporation's
public disclosures with respect to the Trust's purchase of its two
hotel/casinos and the Ramada Inn in Indian Wells, California. Both
of these complaints sought class action certification. The third
complaint was filed purportedly on behalf of the Trust and the
Corporation and alleged that certain former and present Trustees
and Directors breached their fiduciary duties in connection with
the purchase of the Ramada Inn in Indian Wells and the two
hotel/casinos.

On July 20, 1994, the United States District Court for the
Southern District of California entered a Final Judgment of
Dismissal With Prejudice ("Final Judgment") of the two purported
class actions filed in that Court.

Pursuant to the Final Judgment, the District Court, among
other things, approved the settlement set forth in stipulations of
settlement ("Stipulation") entered into among the plaintiffs and
defendants in the Shareholder Actions, as well as the insurance
company that issued the Companies' directors and officers policy
applicable to the period to which Shareholder Actions relate.

Under the Final Judgment, all claims that were or might have
been made in the Shareholder Actions are deemed released as of the
Effective Date (as defined in the Stipulation), and a $3,250,000

F-65

<PAGE>

cash settlement fund was to be established which, after the
deduction of fees and costs to plaintiffs' counsel, will be
distributed to qualified members of the certified plaintiff classes
according to an allocation formula that includes a calculation
based on certain shares that opted out of the settlement. Of the
settlement fund, $2,500,000 will be paid by the insurance company,
$400,000 will be paid by the Companies, and $350,000 will be paid
by former officers of the Companies.. Upon completion of the
claims administration process, any funds remaining, up to a limit
of $325,000, shall be returned to the parties who contributed to
the settlement fund on a pro rata basis. The parties contributing
to the settlement fund have previously established a separate
$45,000 fund to be used for purposes of notifying the classes and
otherwise administering the settlement. Legal fees and other costs
incurred by the defendants in the Shareholder Actions prior to
October 12, 1993 will be paid by the Companies; subsequent defense
costs will be paid by the insurance company. Holders of
approximately 1,199,000 Paired Shares opted out of the settlement.

The Stipulation also requires that the Trust's Board of
Trustees and the Corporation's Board of Directors establish a joint
transaction committee of independent Trustees and Directors to make
recommendations to those Boards with respect to any transaction
proposed in the future by management and having a fair market value
of $20 million or more.

In connection with the settlement of the Shareholder Actions,
Messrs. Young and Rothman and certain of their affiliated
partnerships have terminated the management agreements that existed
between those partnerships and the Corporation's subsidiary,
Western Host, Inc. (the "Management Contracts"), and Western Host,
Inc. ("Western Host") has agreed to forbear from disputing such
action and has withdrawn as a general partner of two additional
affiliated partnerships. In satisfaction of any damages that the
Companies may incur as a result of the termination of the
Management Contracts, Messrs. Rothman and Young have provided to
the Companies an irrevocable letter of credit in the amount of
$800,000 which has a one-year term.

Upon final Court approval of the Shareholder Actions, proceeds
from the letter of credit would be paid to the Companies, and the
parties to the Management Contracts, former officers of the
Companies and the Companies, will release all of their respective
claims related to the termination of the Management Contracts.

Ross Settlement Agreement
- -------------------------

Subsequent to the settlement of the Shareholder Actions
described above, Leonard M. Ross and his affiliates ("Ross"), who
hold 1,190,400 Paired Shares and had opted out of the settlement,
had threatened litigation against the Trust and the Corporation.

In October 1994, Starwood Capital Group, L.P. ("Starwood
Capital") entered into an agreement with Ross to settle the
threatened litigation in which Starwood Capital agreed to purchase
Ross' paired shares, at Ross' election, in a 60-day period
beginning on the earlier of the first anniversary of the closing of
the Reorganization or December 15, 1995 at a price of $5.625.
Starwood Capital also has the right to elect to purchase such
paired shares at the same time and on the same terms. The Trust
and Corporation have also agreed that under certain circumstances
they may be obligated severally to indemnify Starwood Capital with
respect to Starwood Capital's obligations to Ross, up to a maximum
of $1.8 million, upon receipt of a full release from Starwood
Capital of all of the claims assigned by Ross.

The estimated fair value of the put/call provisions of the
Ross settlement agreement at the time of the agreement was
approximately $2,648,000 and was charged against the earnings of
the Trust and Corporation in 1994.

Environmental matters
- ---------------------
In connection with the Debt Restructuring (see Note 2), the
Trust obtained in the latter part of 1991 preliminary or "Phase I"
environmental site assessments with respect to the Trust's hotel
properties and the Milwaukee Marriott Hotel.

F-66
<PAGE>

the Trust could not determine without further investigation the
extent of the potential contamination or whether this contamination
resulted from the underground storage tanks placed on the property
by the property's former owner or from similar tanks located on
land adjacent to the property, which tanks are known to have
suffered leakage. A magnetic survey conducted on the property did
not detect the continuing existence of the underground storage
tanks on the Companies' property, and the environmental consultant
did not recommend that any further action be taken. Phoenix
municipal authorities have indicated an awareness of possible
ground water contamination in the area, but to date have taken no
action.

A tank leak test conducted at the Bourbon Street Hotel in early
1992 revealed no evidence of leakage. A release of petroleum from
an underground storage tank at the Bay Valley Hotel and Resort was
reported to the appropriate state agency in 1992. After the tank
and surrounding soils were removed, additional soils and
groundwater testing was performed, which revealed environmental
contamination in a localized area. The environmental testing has
been performed to identify the extent of the contamination released
from the tank. The consultant has proposed to remedy the
contamination through installation of a groundwater pump and
treatment system to capture and treat impacted groundwater and
excavation of impacted soil. Amendments to the relevant
environmental clean-ups laws, which have recently been introduced
in the Michigan Legislature, may reduce the extent or magnitude of
the clean-up that may be required at the site. The consultant's
recommendations were made upon the basis of existing law, and did
not take into account the proposed legislative amendments. After
the Trust and the Corporation assess the impact of any amendments
that may be enacted to the relevant statutes, the Trust and the
Corporation will perform whatever remediation is required by law.
Any further remediation costs that are incurred may be reimbursed
by a Michigan environmental fund, although there can be no
assurance that the fund will have sufficient resources to pay all
claims made against it. If the Trust and the Corporation do not
receive reimbursement for future remediation costs, the Realty
Partnership will bear those costs.

Neither the Trust nor the Corporation has been identified by
the U.S. Environmental Protection Agency or any similar state
agency as a responsible or potentially responsible party for, nor
have the Companies been the subject of any governmental proceeding
with respect to, any hazardous waste contamination. If the
Companies were to be identified as a responsible party, the Trust
and the Corporation in most circumstances would be strictly liable,
jointly and severally with other responsible parties, for
environmental investigation and clean-up costs incurred by the
government and, to a more limited extent by private persons.
Managements of the Trust and the Corporation expect that the cost
of any required remediation would be the responsibility of the
Trust.

Based upon environmental reports, the Trust believes that a
substantial number of its hotel properties incorporate potentially
asbestos-containing materials. Under applicable current Federal,
state and local laws, asbestos need not be removed from or
encapsulated in a hotel unless and until the hotel is renovated or
remodeled. The removal of asbestos from portions of the Milwaukee
Marriott Hotel required in connection with the renovation of that
property has been completed.

Based upon the above-described environmental testing and facts
known to management of the Trust and the Corporation, future
remediation costs, if any, are not expected to have a material
adverse effect on the Trust's and the Corporation's results of
operations or financial position and compliance with environmental
laws has not had and is not expected to have a material effect on
the capital expenditures, earnings or competitive position of the
Trust and the Corporation.

Performance bonds and restricted cash
- --------------------------------------

The Corporation is required to post performance bonds or cash
collateral as security for certain obligations. At December 31,
1994 and 1993, the Corporation had posted performance bonds
totaling approximately $747,000 and $738,000, respectively, to
cover such obligations; however, no amounts had been drawn against
such bonds.

At December 31, 1994, inventories, prepaid expenses and other
assets include $246,000 and $1,606,000 for the Trust and the
Corporation, respectively, which were restricted as to use. At
December 31, 1993, inventories, prepaid expenses and other assets
include $145,000 and $2,006,000 for the Trust and the Corporation,
respectively, which were restricted as to use. Other than the
performance bonds, the restricted cash of the Corporation primarily
is the cash of MHLP (see Note 5).

F-67
<PAGE>

10. Related Party Transactions.

The Corporation, through its subsidiary Western Host, Inc.
("Western Host") managed seven properties owned by partnerships of
which Ronald A. Young, former President and Chief Executive Officer
and Director of the Corporation, is a general partner (the "Western
Host Partnerships"). The Corporation accrued management fees and
administrative services fees pursuant to such management agreements
of approximately $863,000 during the year ended December 31, 1992.

Termination agreement and management subcontracts - Effective
December 29, 1992, Mr. Young and the Corporation entered into a
termination agreement whereby Mr. Young tendered his resignation as
President and Chief Executive Officer. Under the terms of the
agreement, Mr. Young received payment of accrued vacation pay in
the amount of $54,000 and assigned to the Corporation the ownership
of the 10,000 Paired Shares which secured the non-recourse
promissory note in the amount of $121,000, including interest,
which was issued in connection with the 1987 Share Purchase Plan
(See Note 8). In addition, Western Host agreed to subcontract its
duties under the management contracts for six of the Western Host
Partnerships to Westland Hotel Corporation, a hotel management
company formed by Mr. Young. In connection with the settlement of
the Shareholder Actions (see Note 9), the management contracts were
terminated.

As of December 31, 1993, the Western Host Partnerships and/or
Westland owed Western Host and/or the Corporation $100,000
representing amounts advanced for the expenses of the managed
Western Host hotels which was paid in 1994.

At December 31, 1994, the Trust holds an $800,000 unsecured
note receivable from John Rothman, the former President and Chief
Executive Officer of the Trust. The principal amount of the note
receivable is due in 1999 and bears interest due annually at 10%.

The Companies incurred legal fees from law firms in which a
Trustee and officer of the Trust was or currently is a partner
during the years ended December 31, 1994, 1993 and 1992 totaling
$940,000, $235,000, and $955,000, respectively.

F-68

<PAGE>

11. Industry Segment Information.

The Corporation operates in two segments of the hospitality
industry, hotel and gaming. The hotel segment consists of room,
food and beverage and other revenues recognized in connection with
the operation of hotels owned by the Corporation or under lease
from the Trust, and income from management contracts. The gaming
segment consists of net win from casino operations, as well as
room, food and beverage and other revenues recognized in connection
with the operation of the two hotel/casinos under lease from the
Trust. The following information summarizes revenue and operating
results by industry segment:

Years Ended December 31,
------------------------------------------------------
1994 1993 1992
----------------- ------------------ -----------------
<S> <C> <C> <C>
HOTEL:
Revenue:
Room $56,387,000 $58,917,000 $60,068,000
Food and beverage 21,603,000 23,337,000 23,975,000
Other 4,678,000 4,649,000 4,769,000
----------------- ------------------- ----------------
Hotel revenue 82,668,000 86,903,000 88,812,000
Management fees 247,000 90,000 952,000
----------------- ------------------- ----------------
Total revenue 82,915,000 86,993,000 89,764,000
================= ==================== ===============

Expenses:
Rooms 25,177,000 27,633,000 29,094,000
Food and beverage 16,364,000 15,116,000 15,256,000
Other (including undistributed
operating expenses and fixed
charges) 19,288,000 25,383,000 24,270,000
Rent to Trust 14,506,000 14,081,000 17,612,000
Depreciation and amortization 2,072,000 3,060,000 3,086,000
Allocated Corporate overhead 1,001,000 950,000 1,600,000
----------------- -------------------- ---------------
Total expenses 78,408,000 86,223,000 90,918,000
----------------- -------------------- ---------------
Operating income (loss) $ 4,507,000 $ 770,000 $(1,154,000)
================= ==================== ===============
GAMING:
Revenue:
Casino $15,137,000 $14,861,000 $14,461,000
Room 4,516,000 4,305,000 3,709,000
Food and beverage 5,166,000 5,226,000 5,396,000
Other 5,506,000 5,370,000 4,930,000
Less promotional allowances (2,344,000) (2,257,000) (2,346,000)
----------------- --------------------- -------------
Gaming revenues 27,981,000 27,505,000 26,150,000
----------------- --------------------- -------------
Expenses:
Casino 6,308,000 6,019,000 5,852,000
Rooms 2,156,000 2,042,000 1,894,000
Food and beverage 4,514,000 4,564,000 4,888,000
Other (including undistributed
operating expenses and fixed
charges) 11,476,000 11,430,000 11,065,000
----------------- -------------------- -------------
Expenses of gaming operations 24,454,000 24,055,000 23,699,000
Rent to Trust 2,400,000 2,400,000 3,565,000
Depreciation and amortization 382,000 477,000 262,000
----------------- -------------------- --------------
Total expenses 27,236,000 26,932,000 27,526,000
----------------- -------------------- --------------
Operating income (loss) $ 745,000 $ 573,000 $(1,376,000)
================= ==================== ==============
</TABLE>
F-69
<PAGE>

A reconciliation of the combined segment operating income (loss) to
the net loss of the Corporation is as follows:

Years Ended December 31,
------------------------------------------------------
1994 1993 1992
----------------- ------------------ -----------------
<S> <C> <C> <C>
Combined operating income (loss)$ 5,252,000 $ 1,343,000 $(2,530,000)
Interest and other income 66,000 330,000 258,000
Interest expense (3,071,000) (2,701,000) (5,372,000)
Corporate expenses (3,445,000) (2,115,000) (2,281,000)
---------------- ------------------- ----------------
Net income (loss) $(1,198,000) $(3,143,000) $(9,925,000)
================ =================== ================

</TABLE>
Additional financial data by industry segment for the
Corporation is as follows:

Years Ended December 31,
------------------------------------------------------
1994 1993 1992
----------------- ------------------ -----------------
<S> <C> <C> <C>
IDENTIFIABLE ASSETS:
Hotel $40,357,000 $41,712,000 $43,620,000
Gaming 3,710,000 3,743,000 4,059,000
Corporate and other 4,559,000 4,538,000 5,932,000
----------------- ------------------ -----------------
Total $48,626,000 $49,993,000 $53,611,000
================= ================== =================
CAPITAL EXPENDITURES:
Hotel $ 421,000 $ 4,859,000 $ 1,160,000
Gaming 221,000 220,000 123,000
Corporate and other 29,000 126,000 7,000
----------------- ------------------ -----------------
Total $ 671,000 $ 5,205,000 $ 1,290,000
================= ================== =================

DEPRECIATION AND AMORTIZATION:
Hotel $ 2,072,000 $ 3,060,000 $ 3,086,000
Gaming 389,000 477,000 262,000
Corporate and other 495,000 65,000 54,000
----------------- ------------------ -----------------
Total $ 2,956,000 $ 3,602,000 $ 3,402,000
================= ================== =================
</TABLE>

The Trust is an owner/lessor of real property and does not
"operate" in different segments, and is therefore not subject to dis-
closure by segment. The Trust's net investment (initial cost less
accumulated depreciation and provision for loss) in the two Las
Vegas hotel/casinos was $21,306,000, and $22,798,000 December 31,
1994 and 1993, respectively.

12. Reorganization and Debt Refinancing.

Reorganization
- --------------

F-70

<PAGE>

subsidiaries to SLC Operating Limited Partnership (the "Operating
Partnership") of all of their properties and operating assets
(except for their gaming assets, which are to be contributed upon
approval by Nevada gaming authorities), subject to substantially
all of their liabilities, in exchange for an approximate 28.3%
interest as a general partner in the Operating Partnership, and
(iv) the contribution by the Starwood Partners to the Operating
Partnership of approximately $1,400,000 in cash and furnishings and
equipment of the hotel properties, in exchange for limited
partnership units representing the remaining approximate 71.7%
interest in the Operating Partnership.

Each partner in the Partnerships (including the Trust and the
Corporation) will account for its respective investment in the
Realty Partnership and the Operating Partnership under the equity
method of accounting, in accordance with generally accepted
accounting principles. For accounting purposes, neither the Trust
nor Starwood Capital unilaterally control the Realty Partnership
and neither the Corporation nor Starwood Capital unilaterally
control the Operating Partnership.

The following unaudited pro forma separate and combined
condensed financial information is presented as if the
Reorganization in which the Trust and Corporation contributed
substantially all of their assets (subject to substantially all of
their liabilities) in exchange for 28.3% general partnership
interests in the Realty Partnership and the Operating Partnership
(the "Partnerships") and the Starwood Partners contributed cash and
other assets, subject to certain liabilities, in exchange for 71.7%
limited partnership interests in the Partnerships had occurred on
December 31, 1994 for balance sheet information and on January 1,
1994 for income statement information.

December 31, 1994
(in thousands)
------------------------------------
Trust Corporation Combined
----------- ----------- ---------
STARWOOD LODGING
Investment in Partnership $ 10,450 $(1,742) $ 8,708
Income from investment
in Partnership 824 (742) 82
Net income per share $ 0.07 $ (0.06) $ 0.01

SLT REALTY AND SLC OPERATING
PARTNERSHIPS Realty Operating Combined
------------ ------------ ----------
Hotel assets, net $147,080 $ 38,177 $185,258
Total real estate investments 210,299 38,129 248,428
Total assets 254,044 55,502 282,630
Total debt 200,298 40,664 214,046
Partners' capital 49,166 4,206 53,372

Revenues $ 33,189 $127,421 $138,708
Expenses 30,273 130,044 138,415
Net income (loss) 2,916 (2,623) 293

In addition, on March 24, 1995, a Starwood Partner exchanged
$12 million of Senior Debt for additional limited partnership units
of the Realty Partnership and the Operating Partnership.

After giving effect to the Reorganization and such subsequent
exchange of Senior Debt, the Trust has an approximate 25.4%
interest in the Realty Partnership and the Corporation has an
approximate 25.4% interest in the Operating Partnership, and the
Starwood Partners hold limited partnership interests representing
the remaining approximate 74.6% interest in each of the Realty
Partnership and the Operating Partnership.

Debt Refinancing
- ----------------

On March 24, 1995, the Realty Partnership and the Trust
entered into an Amended and Restated Credit Agreement (the "New
Credit Agreement") pursuant to which the Realty Partnership
borrowed approximately $132 million (the "Loan") which was used
primarily to refinance all outstanding Senior Debt (after the
exchange by a Starwood Partner of $12 million of Senior Debt for
units of the Realty Partnership and the Operating Partnership
described above) and approximately $27 million of first mortgage
debt. The Loan matures on April 1, 1997 (subject to the Realty
Partnership's option to extend such maturity for 12 months subject
to a principal payment of $10 million and on certain other
conditions) and bears interest at a rate based on LIBOR plus 3%.
In connection with the New Credit Agreement, the Warrants issued in
connection with the prior Credit Agreement may be canceled upon the
payment to a Starwood Partner of a $786,000 cancellation fee.

F-71

<PAGE>

Prior to maturity there are no mandatory principal payments on
the loan, except that (i) if the Realty Partnership sells or
refinances a hotel property or mortgage note (other than certain
notes contributed by the Starwood Partners aggregating
approximately $53 million (the "Harvey Notes")), it must reduce the
principal of the Loan by at least 125% of the portion of the Loan
allocated to such property or note and (ii) the net proceeds of any
public offering (or private offerings to the extent the net
proceeds thereof exceed $60 million) of equity interests in the
Trust, the Corporation, the Realty Partnership or the Operating
Partnership must be used to reduce the principal of the Loan until
such principal is equal to or less than 50% of the fair market
value of the assets which secure the Loan.

The New Credit Agreement contains covenants that are similar
to, but in general less restrictive than, those contained in the
prior Credit Agreement, including (i) a requirement that the Realty
Partnership and the Operating Partnership maintain a minimum
combined net worth as defined ($40 million at March 24, 1995) The
New Credit Agreement also restricts the ability of the Realty
Partnership to incur other indebtedness.

The Realty Partnership may, prior to January 1, 1996, borrow
up to an additional $75 million to finance the acquisition of hotel
properties and to refinance debt that is senior to the Loan. Each
such acquisition loan will be in an amount equal to the lesser of
(i) 60% of the purchase price (in the case of an acquisition) and
(ii) 70% of the property's value (as determined by the lender),
will be made on the same terms as the Loan and will be secured by
a first priority lien on the related hotel property.

F-72

<PAGE>

13. Selected Quarterly Financial Information (Unaudited)
<TABLE>
<CAPTION>

Combined Trust Corporation
--------------------------- ----------------------------- -------------------------
1994 1993 1994 1993 1994 1993
-------------- ----------- ------------- -------------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
First Quarter
- -------------
Revenue $28,338,000 $227,831,000 $5,243,000 $5,082,000 $27,823,000 $27,253,000
Net income
(loss) (335,000) (1,366,000) (154,000) (208,000) (181,000) (1,158,000)
Net income
(loss) per
share (0.03) (0.11) (0.01) (0.02) (0.01) (0.10)

Second Quarter
- --------------
Revenue $29,994,000 $30,310,000 $5,953,000 $5,477,000 $28,610,000 $29,421,000
Net income
(loss) 933,000 (204,000) 288,000 41,000 645,000 (245,000)
Net income
(loss) per
share 0.08 (0.02) 0.02 0.00 0.05 (0.02)

Third Quarter
- -------------
Revenue $29,666,000 $30,530,000 $5,737,000 $5,198,000 $28,809,000 $29,998,000
Net income
(loss) (2,715,000)(1) (1,268,000) (2,313,000)(1) (1,412,000) (402,000) 144,000
Net income
(loss) per
share (0.22) (0.10) (0.19) (0.12) (0.03) 0.01

Fourth Quarter
- --------------
Revenue $25,999,000 $28,484,000 $4,738,000 $4,585,000 $25,720,000 $28,156,000
Net loss (2,546,000) (4,194,000) (1,286,000) (2,310,000) (1,260,000) (1,884,000)
Net loss
per share (0.21) (0.35) (0.11) (0.19) (0.10) (0.16)

</TABLE>
(1) During the quarter ended September 30, 1994, the
Trust recorded a provision for investment losses
of $759,000 and the Trust and the Corporation each
recorded a provision of $1,324,000 for expenses
related to the settlement of shareholder
litigation (see Note 9).

(2) During the quarter ended September 30, 1993, the
Trust recorded a provision for investment losses
of $1,167,000. During the quarter ended
December 31, 1993, the Trust recorded a provision
for investment losses of $1,202,000 and the Trust
and the Corporation each recorded a provision of
$219,000 for expenses expected to be incurred upon
settlement of shareholder litigation. (See
Note 9.)

F-73

<PAGE>

SCHEDULE III
REAL ESTATE AND ACCUMULATED DEPRECIATION
DECEMBER 31, 1994

Costs Gross Amount
Subsequent at which carried
Initial Cost to Company Acquisition at close of period
----------------------- ----------- ------------------

Building and Building and Building and
Description Encumbrances Land Improvements Improvements Land Improvements
- ----------- ------------- ---- ------------ ------------ ---- -------------
HOTEL ASSETS:
<S> <C> <C> <C> <C> <C> <C>
Embassy Suites -
Phoenix, AZ $9,173,000 $2,889,000 $11,658,000 $564,000 $2,889,000 $12,223,000
Plaza Hotel -
Tucson, AZ (2) 898,000 3,809,000 66,000 898,000 3,875,000
Vagabond Inn -
Rosemead, CA 700,000 2,100,000 700,000 2,100,000
Vagabond Inn -
Sacramento, CA 700,000 3,200,000 700,000 3,200,000
Vagabond Inn -
Woodland Hills,
CA 1,200,000 3,200,000 1,200,000 3,200,000
Hilton Inn -
Gainseville, FL 1,002,000 3,759,000 1,582,000 1,002,000 5,341,000
Holiday Inn -
Albany, GA 6,000,000 796,000 4,980,000 123,000 796,000 5,103,000
Best Western
Riverfront Inn -
Savannah, GA 431,000 3,745,000 200,000 431,000 3,946,000
Bay Valley Hotel -
Bay City, MI 4,075,000 2,501,000 5,472,000 1,193,000 2,501,000 6,666,000
Bourbon Street
Hotel and Casino -
Las Vegas, NV 8,435,000 8,668,000 5,446,000 8,435,000 14,172,000
King 8 Hotel and
Casino - Las Vegas,
NV 139,000 5,396,000 13,579,000 1,938,000 5,396,000 15,532,000
Best Western
Airport Inn -
Albuquerque, NM (3) 285,000 4,880,000 12,000 285,000 4,892,000
Best Western Mesilla
Valley Inn - Las
Cruces, NM 1,150,000 3,295,000 28,000 860,000 3,320,000
Columbus Best Western
- Columbus, OH 854,000 2,300,000 27,000 854,000 2,327,000
Portland Inn -
Portland, OR 1,854,000 1,900,000 3,768,000 239,000 2,020,000 4,008,000
Riverside Inn -
Portland, OR 1,300,000 3,375,000 235,000 1,420,000 3,610,000
Marriott Park
Central - Dallas,
TX 5,148,000(3) 3,814,000 8,018,000 591,000 3,815,000 8,608,000
Best Western
Airport Inn -
El Paso, TX 1,400,000 3,409,000 85,000 1,400,000 3,494,000
Residence Inn -
Tysons Corner,
VA 6,349,000 1,418,000 4,119,000 455,000 1,418,000 4,574,000
Days Inn Town
Center - Seattle, WA 250,000 1,483,000 18,000 250,000 1,500,000
Meany Tower Hotel -
Seattle, WA (3) 1,700,000 6,270,000 207,000 1,820,000 6,477,000
Sixth Avenue Inn -
Seattle, WA 1,150,000 1,570,000 31,000 1,150,000 1,601,000
Tyee Motor Inn -
Tumwater, WA (3) 1,008,000 1,562,000 969,000 944,000 2,531,000

$32,738,000 $41,177,000 $108,219,000 $14,009,000 $41,184,000 $122,300,000

- -------------------------
<FN>
(1) As of December 31, 1994, real estate and furniture and Land 41,184,000
equipment have a cost of $189,367,000 for federal tax income
purposes.
(2) Land Cost includes costs allocated to leasehold interest in land Furniture and Equipment 25,124,000 21,429,000
of $548,000 at the Tucson property. Total hotels and land
(3) Land costs represents costs allocated to leasehold interest in land. under lease $188,608,000(5) $71,899,000
(4) Includes reserve for losses discussed in Notes 1 and 3 of Notes
to the Financial Statements.
(5) Substantially all properties are encumbered by the Secured Notes
Payable and Revolving Line of Credit. (Continued)

</TABLE>
F-74
<PAGE>
<TABLE>
<CAPTION>
SCHEDULE III
REAL ESTATE AND ACCUMULATED DEPRECIATION
DECEMBER 31, 1994

(4)
Accumulated
Depreciation & Year of Date
Description Amortization Construction Acquired Life
- ----------- ------------ ------------ -------- ----
<S> <C> <C> <C> <C>
HOTEL ASSETS:
Embassy Suites -
Phoenix, AZ $3,690,000 1981 12/13/83 35
Plaza Hotel -
Tucson, AZ(2) 1,147,000 1971 9/16/86 35
Vagabond Inn -
Rosemead, CA 524,000 1974 9/16/86 35
Vagabond Inn -
Sacramento, CA 754,000 1975 9/16/86 35
Vagabond Inn -
Woodland Hills,
CA 754,000 1973 9/16/86 35
Hilton Inn -
Gainseville, FL 1,157,000 1974 11/24/86 35
Holiday Inn -
Albany, GA 848,000 1989 6/9/89 35
Best Western
Riverfront Inn -
Savannah, GA 1,815,000 1971 12/11/86 35
Bay Valley Hotel -
Bay City, MI 2,001,000 1973 5/10/84 35
Bourbon Street
Hotel and Casino -
Las Vegas, NV 13,918,000 1964/1975 2/01/88 35
King 8 Hotel and
Casino - Las Vegas,
NV 8,225,000 1974/1979 2/1/88 35
Best Western
Airport Inn -
Albuquerque, NM 1,212,000 1980 9/16/86 35
Best Western Mesilla
Valley Inn - Las
Cruces, NM 827,000 1974 9/16/86 35
Columbus Best Western
- Columbus, OH 197,000 1971 1/24/92 35
Portland Inn -
Portland, OR 898,000 1962 9/16/86 35
Riverside Inn -
Portland, OR 807,000 1964 9/16/86 35
Marriott Park
Central - Dallas,
TX 4,435,000 1972 9/9/88 35
Best Western
Airport Inn -
El Paso, TX 815,000 1974 9/16/86 35
Residence Inn -
Tysons Corner,
VA 1,326,000 1984 7/1/84 35
Days Inn Town
Center - Seattle, WA 1,305,000 1957 9/16/86 13
Meany Tower Hotel -
Seattle, WA 1,489,000 1932 9/16/86 35
Sixth Avenue Inn -
Seattle, WA 1,797,000 1959 9/16/86 13
Tyee Motor Inn -
Tumwater, WA 528,000 1961 2/17/87 35

$50,469,000
-----------
___________________________
<FN>
(1) As of December 31, 1994, real estate and furniture and Land 41,184,000
equipment have a cost of $189,367,000 for federal tax income
purposes.
(2) Land Cost includes costs allocated to leasehold interest in land Furniture and Equipment 25,124,000 21,429,000
of $548,000 at the Tucson property. Total hotels and land
(3) Land costs represents costs allocated to leasehold interest in land. under lease $188,608,000(5) $71,899,000
(4) Includes reserve for losses discussed in Notes 1 and 3 of Notes
to the Financial Statements.
(5) Substantially all properties are encumbered by the Secured Notes
Payable and Revolving Line of Credit. (Continued)

</TABLE>
F-74 CONTINUED

<PAGE>
<TABLE>
<CAPTION>
SCHEDULE III (Continued)
REAL ESTATE AND ACCUMULATED DEPRECIATION

A reconciliation of the Trust's investment in real estate,
furniture and fixtures and related accumulated depreciation is as follows:

Year Ended December 31,
1994 1993 1992
----------- ------------ ------------
<S> <C> <C> <C>
REAL ESTATE AND FURNITURE
AND FIXTURES
Balance at beginning of period $224,170,000 $246,356,000 $258,902,000
Additions during period:
Acquisitions
Improvements 2,270,000 1,372,000 9,384,000
U.S. Equity Step-up in Basis 899,000
Reclass of construction
in progress (113,000)
Deductions during period:
Sales of properties (37,832,000) (24,457,000) (21,817,000)
-------------- ------------- -------------
Balance at end of Period 188,608,000 224,170,000 246,356,000
============== ============ =============

ACCUMULATED DEPRECIATION:
Balance at beginning of
period $94,252,000 $105,338,000 $108,134,000
Additions - depreciation expense 5,205,000 5,630,000 6,753,000
Deductions - sales of properties (27,997,000) (19,085,000) (12,746,000)
Provision for investment losses:
St. Louis, MO 858,000(1)(3)
Dallas, TX 459,000 (3)
Jacksonville, FL 389,000 (3) 272,000 (3) 1,050,000(2)(3)
Savannah, GA 300,000 (3) 760,000(2)(3)
New Port Richey, FL 200,000(1)(3)
Brunswick, GA 150,000(1)(3) 440,000(2)(3)
Fayetteville, NC 50,000 (3) 100,000(1)(3)
Cumberland, GA 697,000(2)(3)
Northlake, GA 250,000(2)(3)
Rosemead, CA 30,000 (3)
-------------- ------------- -------------
439,000 2,369,000 3,197,000
-------------- ------------- -------------
Balance at end of period $71,899,000 $94,252,000 $105,338,000
============== ============ =============

__________________________
<FN>
(1) Provision for loss was recorded primarily as a result of all cash offers
to sell hotels, previously identified for sale, at amounts lower than their
current net book values.
(2) Provision for loss was recorded as a result of the deterioration of hotels
in the Southeast and the acceptance of offers for the sale of hotels at
amounts less than net book value.
(3) Provision for loss was recorded as a result of the difference between the
net book value of properties which had been identified for sale and their
estimated fair values.

(Continued)
</TABLE>

F-75

<PAGE>
<TABLE>
<CAPTION>
SCHEDULE III (Continued)
REAL ESTATE AND ACCUMULATED DEPRECIATION
DECEMBER 31, 1994

Costs Gross Amount
Subsequent at which carried
Initial Cost to Company Acquisition at close of period
----------------------- ----------- ------------------

Hotel Investors Corporation
(1) (1)
Building and Building and Building and
Description Encumbrances Land Improvements Improvements Land Improvements
- ----------- ------------ ---- ------------ ------------ ---- ------------
HOTEL ASSETS:
Embassy Suites -
Phoenix, AZ $ 45,000 $ 45,000
Plaza Hotel -
Tucson, AZ(2) $595,000 $978,000
Hilton Inn -
Gainseville, FL 39,000 39,000
Holiday Inn -
Albany, GA 64,000 64,000
Bay Valley Hotel -
Bay City, MI 179,000 179,000
Best Western North-
Columbus, OH 61,000 4,000 62,000
Best Western
Airport Inn -
Albuquerque, NM 325,000 372,000
Best Western Mesilla
Valley Inn - Las
Cruces, NM 252,000
Portland Inn -
Portland, OR 2,185,000 78,000 2,185,000 78,000
Riverside Inn -
Portland, OR 2,123,000 87,000 26,000 2,124,000 113,000
Best Western
Airport Inn -
El Paso, TX 18,000 18,000
Residence Inn -
Tysons Corner,
VA 33,000 33,000
Days Inn Town
Center - Seattle, WA 429,000 4,000 204,000 429,000 208,000
Meany Tower Hotel -
Seattle, WA 3,437,000 302,000 66,000 3,437,000 368,000
Sixth Avenue Inn -
Seattle, WA 1,515,000 24,000 118,000 1,515,000 142,000
Best Western Inn-
Savannah, GA 47,000 47,000
Marriott Hotel -
Milwaukee, WI $13,106,000 2,500,000 17,422,000 3,499,000 2,500,000 20,920,000
----------- --------- ---------- --------- --------- ----------
$13,106,000 $13,109,000 $17,839,000 $4,477,000 $13,796,000 $22,316,000
----------- ----------- ----------- ---------- -----------

- -----------------
<FN>
(1) As of December 31, 1994, real estate and furniture and Land 13,797,000
equipment have a cost of $51,339,000 for federal tax income
purposes. Furniture and Equipment 15,630,000 12,058,000
(2) Includes reserve for losses discussed in Notes 1 and 3 of Notes ---------- ----------
to the Financial Statement. Total hotels and land
(3) Amounts excludes $1,225,000 third trust deed note payable to the Trust under lease $51,742,000 $17,265,000
and $15,691,000 fourth trust deed note payable. See Note 5 of Notes ----------- -----------
Financial Statements. ----------- -----------

</TABLE>
F-76

<TABLE>
<CAPTION> (Continued)
SCHEDULE III (Continued)
REAL ESTATE AND ACCUMULATED DEPRECIATION
DECEMBER 31, 1994

(2)
Accumulated
Depreciation & Year of Date
Description Amortization Construction Acquired Life
- -----------
<S> <C> <C> <C> <C>
HOTEL ASSETS:
Embassy Suites -
Phoenix, AZ 7,000 1981 12/13/83 35
Plaza Hotel -
Tucson, AZ(2) 182,000 1971 9/16/86 35
Hilton Inn -
Gainseville, FL 11,000 1974 11/24/86 35
Holiday Inn -
Albany, GA 6,000 1989 6/9/89 35
Bay Valley Hotel -
Bay City, MI 25,000 1973 5/10/84 35
Best Western North-
Columbus, OH 3,000
Best Western
Airport Inn -
Albuquerque, NM 80,000 1980 9/16/86 35
Best Western Mesilla
Valley Inn - Las
Cruces, NM 25,000 1974 9/16/86 35
Portland Inn -
Portland, OR 480,000 1962 9/16/86 35
Riverside Inn -
Portland, OR 507,000 1964 9/16/86 35
Best Western
Airport Inn -
El Paso, TX 3,000 1974 9/16/86 35
Residence Inn -
Tysons Corner,
VA 7,000 1984 7/01/84 35
Days Inn Town
Center - Seattle, WA 257,000 1957 9/16/86 13
Meany Tower Hotel -
Seattle, WA 869,000 1932 9/16/86 35
Sixth Avenue Inn -
Seattle, WA 779,000 1959 9/16/86 13
Best Western Inn-
Savannah, GA 2,000 1961 2/17/87 35
Marriott Hotel -
Milwaukee, WI 1,964,000
---------
5,207,000

</TABLE>
F-76 CONTINUED

<PAGE>
<TABLE>
<CAPTION>
SCHEDULE III (Continued)
REAL ESTATE AND ACCUMULATED DEPRECIATION

A reconciliation of the Trust's investment in real estate,
furniture and fixtures and related accumulated depreciation is as
follows:

Year Ended December 31,
1994 1993 1992
---------------- ---------------- -------------
<S> <C> <C> <C>
REAL ESTATE AND FURNITURE AND
FIXTURES
Balance at beginning of year $54,790,000 $51,972,000 $51,199,000

Additions during period:

Improvements 671,000 5,205,000 1,290,000
Acquisitions
Deductions: Reclass 388,000
Sales of properties (3,720,000) (2,775,000) (517,000)
-------------- ------------ ---------------
Balance at end of year 51,741,000 54,790,000 $51,972,000
============== ============ ===============

ACCUMULATED DEPRECIATION:
Balance at beginning of year $17,459,000 $15,413,000 $12,377,000
Additions -
Depreciation expense 2,956,000 3,602,000 3,373,000
Deductions -
Sales of properties (3,149,000) (1,842,000) (337,000)
Reclass 286,000
-------------- ------------ ---------------
Balance at end of year $17,266,000 $17,459,000 $15,413,000
============== ============ ===============
____________________________

</TABLE>

(Concluded)

F-77

<PAGE>
<TABLE>
<CAPTION>
SCEDULE IV
MORTGAGE LOANS ON REAL ESTATE
DECEMBER 31, 1994

Principal amount
Face Face of loans subject
Interest Final Periodic Prior Amount of Amount of to delinquent
Description Rate Maturity Payment Liens Mortages Mortgages(1) principal or interest
- ----------- -------- -------- -------- ----- --------- ------------ ---------------------
<S> <C> <C> <C> <C> <C> <C> <C>
STARWOOD LODGING TRUST

First Morgages:
Vagabond Inns -
Stockton and Modesto, CA 10.00% 1996 (2) no $1,995,000 $1,780,000
Ramada Inn -
Jefferson City, MO 11.00% 1997 (3) no 4,500,000 1,774,000
Days Inn -
Albany, GA 10.00% 1996 $12,554 (5) no 1,050,000 745,000
Days Inn -
Irving, TX 9.00% 1997 13,276 (8) no 1,650,000 1,509,000
Vantage Hotel -
Tucker, GA 9.00% 1998 9,000 (9) no 1,985,000 1,952,000
Sheraton - New Port
Richey, FL and Holiday
Inn - Brunswick, GA 8% 2001 (6) no 3,070,000 3,060,000
Holidy Inn -
Jacksonville, FL 9% 2006 (7) no 2,300,000 2,299,000
Ramada Inn -
Fayetteville, NC 9% 2006 (10) no 80,000 796,000

Second Mortgages:
Viscount Hotel -
Dallas, TX 8.75% 2017 1,982 (4) yes 264,000 234,000

Allowance for loan losses (100,000)
----------- ---------- --------------
$17,614,000 $14,049,000 --------------
--------------
- -------------
<FN>
(1) As of December 31, 1994, the aggregate cost (before allowance for loan losses) for federal income tax purposes is
not significantly difference from that used for book purposes.
(2) The notes provide for monthly payments of interest plus additional annual payments based on a percentage of the
hotels' sales, a portion of which is applied to principal.
(3) Principal and interest due monthly based on a 30-year amortization schedule with unpaid principal of $1,750,000 due
in January 1997.
(4) Plus contingent interest of 4% of room sales of the hotel.
(5) Principal and interest due monthly based on a 10-year amortization schedule with unpaid principal of $591,000
due in November 1996.
(6) Principal and interest due monthly based on a 25-year amortization schedule with unpaid principal of $2,490,000
due in August 2001.
(7) Principal and interest due monthly based on a 30-year amortization schedule with unpaid principal of $2,156,000
due in December 2001.
(8) Principal and interest due monthly based on a 30-year amortization schedule with unpaid principal of $1,450,000
due in March 1997.
(9) Principal and interest due monthly based on a 25-year amortization schedule with unpaid principal of $1,857,000
due in June 1998.
(10) Principal and interest due monthly based on a 12-year amortization schedule with unpaid principal of $9,000
due in December 2006.

(Continued)

</TABLE>
F-78

<PAGE>
<TABLE>
<CAPTION>
SCHEDULE IV (Continued)
RECONCILIATION OF MORTGAGE LOANS

Year Year Year
Ended Ended Ended
December 31, December 31, December 31,
1994 1993 1992
------------ ------------ ------------
<S> <C> <C> <C>
Balance at beginning of year $11,642,000 $10,010,000 $10,669,000
Additions -
New Mortgage Loans 6,270,000 1,985,000 3,865,000
Deductions -
Principal repayments (2,382,000) (353,000) (957,000)
Amortization of discount
Allowance for loan loss (320,000) (223,000)
Discount for pre-payment (2) (55,000) (3) (90,000) (2)
Cancellation of Note (1) (3,254,000)
Proceeds from foreclosure
sale (4) (1,106,000)
----------- ----------- -----------
Balance at end of year $14,049,000 $11,642,000 $10,010,000
=========== =========== ===========

__________________________
<FN>
(1) In January 1992, in lieu of foreclosure, the Trust canceled its note and
released its mortgage on the Columbus Best Western North.
(2) In 1992, the Trust discounted the Note on the Brunswick, Georgia property
as consideration for the early pay-off of the note.
(3) In 1994, the Trust discounted the note on the Spartanburg, South Carolina
property as consideration for the early payoff of the note.
(4) In 1994, the Trust foreclosed on the Merrimack, New Hampshire property.

(Concluded)
</TABLE>

F-79

<PAGE>

==================================================================

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

THE REORGANIZATION

On January 31, 1995 (the "Closing Date"), the Trust and the
Corporation consummated a previously announced reorganization
(the "Reorganization") with Starwood Capital Group, L.P.
("Starwood Capital") and certain affiliates of Starwood Capital
(the "Starwood Partners") effective January 1, 1995.

The Reorganization involved a number of related transactions
that occurred simultaneously on the Closing Date. Such
transactions included (i) the contribution by the Trust to SLT
Realty Limited Partnership (the "Realty Partnership") of all of
the properties and assets of the Trust, subject to substantially
all of the liabilities of the Trust (including the senior debt
(the "Senior Debt") of the Trust), in exchange for an approximate
28.3% interest as a general partner in the Realty Partnership,
(ii) the contribution by the Starwood Partners to the Realty
Partnership of approximately $12,600,000 in cash and certain
hotel properties and first mortgage notes, in exchange for
limited partnership units representing the remaining approximate
71.7% interest in the Realty Partnership, (iii) the contribution
by the Corporation and its subsidiaries to SLC Operating Limited
Partnership (the "Operating Partnership") of all of their
properties and operating assets (except for their gaming assets,
which are to be contributed upon approval by Nevada gaming
authorities), subject to substantially all of their liabilities,
in exchange for an approximate 28.3% interest as a general
partner in the Operating Partnership, and (iv) the contribution
by the Starwood Partners to the Operating Partnership of
approximately $1,400,000 in cash and furnishings and equipment of
the hotel properties, in exchange for limited partnership units
representing the remaining approximate 71.7% interest in the
Operating Partnership. In addition, on March 24, 1995 a Starwood
Partner exchanged $12,000,000 of Senior Debt for additional
limited partnership units of the Realty Partnership and the
Operating Partnership.

The limited partnership units of the Realty Partnership and
the Operating Partnership held by the Starwood Partners are
(subject to the ownership limit provisions of the Trust and the
Corporation) exchangeable by the Starwood Partners, for, at the
option of the Trust and the Corporation, either cash, Paired
Shares of the Trust and the Corporation representing up to
approximately 74.6% of the Paired Shares after such exchange, or
a combination of cash and such Paired Shares. The ownership
limit provisions of the Trust and the Corporation are designed to
preserve the status of the Trust as a REIT for tax purposes by
providing that in general no shareholder may own, directly or
indirectly, more than 8.0% of the outstanding Paired Shares.

Since the Reorganization, the Trust has conducted all of its
business and operations through the Realty Partnership. As of
the closing of the Reorganization, the Realty Partnership held
fee interests, ground leaseholds and mortgage loan interests in
43 hotel properties containing over 8,500 rooms located in 19
states throughout the United States. The Trust controls the
Realty Partnership as the sole general partner of the Realty
Partnership.

After the Reorganization, the Corporation (together with its
wholly-owned subsidiaries) has conducted all of its business and
operations (other than its gaming operations) through the
Operating Partnership. As of the closing of the Reorganization,
the Operating Partnership leased from the Realty Partnership all
but three of the hotel properties owned in fee or held pursuant
to long-term leases by the Realty Partnership. Upon receipt of
Nevada gaming regulatory approvals, the Corporation will control
the Operating Partnership as its managing general partner. Prior
to the receipt of such approvals, the Operating Partnership is
being managed by a management committee, the members of which are
identical to the members of the Board of Directors of the
Corporation that will hold office upon receipt of Nevada gaming
regulatory approvals.

F-80

<PAGE>

Prior to the receipt of Nevada gaming regulatory approvals,
the gaming operations (which consist of two hotel/casinos located
in Las Vegas, Nevada) are being operated through a wholly owned
subsidiary of the Corporation. Upon receipt of such approvals
(or such time as such approvals are no longer required), all of
the assets and liabilities of such subsidiary (or, if those
assets have been disposed of, the net proceeds of such
disposition) will be transferred to a limited partnership owned
99% by the Operating Partnership, as limited partner, and 1% by
such subsidiary, as general partner.

1995 DEBT REFINANCING

Prior to maturity there are no mandatory principal payments
on the Loan, except that (i) if the Realty Partnership sells or
refinances a hotel property or mortgage note (other than certain
notes contributed by the Starwood Partners aggregating $53
million ("the Harvey notes")), it must reduce the principal of
the Loan by at least 125% of the portion of the Loan allocated to
such property or note and (ii) the net proceeds of any public
offering (or private offerings to the extent the net proceeds
thereof exceed $60 million) of equity interests in the Trust, the
Corporation, the Realty Partnership or the Operating Partnership
must be used to reduce the principal of the Loan until such
principal is equal to or less than 50% of the fair market value
of the assets which secure the Loan.

The Loan is secured by liens on substantially all of the
assets of the Realty Partnership, other than the Harvey notes.
Up to $58 million of the obligations under the Loan is guaranteed
by the Operating Partnership. Such guaranty is secured by first
priority liens on substantially all of the assets of the
Operating Partnership. Each of the Trust and the Corporation, as
general partner, is secondarily liable for the obligations under
the Loan of the Realty Partnership and the Operating Partnership,
respectively.

The New Credit Agreement contains covenants that are similar
to, but in general less restrictive than, those contained in the
Prior Credit Agreement described below, including (i) a
requirement that the Realty Partnership and the Operating
Partnership maintain a combined net worth at least equal to (a)
$40 million, plus (b) 75% of the net proceeds of equity
contributed to the Realty Partnership (unless used within six
months to acquire hotel assets or that constitute equity in hotel
assets, each of which will be governed by clause (c) below), plus
(c) 50% of the net equity book value of hotel assets contributed
to or acquired by the Realty Partnership during the term of the
Loan; (ii) restrictions on the ability of the Realty Partnership
to incur other indebtedness; and (iii) a right of the Realty
Partnership and the Operating Partnership to pay distributions to
its partners up to certain specific amounts and a right of the
Trust and the Corporation to pay distributions to their
shareholders. The Realty Partnership also has the right to
acquire certain additional hotels that meet certain cash flow
tests.

The Realty Partnership may, prior to January 1, 1996, borrow
up to an additional $75 million to finance the acquisition of
hotel properties and to refinance debt that is senior to the
Loan. Each such acquisition loan will be in an amount equal to
the lesser of (i) 60% of the purchase price (in the case of an
acquisition) or (ii) 70% of the property's value (as determined
by the lender), will be made on the same terms as the Loan and
will be secured by a lien on the related hotel property.

PRIOR DEBT RESTRUCTURING

Pursuant to a Credit Agreement dated as of January 28, 1993
(the "Prior Credit Agreement"), the Trust restructured

F-81

<PAGE>

approximately $128 million of Senior Debt as a term loan and
revolving credit facility. The Senior Debt was assumed by the
Realty Partnership as of the Closing Date. The Prior Credit
Agreement required that the debt restructuring take place in
three closings, the first two of which were completed in 1993.
At the first two closings, among other things, the Trust and the
Corporation granted liens and security interests on substantially
all of the assets of the Trust and the Corporation and the Trust
and the Corporation entered into a warrant agreement (the
"Warrant Agreement") pursuant to which the Trust and the
Corporation were to have issued ten-year warrants (the "Lender
Warrants") to purchase a number of Paired Shares equal to 9.9% of
the then outstanding Paired Shares, at an exercise price of $.625
per Paired Share.

On February 28, 1994, the Prior Credit Agreement was amended
to, among other things, collaterally assign to the lenders under
the Prior Credit Agreement liens and security interests on
substantially all of the intercompany leases between the Trust
and the Corporation, and the Warrant Agreement was amended to
provide for the issuance at such time of Lender Warrants for the
aggregate of 1,333,143 Paired Shares at an exercise price of
$.625 per Paired Share.

On August 31, 1994, one-third of the Lender Warrants were
canceled as a result of the Trust's cumulative principal payments
in excess of $13,000,000. The Trust and the holders of the
Senior Debt agreed to successive extensions of the maturity of
the Senior Debt and of the date for the third closing under the
Prior Credit Agreement to May 31, 1995. At the third closing,
among other things, the Trust and the Corporation were to have
merged.

In connection with the refinancing, the Realty Partnership
paid $514,000 to one of the Senior Lenders and a portion of the
Lender Warrants were canceled. In connection with the New Credit
Agreement, the remaining Lender Warrants could be canceled upon
the payment to a Starwood Partner of a $786,000 cancellation fee.
Effective March 31, 1995 the Realty Partnership issued an
unsecured note payable to the Starwood Partner and the remaining
warrants were canceled. The note is due and payable in August
1995.

Results of Operations for the Three Months Ended March 31, 1995
and 1994
- -----------------------------------------------------------------

The Trust. Since the Reorganization, the Trust has
conducted all of its business and operations through the Realty
Partnership. The Trust's equity interest in Income before
extraordinary items, extraordinary items and net income for the
three months ended March 31, 1995 of the Realty Partnership were
$289,000 or $0.02 per share, $363,000 or $0.03 per share, and
$652,000 or $0.05 per share, respectively. See the Trust and the
Realty Partnership below for a comparison of the operating
results of the Realty Partnership for the three months ended
March 31, 1995 to the operating results of the Trust for the same
period in 1994.

The Trust and the Realty Partnership. Rents from the
Operating Partnership and from the Corporation to the Realty
Partnership totaled $5,163,000 for the three months ended March
31, 1995. Rents from the Corporation to the Trust totaled
$4,313,000 for the same period in 1994. Rental income increased
by $238,000 as a result of increased hotel revenues and therefore
higher percentage rents from the hotels leased by the Operating
Partnership and the Corporation from the Realty Partnership
during 1995 which were leased by the Corporation from the Trust
during 1994. An increase of $1,042,000 resulted from the
Lexington, Kentucky; Rancho Bernardo, California; Washington,
D.C.; and Wichita, Kansas hotels which were contributed by
Starwood Capital to the Realty Partnership and are being leased
by the Operating Partnership from the Realty Partnership
effective January 1, 1995. The increases were offset by a
decrease in rents of $430,000 resulting from the sale of hotels
in Austin, Texas (April, 1994); New Port Richey, Florida (August
1994); Brunswick, Georgia (August 1994); Fayetteville, North
Carolina (November 1994); and Jacksonville, Florida (November
1994).

Interest income from the Operating Partnership and the
Corporation to the Realty Partnership totaled $767,000 for the
three months ended March 31, 1995. Interest from the Corporation
to the Trust totaled $415,000 for the same period in 1994. As a
result of the Trust's moratorium on interest payable to the Trust
on the Corporation's debt to the Trust during 1994, no interest
was paid or accrued during the three months ended March 31, 1994
other than on the mortgage notes held by the Trust which are

F-82

<PAGE>

secured by the Milwaukee Marriott Hotel. Following the
cancellation of debt payable by the Corporation to the Trust, the
remaining debt in the amount of $10,000,000 (excluding the
Milwaukee notes) was contributed to the Realty Partnership by the
Trust and was assumed from the Corporation by the Operating
Partnership. The debt payable by the Operating Partnership and
the Corporation to the Realty Partnership is payable on demand
and bears interest at a rate of prime plus 2%. As a result,
interest income from the Operating Partnership and the
Corporation to the Realty Partnership increased by $304,000 for
the three months ended March 31, 1995.

Interest from mortgage notes and other notes amounted to
$2,566,000 for the Realty Partnership and $339,000 for the Trust
for the three months ended March 31, 1995 and 1994, respectively.
An increase of $2,177,000 resulted from the notes receivable
which were contributed by Starwood Capital to the Realty
Partnership effective January 1, 1995.

Interest expense for the Realty Partnership amounted to
$5,509,000 and for the Trust amounted to $3,779,000 for the three
months ended March 31, 1995 and 1994, respectively. An increase
of $1,242,000 was a result of the assumption of the notes payable
which were secured by the assets contributed by the Starwood
Partners effective January 1, 1995 and $508,000 resulted from an
increase in the interest rate payable on the Senior Debt. The
increases were partially offset by a reduction in interest
payable as a result of the January 31, 1995 payoff of a mortgage
note having a principal amount of $4,075,000 which was secured by
a hotel located in Bay Valley, Michigan.

Depreciation and amortization expense amounted to $1,691,000
for the Realty Partnership and $1,252,000 for the Trust for the
three months ended March 31, 1995 and 1994, respectively. The
increase is a result of the addition of Starwood Capital
contributed properties ($316,000) and the amortization of
reorganization costs ($152,000) which are being amortized over
five years.

Loss on sale for the quarter ended March 31, 1995 reflects
a discount of $113,000 resulting from the early payoff of the
mortgage note receivable relating to the Irving, Texas property
which was sold in 1992.

As described above, effective January 28, 1993, the Trust
restructured its debt under the terms of the Prior Credit
Agreement. Management concluded that this debt restructuring
represented a "troubled debt restructuring" as defined under
generally accepted accounting principals, and accordingly, upon
execution of the Prior Credit Agreement accrued all known current
or future identifiable debt restructuring costs as of December
31, 1992. In the first quarter of 1995, the Realty Partnership
recognized extraordinary income of $1,284,000 relating to the
extinguishment of the debt under the terms of the Prior Credit
Agreement, representing the remaining amount of the accrual
recorded at March 24, 1995.

The Corporation. Since the Reorganization, the Trust has
conducted all of its business and operations through the
Operating Partnership, except for the gaming business and
operations. The Corporation's equity interest in the net loss
was $(252,000) and its net loss was $(304,000) or $(.03) per
share. See the Corporation and the Operating Partnership below
for a comparison of the operating results of the Operating
Partnership for the three months ended March 31, 1995 to the
operating results of the Corporation for the same period of 1994.

The Corporation and the Operating Partnership. Hotel
revenues for the Operating Partnership were $22,781,000 for the
three months ended March 31, 1995 and 1994, respectively,
representing an increase of $2,195,000. The hotel sales
discussed above resulted in decreased revenue of $2,521,000. In
March 1994, the franchise agreement and management agreement with
Marriott Corporation for the Dallas property were terminated.
The property is now being managed for the Corporation by Sage
Hospitality, and is being operated as the Dallas Park Central
Hotel. The property is in the process of being renovated at an
estimated cost of $3.8 million and an agreement to operate the
property as a Radisson Hotel has been entered into. Revenues at
the Dallas property decreased by $1,290,000 from the first
quarter of 1994. Revenues at the properties which continued to
be leased by the Operating Partnership to the Realty Partnership,
excluding Dallas, increased by $1,611,000; additional revenues
totaling $4,395,000 were generated by the properties contributed
to the Realty Partnership by Starwood Capital which are leased by
the Operating Partnership. The following table summarizes
average occupancy, average room rates and revenue per available
room for properties which were leased by the Operating
Partnership from the Realty Partnership at March 31, 1995:

F-83
<PAGE>
For the three months ended
March 31,
--------------------------
1995 1994
---------- ----------
Continuously owned including
Dallas Park Central
- ----------------------------
Occupancy Rate 65.10% 64.20%
Average Room Rate $61.69 $56.45
Revenue per Available Room $40.16 $36.24

Continuously owned excluding
Dallas Park Central
- ----------------------------
Occupancy Rate 70.58% 64.17%
Average Room Rate $61.89 $55.89
Revenue per Available Room $43.68 $35.86

All hotels including hotels
contributed by Starwood Capital
- ---------------------------------
Occupancy Rate 65.05% 64.20%
Average Room Rate $64.00 $56.45
Revenue per Available Room $41.63 $36.24

Management believes the increasing revenues are a result of
the general trend in the lodging industry resulting from
increased leisure and business travel and the low level of new
hotel construction.

Gaming revenues for the first three months of 1995 were
$6,669,000 as compared to $7,188,000 for the first three months
of 1994. The decrease in gaming revenues at the two
hotel/casinos is consistent with the trend in gaming revenues for
similar types of hotel/casinos located in Las Vegas, Nevada.
During late 1993, three large new hotel/casinos were opened in
Las Vegas resulting in substantially increased travel to the Las
Vegas area during the first quarter of 1994. During 1995, travel
to the Las Vegas area has decreased compared to the same period
in 1994. The decreased travel and customer traffic resulted in
a lower level of gaming revenues. In addition, the two
hotel/casinos experienced lower win percentages than during the
same period of the prior year.

Hotel expenses for the first quarter of 1995 were
$16,280,000, or 71.5% of hotel revenues as compared to
$15,568,000, or 75.6% of hotel revenues, for the first quarter of
1994. The decrease in hotel expenses as a percentage of hotel
revenues is a result of the sale of the hotels discussed above,
such hotels having lower operating margins than other hotels
being operated by the Operating Partnership.

Gaming expenses were $6,021,000, or 90.3% of gaming
revenues, as compared to $5,993,000, or 83.4% of gaming revenues,
for the three months ended March 31, 1995 and 1994, respectively.
The increase in gaming expenses is primarily the result of higher
labor costs. The higher gaming expenses and the lower gaming
revenues discussed above resulted in the increase in gaming
expenses as a percentage of gaming revenues.

Depreciation expense amounted to $1,172,000 for the
Operating Partnership and the Corporation and $814,000 for the
Corporation for the three months ended March 31, 1995 and 1994,
respectively. The increase is a result of the addition of
furniture and equipment at the properties contributed by the
Starwood Partners ($306,000) and the amortization of
reorganization costs ($152,000) which are being amortized over
five years.

Administrative and operating expenses amounted to $713,000
for the Operating Partnership and $555,000 for the Corporation
for the three months ended March 31, 1995 and 1994, respectively.
The increase is primarily a result of salary increases for
corporate staff, a larger number of corporate employees, and a
higher allocation of the Operating Partnership's share of the
combined insurance expense of the Partnerships.

For information with respect to rent and interest to the
Realty Partnership and to the Trust during the three months ended
March 31, 1995 and 1994, see "Realty Partnership and Trust"
above.

F-84

<PAGE>

Results of Operations for the Years Ended December 31, 1994 and
1993
- ---------------------------------------------------------------

The Trust. Rents from the Corporation totaled $16,906,000
and $16,481,000 for the years ended December 31, 1994 and 1993,
respectively. The increase was due to higher hotel revenues for
the hotels leased by the Corporation from the Trust (which
resulted in higher percentage rents) offset by a decrease in
rental income of $802,000 resulting from the sale of hotels in
Tucker, Georgia (June 1993), St. Louis, Missouri (December 1993),
Austin, Texas (April 1994), New Port Richey, Florida (August
1994), Brunswick, Georgia (August 1994), Fayetteville, North
Carolina (November 1994) and Jacksonville, Florida (November
1994).

Interest from the Corporation increased to $1,730,000 from
$1,534,000 for the years ended December 31, 1994 and 1993,
respectively. The increase in interest income was a result of
the higher amounts outstanding under the Milwaukee notes, which
increased from $15,186,000 at December 31, 1993 to $16,916,000 at
December 31, 1994. For additional information with respect to
Rents and Interest from the Corporation in future periods, see
"Liquidity and Capital Resources" below.

Interest from mortgage and other notes receivable increased
by $224,000 for the year ended December 31, 1994 as compared to
1993. The increase resulted from the higher balances outstanding
from the additional notes received upon sales of the hotel
properties discussed above and the receipt of the final payment
which was due from Northview Corporation, the interest on such
note having been previously deferred.

The Trust and the Corporation periodically estimate the
value of their hotel assets and compare these values to the net
book values of the hotel assets. For hotel assets not held for
sale, the undiscounted future cash flows of the assets (generally
over a five-year period) on a hotel-by-hotel basis, are compared
to the net book value of the assets; and if the undiscounted
future cash flows are less than the net book value of the assets,
the excess of the net book values over the estimated fair values
is charged to current earnings. When it is the opinion of
management that the fair value of a hotel that has been
identified for sale is less than the net book value of the hotel,
a reserve for losses is established. Fair value is determined
based upon the discounted cash flow of the properties at rates
(generally ranging from 11.0% to 14.5%) deemed reasonable for the
type of property and prevailing market conditions, and, if
appropriate, then current net proceeds of sale from pending
offers. In determining whether to accept an offer for the sale
of a property, management considers the fairness of the offer in
comparison to the value of the property, the terms of the offer,
and whether the offer is all cash or includes seller financing.
Gains on sales of hotel assets for the year ended December 31,
1994 totaling $432,000 reflected the sales of hotels discussed
above and $208,000 related to the in substance foreclosure and
subsequent all cash sale of the underlying property
collateralizing the Trust's mortgage note receivable on the
Ramada Inn in Merrimack, New Hampshire.

Interest expense totaled $16,265,000 and $14,020,000 for the
years ended December 31, 1994 and 1993, respectively, an increase
of $2,245,000. The increase was primarily due to an increase in
the average interest rate under the Prior Credit Agreement, such
rate varying with the prime rate charged by one of the Senior
Lenders.

The sales of the properties discussed above and an increase
in the provision for investment losses are the primary reasons
for the decline in depreciation and amortization expense of
$425,000 between 1994 and 1993.

Administrative and operating expenses totaled $1,583,000 and
$1,948,000 for the years ended December 31, 1994 and 1993,
respectively, a decrease of $365,000. The decrease was primarily
the result of lower insurance expense and professional fees
unrelated to the debt restructuring.

During 1994 a provision for investment losses (a non-cash
charge to operations) totaling $759,000 was recorded. The
provision included $439,000 which was recorded as a result of the
acceptance of offers to sell the Jacksonville and Fayetteville
properties, which had previously been identified for sale at
amounts lower than the then current net book values. The
provision also included $320,000 which was established based upon
an analysis of the net realizable value of the underlying
property collateralizing the Trust's mortgage note receivable on
the Ramada Inn in Merrimack, New Hampshire.

F-85

<PAGE>

See Note 9 of Notes to Financial Statements for a
description of an agreement between Leonard M. Ross and his
affiliates ("Ross") and Starwood Capital with respect to certain
claims of Ross purchased by Starwood Capital and an agreement by
Starwood Capital in the future to purchase the Paired Shares of
the Trust and Corporation owned by Ross at a price of $5.625 per
Paired Share. Starwood Capital may also elect to purchase such
Paired Shares at the same time and on the same terms. During
1994, the Trust and the Corporation recorded a charge to
shareholder litigation expense of $1,324,000 and $1,324,000,
respectively, the estimated fair market value of the agreement,
as determined by an investment banker using an option pricing
model.

No distributions were made by the Trust for the years ended
December 31, 1994 or 1993.

The Trust's net loss totaled $(3,465,000), or $(0.28) per
share, and $(3,889,000), or $(0.32) per share, for the years
ended December 31, 1994 and 1993, respectively.

The Corporation. Hotel revenues totaled $82,669,000 and
$86,903,000 for the years ended December 31, 1994 and 1993,
respectively, representing a decrease of $4,234,000. The hotel
sales described under the caption "The Trust" above resulted in
decreased revenue of $5,342,000. In March 1994, the franchise
agreement and management agreement with Marriott Corporation for
the Dallas property were terminated. The property is now being
managed for the Corporation by Sage Hospitality, and is being
operated as the Dallas Park Central Hotel. Revenues at the
Dallas property decreased by $3,776,000. The decrease from
property sales and the Dallas property were offset by increased
revenues of $4,884,000 at the properties which continued to be
leased from the Trust by the Corporation, including an increase
of $1,516,000 at the Milwaukee Marriott, which was renovated
during 1993. The following table summarizes average occupancy
and average room rates for properties which were operated by the
Corporation under lease from the Trust at December 31, 1994:

Years Ended December 31,
-----------------------------
Including Dallas Park Central: 1994 1993
- ----------------------------- -------- --------
Occupancy Rate 68.03% 65.32%
Average Room Rate $59.85 $60.30

Excluding Dallas Park Central:
- -----------------------------
Occupancy Rate 71.76% 65.75%
Average Room Rate $59.84 $59.88

Management of the Corporation believes that the increases in
the average occupancy rate resulted primarily from more favorable
economic conditions which have created increased business and
pleasure travel throughout the United States and improved
operational systems.

Gaming revenues totaled $27,981,000 and $27,505,000 for the
years ended December 31, 1994 and 1993, respectively.

For information regarding the carrying value of properties
held for sale, see the Trust above. Gain on sales of hotel
assets totaled $24,000 and $74,000 for the years ended
December 31, 1994 and 1993, respectively, reflecting the property
sales described above.

Hotel expenses totaled $60,829,000 and $68,132,000, or 73.6%
and 78.4% of hotel revenues, for the years ended December 31,
1994 and 1993, respectively. The decreases in hotel expenses as
a percentage of hotel revenue are primarily due to the lower cost
of operating the Dallas property (see discussion of hotel
revenues above) where operating expenses have historically been
higher than at other hotel properties, the improved operating
margin resulting from the renovation of the Milwaukee Marriott
discussed above and the effect of the sale of the properties
having higher operating costs as a percentage of revenues than
properties that continue to be operated by the Corporation.

Gaming expenses totaled $24,454,000 and $24,055,000, or
87.4% and 87.5% of gaming revenues, for the years ended
December 31, 1994 and 1993, respectively.

F-86

<PAGE>

For information with respect to rent and interest to the
Trust during the years ended December 31, 1994 and 1993, see "The
Trust - Results of Operations for the Years Ended December 31,
1994 and 1993" above.

Administrative and operating expenses decreased by $161,000,
or 6%, for the year ended December 31, 1994 as compared to 1993.
The decrease was primarily the result of a reduction in the level
of corporate staff.

The Corporation's net loss totaled $(1,198,000), or $(0.10)
per share, in 1994, as compared to $(3,143,000), or $(0.26) per
share, for 1993.

Results of Operations for the Years Ended December 31, 1993 and
1992
- ---------------------------------------------------------------

The Trust. Rents from Corporation totaled $16,481,000 and
$21,177,000 for the years ended December 31, 1993 and 1992,
respectively. Approximately $1,106,000 of the decrease in rents
resulted from the sale of hotels in Irving, Texas (March 1992),
Merrimack, New Hampshire (July 1992), Spartanburg, South Carolina
(September 1992), Smyrna, Georgia (January 1993), Tucker, Georgia
(June 1993), and St. Louis, Missouri (December 1993). The
remaining decrease was primarily due to the amendment of eighteen
of the leases with the Corporation effective January 1, 1993,
which reduced the fixed and percentage rents payable by the
Corporation.

Interest from the Corporation decreased to $1,534,000 from
$4,123,000 for the years ended December 31, 1993 and 1992,
respectively. The decrease in interest income was a result of
the January 1, 1993 restructuring of intercompany borrowings and
advances made to the Corporation, with the exception of the
Milwaukee notes, into non-interest bearing demand notes for
calendar years 1993 and 1994, with interest at prime plus 2%
payable monthly thereafter.

Interest from mortgage and other notes receivable increased
by $187,000 for the year ended December 31, 1993 as compared to
1992. The increase resulted from the additional interest income
related to the mortgage notes delivered to the Trust in
connection with the sales of the hotel properties located in
Irving, Texas, Merrimack, New Hampshire, Spartanburg, South
Carolina, and Tucker, Georgia, having original principal balances
of $1,650,000, $1,440,000, $775,000, and $1,985,000,
respectively.

As described above, effective January 28, 1993, the Trust
restructured its debt. Management concluded that this debt
restructuring represented a "troubled debt restructuring" as
defined under generally accepted accounting principles, and
accordingly, upon execution of the definitive agreement, accrued
all known current or future identifiable debt restructuring costs
as of December 31, 1992. No additional loan restructuring costs
were incurred during the year ended December 31, 1993.

Interest expense totaled $14,020,000 and $12,959,000 for the
years ended December 31, 1993 and 1992, respectively, an increase
of $1,061,000. The increase was primarily due to an increase in
the average interest rate and an increase in the borrowings
outstanding under the Term Loan and Revolving Line of Credit.

Administrative and operating expenses totaled $1,948,000 and
$2,350,000 for the years ended December 31, 1993 and 1992,
respectively, a decrease of $402,000. The decrease was primarily
the result of lower legal and professional fees unrelated to the
debt restructuring.

During 1993, a provision for investment losses (a non-cash
charge to operations) totaling $2,369,000 was recorded primarily
as a result of the acceptance of all cash offers to sell hotels
previously identified for sale at amounts lower than the then
current net book values, (which cash was used to meet the next
principal payment due under the terms of the Credit Agreement)
and the continuing deterioration of hotel values in the
Southeast.

No distributions were made by the Trust for the years ended
December 31, 1993 or 1992.

F-87

<PAGE>

The Trust's net loss totaled $(3,889,000), or $(0.32) per
share, and $(9,818,000), or $(.08) per share, for the years ended
December 31, 1993 and 1992, respectively.

The Corporation. Hotel revenues totaled $86,903,000 and
$88,812,000 for the years ended December 31, 1993 and 1992,
respectively, representing a decrease of $1,909,000. The hotel
sales described under the caption "The Trust" above resulted in
decreased revenue of $2,373,000, which was partially offset by
increased revenues of $835,000 resulting from increased average
occupancy and average room rates for properties which continue to
be operated by the Corporation and leased from the Trust.

The following table summarizes average occupancy and average
room rates for properties which were operated by the Corporation
under lease from the Trust at December 31, 1993 and 1992:

Years Ended December 31,
----------------------------
1993 1992
-------- --------
Occupancy Rate 63% 59%
Average Room Rate $56.59 $53.18

Management of the Corporation believes that the improved
national economic trends experienced during 1993 resulted in
increased business and pleasure travel and related increases in
average occupancy rates and average room rates.

Gaming revenues totaled $27,505,000 and $26,150,000 for the
years ended December 31, 1993 and 1992, respectively. Management
believes the increased revenue of $1,355,000 at the two gaming
facilities is a result of increased customer travel to the Las
Vegas area, and in particular, increased customer traffic due to
the close proximity of the King 8 Hotel and Casino to several
large hotel/casinos completed during 1993.

Management fees and other income decreased by $737,000 to
$222,000 for the year ended December 31, 1993 as compared to
1992. The decreases were primarily a result of the
subcontracting of the management obligations of Western Host with
respect to seven hotels not owned by the Trust, to Westland
Hotel Corporation. For additional information pertaining to the
subcontracts, see Note 10 of the Notes to Financial Statements.

For information regarding the carrying value of properties
held for sale, see the Trust above. Gain on sales of hotel
assets totaled $74,000 and $4,000 for the years ended
December 31, 1993 and 1992, respectively, reflecting the property
sales described above.

Hotel expenses totaled $68,132,000 and $68,620,000, or 78%
and 77% of hotel revenues, for the years ended December 31, 1993
and 1992, respectively. The increase in hotel expenses as a
percentage of hotel revenues is principally attributable to the
payment of management fees to third party operators under the 11
management contracts entered into in December 1992 and increased
revenues and expenses at the Dallas Marriott Park Central where
operating expenses are typically higher as a percentage of
revenues than at other hotel properties operated by or for the
Corporation.

Gaming expenses totaled $24,055,000 and $23,699,000, or 87%
and 91% of gaming revenues, for the years ended December 31, 1993
and 1992, respectively. Increased gaming revenues, coupled with
improved casino win percentages, resulted in the decreases in
gaming expenses as a percentage of gaming revenues.

For information with respect to rent and interest to the
Trust during the years ended December 31, 1993 and 1992, see "The
Trust - Results of Operations for the Years Ended December 31,
1993 and 1992" above.

Administrative and operating expenses decreased by
$1,046,000, or 27%, for the year ended December 31, 1993 as
compared to 1992. The decrease is primarily the result of a
reduction in the level of corporate staff.

Shareholder litigation expenses include an accrual of
$219,000 at December 31, 1993 in connection with the settlement
of the Shareholder Actions.

F-88

<PAGE>

The Corporation's net loss totaled $(3,143,000), or $(0.26)
per share, in 1993, as compared to $(9,925,000), or $(0.82) per
share, for 1992.

F-89

<PAGE>

REPORT OF INDEPENDENT ACCOUNTANTS
---------------------------------

To the Partners of Starwood Wichita Investors, L.P.

In our opinion, the accompanying balance sheet and the related
statements of operations, of changes in partners' capital and of
cash flows present fairly, in all material respects, the
financial position of Starwood Wichita Investors, L.P. at
December 31, 1994 and 1993 and the results of its operations and
its cash flows for the year ended December 31, 1994 and the
period December 17, 1993 (inception) to December 31, 1993, in
conformity with generally accepted accounting principles. These
financial statements are the responsibility of Starwood Wichita
Investors, L.P.'s management; our responsibility is to express an
opinion on these financial statements based on our audits. We
conducted our audits of these statements in accordance with
generally accepted auditing standards which 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, assessing the accounting principles used and
significant estimates made by management, and evaluating the
overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed
above.

PRICE WATERHOUSE LLP
January 27, 1995
Dallas, Texas

F-90

<PAGE>

Report of Independent Accountants
---------------------------------

To the Partners of Starwood Wichita Investors, L.P.

In our opinion, the accompanying statements of operations, of
changes in division equity/(deficit) and of cash flows present
fairly, in all material respects, the results of operations and
cash flows for the Wichita East Hotel for the period January 1,
1993 to December 19, 1993, in conformity with generally accepted
accounting principles. These financial statements are the
responsibility of Wichita East Hotel management; our
responsibility is to express an opinion on these financial
statements based on our audit. We conducted our audit of these
statements in accordance with generally accepted auditing
standards which 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, assessing the accounting
principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We
believe that our audit provides a reasonable basis for the
opinion expressed above.

PRICE WATERHOUSE LLP
October 28, 1994
Dallas, Texas

F-91

<PAGE>

STARWOOD WICHITA INVESTORS, L.P.

BALANCE SHEET
- -----------------------------------------------------------------------------

December 31,
1994 1993
------------ ------------
ASSETS
Cash and cash equivalents $96,648 $28,542
Accounts receivable, net of allowance
for doubtful accounts ($3,149 at
December 31, 1994 and $812 at
December 31, 1993, respectively) 201,636 38,838
Inventories 106,132 125,419
Fixed assets, net of accumulated
depreciation (Note 4) 5,129,816 3,538,202
Other 130,016 71,677
------------ ------------
Total assets $5,664,248 $3,802,678
============ ============

LIABILITIES AND PARTNERS' CAPITAL

Accounts payable - trade $59,941 73,999
Accounts payable - related parties 57,671 1,306
Accrued compensations 41,224 52,046
Accrued taxes other than income 104,072 68,915
Other accrued liabilities 70,485 29,246
Capital lease obligations (Note 5) 126,968 145,136
Long-term debt (Note 6) 2,121,535
------------ ------------
Total liabilities 2,581,896 370,648
------------ ------------
Partners' capital (Note 7) 3,082,352 3,432,030
------------ ------------
Total liabilities and
partners' capital $5,664,248 $3,802,678
============ ============

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

F-92

STARWOOD WICHITA INVESTORS, L.P.

STATEMENT OF OPERATIONS
- -------------------------------------------------------------------------------------------------------
Predecessor For the period
For the period December 17, For the period
January 1, 1993 January 1,
1993 to (inception) to 1994 to
December 19, December 31, December 31,
1993 1993 1994
-------------- -------------- --------------
<S> <C> <C> <C>
Revenues:
Rooms $2,409,409 $23,944 $2,763,850
Food and beverage 791,811 9,002 1,017,421
Telephone 107,832 868 148,404
Other 78,569 2,185 52,694
-------------- -------------- --------------
3,387,621 35,999 3,982,369
Cost of sales - distributed
operating expenses:
Rooms 868,308 19,938 1,006,473
Food and beverage 859,543 18,779 1,052,438
Telephone 66,571 1,242 78,832
Other 30,720 276
-------------- -------------- --------------
1,562,479 (4,236) 1,844,626
-------------- -------------- --------------
Operating department income:

Undistributed operating expenses:
Administrative and general 594,711 10,616 510,017
Advertising and promotion 352,041 9,221 504,959
Property operation and maintenance 693,351 22,056 629,468
-------------- -------------- --------------
1,640,103 41,893 1,644,444
-------------- -------------- --------------
Fixed charges:
Depreciation 422,555 18,236 501,095
Real estate taxes and insurance 135,607 2,327 138,515
Interest 67,080
Other charges 157,876 1,278 18,170
-------------- -------------- --------------
(793,662) (67,970) (524,678)
Operating loss for the period

Other income 118,430
Loss on sale (21,756)
-------------- -------------- --------------

Net loss for the period $(696,988) $(67,970) $(524,678)
============== ============== ==============

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

F-93
</TABLE>
<PAGE>

<TABLE>
STARWOOD WICHITA INVESTORS, L.P.

STATEMENT OF CHANGES IN PARTNERS' CAPITAL
- ---------------------------------------------------------------------------------

For the period
December 17,
1993
(inception) to
December 31,
1993
------------------
<S> <C>
Partners' capital, beginning of period $ 0
Partners' contributed capital 3,500,000
Net loss for period (67,970)
------------------
Partners' capital, end of period $3,432,030
==================

For the period
January 1, 1994 to
December 31,
1994
------------------

Partners' capital, beginning of period $3,432,030
Partners' contributed capital 175,000
Net loss for period (524,678)
------------------
Partners' capital, end of period $3,082,352
==================

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

STATEMENT OF CHANGES IN DIVISION EQUITY (DEFICIT) (Predecessor)

For the period
January 1, 1993 to
December 19,
1993
------------------

Division equity, beginning of period $3,884,613

Capital withdrawal (3,287,797)
Net loss for period (696,988)
------------------
Division deficit, end of period $(100,172)
==================

</TABLE>

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

F-94

STARWOOD WICHITA INVESTORS, L.P.

STATEMENT OF CASH FLOWS
- ---------------------------------------------------------------------------------------------------------
Predecessor For the period
For the period December 17, For the period
January 1, 1993 January 1,
1993 to (inception) to 1994 to
December 19, December 31, December 31,
1993 1993 1994
-------------- -------------- --------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss $(696,988) $(67,970) $(524,678)
Adjustments to reconcile net loss
from operations to net cash
used in operating activities:
Depreciation 422,555 18,236 501,095
Loss on sale of property 21,756
Change in operating assets
Accounts receivable (83,753) (38,838) (167,796)
Inventory 101,636 (125,419) 19,287
Other assets 215,103 (71,677) (104,711)
Accounts payable 175,035 75,305 138,121
Accrued liabilities (313,508) 150,207 21,133
-------------- -------------- --------------
Net cash used in operating
activities (158,164) (60,156) (117,549)

Cash flows from investing activities:
Capital expenditures (152,240) (3,411,302) (2,237,848)
Proceeds from sale of property 3,287,797
-------------- -------------- --------------
Net cash provided by/(used
in) investing activities 3,135,557 (3,411,302) (2,237,848)

Cash flows from financing activities:
Division equity withdrawal (3,287,797) 3,500,000
Partners' capital contribution 175,000
Capital lease payments (11,302) 126,968
Proceeds from long-term debt 2,121,535
-------------- -------------- --------------
Net cash provided by/(used
in) financing activities (3,299,099) 3,500,000 2,423,503

Net increase (decrease) in cash $(321,706) $28,542 $68,106

Cash at beginning of period 379,864 28,542
-------------- -------------- --------------

Cash at end of period $ 58,158 $28,542 $96,648*
============== ============== ==============

Supplemental Disclosures of Cash
Cash paid during the period for:

Interest $8,269 $-0- $67,080

Income taxes -0- -0- -0-

(Continued)

F-95
</TABLE>
<PAGE>

SUPPLEMENTARY SCHEDULES OF NON-CASH ACTIVITIES

In addition to the capital assets purchased, the Partnership
assumed certain capital obligations entered into by the
Predecessor. See Note 5 for further discussion of the assumed
capital leases.

* Cash balances include cash held in escrow related to the long-
term debt.

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

F-96

<PAGE>

STARWOOD WICHITA INVESTORS, L.P.
NOTES TO FINANCIAL STATEMENTS

1. ORGANIZATION

Starwood Wichita Investors, L.P. (the "Partnership"), a
Delaware limited partnership, was formed on December 17,
1993 for the purpose of acquiring interests in real estate
investments. Starwood Opportunity Fund II, L.P. ("SOF-II")
is the general partner with 1% interest. SOF-II is also a
limited partner owning 89% with the remaining 10% interest
owned by Wichita Harvey Partners, Ltd. ("Harvey"). The
Partnership acquired the Wichita East Hotel from The
Travelers Insurance Company on December 20, 1993. The
Travelers Insurance Company (the "Predecessor"), a
Connecticut corporation, acquired the real estate property
through bankruptcy proceedings and held the hotel until they
sold it to the Partnership on December 20, 1993. Although
the Partnership was formed and had activity on December 17,
1993, the operations of the hotel are not included in the
Partnership's accounts until the hotel changed ownership on
December 20, 1993. The operations of the hotel are included
in the Predecessor financial records through December 19,
1993. The hotel is operated under a management agreement
with Harvey Hotel Management Corporation and has 259 rooms.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

CASH AND CASH EQUIVALENTS

For purpose of reporting cash flows, cash and cash
equivalents include cash in banks and cash on hand.

FIXED ASSETS

Fixed assets are stated at cost. Depreciation is provided
using accelerated methods over the estimated useful lives of
the related assets, generally five to 39 years. The costs
of repairs and minor renewals that do not significantly
extend the life of the property and equipment are normally
expensed as incurred. The costs of major renovation
projects are capitalized and depreciated over the related
period of benefit.

INVENTORIES

Food, linen, china, liquor and other inventories are valued
at the lower of cost or market on a first-in, first-out
basis.

INCOME TAXES

No provision for income taxes is necessary in the financial
statements of the Partnership because, as a partnership, it
is generally not subject to federal or state income taxes
and the tax effects of its activities flow through to the
partners.

No provision for income tax is provided in the Predecessor
financial statements as the hotel is represented as a stand-
alone entity with no prior history. Therefore, the loss
incurred for the period January 1, 1993 to December 19, 1993
is assumed to have no carryback period or benefit.

3. RELATED PARTY TRANSACTIONS

The Partnership has signed a management agreement with
Harvey Hotel Management Corporation, a related party to
Harvey. The Partnership will pay Harvey Hotel Management
Corporation a management fee for operating the hotel. For
the period from December 20, 1993 to December 31, 1994, the

F-97

<PAGE>

agreement provides an incentive fee which shall be equal to
20% of the "net operating income" (as defined in the
agreement to exclude depreciation, amortization, interest,
capital expenditures, and management fees). The incentive
fee is subordinate to distributions to owners. For years
ending after December 31, 1994, the management fee will be
the lesser of $100,000 or total excess cash flows, as
defined in the management agreement, plus 25% of the excess
cash flow after deducting the amount specified above for
incentive fees. For the year ended December 31, 1994 and
during the period December 20, 1993 through December 31,
1993, no management fee was incurred. The Predecessor had
Harvey Hotel Management Corporation manage the operations of
the real estate property during the period January 1, 1993
to December 19, 1993. Management and marketing expenses
paid to Harvey Hotel Management Company for the period were
approximately $160,000.

The management agreement also details a preference fee to be
paid to Harvey Hotel Management Corporation upon the sale or
refinancing of the hotel. The agreement states that net
sale (or refinancing) proceeds will be distributed to the
owners until they have received a return of their capital
contributions, plus an internal rate of return of 15% (as
defined) on those contributions. After the return of
capital, Harvey Hotel Management Corporation will receive a
preference fee equal to 20% of the remaining proceeds.

4. FIXED ASSETS

Fixed assets consist of the following:

December 31,
----------------------------
1994 1993
------------ ------------

Land $ 341,130 $ 341,130
Building and improvements 3,536,875 1,934,512
Furniture and equipment 1,627,006 1,135,660
Equipment under capital leases 144,136 145,136
------------ ------------
5,649,147 3,556,438
Less: accumulated depreciation (519,331) (18,236)
------------ ------------
5,129,816 3,538,202
============ ============

Depreciation expense for the year ended December 31, 1994
was $501,095 and includes depreciation on assets recorded
under capital leases.

Depreciation expense for the period December 20, 1993 to
December 31, 1993 was $18,236.

The land, building and furniture was purchased for
approximately $3,500,000 on December 20, 1993.

5. LEASES

The Partnership assumed certain capital equipment leases in
the operation of the real estate property which extend
through 2000. At the end of the lease term the Partnership
has the option to purchase the equipment at the fair market
value of the equipment.

F-98

<PAGE>

Capital lease obligations are summarized below for the years
ending December 31:

1995 $ 29,357
1996 29,357
1997 29,357
1998 29,357
1999 29,357
Thereafter 9,786
------------ ------------

Net minimum lease payments under
capital leases 156,571
Less amount representing interest (29,603)
------------

Present value of net minimum lease
payments under capital leases $126,968
============

F-99

<PAGE>

The Partnership leases various equipment under operating
leases for use in the operation of the property. Minimum
rental commitments under non-cancelable leases are as
follows at December 31:

1995 $ 7,688
1996 4,752
1997 1,386
-----------------
Total minimum lease
payments 13,826
==================

Rent expense for the year ended December 31, 1994 was
$3,915.

Rent expense for the period January 1, 1993 to December 19,
1993 was $6,253, and totaled $280 for the remainder of the
year.

The Partnership leases space to various tenants for a hotel
gift shop, hair salon, and a rooftop antenna. The minimum
lease rental income under non-cancelable leases for 1994 was
approximately $8,666. The leases expire on various dates
from 1995 to 1999.

6. LONG-TERM DEBT

On April 15, 1994, the Partnership entered into a
construction loan with Bank IV Kansas for the purpose of
renovating the property. The construction loan is for
$2,250,000 and carries an interest rate of 7.75% during the
construction period. The Partnership paid a commitment fee
in the amount of $15,000 to secure this financing. The
loan, totaling $2,121,535, was converted to permanent
financing with an annual interest rate of 7.75% fixed for a
five-year term. A balloon payment in the amount of
$1,466,490 is due January 1, 2000.

Payments of principal and interest are due monthly and total
$22,675. Principal repayments during each of the next five
years are as follows:

1995 $ 111,587
1996 120,549
1997 130,230
1998 140,690
1999 151,989
2000 1,466,490
----------------
Total $2,121,535
================

7. PARTNERS' CAPITAL

At December 31, 1994, total partners' capital was comprised
of the following:

Partners' Capital Partners'
Capital Contributions Net Loss Capital
-------------- ----------------- -------------- ---------------
<S> <C> <C> <C>
SOF-II (90%) $3,088,827 $157,500 $(472,210) $2,774,117
Harvey (10%) 343,203 17,500 (52,468) 308,235
-------------- ----------------- -------------- ---------------
$3,432,030 $175,000 $(524,678) $3,082,352
============== ================= ============== ===============
</TABLE>

Net loss of the Partnership is allocated to the partners, on
a pro rata basis, in accordance with the Partnership
Agreement.

F-100

<PAGE>

The Partnership Agreement states that partner contributions
will be limited to $5,340,000 for SOF-II and $600,000 for
Harvey. The Agreement requires that contributions be made
on a pro rata basis, as needed for hotel renovations or
operations.

8. SUBSEQUENT EVENT

Effective January 1, 1995 pursuant to a Plan of Reorganization
executed on February 1, 1995, the Property and related hotel
operations, subject to related secured mortgage obligations,
along with other real estate assets, mortgage receivables and
cash were transferred into two newly formed Operating Partner-
ships between Hotel Investors Trust/Hotel Investors Corporation
(a real estate investment trust and a corporation trading pubicly
on a paired basis) and certain entities controlled by the
Starwood Capital Group and/or its affiliates (including Starwood
Wichita Investors, L.P.) in exchange for majority interest of the
Operating Partnership interests. Concurrently with these transac-
tions, Hotel Investors Trust/Hotel Investors Corporation con-
tributed substantially all of their net assets and operations into
the Operating Partnerships and changed their names to Starwood
Lodging Trust and Starwood Lodging Corporation, respectively.
Pursuant to the terms of this Agreement, Starwood Capital Group
has guaranteed the Operating Partnerships certain aggregate
minimum cash flows from operations after capital expenditures
of the property it contributed for a three year period expiring
December 31, 1997.

F-101

<PAGE>

REPORT OF INDEPENDENT ACCOUNTANTS

To the Partners of Starwood Capital Group

In our opinion, the accompanying balance sheet and the related
statement of operations, of changes in partners' capital and of
cash flows present fairly, in all material respects, the
financial position of The French Quarter Square at December 31,
1994 and the results of its operations and its cash flows for the
period August 1, 1994 to December 31, 1994, in conformity with
generally accepted accounting principles. These financial
statements are the responsibility of The French Quarter Square's
management; our responsibility is to express an opinion on these
financial statements based on our audit. We conducted our audit
of these statements in accordance with generally accepted
auditing standards which 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, assessing the accounting
principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We
believe that our audit provides a reasonable basis for the
opinion expressed above.

The accompanying financial statements of the French Quarter
Square have been prepared assuming that the Partnership owns its
properties. As discussed in Note 7, a lawsuit has been filed
which disputes this ownership. The ultimate outcome of the
litigation cannot be determined at present. No provision for any
liability that may result upon adjudication has been made in the
accompanying financial statements.

PRICE WATERHOUSE LLP
March 3, 1995
Dallas, Texas

F-102

THE FRENCH QUARTER SQUARE

BALANCE SHEET
DECEMBER 31, 1994

ASSETS
<S> <C>
Cash and cash equivalents $ 214,517
Accounts receivable 104,820
Inventories 25,868
Prepaid expenses 117,398
Fixed assets, net of accumulated depreciation (Note 3) 12,053,911
Other 50,561
------------------
Total assets $12,567,075
==================

LIABILITIES AND PARTNERS' CAPITAL

Accounts payable - trade $105,162
Accrued sales and use taxes 55,826
Accrued payroll 26,948
Other accrued liabilities 19,327
Deferred revenue 70,023
Notes payable 47,369
Debt allocation (Note 5) 898,000
------------------
Total liabilities 1,222,655
==================

Contingencies and uncertainties (Note 7)
Partners' capital 11,344,420
------------------
Total liabilities and partners' capital $12,567,075
==================
</TABLE>

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

F-103

<PAGE>

<TABLE>
<CAPTION>
THE FRENCH QUARTER SQUARE

STATEMENT OF OPERATIONS
FOR THE PERIOD AUGUST 1, 1994 TO DECEMBER 31, 1994
- ---------------------------------------------------------------------------------------------------------
<S> <C>
Revenues:
Rooms $1,415,866
Food and beverage 422,650
Telephone and other 124,381
Rental 290,010
Expense reimbursements 49,939
------------------
2,302,846
------------------
Cost of sales - distributed operating expenses:
Rooms 340,427
Food and beverage 429,269
Telephone 31,191
Other 19,798
------------------
820,685
------------------
Operating department income: 1,482,161
------------------

Undistributed operating expenses:
Administrative and general 284,568
Advertising and promotion 162,019
Property operation and maintenance 245,622
------------------
692,209
------------------
Fixed charges:
Depreciation 311,856
Real estate taxes and insurance 75,615
Interest 24,000
------------------
411,471
------------------
Net income for the period $378,481
==================

</TABLE>

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

F-104

THE FRENCH QUARTER SQUARE

STATEMENT OF CHANGES IN PARTNERS' CAPITAL
FOR THE PERIOD AUGUST 1, 1994 TO DECEMBER 31, 1994
- ---------------------------------------------------------------------------------------------------------

<S> <C>
Partners' capital, beginning of period $13,454,003

Distributions to partners (2,915,035)

Contributions from partners 426,971

Net income for period 378,481
------------------
Partners' capital, end of period $11,344,420
==================

</TABLE>

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

F-105

THE FRENCH QUARTER SQUARE

STATEMENT OF CASH FLOWS
FOR THE PERIOD AUGUST 1, 1994 TO DECEMBER 31, 1994
- ---------------------------------------------------------------------------------------------------------

<S> <C>
Cash flows from operating activities:
Net income $378,481
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 311,856
Change in operating assets and liabilities
Accounts receivable (104,820)
Inventory (25,868)
Other assets (167,959)
Accounts payable 105,162
Accrued liabilities 102,101
Deferred revenue 70,023
------------------
Net cash provided by operating activities 668,976
------------------
Cash flows from financing activities:
Distributions to partners (2,915,035)
Contributions from partners 426,971
Note payable 47,369
Debt allocation 898,000
------------------
Net cash used in financing activities (1,542,695)
Net decrease in cash (873,719)
------------------
Cash at beginning of period 1,088,236
------------------
Cash at end of period $214,517
==================

</TABLE>
The accompanying notes are an integral part of these financial statements.

F-106

<PAGE>

THE FRENCH QUARTER SQUARE
NOTES TO FINANCIAL STATEMENTS

1. ORGANIZATION

The French Quarter Square (the "Partnership") owns
and operates a 155 room hotel, a 37,500 square foot
shopping center and a 12,000 square foot office
building (the "Properties") located in Lexington,
Kentucky. The shopping center and office space were
completed in 1988 and the hotel was completed in
1989.

On August 4, 1994, for an aggregate purchase price
of approximately $14.8 million, Berl Holdings, L.P.
("Berl") in combination with one of its limited
partners, Starwood Opportunity Fund II, L.P. ("SOF
II"), acquired the Properties, a nearby warehouse,
7.4 acres of undeveloped land and certain monetary
interests of Kentucky Central Life Insurance Company
in the operating accounts of the real estate and
other amounts due them under a settlement agreement
with the previous owners with respect to the
mortgage.

The purchase price, less the estimated value of the
monetary interests acquired, was allocated by
management between the real assets acquired by Berl
and those acquired by SOF II (the warehouse and the
undeveloped land) and, thereafter, between the land,
building and improvements, and furniture, and equip-
ment based on the relative estimated fair value of
the individual property components.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

BASIS OF PRESENTATION

The accompanying financial statements include the
accounts of the Properties, as included in the
financial records of Berl, as if it were a separate
legal entity and these records have been prepared
using generally accepted accounting principles.

CASH AND CASH EQUIVALENTS

For purpose of reporting cash flows, cash and cash
equivalents include cash in banks and cash on hand.

FIXED ASSETS

Fixed assets are stated at cost. Depreciation is
provided using accelerated methods over the
estimated useful lives of the related assets,
generally five to 39 years. The costs of repairs
and minor renewals that do not significantly
extend the life of the building and improvements
are normally expensed as incurred. The costs of
major renovation projects are capitalized and
depreciated over the related period of benefit.

INVENTORIES

Food, linen, china, liquor and other inventories are
valued at the lower of cost or market on a first-in,
first-out basis.

REVENUE RECOGNITION

Hotel revenues are recognized when earned. Office
and retail revenues are recognized on a straight-
line basis over the life of the respective leases.

INCOME TAXES

No provision for income taxes is necessary in the
financial statements of the Partnership because, as
a partnership, it is generally not subject to
federal or state income taxes and the tax effects
of its activities flow through to the partners.

F-107

<PAGE>

3. FIXED ASSETS

Fixed assets consist of the following at
December 31, 1994:

Land $1,236,576
Building and improvements 10,060,739
Furniture and equipment 1,068,452
---------------
12,365,767
Less: accumulated depreciation (311,856)
---------------
$12,053,911
===============

Depreciation expense for the period August 1, 1994 to December
31, 1994 was $311,856.

4. LEASES

The office and retail properties are leased under
operating leases with initial non-cancellable con-
tracts starting at thirty-six months. Some leases
provide for tenant reimbursement of certain common
area maintenance expenses, insurance and real
estate taxes on a monthly basis.

A summary of the future minimum rentals to be
received under non-cancellable operating leases
is as follows:

Year ending December 31:

1995 $ 503,443
1996 378,871
1997 305,724
1998 292,641
1999 252,370
Thereafter 1,266,913
---------------
$2,999,962
===============

Certain retail leases require percentage rents to be paid after
sales for individual retailers have reached a specified level.

5. JOINT BORROWING DEBT ALLOCATION

Berl, through its interest in Starwood-Huntington
Partners, L.P. ("Starwood-Huntington"), a majority
owned affiliated partnership, acquired the fee title
to the Doubletree Club Hotel of Rancho Bernardo,
California which was financed in part through a $6.8
million mortgage on the acquired property. The
remaining purchase price was financed through a
$1.95 million borrowing by Berl secured by the
French Quarter hotel property and two other hotel
properties owned by Berl. The proceeds of this
borrowing were contributed by Berl into Starwood-
Huntington. The two mortgages contain cross-
default provisions which effectively cross-
collateralize all four hotel properties. The
mortgage loans accrue interest at LIBOR plus 2.5%,
payable monthly. Principal is due upon maturity in
September, 1995. It is contemplated that the
mortgage will be repaid with proceeds from a public
offering made by Hotel Investors Trust.

A pro rata portion of the Berl loan and the related
interest expense have been reflected in these
financial statements based on the relative 1994
acquisition prices of the Properties.

6. SUBSEQUENT EVENT

Effective January 1, 1995, pursuant to a Plan of
Reorganization executed on February 1, 1995, the
Properties, subject to related secured mortgage

F-108

<PAGE>

obligations, along with other real estate assets,
mortgage receivables and cash were transferred into
two newly formed Operating Partnerships between
Hotel Investors Trust/Hotel Investors Corporation
(a real estate investment trust and a corporation
trading publicly on a paired basis) and certain
entities controlled by Starwood Capital Group,
LP (including Berl and Starwood-Huntington) in
exchange for a majority of the Operating Partner-
ship's interests. Concurrently with these
transactions, Hotel Investors Trust/Hotel Investors
Corporation contributed substantially all of their
net assets and operations into the Operating
Partnerships and changed their name to Starwood
Lodging Trust and Starwood Lodging Corporation,
respectively.

7. CONTINGENCIES AND UNCERTAINTIES

Kentucky Central Life Insurance Company ("KCL") sold
the hotel, office and retail property to Berl. This
sale was part of a pooled asset sale conducted by
the Kentucky Insurance Commissioner as rehabilitator
of KCL. At the time of the sale, the Kentucky
Circuit Court had approved the sale, and KCL had
appealed such approval. These appeals were trans-
ferred to the Kentucky Supreme Court and are
pending. Neither Berl or SOF II are party to this
litigation. In the event that the Commissioner
loses this appeal and the sales are voided, Berl
and SOF II have secured return of their purchase
price by escrowing the proceeds at closing and
by obtaining title insurance affirmatively
covering this risk.

F-109

<PAGE>

REPORT OF INDEPENDENT ACCOUNTANTS

To the Partners of
the Starwood Capital Group

We have audited the accompanying schedules of operating revenue
and certain expenses of the French Quarter Square (the
"Properties") for the period January 1 to July 31, 1994 and the
year ended December 31, 1993. These schedules are the
responsibility of the Properties' management. Our responsibility
is to express an opinion on these schedules based on our audits.

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

The accompanying schedules of operating revenue and certain
expenses were prepared on the basis described in Note 1 and is
not intended to be a complete presentation of the Properties'
revenues and expenses.

In our opinion, the schedules of operating revenue and certain
expenses audited by us present fairly, in all material respects,
the operating revenue and certain expenses of the French Quarter
Square, on the basis described in Note 1, for the period January
1 to July 31, 1994 and the year ended December 31, 1993, in
conformity with generally accepted accounting principles.

PRICE WATERHOUSE LLP
Dallas, Texas
March 3, 1995

F-110

<PAGE>
<TABLE>
THE FRENCH QUARTER SQUARE

SCHEDULES OF OPERATING REVENUE AND CERTAIN EXPENSE
FOR THE PERIOD JANUARY 1 TO JULY 31, 1994
AND THE YEAR ENDED DECEMBER 31, 1993
- ---------------------------------------------------------------------------------------------------------

For the Year
Ended For the Period
December 31, January 1 to
1993 July 31, 1994
-------------- --------------
<S> <C> <C>
Operating revenue:
Rooms $3,280,411 $1,898,664
Food and beverage 1,165,305 654,654
Telephone and other 167,231 76,034
Rental 721,356 278,223
Expense reimbursements 6,266 36,819
-------------- --------------
5,340,569 2,944,394
Certain expenses (Note 1):
Cost of sales 1,827,710 1,125,362
General and administrative 500,146 316,673
Marketing 399,519 240,699
Energy costs 260,755 149,274
Management fees 271,313 147,685
Real estate taxes 186,509
Insurance and property operations 297,398 169,444
Common area maintenance 36,318 18,912
Other expenses 46,130 32,658
-------------- --------------
3,825,798 2,200,707
-------------- --------------

Operating revenue in excess of certain expenses $1,514,771 $ 743,687
============== ==============

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

</TABLE>

F-111

<PAGE>

THE FRENCH QUARTER SQUARE
NOTES TO THE FINANCIAL STATEMENTS

1. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES

The accompanying schedule of operating revenue and
certain expenses relates to the operations of the
French Quarter Square (the Properties) located in
Lexington, Kentucky. The Properties consist of a 155
room hotel, a 37,500 square foot shopping center and a
12,000 square foot office building. The shopping
center and office space were completed in 1988 and the
hotel was completed in 1989.

BASIS OF PRESENTATION

This schedule was prepared for the partners of Starwood
Capital Group (the Partners), who acquired the
Properties in an acquisition from Kentucky Central Life
Insurance Company on August 1, 1994. Kentucky Central
Life Insurance received the properties through a deed
in lieu of foreclosure on June 15, 1994. Prior to
ownership by Kentucky Central Life Insurance Company,
the Properties were owned by French Quarter Square
Limited (Predecessor), a Kentucky limited partnership,
who had filed for protection under Chapter 11
Bankruptcy on September 21, 1993. The Partners are
contemplating selling these properties to Hotel
Investors Inc. for inclusion in a real estate
investment trust portfolio. Accordingly, certain
expenses which may not be comparable to the expenses
expected to be incurred in the proposed future
operations of the Properties, have been excluded under
the assumption that the potential transaction described
above will be consummated. Expenses excluded consist
of depreciation and valuation adjustments to the
building and improvements, interest expense on certain
debt incurred by the Properties to acquire and develop
the property, and amortization of expenses not directly
related to the proposed future operations of the Hotel.

REVENUE AND EXPENSE RECOGNITION

The accompanying schedule of operating revenue and
certain expenses has been prepared on the accrual basis
of accounting.

Rooms revenue for the hotel is recognized daily on a
check-in basis. Rental revenue for the office and
shopping center is recognized on a monthly basis. All
other revenue is recognized when earned.

2. RELATED PARTY TRANSACTIONS

During the seven-month period ended July 31, 1994 and
the year ended December 31, 1993, the hotel incurred
approximately $400,000 and $240,000, respectively, in
charges from French Quarter Properties Inc. (a related
party) for marketing and management services.

Payments totaling approximately $150,000, for
management fees and leasing commissions incurred prior
to January 1, 1993, were paid to Graves/Turner
Developments on various dates between September 2, 1993
and September 21, 1993. In addition, approximately
$16,000 and $271,000, respectively, in management fees
were incurred and paid to Graves/Turner Development for
management services rendered during the seven-month
period ended July 31, 1994 and the year ended December
31, 1993, respectively.

F-112

<PAGE>

3. FUTURE MINIMUM RENTALS UNDER OPERATING LEASES

The Property is leased under operating leases with
initial non-cancellable contracts starting at thirty-
six months. Some leases provide for tenant
reimbursement of certain common area maintenance
expenses, insurance and real estate taxes on a monthly
basis.

A summary of the future minimum rentals to be received under non-
cancellable operating leases is as follows:

Year Ending December 31,
------------------------
1995 $ 503,443
1996 378,871
1997 305,724
1998 292,641
1999 252,370
Thereafter 1,266,913
-----------
2,999,962
===========

Several of the retail leases require percentage rents to be paid
after sales for individual retailers have reached a specified
level.

F-113

<PAGE>

REPORT OF INDEPENDENT ACCOUNTANTS

To the Partners of Berl Holdings, L.P.

In our opinion, the accompanying balance sheet and the related
statement of operations and retained earnings and of cash flows
present fairly, in all material respects, the financial position
of Capitol Hill Suites at December 31, 1994, and the results of
its operations and its cash flows for the period July 14, 1994
(acquisition) to December 31, 1994 in conformity with generally
accepted accounting principles. These financial statements are
the responsibility of Capitol Hill Suites' management; our
responsibility is to express an opinion on these financial
statements based on our audit. We conducted our audit of these
financial statements in accordance with generally accepted
auditing standards which requires that we plan and perform the
audit to obtain reasonable assurance about whether the financial
statements are free of material misstatements. An audit includes
examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting
principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We
believe that our audit provides a reasonable basis for the
opinion expressed above.

Price Waterhouse LLP
Washington, DC
March 2, 1995

F-114

<PAGE>

REPORT OF INDEPENDENT ACCOUNTANTS

To the Partners of Berl Holdings, L.P.

In our opinion, the accompanying balance sheet at December 31,
1993 and the related statement of operations, changes in
stockholder's equity and of cash flows present fairly, in all
material respects, the financial position and results of
operations and cash flows for Capitol Hill Suites for the period
January 1, 1994 to July 13, 1994, and the year ended December 31,
1993, in conformity with generally accepted accounting
principles. These financial statements are the responsibility of
Capitol Hill Suites' management; our responsibility is to express
an opinion on these financial statements based on our audit. We
conducted our audit of these financial statements in accordance
with generally accepted auditing standards which requires that we
plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material
misstatements. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the
overall financial statement presentation. We believe that our
audit provides a reasonable basis for the opinion expressed
above.

Price Waterhouse LLP
Washington, DC
March 2, 1995

F-115

<PAGE>

TABLE
<PAGE>
CAPITOL HILL SUITES
BALANCE SHEET
- -------------------------------------------------------------------------------

December 31,
1993
1994 (Predecessor)
------------ -------------
<S> <C> <C>
ASSETS
Cash $ 192,335 $ 91,175
Accounts receivable 64,142 130,711
Inventory, at cost 57,206 51,097
Other 29,736 20,543

Fixed assets:
Land 1,275,528 2,258,000
Building and building improvements 6,713,347 5,640,117
Furniture, fixtures and equipment 719,724 419,093
------------ ------------
8,708,599 8,317,210
Less: Accumulated depreciation 204,124 523,591
------------ ------------
8,504,475 7,793,619
------------ ------------
Total assets $8,847,894 $8,087,145
============ ============

LIABILITIES AND DIVISION EQUITY

Accounts payable $ 139,422 $ 141,597
Accounts payroll 40,596 20,243
Other accrued expenses 54,238 20,244
Mortgage payable (Note 3) 617,000
------------ ------------
Total liabilities 851,256 182,084
------------ ------------
Division equity 7,996,638 7,905,061
------------ ------------
Total liabilities and division
equity $8,847,894 $8,087,145
============ ============

</TABLE>
The accompanying notes are an integral part of these financial statements.

F-116

<PAGE>

CAPITOL HILL SUITES
STATEMENT OF OPERATIONS
- ---------------------------------------------------------------------------------------------------------

For the period
July 14, 1994
(acquisition) Predecessor
to For the period Year ended
December 31, January 1, 1994 to December 31,
1994 July 13, 1994 1993
------------------ ------------------ ------------------
<S> <C> <C> <C>
Revenues:
Suites $1,412,222 $1,856,654 $3,146,322
Telephone 50,196 58,061 101,665
Other 50,618 56,455 147,330
------------------ ------------------ ------------------
1,513,036 1,971,170 3,395,317
------------------ ------------------ ------------------
Departmental expenses:
Suites 416,777 519,190 875,318
Telephone 18,340 22,642 47,705
Other 16,796 20,368 48,232
------------------ ------------------ ------------------
451,913 562,200 971,255
------------------ ------------------ ------------------
Gross profit 1,061,123 1,408,970 2,424,062
------------------ ------------------ ------------------

Other expenses:
General and administrative 166,206 222,244 418,513
Advertising and promotion 81,992 110,942 210,317
Utilities 57,921 66,962 133,693
Maintenance and repairs 93,454 124,995 185,766
Insurance and taxes 74,234 60,518 152,834
Depreciation and amortization 204,124 154,575 253,600
Management fees 40,888 102,562 156,874
Other 6,696 3,865
------------------ ------------------ ------------------
725,515 846,663 1,511,597
------------------ ------------------ ------------------
Income from hotel operations 335,608 562,307 912,465

Interest expense 16,000
Other 95,238
------------------ ------------------ ------------------
Net income $ 319,608 $ 467,069 $ 912,465
================== ================== ==================

</TABLE>
The accompanying notes are an integral part of these financial statements.

F-117

<PAGE>

CAPITOL HILL SUITES

STATEMENT OF CHANGES IN DIVISION EQUITY
- ---------------------------------------------------------------------------------------------------------

For the period
July 14, 1994
(acquisition) to
December 31, 1994
-------------------
<S> <C>
Contributed capital $8,515,307
Capital withdrawal (838,277)
Net income for period 319,608
-------------------
Division equity, ending $7,996,638
===================
</TABLE>
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (Predecessor)

For the period
January 1, 1994 to
July 13, 1994
-------------------

<S> <C>
Stockholders' equity, beginning $7,905,061
Capital withdrawal (8,315,397)
Distributions to stockholder, net (194,268)
Net income for period 467,069
-------------------
Stockholders' equity, ending $ (137,535)
===================

For the period
January 1, 1993 to
December 31, 1993
-------------------

Stockholders' equity, beginning $7,697,976
Distributions to stockholder, net (705,380)
Net income for period 912,465
-------------------
Stockholders' equity, ending $7,905,061
===================
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-118

<PAGE>

CAPITOL HILL SUITES
STATEMENTS OF CASH FLOWS
- ---------------------------------------------------------------------------------------------------------
For the period
July 14, 1994 Predecessor
(acquisition) to For the period Year ended
December 31, January 1, 1994 to December 31,
1994 July 13, 1994 1993
------------------ ------------------ ------------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $319,608 $467,069 912,465
Adjustments to reconcile net income
to net cash provided by (used in)
operating activities:
Depreciation and amortization 204,124 154,575 253,600
Gain on sale of fixed assets (3,821)
Changes in assets and liabilities:
(Increase) decrease in accounts
receivable (14,104) 130,711 16,238
(Increase) decrease in inventory (5,745) 51,097 7,727
(Increase) decrease in other (7,183) 20,543 (3,249)
Increase (decrease) in accounts
payable 139,422 (141,597) 41,351
Decrease in accrued payroll (7,131) (20,243) (27,116)
Decrease in other accrued expenses (10,279) (20,244) (63,389)
------------ ------------ ------------

Net cash provided by operating
activities 618,712 641,911 1,133,806

Cash flows from investing activities:
Capital expenditures (8,720,407) (264,557) (527,883)
Proceeds from sale of fixed assets 8,315,397 3,821
Net cash (used in) provided by ------------ ------------ ------------
investing activities (8,720,407) 8,050,840 (524,062)
Cash flows from financing activities:
Partners' capital contribution 8,515,307
Proceeds from mortgage borrowings 617,000
Capital withdrawal (838,277) (8,315,397)

Distributions to stockholder, net (194,268) (705,380)
Net cash provided by (used in) ------------ ------------ ------------
financing activities 8,294,030 (8,509,665) (705,380)
Net increase (decrease) in cash 192,335 183,086 (95,636)
Cash, beginning 91,175 186,811
------------ ------------ ------------
Cash, ending $ 192,335 $ 274,261 $ 91,175
============ ============ ============

</TABLE>
The accompanying notes are an integral part of these financial statements.

F-119

<PAGE>
CAPITOL HILL SUITES
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1994

NOTE 1 - ORGANIZATION

Capitol Hill Suites (the Property), a 152 room suites hotel
located in Washington D.C., was acquired by Berl Holdings, L.P.
(Berl) on July 14, 1994 from Capitol Hill Holdings, Inc. (the
Predecessor) which had acquired the Property from a subsidiary of
Marine Midland Realty Credit Corporation, in 1991.

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

BASIS OF PRESENTATION

The accompanying financial statements include the accounts of the
Property, as included in the financial records of Berl and the
Predecessor, as if it were a separate legal entity and have been
prepared using the accrual basis of accounting.

CASH AND CASH EQUIVALENTS

The Property considers highly liquid investments purchased with
an original maturity of three months or less to be cash
equivalents.

Inventory

Inventory is stated at the lower of cost or market. Cost is
determined using the first-in, first-out method.

Fixed assets

Fixed assets are recorded at the lower of cost or net realizable
value based on fair value allocations as determined by management
at the acquisition date. Building and building improvements,
furniture and fixtures and equipment are depreciated using the
straight-line method over estimated lives ranging from 5 to 30
years. The costs of repairs and minor renewals that do not
significantly extend the life of the property and equipment are
normally expensed as incurred. The costs of major renovation
projects are capitalized and depreciated over the related period
of benefit.

Income taxes

At December 31, 1994, the Property is owned by a partnership, as
such, the Property is not subject to federal or state income
taxes; the tax effect of the property's activities accrues to its
partners. Accordingly, no provision or benefit for income taxes
is necessary in the financial statements for the period from July
14, 1994 to December 31, 1994.

The Predecessor corporation is a participant in a joint venture
under which the venture partner is allocated substantially all of
the results of operations for tax purposes. The venture
partnership is a foreign corporation which has substantial losses
for which no benefit had previously been realized. Accordingly,
no provision or benefit for federal or state income taxes is
provided for in the financial statements for the periods ended
December 31, 1993 and July 13, 1994.

NOTE 3 - MORTGAGE PAYABLE

Berl through its interest in Starwood-Huntington Partners, L.P.
("Starwood-Huntington"), a majority owned affiliated partnership,
acquired the fee title to the Doubletree Club Hotel of Rancho
Bernardo, California for $8.25 million which was financed in part
through a $6.8 million mortgage on the acquired property. The

F-120

<PAGE>

remaining purchase price was financed through a $1.95 million
borrowing by Berl secured by the Property and two other hotel
properties owned by Berl. The proceeds of this borrowing were
contributed by Berl into Starwood-Huntington. The two mortgages
contain cross-default provisions, which effectively cross-
collateralize all four hotel properties. The mortgage loans
accrue interest at LIBOR plus 2.5%, payable monthly. Principal
is due upon maturity in September, 1995.

A pro rata portion of the Berl loan and the related interest
expense have been reflected in these financial statements based
on the relative 1994 acquisition prices of the three properties
securing the loan.

NOTE 4 - MANAGEMENT AGREEMENT

The property has a management agreement with Hospitality Partners
(Hospitality), a minority limited partner in Berl. The agreement
provides for a monthly management fee of 8.5% (10% under predecessor)
of adjusted net operating income, as defined in the agreement. The
agreement also provides for an incentive fee equal to 20% of adjusted
net operating income, as defined by the agreement, in excess of certain
thresholds, which were increased concurrent with the acquisition
described in Note 1. The management and incentive fees for the period
July 14, 1994 to December 31, 1994 the period January 1, 1994 to July 13,
1994 and the year ended December 31, 1993, approximated $41,000,
$103,000 and $157,000, respectively.

During the period July 14, 1994 through December 31, 1994 and the
period January 1, 1994 through July 13, 1994, and the year ended
December 31, 1993, $20,000, $25,000 and $45,600, respectively was
paid to Hospitality for certain accounting services provided to the
Suites.

NOTE 5 - SUBSEQUENT EVENT

Effective January 1, 1995 pursuant to a Plan of Reorganization
executed on February 1, 1995, the Property and related hotel
operations, subject to related secured mortgage obligations,
along with other real estate assets, mortgage receivables and
cash were transferred into two newly formed Operating
Partnerships between Hotel Investors Trust/Hotel Investors
Corporation (a real estate investment trust and a corporation
trading publicly on a paired basis) and certain entities
controlled by the Starwood Capital Group and/or its affiliates
(including Berl and Starwood-Huntington) in exchange for majority
interest of the Operating Partnerships interests. Concurrently
with these transactions, Hotel Investors Trust/Hotel Investors
Corporation contributed substantially all of their net assets and
operations into the Operating Partnerships and changed their
names to Starwood Lodging Trust and Starwood Lodging Corporation,
respectively.

F-121

<PAGE>

INDEPENDENT AUDITORS' REPORT
Starwood Lodging Trust
Starwood Lodging Corporation

We have audited the accompanying balance sheets of the Doubletree
Club Hotel of Rancho Bernardo (the "Hotel") as of December 31,
1994 and 1993, and the related statements of operations and
owners' equity and of cash flows for the periods September 16,
1994 to December 31, 1994 and January 1, 1994 to September 15,
1994 and for the year ended December 31, 1993. These financial
statements are the responsibility of the Hotel'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 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, such financial statements present fairly, in all
material respects, the financial position of the Doubletree Club
Hotel of Rancho Bernardo at December 31, 1994 and 1993, and the
results of its operations and its cash flows for the periods
September 16, 1994 to December 31, 1994 and January 1, 1994 to
September 15, 1994 and for the year ended December 31, 1993 in
conformity with generally accepted accounting principles.

As discussed in Note 1 to the financial statements, the Hotel was
acquired by Starwood -Huntington Partners, L.P. on September 16,
1994 in a transaction accounted for as a purchase. As a result
of the acquisition, the financial statements for the period
subsequent to the acquisition are presented on a different basis
of accounting than that in the preceding periods and are
therefore not directly comparable.

Los Angeles, California
March 24, 1995

F-122

<PAGE>

DOUBLETREE CLUB HOTEL OF RANCHO BERNARDO

BALANCE SHEETS
DECEMBER 31, 1994 AND 1993
- -----------------------------------------------------------------------------

Successor Predecessor
------------ ------------
December 31,
1994 1993
------------ ------------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 190,217 $283,062
Accounts receivable, less allowance
for doubtful accounts of $12,240
in 1994 and $5,772 in December
1993 91,913 65,999
Due from Operator (Note 2) 126,000
Deferred financing costs, net
of accumulated amortization of 54,964
Inventories (Note 1) 11,227 10,124
Prepaid expenses 29,311 2,499
------------ ------------

Total current assets 377,632 487,684

RESTRICTED CASH (Note 2) 328,394
PROPERTY AND EQUIPMENT, Net (Notes 1 and 4) 8,180,392 8,091,886
OTHER ASSETS 529
------------ ------------
TOTAL $8,558,024 $8,908,493
============ ============

LIABILITIES AND OWNERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 104,955 $ 21,445
Due to Operator (Note 2) 17,206
Accrued expenses, including pre-petition
liabilities of $59,618 in 1993 166,785 221,780
Notes payable (Note 5) 6,800,000
------------ ------------
Total current liabilities 7,071,740 260,431

OWNERS' EQUITY $1,486,284 $8,648,062
------------ ------------
TOTAL $8,558,024 $8,908,493
============ ============

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

F-123

<PAGE>

DOUBLETREE CLUB HOTEL OF RANCHO BERNARDO

STATEMENTS OF OPERATIONS AND OWNERS' EQUITY
PERIODS SEPTEMBER 16, 1994 TO DECEMBER 31, 1994 AND
JANUARY 1, 1994 TO SEPTEMBER 15, 1994 AND
YEAR ENDED DECEMBER 31, 1993
- -----------------------------------------------------------------------------

Successor Predecessor
------------- ----------------------------
September 16- January 1,
December 31, September 15, December 31,
1994 1994 1993
------------- ------------- -------------
REVENUES:
Rooms $868,926 $2,392,008 $2,914,592
Food and beverage 46,354 134,854 197,863
Telephone 50,525 146,027 173,716
Other 31,647 82,917 49,251
-------- ---------- ----------
Total revenues 997,452 2,755,806 3,335,422
-------- ---------- ----------
COST OF SALES:
Rooms 174,129 512,552 647,623
Food and beverage 53,379 129,125 143,377
Telephone 14,402 37,228 48,957
Other 3,585 12,693 15,249
--------- ---------- ----------
Total cost of sales 245,495 691,598 855,206
--------- ---------- ----------
751,957 2,064,208 2,480,216
--------- ---------- ----------
EXPENSES:
Operating (Note 2) 327,135 874,208 1,118,253
General and administrative 127,293 341,633 437,602
Management and royalty
fees (Note 2) 49,937 138,008 166,211
Depreciation and 219,302 329,037 462,348
amortization Interest 156,378
--------- --------- ---------
Total expenses 880,045 1,682,886 2,184,414
--------- --------- ---------
NET (LOSS) INCOME (128,088) 381,322 295,802
OWNERS' EQUITY
Beginning of period 1,688,780 8,648,062 9,007,939
Contributions 246,290
Distributions, net (Note 6) (320,698) (107,966) (655,679)
---------- ---------- ----------
End of period $1,486,284 $8,921,418 $8,648,062
========== ========== ==========

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

F-124

<PAGE>

DOUBLETREE CLUB HOTEL OF RANCHO BERNARDO

STATEMENTS OF CASH FLOWS
PERIODS SEPTEMBER 16, 1994 TO DECEMBER 31, 1994 AND
JANUARY 1, 1994 TO SEPTEMBER 15, 1994 AND
YEAR ENDED DECEMBER 31, 1993

Successor Predecessor
------------- ----------------------------
For the period
September 16,
1994 For the period
acquisition January 1, For the year
to 1994 to ended
December 31, September 15, December 31,
1994 1994 1993
------------- ------------- -------------

Cash flows from
operating activities:
Net (loss) income $319,608 $467,069 912,465
Adjustments to reconcile
net (loss) income to
net cash provided by
(used in) operating
activities:
Depreciation and
amortization 204,124 154,575 253,600
Provision for doubtful
account (3,821)
Changes in operating assets
and liabilities:
Accounts receivable (14,104) 130,711 16,238
Due from operator (5,745) 51,097 7,727
Inventories (7,183) 20,543 (3,249)
Prepaid expenses and
other assets 139,422 (141,597) 41,351
Deferred financing costs (7,131) (20,243) (27,116)
Accounts payable (10,279) (20,244) (63,389)
--------- --------- ---------
Net cash provided by
operating activities 618,712 641,911 1,133,806

Cash flows from
investing activities:
Acquisition of Hotel (8,720,407) (264,557) (527,883)
Purchase of property
and equipment 8,315,397 3,821
Increase in restricted
cash
---------- --------- ---------
Net cash used in
investing activities (8,720,407)
8,050,840 (524,062)
Cash flows from financing
activities:
Owner's capital contribution 8,515,307
Distributions 617,000
Increase in notes payable (838,277) (8,315,397)
Net cash provided by (used in)
financing activities 8,294,030 (8,509,665) (705,380)

(continued)

F-125

<PAGE>

NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS 192,335 183,086 (95,636)
CASH AND CASH EQUIVALENTS,
BEGINNING OF PERIOD 91,175 186,811
CASH AND CASH EQUIVALENTS, END
OF PERIOD $ 192,335 $ 274,261 $ 91,175

SUPPLEMENTAL DISCLOSURE OF NONCASH AND FINANCING ACTIVITIES:
Amounts due to Maruko, Inc. of $167,034 and $44,321 were credited
to owners' equity in the period ended September 15, 1994 and the
year ended December 31, 1993, respectively.

On September 16, 1994, Starwood-Huntington Partners, L.P.
purchased the Hotel for $8,488,779. In conjunction with the
acquisition, assets acquired and liabilities assumed were as
follows:

Fair value of assets acquired $8,520,184
Cash paid $8,488,779
Liabilities assumed $ 31,405

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

F-126

<PAGE>

DOUBLETREE CLUB HOTEL OF RANCHO BERNARDO
NOTES TO FINANCIAL STATEMENTS

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

General Information - The Doubletree Club Hotel of
Rancho Bernardo (the "Hotel") was owned jointly by
Maruko, Inc. ("Maruko"), a Japanese corporation, and
individual Japanese investors. Compri Management
Corporation No. 8 (the "Operator") operated the
Hotel under management and franchise agreements with
Maruko (see Note 2).

Maruko applied to the Tokyo District Court for
protection from creditors under the Corporation
Reorganization Law on August 29, 1991 and under
Chapter 11 with the United States Bankruptcy
Court on October 30, 1991. On July 1, 1994,
the Tokyo District Court approved Maruko's plan
for reorganization under the Corporation
Reorganization Law in Japan, and on February 3,
1994, the United States Bankruptcy Court
approved Maruko's application for reorganization
under Chapter 11. As part of the bankruptcy
proceedings, Maruko sold the Hotel to Starwood-
Huntington Partners, L.P. on September 16, 1994.

Effective January 1, 1995 the assets and liabilities
of the Hotel were contributed by Starwood-Huntington
Partners, L.P. to SLT Realty L.P. and SLC Operating
L.P., in exchange for partnership interests.
Cash and Cash Equivalents - The Hotel considers all
highly liquid debt instruments purchased with a
maturity of three months or less to be cash
equivalents.

Inventories - Inventories, consisting primarily of
food and beverage, are stated at the lower of cost
or market. Cost is determined on the first-in,
first-out method.

Property and Equipment - Property and equipment are
stated at the lower of cost or net realizable value.
Depreciation is computed on the straight-line and
accelerated methods over the estimated useful lives
of the respective assets.

Income Taxes - No provision has been made for income
taxes in the financial statements, as any taxable
income or loss of the Hotel is included in the
income tax returns of Maruko and the individual
Japanese investors for the periods ending on or
before September 15, 1994, and of Starwood -
Huntington Partners, L.P. for the period September
16, 1994 through December 31, 1994.

2. MANAGEMENT AND FRANCHISE AGREEMENTS

The management fee consists of a base fee of 5% of
gross revenue, as defined, and a 10% incentive fee
on the amount by which net operating income, as
defined, exceeds $1,500,000. The franchise agree-
ment requires a royalty fee of 3% of gross room
revenues. However, this fee is deductible from
the aforementioned 5% base management fee. The
management and royalty fees amounted to $49,937
and $138,008 for the periods September 16, 1994
to December 31, 1994 and January 1, 1994 to
September 15, 1994, respectively, and $166,211
for the year ended December 31, 1993. No incentive
fee was earned.

The franchise agreement requires the Hotel to
contribute 3% of gross room revenues to the Operator
for marketing services. This fee, which is included
in operating expenses, amounted to approximately
$26,000 and $72,000 for the periods September 16,
1994 to December 31, 1994 and January 1, 1994 to
September 15, 1994, respectively, and $88,000 for
the year ended December 31, 1993.

F-127

<PAGE>

The Operator provides centralized accounting and
data processing services to the Hotel in accordance
with the management agreement. The cost of these
services amounted to $12,000 and $36,000 for the
periods September 16, 1994 to December 31, 1994 and
January 1, 1994 to September 15, 1994 and $48,000
for the year ended December 31, 1993.

The management agreement with Maruko included a
provision for the establishment of a fund for
replacement of furniture and fixtures, equal to 3%
of gross revenues. The fund is classified as
restricted cash in the accompanying balance sheets.
The $126,000 due from the Operator in 1993 was non-
interest bearing and was paid in 1994.

RELATED PARTIES

Maruko paid $167,034 for the period ended September
15, 1994 and $44,321 for the year ended December 31,
1993 for various expenses on behalf of the Hotel
(see Note 6).

4. PROPERTY AND EQUIPMENT

Property and equipment are summarized as follows:

December 31,
------------
1994 1993 Lives
---- ---- -----
Land and improvements $1,255,872 $1,510,346
Building and improvements 6,221,530 5,701,382 10 to 40 years
Furniture and equipment 899,542 2,342,324 3 to 10 years
8,376,944 9,554,052
Less accumulated depreciation 196,552 1,462,166
$8,180,392 $8,091,886
========== ==========

5. NOTES PAYABLE

At the time of the purchase of the Hotel, Starwood -
Huntington Partners, L.P. obtained a note payable to
Lexington Mortgage Company. The note, which bears
interest at LIBOR plus 2.5% (10.25% at December 31,
1994), is due in October 1995.

Interest paid in the period ended December 31, 1994
was $108,210.

6. DISTRIBUTIONS

Certain amounts payable to Maruko will not be
settled by cash payments. Accordingly, such amounts
have been credited to owners' equity (see Note 3).
The Hotel distributed $275,000 and $700,000 in cash
to Maruko for the period January 1, 1994 to
September 15, 1994, and for the year ended December
31, 1993, respectively.

F-128

<PAGE>

No dealer, salesperson or other individual has been
authorized to give any information or make any
representations not contained in this Prospectus in
connection with the Offerings covered by this Prospectus. If
given or made, such information or representations must not be
relied upon as having been authorized by the Company or
any Underwriter. This Prospectus does not constitute
an offer to sell, or a solicitation or an offer to
buy, any security other than the registered securities of
the Company offered by this Prospectus, nor does it
constitute an offer to sell or a solicitation of an offer to
buy the Paired Shares by anyone in any jurisdiction where such
an offer would be unlawful. Neither the delivery of this
Prospectus nor any sale made hereunder shall, under any
circumstances, create an implication that there has not
been any change in the facts set forth in this Prospectus or
in the affairs of the Company since the date hereof.
______________________

TABLE OF CONTENTS

Page
____
Prospectus Summary
Risk Factors
The Company
Use of Proceeds
Distribution Policy
Price Range of Paired Shares
Capitalization
Dilution
Selected Combined Financial Data MERRILL LYNCH & CO.
Management's Discussion and LEHMAN BROTHERS INC.
Analysis of Pro Forma SMITH BARNEY INC.
Financial Statements
Business Objectives and
Growth Strategies
Business and Properties
Mortgage Loan and Acquisition
Facility
Structure of the Company
Policies with Respect to
Certain Activities
Management
Certain Relationships and
Related Transactions
Principal Shareholders
Shares Available for Future Sale
Capital Stock
Federal Income Tax Considerations
ERISA Considerations
Convertible Notes
Underwriting
Experts
Legal Matters
Additional Information
Information Incorporated by
Reference
Glossary
Index to Financial Statements

, 1995

===============================================================

<PAGE>

10,100,000 PAIRED SHARES

STARWOOD LODGING TRUST

STARWOOD LODGING CORPORATION

PAIRED SHARES

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

PROSPECTUS

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

MERRILL LYNCH & CO.
LEHMAN BROTHERS INC.
SMITH BARNEY INC.
<PAGE>

[ALTERNATE UNDERWRITING SECTION FOR INTERNATIONAL PROSPECTUS]

Subject to the terms and conditions set forth in an
international purchase agreement (the "International Purchase
Agreement") among the Company and each of the underwriters named
below (the "International Managers"), and concurrently with the
sale to the U.S. Underwriters (as defined below) of Notes
convertible into an aggregate of 8,585,000 Paired Shares, the
Company has agreed to sell to each of the International Managers
named below, for whom Merrill Lynch International Limited, Lehman
Brothers International (Europe) and Smith Barney Inc. are acting as
lead managers, and each of the International Managers severally has
agreed to purchase from the Company Notes convertible into the
respective number of Paired Shares set forth below opposite their
respective names:

Number of
Underwriter Paired Shares
___________ _____________

Merrill Lynch International Limited. . .
Lehman Brothers International (Europe) .
Smith Barney Inc.. . . . . . . . . . . .
Total . . . . . . . . . . . . . . . 1,515,000
=========

The Company has also entered into a purchase agreement (the
"U.S. Purchase Agreement" and, together with the International
Purchase Agreement, the "Purchase Agreements") with certain
underwriters in the United States and Canada (the "U.S.
Underwriters" and together with the International Managers, the
"Underwriters") for whom Merrill Lynch, Pierce, Fenner & Smith
Incorporated, Lehman Brothers Inc. and Smith Barney Inc. are acting
as representatives (the "U.S. Representatives"). Subject to the
terms and conditions set forth in the International Purchase
Agreement, and concurrently with the sale to the International
Managers pursuant to the International Purchase Agreement of Notes
convertible into an aggregate of 1,515,000 Paired Shares, the
Company has agreed to sell to the U.S. Underwriters, and the U.S.
Underwriters severally have agreed to purchase from the Company,
Notes convertible into an aggregate of 8,585,000 Paired Shares.
The public offering price per Paired Share and the total
underwriting discount per Paired Share are identical under the U.S.
Purchase Agreement and the International Purchase Agreement.

In each Purchase Agreement, the U.S. Underwriters and the
International Managers have agreed, subject to the terms and
conditions set forth therein, to purchase all of the Notes being
sold pursuant to each such Purchase Agreement if any of such Notes
are purchased. Under certain circumstances, the commitments of
non-defaulting International Managers or U.S. Underwriters (as the
case may be) may be increased. The closings with respect to the
sale of the Notes to be purchased by the U.S. Underwriters and the
International Managers are conditioned upon one another.

The International Managers have advised the Company that the
International Managers propose initially to offer such Notes (which
will automatically be converted into Paired Shares when purchased
by the Public) to the public at the price per Paired Share into
which the Notes are convertible set forth on the cover page of this
Prospectus, and to certain dealers at such price less a concession
not in excess of $. per Paired Share into which the Notes are
convertible. The International Managers may allow, and such
dealers may reallow, a discount not in excess of $. per Paired
Share into which the Notes are convertible on sales to certain
other dealers. Upon the completion of the Offerings, the offering
price per Paired Share into which the Notes are convertible and the
concession and discount to dealers may be changed by the
International Managers.

The Company has been informed that the U.S. Underwriters and
the International Managers have entered into an intersyndicate
agreement (the "Intersyndicate Agreement") that provides for the
coordination of their activities. Under the terms of the
Intersyndicate Agreement, the International Managers and the U.S.
Underwriters are permitted to sell Notes to each other for purposes
of resale at the public offering price, less an amount not greater
than the selling concession. Under the terms of the Intersyndicate
Agreement, the International Managers and any dealer to whom they
sell Notes will not offer to sell or sell the Notes or Paired
Shares to persons who are United States persons or Canadian persons
or to persons they believe intend to resell to persons who are
United

103

<PAGE>

States persons or Canadian persons, and the U.S. Underwriters and
any dealer to whom they sell such Notes will not offer to sell or
sell Notes or Paired Shares into which the Notes are convertible to
persons who are non-United States and non-Canadian persons, except
in each case for transactions pursuant to the Intersyndicate
Agreement.

Each International Underwriter has agreed that (i) it has not
offered or sold, and it will not offer or sell, directly or
indirectly, any Notes or Paired Shares offered hereby in the United
Kingdom by means of any document except in circumstances which do
not constitute an offer to the public within the meaning of the
Companies Act of 1985, (ii) it has complied and will comply with
all applicable provisions of the Financial Services Act of 1986
with respect to anything done by it in relation to the Notes or the
Paired Shares in, from or otherwise involving the United Kingdom,
and (iii) it has only issued or passed on and will only issue or
pass on in the United Kingdom any document received by it in
connection with the issuance of Notes or Paired Shares to a person
who is of a kind described in Article 9(3) of the Financial
Services of 1986 (Investment Advertisements) (Exemptions) Order
1988 or is a person to whom the document may otherwise lawfully be
issued or passed on.

Purchasers of the Notes or Paired Shares offered hereby may be
required to pay stamp taxes and other charges in accordance with
the laws and practices of the country of purchase, in addition to
the offering price set forth on the cover page hereof.

The Company has granted an option to the International
Managers, exercisable during the 30-day period after the date of
this Prospectus, to purchase additions Notes convertible into up to
227,250 additional Paired Shares solely to cover over-allotments,
if any, at the public price per Paired Share set forth on the cover
page of this Prospectus, less the underwriting discount. To the
extent that the International Managers exercise this option, each
International Manager will be obligated, subject to certain
conditions, to purchase approximately the same percentage of such
additional Notes which the number of Paired Shares into which Notes
to be purchased by it are convertible shown in the foregoing table
bears to the Paired Shares offered hereby. The Company also has
granted an option to the U.S. Underwriters, exercisable during the
30-day period after the date of this Prospectus, to purchase
additions Notes convertible into up to 1,287,750 additional Paired
Shares to cover over-allotments, if any, on terms similar to those
granted to the International Managers.

The executive officers of the Company and the Trustees and
Directors of the Company and Starwood Capital have agreed not to
offer, sell, contract to sell or otherwise dispose of any Paired
Shares or any securities convertible into or exercisable for Paired
Shares (except for issuances by the Company pursuant to the
exchange of Units and certain other agreements and for distribution
of Units to parties who have direct or indirect interests in
Starwood Capital who agree to be bound by the foregoing
restrictions) for a period of one year after the closing of the
Offerings without the prior written consent of Merrill Lynch and
the Company (which consent of the Company must be approved by a
majority of the Independent Trustees/Directors). The Company has
agreed, subject to certain exceptions (including the exceptions
referenced above, the issuance of Paired Shares pursuant to
existing options and warrants, the grant of options under the 1995
Options Plan and in connection with acquisitions), not to offer,
sell, contract to sell or otherwise dispose of any Paired Shares
for a one-year period after the date of this Prospectus, without
the prior written consent of Merrill Lynch.

104

<PAGE>

105

<PAGE>

[ALTERNATE COVER FOR INTERNATIONAL PROSPECTUS]

SUBJECT TO COMPLETION
PRELIMINARY PROSPECTUS DATED , 1995
PROSPECTUS
__________
10,100,000 PAIRED SHARES
STARWOOD LODGING

STARWOOD LODGING TRUST STARWOOD LODGING CORPORATION
________________

Starwood Lodging Trust (the "Trust") and Starwood Lodging
Corporation (the "Corporation" and, with the Trust, the "Company")
own and operate hotels. The Trust, which intends to qualify as a
real estate investment trust for federal income tax purposes (a
"REIT"), is self-administered and, upon completion of the offerings
contemplated hereby, will hold fee interests, ground leaseholds and
mortgage loan interests in 47 hotel properties containing
approximately 9,400 rooms located in 20 states throughout the
United States. The Corporation operates hotel properties that it
leases from the Trust. The securities offered hereby, all of which
are being offered by the Company, consist of shares of the Trust
and shares of the Corporation which are "paired" and traded as
units consisting of one Trust share and one Corporation share (the
"Paired Shares"). The Trust is the only publicly traded REIT with
a paired share structure investing in hotel properties.
Of the 10,100,000 Paired Shares being offered hereby,
1,515,000 Paired Shares are being offered initially outside the
United States and Canada (the "International Offering") by the
International Managers. The remaining 8,585,000 Paired Shares are
being offered initially in the United States and Canada (the "U.S.
Offering") by the U.S. Underwriters. See "Purchase." Upon
completion of the U.S. Offering and the International Offering
(collectively, the "Offerings"), approximately 33% of the Paired
Shares on a fully diluted basis would be owned by Starwood Capital
Group L.P. and its affiliates, subject to the ownership limit
provisions described herein.
The Trust intends to pay regular quarterly distributions of $
per Paired Share, beginning with a distribution for the period from
the closing date of the Offerings through September 30, 1995. The
Paired Shares are listed on the New York Stock Exchange under the
symbol "HOT." The last reported sale price of the Paired Shares on
the New York Exchange Composite Tape on May 1, 1995 was $4.00 per
Paired Share. Prior to the completion of the Offerings, the
Company will effect a one for six reverse stock split. The public
offering price of the Paired Shares offered hereby is expected to
be $24.00 per Paired Share.

SEE "RISK FACTORS" FOR CERTAIN FACTORS RELEVANT TO AN
INVESTMENT IN PAIRED SHARES.
________________

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

<TABLE>
PRICE TO PURCHASE PROCEEDS TO
PUBLIC DISCOUNT(1) COMPANY(2)
<S> <C> <C> <C>
Per Paired
Share(3) . . $ $ $
Total(4) . . $ $ $

</TABLE>

(1) The Company has agreed to indemnify the Underwriters against
certain liabilities under the Securities Act of 1933. See
"Purchase."
(2) Before deducting estimated expenses of $
payable by the Company.
(3) The Paired Shares offered hereby will be issued automatically
upon conversion of convertible notes being acquired by the
Underwriters from the Company. The price per Paired Share
equals the conversion price of the convertible notes. See
"The Convertible Notes."
(4) The Trust and the Corporation have granted the U.S.
Underwriters an option to purchase additional notes
convertible into up to an additional 1,287,750 Paired Shares
to cover over-allotments and have granted the International
Managers an option to purchase additional notes convertible
into up to an additional 227,250 Paired Shares to cover over-
allotments. If all of such convertible notes are purchased,
the total Price to Public, Purchase Discount and Proceeds to
the Company will be $ , $ and
$ , respectively. See "Purchase."

_________________

MERRILL LYNCH INTERNATIONAL LIMITED LEHMAN BROTHERS SMITH BARNEY
INC.
_________________

The date of this Prospectus is , 1995.

<PAGE>

PART II INFORMATION NOT REQUIRED IN PROSPECTUS

Item 14. Other Expenses of Issuance and Distribution.

Registration Fee. . . . . . . $87,112.50
NASD Fee. . . . . . . . . . .
NYSE Listing Fee. . . . . . .
Printing and Engraving
Expense . . . . . . . . . .
Legal Fees and Expenses . . .
Accounting Fees and Expenses.
Blue Sky Fees and Expenses. .
Miscellaneous . . . . . . . .
Total . . . . . . . . . . . .

Item 15. Indemnification of Directors and Officers

Certain provisions of the MGCL provide that the Company may,
and in some circumstances must, indemnify the trustees, directors
and officers of the Company against liabilities and expenses
incurred by such person by reason of the fact that such person was
serving in such capacity, subject to certain limitations and
conditions set forth in the statute. The Corporation's Articles of
Incorporation and the Trust's Declaration of Trust provide that the
Corporation and Trust shall indemnify its directors, trustees and
officers to the extent permitted by the MGCL.

The Company has entered into indemnification agreements with
its directors, trustees and executive officers providing for the
maintenance of directors, trustees and officers liability
insurance, subject to certain conditions, and the indemnification
of and advancement of expenses to such directors, trustees and
executive officers.

Item 16. Exhibits.

The following exhibits are filed herewith or incorporated
herein by reference. Documents indicated by an asterisk (*) are
filed herewith.

Exhibit No. Description of Exhibit

1.1 Form of U.S. Purchase Agreement among the Trust, the
Corporation, the Partnerships and the U.S.
Underwriters.

1.1 Form of International Purchase Agreement among the
Trust, the Corporation, the Partnerships and the
International Underwriters.

2. Formation Agreement dated as of November 11, 1994
among the Trust, the Corporation, Starwood Capital
Group, L.P., Berl Holdings L.P., Starwood Apollo
Hotel Partners I, L.P., Starwood Apollo Hotel
Partners VIII, L.P., Starwood Apollo Hotel Partners
IX, LP and Starwood Nomura Hotel Investors, L.P.
(incorporated by reference to Exhibit 2 to the
Trust's and the Corporation's Joint Current Report
on Form 8-K dated November 16, 1994 (the "November
1994 Form 8-K")).

3.1 Amended and Restated Declaration of Trust of the
Trust dated June 6, 1988, as amended (incorporated
by reference to Exhibit 3A to the Trust's and the
Corporation's Joint Current Report on Form 8-K dated
January 31, 1995 (the "January 1995 Form 8-K")).

3.2 Amendment and Restatement of Articles of
Incorporation of the Corporation, as amended
(incorporated by referenced to Exhibit 3B to the
January 1995 Form 8-K).

II-1

<PAGE>

3.3 Trustees' Regulations of the Trust, as amended
(incorporated by referenced to Exhibit 3.3 to the
Trust's and the Corporation's Joint Annual Report on
Form 10-K for the year ended December 31, 1994 (the
"1994 Form 10-K")).

3.4 By-laws of the Corporation, as amended (incorporated
by reference to Exhibit 3.4 to the 1994 Form 10-K).

4.1 Form of Indenture for Convertible Notes.

4.2 Form of Convertible Notes.

5. Opinion of Counsel.

8. Opinion of Tax Counsel.

10.1 Pairing Agreement dated June 25, 1986, between the
Trust and the Corporation, as amended (incorporated
by reference to Exhibit 4.1 to the 1994 Form 10-K).

10.2 Form of Warrant Agreement dated as of September 16,
1986, between the Trust and City National Bank
("CNB") (incorporated by reference to Exhibit 4.3 to
the Trust's and the Corporation's Registration
Statement on Form S-4 (the "S-4 Registration
Statement") filed with the Securities and Exchange
Commission (the "SEC") on August 1, 1986
(Registration No. 33-7694)).

10.3 Form of Warrant Agreement dated as of September 16,
1986, between the Corporation and CNB (incorporated
by reference to Exhibit 4.3A to the S-4 Registration
Statement).

10.4 Incentive and Non-Qualified Share Option Plan (1986)
of the Trust (incorporated by reference to Exhibit
10.8 to the Trust and the Corporation's Joint Annual
Report on Form 10-K for the year ended August 31,
1986 (the "1986 Form 10-K")).

10.5 Corporation Stock Non-Qualified Stock Option Plan
(1986) of the Trust (incorporated by reference to
Exhibit 10.9 to the 1986 Form 10-K).

10.6 Stock Option Plan (1986) of the Corporation
(incorporated by reference to Exhibit 10.10 to the
1986 Form 10-K).

10.7 Trust Shares Option Plan (1986) of the Corporation
(incorporated by reference to Exhibit 10.11 to the
1986 Form 10-K).

10.8 Form of Indemnification Agreement dated as of
February 3, 1992, between the Trust and each of
Messrs. Ronald A. Young, John D. Morrissey, Graeme
W. Henderson, and Jeffrey C. Lapin (incorporated by
reference to Exhibit 10.29 to the Trust's and the
Corporation's Joint Annual Report on Form 10-K for
the year ended December 31, 1991 (the "1991 Form 10-
K")).

10.9 Form of Indemnification Agreement dated as of
February 3, 1992, between the Corporation and each
of Messrs. Young, Henderson, Ford, Earle M. Jones
and William H. Ling (incorporated by reference to
Exhibit 10.30 to the 1991 Form 10-K).

10.10 Executive Employment Agreement dated as of
January 31, 1995, between the Trust and Mr. Lapin
(incorporated by reference to Exhibit 10.12 to the
1994 Form 10-K).

______________________

To be filed by amendment.

II-2

<PAGE>

10.11 Executive Employment Agreement dated as of July 19,
1992, between the Trust and Michael W. Mooney
(incorporated by reference to Exhibit 10.4 to the
Trust's and the Corporation's Joint Current Report
on Form 8-K dated September 25, 1992 (the "September
1992 8-K")).

10.12 First Amendment to Executive Employment Agreement
dated as of March 18, 1993, between the Trust and
Michael W. Mooney (incorporated by reference to
Exhibit 10.16 to the Trust's and the Corporation's
Joint Annual Report on Form 10-K for the year ended
December 31, 1993 (the "1993 Form 10-K")).

10.13 Amendment No. 2 to Executive Employment Agreement
dated as of December 15, 1993, between the Trust and
Michael W. Mooney (incorporated by reference to
Exhibit 10.17 to the 1993 Form 10-K).

10.14 Executive Employment Agreement dated as of July 19,
1992, between the Corporation and Kevin E. Mallory
(incorporated by reference to Exhibit 10.5 to the
September 1992 8-K).

10.15 First Amendment to Executive Employment Agreement
dated as of March 18, 1993, between the Trust and
Kevin E. Mallory (incorporated by reference to
Exhibit 10.19 to the 1993 Form 10-K).

10.16 Amendment No. 2 to Executive Employment Agreement
dated as of December 15, 1993, between the Trust and
Kevin E. Mallory (incorporated by reference to
Exhibit 10.20 to the 1993 Form 10-K).

10.17 Form of Amended and Restated Lease Agreement entered
into as of January 1, 1993, between the Trust as
Lessor and the Corporation (or a subsidiary) as
Lessee (incorporated by reference to Exhibit 10.19
to the 1992 Form 10-K).

10.18 Amended and Restated Credit Agreement dated as of
March 24, 1995 ("Credit Agreement"), among the Trust
and the Realty Partnership, on the one hand, and
Bankers Trust Company as successor Collateral Agent
to Wells Fargo Bank, National Association and
Merrill Lynch Mortgage Capital, Inc. as assignee of
John Hancock Mutual Life Insurance Company, John
Hancock Variable Life Insurance Company, Connecticut
Mutual Life Insurance Company, The First National
Bank of Boston and Wells Fargo Bank, National
Association (incorporated by reference to Exhibit
10.24 to the 1994 Form 10-K).

10.19 Exchange Rights Agreement made as of January 1, 1995
among the Trust, the Corporation, the Realty
Partnership, the Operating Partnership and each of
the partners of the Partnerships (incorporated by
reference as Exhibit 2B to the January 1995 Form 8-
K).

10.20 Registration Rights Agreement dated as of January 1,
1995 among the Trust, the Corporation and Starwood
Capital (incorporated by reference as Exhibit 2C to
the January 1995 Form 8-K).

10.21 Limited Partnership Agreement for the Realty
Partnership among the Trust and Starwood Capital
dated as of December 15, 1994 (incorporated by
reference to Exhibit 2D to the January 1995 Form 8-
K).

10.22 Limited Partnership Agreement for the Operating
Partnership among the Corporation and Starwood
Capital dated as of December 15, 1994 (incorporated
by reference to Exhibit 2E to the January 1995 Form
8-K).

23. Consent of Independent Public Accountants.

23.1 Consent of Counsel (included in Exhibits 5 and 8).

24. Powers of Attorney (contained in the signature pages
hereto).

______________________

To be filed by amendment.

II-3

<PAGE>

26. Form T-1 of Trustee for the Notes.

(b) Financial Statement Schedules.

The financial statement schedules are included in the
Prospectus.

Item 17. Undertakings.

The undersigned registrant hereby undertakes:

Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, trustees,
officers and controlling persons of the registrant pursuant to the
provisions described in Item 15, or otherwise, the registrant has
been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as
expressed in the Act and is, therefore, unenforceable. In the
event that a claim for indemnification against such liabilities
(other than the payment by the registrant of expenses incurred or
paid by a director, trustee, officer or controlling person of the
registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, trustee, officer or
controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its
counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in
the Act and will be governed by the final adjudication of such
issue.

The registrant hereby undertakes:

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

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

II-4

<PAGE>

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, as
amended, the Registrant certifies that it has reasonable grounds to
believe that it meets all of the requirements for filing a Form S-2
and has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City
of Los Angeles, State of California on the 5th day of May, 1995.

STARWOOD LODGING CORPORATION

By:Kevin E. Mallory__________________________
Kevin E. Mallory, Executive Vice President

Pursuant to the requirements of the Securities Act of 1933, as
amended, this Registration Statement has been signed below by the
following persons in the capacities and on the dates indicated.

KNOW ALL MEN BY THESE PRESENTS, that each of the undersigned
Directors and officers of Starwood Lodging Corporation hereby
constitutes and appoints Kevin E. Mallory and Steven Goldman as his
true and lawful attorneys-in-fact and agents, for him and in his
name, place and stead, in any and all capacities, with full power
to act alone, to sign any and all amendments to this Registration
Statement, and to file each such amendment to this Registration
Statement with all exhibits thereto, and any and all documents in
connection therewith, with the Securities and Exchange Commission,
hereby granting unto said attorneys-in-fact and agents, and each of
them, full power and authority to do and perform any and all acts
and things requisite and necessary to be done in and about the
premises, as fully and to all intents and purposes as it or he
might or could do in person, hereby ratifying and confirming all
that said attorneys-in-fact and agents, or any of them, may
lawfully do or cause to be done by virtue hereof.

Signatures
__________

__Kevin E. Mallory_______ Executive Vice President May 5, 1995
Kevin E. Mallory (Principal Executive
Officer, Financial
Officer and
Accounting Officer)

__Earle F. Jones_________ Director May 5, 1995
Earle F. Jones

__Graeme W. Henderson____ Director May 5, 1995
Graeme W. Henderson

__Bruce M. Ford__________ Director May 5, 1995
Bruce M. Ford

II-5

<PAGE>

SIGNATURES

Pursuant to the requirements of the Securities Act of
1933, as amended, the Registrant certifies that it has reasonable
grounds to believe that it meets all of the requirements for filing
on Form S-2 and has duly caused this Registration Statement to be
signed on its behalf by the undersigned, thereunto duly authorized,
in the City of Los Angeles, State of California on the 5th day of
May, 1995.

STARWOOD LODGING TRUST

By:Jeffrey C. Lapin_______________
Jeffrey C. Lapin, President and
Chief Operating Officer

Pursuant to the requirements of the Securities Act of 1933,
as amended, this Registration Statement has been signed below by the
following persons in the capacities and on the dates indicated.

Signatures
__________

__Barry S. Sternlicht____ Chairman, Chief May 5, 1995
Barry S. Sternlicht Executive Officer
(Principal Executive Officer,
Financial Officer and
Accounting Officer)

__Jeffrey C. Lapin_______ President, Chief May 5, 1995
Jeffrey C. Lapin Operating Officer and
Trustee

__Michael W. Mooney______ Vice President May 5, 1995
Michael W. Mooney (Principal Financial and
Accounting Officer

__Madison F. Grose_______ Trustee May 5, 1995
Madison F. Grose

__Jonathan Eilian________ Trustee May 5, 1995
Jonathan Eilian

__Earle F. Jones_________ Trustee May 5, 1995
Earle F. Jones

II-6

<PAGE>

CONSENT OF INDEPENDENT AUDITORS

We consent to the use in this Joint Registration Statement of
Starwood Lodging Trust and Starwood Lodging Corporation on Form S-2
of our report on the separate and combined financial statements and
financial statement schedules of Starwood Lodging Trust and
Starwood Lodging Corporation dated March 24, 1995, and our report
on the financial statements of the Doubletree Club Hotel of Rancho
Bernardo dated March 24, 1995, appearing in the Prospectus, which
is part of this Registration Statement.

We also consent to the reference to us under the heading "Experts"
in such Prospectus.

Deloitte & Touche LLP
Los Angeles, California

May , 1995
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CONSENT OF INDEPENDENT ACCOUNTANTS

We hereby consent to the use in the Prospectus constituting part
of this Registration Statement on Form S-2 of our reports as of the dates
and relating to the financial statements or schedules of operating revenue
and certain expenses, as applicable, of the properties listed below which
appear in such Prospectus:

Property Date of Report

Starwood Wichita Investors, L.P. January 27, 1995

The French Quarter Square March 3, 1995

Capital Hill Suites March 2, 1995

We also consent to the reference to us under the headings "Experts."

PRICE WATERHOUSE LLP
Dallas, Texas
May 4, 1995

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