FELCOR SUITE HOTELS INC, 424B2, 1997-06-05

FELCOR SUITE HOTELS INC
424B2, 1997-06-05
REAL ESTATE INVESTMENT TRUSTS

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<PAGE> 1
Filed Pursuant to
Rule 424(b)(2)
Registration No. 333-25717

INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION. A REGISTRATION
STATEMENT RELATING TO THESE SECURITIES HAS BEEN DECLARED EFFECTIVE BY THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 415 UNDER THE
SECURITIES ACT OF 1933. A FINAL PROSPECTUS SUPPLEMENT AND THE PROSPECTUS TO
WHICH IT RELATES WILL BE DELIVERED TO PURCHASERS OF THESE SECURITIES.
NEITHER THIS PROSPECTUS SUPPLEMENT NOR THE PROSPECTUS TO WHICH IT RELATES
SHALL 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.

PROSPECTUS SUPPLEMENT (Subject to Completion)
(To Prospectus dated May 14, 1997)
Issued June 5, 1997

10,200,000 Shares

[FELCOR SUITES HOTELS LOGO]
COMMON STOCK
------------------------

FELCOR SUITE HOTELS, INC. (TOGETHER WITH ITS SUBSIDIARIES, "COMPANY") IS A
SELF-ADMINISTERED EQUITY REAL ESTATE INVESTMENT TRUST ("REIT") THAT PRESENTLY
OWNS INTERESTS IN 59 HOTELS LOCATED IN 24 STATES WITH AN AGGREGATE OF 13,903
SUITES ("CURRENT HOTELS"). THE COMPANY INTENDS TO UTILIZE THE NET PROCEEDS FROM
THE SALE OF SHARES OF COMMON STOCK OFFERED HEREBY TO ACQUIRE FIVE SHERATON(R)
HOTELS, FOUR DOUBLETREE GUEST SUITES(R) HOTELS AND TWO EMBASSY SUITES(R) HOTELS
(COLLECTIVELY, "ACQUISITION HOTELS") AND TO REPURCHASE 1,200,000 SHARES OF ITS
OUTSTANDING COMMON STOCK FROM A SUBSIDIARY OF PROMUS HOTEL CORPORATION
("PROMUS"). SEE "USE OF PROCEEDS." EIGHT OF THE ACQUISITION HOTELS ARE ALL-SUITE
HOTELS, WHILE THREE OF THE SHERATON HOTELS REPRESENT THE COMPANY'S FIRST
ACQUISITIONS OF UPSCALE, FULL-SERVICE, NON-SUITE HOTELS. ALL OF THE ACQUISITION
HOTELS WILL CONTINUE TO BE OPERATED UNDER THEIR EXISTING BRANDS BY AFFILIATES OF
THE RESPECTIVE BRAND OWNERS.
------------------------

OF THE 10,200,000 SHARES OF COMMON STOCK BEING OFFERED, 8,160,000 SHARES ARE
BEING OFFERED INITIALLY IN THE UNITED STATES AND CANADA BY THE U.S. UNDERWRITERS
AND 2,040,000 SHARES ARE BEING OFFERED INITIALLY OUTSIDE THE UNITED STATES AND
CANADA BY THE INTERNATIONAL UNDERWRITERS. ALL OF THE SHARES OF COMMON STOCK
OFFERED HEREBY ("OFFERING") ARE BEING SOLD BY THE COMPANY. THE COMMON STOCK IS
TRADED ON THE NEW YORK STOCK EXCHANGE ("NYSE") UNDER THE SYMBOL "FCH." THE
REPORTED LAST SALE PRICE OF THE COMMON STOCK ON THE NYSE ON JUNE 3, 1997 WAS
$37 3/8 PER SHARE.
------------------------

THE COMPANY HAS PAID REGULAR QUARTERLY DISTRIBUTIONS ON ITS COMMON STOCK SINCE
ITS INCEPTION AND EXPECTS A SECOND QUARTER DISTRIBUTION OF $.50 PER SHARE TO BE
PAID ON JULY 31, 1997 TO SHAREHOLDERS OF RECORD ON JULY 15, 1997, INCLUDING
PURCHASERS OF THE COMMON STOCK OFFERED HEREBY WHO HOLD SUCH SHARES THROUGH THE
RECORD DATE. TO PRESERVE ITS REIT STATUS, THE COMPANY'S CHARTER LIMITS THE
COMMON STOCK THAT MAY BE OWNED BY ANY SINGLE PERSON OR AFFILIATED GROUP TO 9.9%
OF THE OUTSTANDING SHARES AND RESTRICTS THE TRANSFERABILITY THEREOF UNDER
CERTAIN CIRCUMSTANCES.
------------------------

SEE "RISK FACTORS" BEGINNING ON PAGE S-13 HEREIN AND ON PAGE 5 OF THE
ACCOMPANYING PROSPECTUS FOR A DISCUSSION OF CERTAIN FACTORS THAT SHOULD BE
CONSIDERED BY PROSPECTIVE INVESTORS.
------------------------

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 $ A SHARE
------------------------

<TABLE>
<CAPTION>
UNDERWRITING
PRICE TO DISCOUNTS AND PROCEEDS TO
PUBLIC COMMISSIONS(1) COMPANY(2)
-------- -------------- -----------
<S> <C> <C> <C>
Per Share........................................... $ $ $
Total(3)............................................ $ $ $
</TABLE>

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

(1) The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933. See
"Underwriting."
(2) Before deducting expenses payable by the Company estimated at $450,000.
(3) The Company has granted to the U.S. Underwriters an option, exercisable
within 30 days of the date hereof, to purchase up to an aggregate of
1,530,000 additional shares of Common Stock at the price to public less
underwriting discounts and commissions for the purpose of covering
over-allotments, if any. If the Underwriters exercise such option in full,
the total price to public, underwriting discounts and commissions and
proceeds to Company will be $ , $ and $ ,
respectively. See "Underwriting."
------------------------

The shares of Common Stock are offered, subject to prior sale, when, as,
and if accepted by the Underwriters named herein, and subject to approval of
certain legal matters by King & Spalding, counsel for the Underwriters. It is
expected that delivery of the shares of the Common Stock will be made on or
about June , 1997, at the offices of Morgan Stanley & Co. Incorporated, New
York, N.Y., against payment therefor in immediately available funds.
------------------------

Joint Lead Managers and Bookrunners

MORGAN STANLEY DEAN WITTER SMITH BARNEY INC.
------------------------

ALEX. BROWN & SONS
Incorporated
MONTGOMERY SECURITIES
PAINEWEBBER INCORPORATED
SALOMON BROTHERS INC

June , 1997
<PAGE> 2

ALTERNATE COVER PAGE FOR INTERNATIONAL PROSPECTUS SUPPLEMENT
PROSPECTUS SUPPLEMENT (Subject to Completion)
(To Prospectus dated May 14, 1997)
Issued June 5, 1997

10,200,000 Shares

[FELCOR SUITES HOTELS LOGO]
COMMON STOCK
------------------------

OF THE 10,200,000 SHARES OF COMMON STOCK BEING OFFERED, 2,040,000 SHARES ARE
BEING OFFERED INITIALLY OUTSIDE THE UNITED STATES AND CANADA BY THE
INTERNATIONAL UNDERWRITERS AND 8,160,000 SHARES ARE BEING OFFERED INITIALLY IN
THE UNITED STATES AND CANADA BY THE U.S. UNDERWRITERS. ALL OF THE SHARES OF
COMMON STOCK OFFERED HEREBY ("OFFERING") ARE BEING SOLD BY THE COMPANY. THE
COMMON STOCK IS TRADED ON THE NEW YORK STOCK EXCHANGE ("NYSE") UNDER THE SYMBOL
"FCH." THE REPORTED LAST SALE PRICE OF THE COMMON STOCK ON THE NYSE ON JUNE 3,
1997 WAS $37 3/8 PER SHARE.
------------------------

PRICE $ A SHARE
------------------------

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

Joint Lead Managers and Bookrunners

MORGAN STANLEY DEAN WITTER SMITH BARNEY INC.
------------------------
ALEX. BROWN & SONS
International
MONTGOMERY SECURITIES
PAINEWEBBER INTERNATIONAL
SALOMON BROTHERS INTERNATIONAL LIMITED
June , 1997

[PICTURES]

Caption: "FelCor Suite Hotels, Inc."

Map of U.S. Depicting Locations of Current and Acquisition Hotels, Identified
as Embassy Suites, Doubletree Guest Suites, Sheraton Hotels or Hilton Suites.

1. First Picture -- Color photo of exterior of Embassy Suites hotel.
Caption: "Burlingame, California" with Embassy Suites logo beneath.

2. Second Picture -- Color photo of exterior of Doubletree Guest Suites
hotel. Caption: "Austin, Texas" with Doubletree Hotel Corporation logo
beneath.

3. Third Picture -- Color photo of exterior of Sheraton hotel. Caption:
"Dallas, Texas" with Sheraton Hotels & Resorts ITT logo beneath.

CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK.
SPECIFICALLY, THE UNDERWRITERS MAY OVER-ALLOT IN CONNECTION WITH THE OFFERING,
AND MAY BID FOR, AND PURCHASE SHARES OF COMMON STOCK IN THE OPEN MARKET. FOR A
DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITING."
<PAGE> 4

No dealer, salesperson or other individual has been authorized to give any
information or to make any representations other than those contained or
incorporated by reference in this Prospectus Supplement or the accompanying
Prospectus in connection with the offer made by this Prospectus Supplement and
the accompanying Prospectus, and, if given or made, such information or
representations must not be relied upon as having been authorized by the Company
or the Underwriters. This Prospectus Supplement and the accompanying Prospectus
do not constitute an offer to sell or a solicitation of an offer to buy any
security other than the shares of Common Stock offered hereby, nor do they
constitute an offer to sell or a solicitation of any offer to buy the shares of
Common Stock by anyone in any jurisdiction in which such offer or solicitation
is not authorized, or in which the person making such offer or solicitation is
not qualified to do so, or to any person to whom it is unlawful to make such
offer or solicitation. Neither the delivery of this Prospectus Supplement or the
accompanying Prospectus nor any sale made hereunder shall, under any
circumstances, create any implication that there has been no change in the
affairs of the Company since the date hereof.

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
PROSPECTUS SUPPLEMENT
Prospectus Supplement Summary............................. S-5
Risk Factors.............................................. S-13
Recent Developments....................................... S-14
Use of Proceeds........................................... S-19
Price Range of Common Stock and Distribution Policy....... S-20
Capitalization and Debt Structure......................... S-21
Selected Financial Information............................ S-23
Business and Properties................................... S-26
Management................................................ S-34
Principal Shareholders.................................... S-36
Federal Income Tax Considerations......................... S-37
Underwriting.............................................. S-42
Legal Matters............................................. S-45
Experts................................................... S-45
PROSPECTUS
Available Information..................................... 2
Incorporation of Certain Documents by Reference........... 2
The Company............................................... 3
Risk Factors.............................................. 5
Use of Proceeds........................................... 14
Ratio of Earnings to Fixed Charges........................ 15
Distribution Policy....................................... 15
Description of Debt Securities............................ 15
Description of Preferred Stock............................ 26
Description of Series A Preferred Stock................... 31
Description of Common Stock............................... 36
Description of Common Stock Warrants...................... 37
Certain Charter, Bylaw and Statutory Provisions........... 38
Partnership Agreement..................................... 42
Federal Income Tax Considerations......................... 44
Plan of Distribution...................................... 58
Legal Matters............................................. 59
Experts................................................... 59
</TABLE>

S-3
<PAGE> 5

[THIS PAGE INTENTIONALLY LEFT BLANK]

S-4
<PAGE> 6

PROSPECTUS SUPPLEMENT SUMMARY

The following summary information is qualified in its entirety by the more
detailed information appearing elsewhere in this Prospectus Supplement and the
accompanying Prospectus or incorporated herein or therein by reference. The
information contained in this Prospectus Supplement assumes no exercise of the
Underwriters' over-allotment option, unless otherwise indicated. The offering of
10,200,000 shares of Common Stock made hereby is referred to herein as the
"Offering." Capitalized terms not defined in the Prospectus Supplement Summary
and used in the Prospectus Supplement Summary shall have the meanings set forth
elsewhere in this Prospectus Supplement or the accompanying Prospectus. Unless
the context otherwise requires, as used herein the term "Company" shall mean and
refer to the business and assets of FelCor Suite Hotels, Inc., FelCor Suites
Limited Partnership and their respective subsidiaries, on a consolidated basis.
This Prospectus Supplement and the accompanying Prospectus, as well as certain
of the information incorporated by reference herein and therein, contain
forward-looking statements within the meaning of Section 27A of the Securities
Act of 1933, as amended (the "Securities Act"), and Section 21E of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"). The Company's
actual results could differ materially from those set forth in the
forward-looking statements. Certain factors that might cause such a difference
are discussed in the section entitled "Risk Factors" beginning on page S-13 of
this Prospectus Supplement and page 5 of the accompanying Prospectus.

THE COMPANY

FelCor Suite Hotels, Inc. is a self-administered equity REIT that owns an
approximate 90.2% general partner interest in FelCor Suites Limited Partnership
("Partnership"), which holds the Company's interests in the Current Hotels. The
59 Current Hotels include 49 Embassy Suites(R) hotels, one hotel in Myrtle
Beach, South Carolina, that is in the process of conversion to an Embassy Suites
hotel, eight Doubletree Guest Suites(R) hotels, and one Hilton Suites(R) hotel.
The Current Hotels have an aggregate of 13,903 suites and are located in 24
states. Forty-eight of the Current Hotels are managed by Promus, which is the
largest operator of full-service, all-suite hotels in the United States.

The Company has entered into letters of intent or agreements to acquire the
Acquisition Hotels, consisting of (i) eight all-suite hotels (four Doubletree
Guest Suites hotels, two Embassy Suites hotels and two Sheraton Suites hotels)
with an aggregate of 1,807 suites and (ii) three upscale, full-service Sheraton
hotels with an aggregate of 1,282 rooms. Upon completion of the Offering, the
Company will have a total market capitalization, based upon the closing price of
the Common Stock on June 3, 1997, of approximately $2.0 billion, and its total
debt will be approximately 19% of its total market capitalization.

From January 1996 through the first quarter of 1997, the Company has
experienced significant internal and external growth. During this period the
Company:

- acquired interests in 38 hotels with 9,215 suites for approximately $770
million, resulting in an increase in its portfolio of suites by
approximately 210%;

- completed the renovation of 25 hotels, including 5,842 suites, at an
aggregate cost of approximately $55.0 million and added 48 suites to two
of its existing hotels at a cost of approximately $5.3 million;

- achieved a 10.6% increase in revenue per available suite or room
("REVPAR") of the Current Hotels from $76.11 for the three months ended
March 31, 1996 to $84.21 for the three months ended March 31, 1997,
including a REVPAR increase of 16.6% with respect to the CSS Hotels (as
defined below) between such periods; achieved a 12.2% increase in REVPAR
of the Current Hotels from $75.96 for the five months ended May 31, 1996
to $85.19 for the five months ended May 31, 1997, including a REVPAR
increase of 21.3% with respect to the CSS Hotels between such periods;

- increased the quarterly dividend on its Common Stock from $0.46 to $0.50
per share, an increase of approximately 9%, and reduced its payout ratio
of Funds From Operations ("FFO") from 80% in 1995 to 72% in 1996; and
S-5
<PAGE> 7

- obtained what the Company believes to be the first syndicated unsecured
line of credit granted to a public hotel REIT, increased the amount
available thereunder from $250 million to $400 million and is currently
negotiating to increase the facility to $500 million.

The Company's senior management includes Hervey A. Feldman, Chairman of the
Board, and Thomas J. Corcoran, Jr., President and Chief Executive Officer. Mr.
Feldman has been engaged in the hotel business for approximately 30 years,
including serving as the founding President and Chief Executive Officer of
Embassy Suites (the predecessor of Promus) from January 1983 to May 1990 and as
its Chairman of the Board from June 1990 until January 1992. Mr. Corcoran has
been engaged in the hotel and restaurant business since 1979, with experience in
the development, financing and acquisition of hotel and restaurant properties.
Messrs. Feldman and Corcoran are the co-founders of the Company, which was
formed through a merger with entities originally formed in 1991. Messrs. Feldman
and Corcoran, together with other executive officers and directors of the
Company, will beneficially own, after consummation of the Offering, an aggregate
of approximately 3.5% of the outstanding Common Stock and units of limited
partner interest in the Partnership ("Units"), which, at June 3, 1997, had an
aggregate market value of approximately $48.4 million.

The Company's executive offices are located at 545 E. John Carpenter Frwy.,
Suite 1300, Irving, Texas 75062. The Company may also be reached by telephone at
(972) 444-4900, by facsimile transmission at (972) 444-4949, or by e-mail
addressed to [email protected]. Additional information regarding the
Company may be obtained from its Internet web site at http://www.felcor.com.

BUSINESS STRATEGY

GROWTH STRATEGY

The Company seeks to increase operating cash flow and enhance shareholder
value through both internal growth and acquisitions. The Company's internal
growth strategy is to utilize its asset management expertise to improve the
quality of its hotels through renovating, upgrading and repositioning, thereby
improving the revenue performance of the hotels, and to participate, through its
leases, in any growth in revenues at its hotels. The Company's acquisition
growth strategy remains focused primarily upon the purchase of additional
existing or newly developed hotels that meet the Company's investment criteria.
The Company also may construct additional suites and/or meeting space at certain
of its hotels if market and other conditions warrant. The Company currently is
adding an aggregate of 253 suites at three of its existing hotels at an
aggregate estimated cost of approximately $26.0 million.

As part of its internal growth strategy, the Company converted the 18 Crown
Sterling Suites(R) hotels ("CSS Hotels") acquired in late 1995 and early 1996 to
Embassy Suites hotels (16 hotels) and Doubletree Guest Suites hotels (two
hotels), investing over $50 million in the complete renovation and upgrade of
such hotels. As a consequence, REVPAR of the CSS Hotels for the quarter ended
March 31, 1997 increased approximately 16.6% over the quarter ended March 31,
1996 and approximately 21.3% between the five month periods ended May 31, 1997
and May 31, 1996.

The Company intends to continue to focus its acquisition strategy primarily
upon the purchase of upscale, full-service hotels (both all-suite and non-suite)
that will fit within one of the Company's premium brand owner/manager alliances
with Promus and Doubletree and its most recent alliance with ITT Sheraton
Corporation ("Sheraton"). The Company believes that it has benefitted, and will
continue to benefit, from its strong relationships with its brand
owner/managers.

STRATEGIC RELATIONSHIPS

The Company's primary business objectives are to (i) focus on sound hotel
selection, (ii) add value to its hotels through active asset management and the
strategic application of capital, and (iii) build solid working relationships
with, and be the "owner-of-choice" for, selected premium, full-service hotel
brand owner/managers who are willing to commit to the on-going success of the
hotels they license/manage for the
S-6
<PAGE> 8

Company. The Company currently maintains brand owner/manager relationships with
Promus and Doubletree and has announced a new strategic relationship with
Sheraton.

Promus Hotel Corporation is the owner of the Embassy Suites brand and the
manager of 48 of the Company's Current Hotels. The relationship with Promus has
provided the foundation for the Company's historical growth and includes (i) a
substantial continuing equity investment by Promus in the Company, (ii) a 50%
equity interest in 12 of the Current Hotels, (iii) agreements to make
subordinated loans to the Lessee (in support of the Lessee's obligations under
certain Percentage Leases), (iv) the guaranty of a $25 million loan to the
Company and (v) a recently announced agreement to develop five to ten new
Embassy Suites hotels at mutually agreed locations for acquisition by new joint
ventures with the Company.

Doubletree Hotels Corporation is the owner of the nation's second largest
full-service, all-suite hotel brand, Doubletree Guest Suites, and is (and is
expected to continue as) the manager of all of the Current Hotels and
Acquisition Hotels operated under such brand. As part of its relationship with
the Company, Doubletree (i) has acquired a 10% equity interest in three of the
Current Hotels, (ii) has agreed to make subordinated loans to the Lessee (in
support of the Lessee's obligations under certain Percentage Leases), (iii) has
subordinated certain of its customary fees to the Lessee's obligations under
applicable Percentage Leases and (iv) has granted the Lessee, under its
management agreements, certain performance-based termination rights.

ITT Sheraton Corporation is the owner of the Sheraton brand and one of the
world's largest hotel companies, with more than 410 hotels in over 60 countries.
The Company recently announced a strategic relationship with Sheraton, which
resulted from discussions over the past year. Under the new arrangement,
Sheraton has agreed (i) to provide its brand and management expertise to the
Company under long-term management contracts, (ii) to assist the Company in
identifying new hotel investment opportunities for operation under the Sheraton
name, (iii) in certain instances, to make subordinated loans to the Lessee (in
support of the Lessee's obligations under Percentage Leases), (iv) to
subordinate for designated periods of time certain of its customary fees to the
Lessee's obligations under applicable Percentage Leases, and (v) to grant the
Lessee termination rights in the event of a change in control of ITT Corporation
("ITT") or in the event Sheraton fails to meet certain performance-based
standards. This new strategic alliance, coupled with the purchase of five
Sheraton hotels (including three non-suite hotels), provides the Company with
its first entry into the upscale, full-service, non-suite hotel market and
should provide the Company with substantial opportunities for future growth.
S-7
<PAGE> 9

RECENT DEVELOPMENTS

RECENT ACQUISITIONS

During the first quarter of 1997, the Company completed, in four separate
transactions, the acquisition of interests in 15 hotels with an aggregate of
3,446 suites at an aggregate purchase price of approximately $252 million,
including approximately $43.0 million in existing debt. Subsequent to March 31,
1997, the Company acquired a 50% interest in the 261-suite San Antonio
(Airport), Texas Embassy Suites hotel for approximately $12.7 million in cash,
Units and the Company's share of existing debt. The hotels so acquired consisted
of the following:

<TABLE>
<CAPTION>
PERCENTAGE
HOTEL LOCATION BRAND NUMBER OF SUITES OWNERSHIP(1)
-------------- ----- ---------------- ------------
<S> <C> <C> <C>
Atlanta (Perimeter Center),
Georgia.......................... Embassy Suites 241 50%
Austin (Airport North), Texas...... Embassy Suites 261 50
Covina, California................. Embassy Suites 264 50
Kansas City (Country Club Plaza),
Missouri......................... Embassy Suites 266 50
Los Angeles (LAX Airport North),
California....................... Embassy Suites 215 100
Overland Park, Kansas.............. Embassy Suites 199 50
Raleigh, North Carolina............ Embassy Suites 225 50
San Antonio (Airport), Texas....... Embassy Suites 261 50
San Antonio (Northwest), Texas..... Embassy Suites 217 50
Secaucus, New Jersey............... Embassy Suites 261 50
Austin (Downtown), Texas........... Doubletree Guest Suites 189 90
Baltimore, Maryland................ Doubletree Guest Suites 251 90
Bloomington, Minnesota............. Doubletree Guest Suites 219 100
Dana Point, California............. Doubletree Guest Suites 198 100
Omaha, Nebraska.................... Doubletree Guest Suites 189 100
Troy, Michigan..................... Doubletree Guest Suites 251 90
------
Total.................... 3,707
======
</TABLE>

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

(1) Where the percentage ownership is less than 100%, the remaining ownership
interest, in each case, is held by Promus or Doubletree, as the brand
owner/manager.
S-8
<PAGE> 10

PROPOSED ACQUISITIONS

Acquisition Hotels

The Company has entered into letters of intent or agreements to acquire
100% interests in the Acquisition Hotels from various sellers at an aggregate
cost of approximately $330 million. The Acquisition Hotels consist of (i) eight
all-suite hotels (four Doubletree Guest Suites hotels, two Embassy Suites hotels
and two Sheraton Suites hotels) with an aggregate of 1,807 suites and (ii) three
upscale, full-service Sheraton hotels with an aggregate of 1,282 rooms. The
following table sets forth a summary of the Acquisition Hotels:

<TABLE>
<CAPTION>
NUMBER OF
HOTEL LOCATION BRAND SUITES/ROOMS
-------------- ----- ------------
<S> <C> <C>
Atlanta (Airport), Georgia..................... Sheraton 395
Dallas (Park Central), Texas................... Sheraton 545
Phoenix (Crescent), Arizona.................... Sheraton 342
Atlanta (Galleria), Georgia.................... Sheraton Suites 278
Chicago (O'Hare), Illinois..................... Sheraton Suites 297
Lake Buena Vista (Disney World(R)), Florida.... Doubletree Guest Suites 229
Nashville (Airport), Tennessee................. Doubletree Guest Suites 138
Raleigh/Durham, North Carolina................. Doubletree Guest Suites 203
Tampa (Rocky Point), Florida................... Doubletree Guest Suites 203
Dallas (Market Center), Texas.................. Embassy Suites 244
Syracuse, New York............................. Embassy Suites 215
-----
Total................................ 3,089
=====
</TABLE>

As used herein, the term "Hotels" means the Current Hotels and the
Acquisition Hotels, collectively. See "Risk Factors -- Risk that Pending
Acquisitions Will Not Close."

Other Potential Hotel Transactions

The Company is in various stages of evaluation and negotiation with respect
to a number of other available hotel transactions which, if the Company were to
elect to pursue all of such transactions, could require additional investment by
the Company of more than $250 million. Due to the preliminary status of such
negotiations and evaluations, no assurance can be given that the Company will
elect to pursue, or succeed in the completion of, any of such transactions.
S-9
<PAGE> 11

THE OFFERING

<S> <C>
Common Stock offered for sale in the
Offering................................... 10,200,000 shares
Common Stock to be outstanding after the
Offering................................... 35,587,733 shares(1)
Use of Proceeds.............................. To fund the purchase of the Acquisition Hotels and to
repurchase 1,200,000 outstanding shares of Common
Stock from Promus and, pending such application, for
the temporary reduction of indebtedness. See "Use of
Proceeds."
Distributions................................ The Company has paid regular quarterly distributions
on its Common Stock since its inception and expects a
second quarter distribution of $0.50 per share to be
paid on July 31, 1997 to shareholders of record on
July 15, 1997, including purchasers of the Common
Stock offered hereby who hold such shares through the
record date.
NYSE Symbol.................................. "FCH"
</TABLE>

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

(1) After application of the proceeds of the Offering to repurchase 1,200,000
outstanding shares of Common Stock from Promus. Excludes (a) 2,904,491
shares of Common Stock issuable at the option of the Company (in lieu of
cash) upon the redemption of a like number of outstanding Units, (b)
4,689,960 shares of Common Stock issuable upon conversion of the Company's
outstanding $1.95 Series A Cumulative Convertible Preferred Stock ("Series A
Preferred Stock") and (c) 1,264,500 shares of Common Stock issuable upon the
exercise of outstanding stock options granted to employees of the Company.

SUMMARY FINANCIAL INFORMATION

The following table sets forth summary historical and pro forma
consolidated 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 and Management's Discussion and Analysis of
Financial Condition and Results of Operations, which are included in the
Company's Annual Report on Form 10-K for the year ended December 31, 1996 and
the Company's Quarterly Report on Form 10-Q for the period ended March 31, 1997,
and (ii) the Company's Current Report on Form 8-K dated June 4, 1997, all of
which are incorporated by reference in this Prospectus Supplement. In the
opinion of management, the financial data as of March 31, 1996 and 1997 and for
the three months ended March 31, 1996 and 1997 include all adjustments necessary
to present fairly the information set forth therein.

The pro forma operations and other data for the year ended December 31,
1996 and for the three months ended March 31, 1997 have been prepared as if the
purchase of each of the hotels acquired in 1996 and 1997 and the Acquisition
Hotels, the Series A Preferred Stock offering in the second quarter of 1996, the
Common Stock offering in the first quarter of 1997 and the Offering had been
consummated on January 1, 1996 and the pro forma balance sheet data has been
prepared as if the purchase of the Acquisition Hotels and one Current Hotel
acquired after March 31, 1997 and the Offering had been consummated on March 31,
1997. 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 periods indicated, nor does it purport to represent
the Company's future financial position and results of operations.
S-10
<PAGE> 12

FELCOR SUITE HOTELS, INC.
SUMMARY CONSOLIDATED FINANCIAL INFORMATION
(IN THOUSANDS, EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>
HISTORICAL
PERIOD FROM
JULY 28, 1994 THREE MONTHS ENDED
(INCEPTION OF YEAR ENDED DECEMBER 31, MARCH 31,
OPERATIONS) ----------------------------------- -----------------------------------
THROUGH HISTORICAL PRO FORMA HISTORICAL PRO FORMA
DECEMBER 31, ----------------------- --------- ---------------------- ----------
1994 1995 1996 1996(1) 1996 1997 1997(1)
------------- ---------- ---------- --------- --------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
OPERATING DATA:
Percentage lease revenue(2).......... $ 6,043 $ 23,787 $ 97,950 $169,713 $ 23,976 $ 35,370 $ 49,629
Net income applicable to common
shareholders....................... 2,511 12,191 33,203 58,338 11,971 10,008 16,849
Net income per common share(3)....... $ 0.54 $ 1.70 $ 1.44 $ 1.66 $ 0.53 $ 0.39 $ 0.47
Weighted average number of common
shares outstanding................. 4,690 7,165 23,076 35,237 22,614 25,459 35,526
OTHER DATA:
Lessee suite revenue................. $ 16,094 $ 65,649 $ 234,451 $469,087 $ 52,176 $ 93,153 $ 128,322
Funds From Operations(4)............. 4,905 20,707 69,407 119,476 18,107 23,726 34,180
Cash provided from operating
activities......................... 3,959 18,075 73,932 -- 13,325 13,228 --
Cash provided from financing
activities......................... 97,952 406,825 247,422 -- 80,363 211,713 --
Cash used in investing activities.... (100,793) (259,197) (480,382) -- (259,849) (221,777) --
Cash available for
distributions(5)................... 4,370 18,081 60,888 101,572 15,792 20,042 29,089
Weighted average number of shares and
units outstanding.................. 6,385 8,956 26,037 38,407 25,675 28,243 38,449
</TABLE>

<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
--------------------------------------- -----------------------------------
HISTORICAL HISTORICAL PRO FORMA
--------------------------------------- ---------------------- ----------
1994 1995 1996 1996 1997 1997(1)
------------- ---------- ---------- --------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and short term investments................. $ 1,118 $ 166,821 $ 7,793 $ 660 $ 10,957 $ 9,332
Investment in hotel properties, net............. 104,800 325,155 899,691 726,727 1,061,340 1,391,140
Investment in unconsolidated partnerships....... -- 13,819 59,867 -- 118,320 124,820
Total assets.................................... 108,305 548,359 978,788 772,697 1,212,358 1,547,033
Debt and capital lease obligations.............. 8,750 19,666 239,425 178,543 366,227 376,815
Minority interest in Partnership................ 25,685 58,837 76,112 69,202 62,661 74,539
Shareholders' equity............................ 69,255 461,386 641,926 507,482 753,077 1,065,286
</TABLE>

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

(1) The pro forma financial information does not purport to represent what the
Company's financial position or results of operations actually would have
been if the purchases of each of the hotels acquired in 1996 and 1997 and
the Acquisition Hotels, the Series A Preferred Stock offering, the Common
Stock offering in the first quarter of 1997 and the Offering had, in fact,
occurred on such dates, or to project the Company's financial position or
results of operations at any future date or for any future period.

(2) With respect to the pro forma financial information, represents lease
payments from the Lessee to the Partnership calculated on a pro forma basis
by applying the contractual or anticipated rent provisions of the Percentage
Leases to the historical suite and food and beverage revenues of the Hotels.

(3) Net income per common share is computed by dividing net income applicable to
common shareholders by the weighted average number of common shares and
equivalents outstanding. Common share equivalents that have a dilutive
effect represent restricted shares issued to certain officers and directors.
For the periods presented, the common share equivalents had an immaterial
dilutive effect.

(4) The following table computes Funds From Operations under the National
Association of Real Estate Investment Trusts ("NAREIT") definition. Funds
From Operations under the NAREIT definition consists of net income, computed
in accordance with generally accepted accounting principles, excluding
S-11
<PAGE> 13

gains or losses from debt restructurings and sales of property, plus
depreciation of real property (including furniture and equipment) and after
adjustments for unconsolidated partnerships and joint ventures.

<TABLE>
<CAPTION>
HISTORICAL
PERIOD FROM
JULY 28, 1994 THREE MONTHS ENDED
(INCEPTION OF YEAR ENDED DECEMBER 31, MARCH 31,
OPERATIONS) ------------------------------- -------------------------------
THROUGH HISTORICAL PRO FORMA HISTORICAL PRO FORMA
DECEMBER 31, ------------------ --------- ------------------ ---------
1994 1995 1996 1996 1996 1997 1997
------------- ------- ------- --------- ------- ------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Net income applicable to common
shareholders................... $ 2,511 $12,191 $33,203 $ 58,338 $11,971 $10,008 $16,849
Add:
Minority interest in
Partnership.................. 907 3,131 5,590 6,308 1,620 1,417 1,628
Depreciation................... 1,487 5,232 26,544 44,707 4,516 10,417 13,172
Depreciation for unconsolidated
subsidiaries................. 153 1,716 10,123 1,884 2,531
Extraordinary charge from
writeoff of deferred
financing fees............... 2,354
-------- ------- ------- -------- ------- ------- -------
Funds From Operations applicable
to common shares and units..... $ 4,905 $20,707 $69,407 $119,476 $18,107 $23,726 $34,180
======== ======= ======= ======== ======= ======= =======
</TABLE>

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

Industry analysts generally consider Funds From Operations to be an
appropriate measure of the performance of an equity REIT. Funds From
Operations should not be considered as an alternative to net income or
other measurements under generally accepted accounting principles as an
indicator of operating performance or to cash flows from operating,
investing or financing activities as a measure of liquidity. Funds From
Operations does not reflect cash expenditures for capital improvements or
principal repayment of debt.

(5) Represents net income available for common shares plus minority interest,
depreciation and amortization, depreciation for unconsolidated subsidiaries,
amortization of unearned officers' and directors' compensation, amortization
of loan costs, and the non-cash portion of general and administrative
expenses, less scheduled repayments of borrowings and an amount equal to 4%
of hotel suite revenues, which is required to be set aside by the Company
for refurbishment and replacement of furniture and equipment, capital
expenditures and other non-routine items as required by the Percentage
Leases.
S-12
<PAGE> 14

RISK FACTORS

In addition to the other information contained in this Prospectus
Supplement and accompanying Prospectus, prospective investors should carefully
consider the following factors in evaluating an investment in the shares of
Common Stock offered hereby.

RISK THAT PENDING ACQUISITIONS WILL NOT CLOSE

The Company has entered into letters of intent or definitive agreements to
acquire the Acquisition Hotels. The Company is currently negotiating definitive
agreements to acquire those Acquisition Hotels currently subject to letters of
intent; however, no assurance can be given that the Company will be successful
in entering into such definitive agreements. The purchase of each of the
Acquisition Hotels is subject to the satisfaction of a number of conditions
(certain of which are material and, unless satisfied, could result in one or
more of such hotels not being acquired). Should any of such purchases not occur,
for whatever reason, a portion of the net proceeds of the Offering will be used,
at least temporarily, for the repayment of outstanding indebtedness rather than
the purchase of the Acquisition Hotels. In addition, the Company has deposited,
or will deposit, approximately $7.0 million in letters of credit with the
sellers or into an escrow account in connection with the purchase of nine of the
Acquisition Hotels. Such deposits are subject to forfeiture in the event of a
default by the Company, including a failure to pay the balance of the purchase
prices of such Acquisition Hotels, in which event the Company may be unable to
recover all or any portion of the amounts so provided or deposited and may be
liable for additional damages, if any.

OTHER RISKS

Investors should also carefully consider the matters discussed under "Risk
Factors," which begins on page 5 of the accompanying Prospectus, including the
following:

- Common Stock is the most junior of the Company's outstanding securities
and is subordinate to the Company's outstanding indebtedness and Series A
Preferred Stock.

- The Company's acquisition of interests in 38 hotels between January 1996
and March 31, 1997 has resulted in the Company's addition of three senior
management personnel as well as additional accounting and administrative
personnel during such period; and to the extent the Company is unable to
retain or hire experienced personnel to manage its business and assets,
its operations could be adversely affected.

- Risks affecting the hotel industry generally, and the Hotels
specifically, may adversely affect the Company's revenue and the amounts
available for distribution to shareholders.

- The Company's growth through acquisitions and improvements may be
constrained (i) because a REIT generally cannot retain earnings and (ii)
because the Company or the lessee of the Company's hotels, DJONT
Operations, L.L.C. or a subsidiary thereof (collectively, "Lessee"), may
not have access to sufficient debt and equity capital.

- The Company is substantially dependent upon the Lessee's ability to
generate sufficient cash flow from the operation of the Hotels to enable
the Lessee to meet its rent obligations under the leases ("Percentage
Leases") pursuant to which the Hotels are leased to the Lessee, and, at
December 31, 1996, the Lessee had incurred aggregate net losses, and had
an accumulated deficit, of approximately $6.4 million.

- Tax risks could significantly adversely affect FFO and distributions to
shareholders; such risks include taxation of the Company as a corporation
if it fails to qualify as a REIT, taxation of the Partnership as a
corporation if it were deemed not to be a partnership, and the Company's
liability for federal and state taxes on its income in either such event.

- Conflicts of interest exist between the Company and certain of its
affiliates (which means generally any person that directly or indirectly
controls, is controlled by, or is under common control with, such
person), including the Lessee, Messrs. Feldman and Corcoran (who control
the Lessee and serve as managers and officers thereof and as directors
and officers of the Company) and Charles N.

S-13
<PAGE> 15

Mathewson (who serves as a director of the Company and who, together with
his children, currently owns, directly or indirectly, an approximate 5.0%
limited partner interest in the Partnership and a 50% non-voting equity
interest in the Lessee).

- The Company must distribute at least 95% of its annual taxable net income
to maintain its status as a REIT. The Company has, from time to time,
incurred indebtedness to fund the acquisition of hotels and, depending
upon the cash available for distribution, the Company may be required to
borrow or obtain additional equity capital funds to make additional
investments or distributions. Should the Company be unable to meet its
obligations with respect to such indebtedness, it may risk the loss of
all or a portion of its assets through foreclosure.

- Increases in interest rates may adversely affect the market price of the
Company's Common Stock and increase the cost of funds borrowed to make
additional investments or distributions.

- The Company has operated as a REIT only since 1994, when it, the
Partnership and the Lessee were formed.

- The Company is substantially influenced by, and reliant upon, Messrs.
Feldman and Corcoran.

- Risks affecting the real estate industry generally that may adversely
affect the value of the Company's hotels and the market price of the
Company's Common Stock.

- The restriction on ownership of the Company's capital stock, intended to
help assure compliance with certain requirements related to continued
qualification of the Company as a REIT, and certain other provisions in
the Company's Charter and Bylaws, may have the effect of inhibiting a
change of control of the Company even though such change of control could
be beneficial to the Company's shareholders.

- Certain adverse developments in the business or prospects of Embassy
Suites hotels, Doubletree Guest Suites hotels or Sheraton hotels could
impact the Company's hotels.

RECENT DEVELOPMENTS

RECENT ACQUISITIONS

In February 1997, the Company acquired interests in ten hotels from
affiliates of the General Electric Pension Trust or joint ventures between such
affiliates and Promus. The ten hotels are located in nine states and have an
aggregate of 2,342 suites. The purchase included an approximate 50% equity
interest in each of eight joint ventures, each of which owns a single hotel, and
a direct 100% interest in two hotels. A 50% interest in each of the joint
ventures continues to be owned by Promus, resulting in 11 hotels being owned by
joint ventures between Promus and the Company at that time. Each of the eight
hotels owned by these joint ventures was and continues to be operated as an
Embassy Suites hotel.

The following sets forth a brief description of these eight Embassy Suites
hotels:

Atlanta (Perimeter Center),
Georgia....................... This ten-story, 241-suite hotel is located in
the Perimeter Office Park in Atlanta, Georgia.
The hotel opened in 1985.

Austin (Airport North),
Texas......................... This ten-story, 261-suite hotel is located near
Austin's Robert Mueller Airport, currently the
principal airport in Austin, Texas. The hotel
opened in 1984.

Covina, California............ This three-story, 264-suite hotel is located in
Covina, California, near Ontario International
Airport. The hotel opened in 1980.

Kansas City (Country Club
Plaza), Missouri.............. This 12-story, 266-suite hotel is located
adjacent to the Country Club Plaza in Kansas
City, Missouri. This hotel, which was opened in
1976, is situated upon land leased under a
ground lease expiring

S-14
<PAGE> 16

in 2023, under which the ground lessor has
renewal options for two successive 25-year
periods and an option, exercisable in 2002, to
purchase the hotel at its fair market value.

Kansas City (Overland Park),
Kansas........................ This seven-story, 199-suite hotel is located in
Overland Park, Kansas, a suburb of Kansas City,
Missouri. The hotel opened in 1984.

Raleigh, North Carolina....... This nine-story, 225-suite hotel is located in
Raleigh, North Carolina. The hotel opened in
1987.

San Antonio (Northwest),
Texas......................... This eight-story, 217-suite hotel is located
near the intersection of Interstate Highways 10
and 410 (West) in San Antonio, Texas. This
hotel, which was opened in 1979, is situated
upon land leased under a ground lease expiring
in 2030, but under which lease the lessee has
an option exercisable in 2011 to purchase the
land at fair market value.

Secaucus, New Jersey.......... This nine-story, 261-suite hotel is located in
the Plaza in the Meadows in the Meadowlands
area of Secaucus, New Jersey. This hotel, which
was opened in 1986, is leased under a lease
expiring in 2011, but under which the lessee
has two consecutive ten-year renewal options.

The two hotels in which the Company acquired a direct 100% ownership
interest were acquired from two joint ventures between affiliates of the General
Electric Pension Trust and Promus, respectively. The Company, based on its
belief that these hotels will achieve improved results through repositioning
within their respective markets, has converted these two hotels to Doubletree
Guest Suites hotels under Doubletree management.

The following sets forth a brief description of these two Doubletree Guest
Suites hotels:

Bloomington, Minnesota........ This eight-story, 219-suite hotel is located in
Bloomington, Minnesota. The hotel opened in
1980.

Omaha, Nebraska............... This six-story, 189-suite hotel is located in
Omaha, Nebraska. The hotel opened in 1973.

In February 1997, the Company acquired, in two separate transactions, the
nine-story, 215-suite Embassy Suites hotel located near the Los Angeles
International Airport in Los Angeles, California, and the four-story, 198-suite
Hilton Inn & Suites hotel located in Dana Point, California. The Embassy Suites
hotel, which was opened in 1990, is situated on land leased pursuant to a ground
lease that expires in 2008, and in which the lessee has renewal options through
the year 2062. The hotel continues to be operated as an Embassy Suites hotel and
continues to be managed by Promus. The former Hilton Inn & Suites hotel has been
converted by the Company to a Doubletree Guest Suites hotel and is being managed
by Doubletree. This hotel, which was opened in 1992, is readily accessible from
the Pacific Coast Highway and offers ocean views.

In March 1997, the Company acquired interests in three existing Doubletree
Guest Suites hotels, with an aggregate of 691 suites, from three limited
partnerships controlled by AEW Partners, L.P., for an aggregate purchase price
of approximately $80 million. The acquisition was made through a partnership in
which the Company owns a 90% equity interest and in which the remaining 10%
interest is held by Doubletree. Doubletree continues to manage these hotels.

The following sets forth a brief description of these three Doubletree
Guest Suites hotels:

Austin (Downtown), Texas...... This 15-story, 189-suite hotel is located in
downtown Austin, Texas, convenient to the
central business district, the Capitol and

S-15
<PAGE> 17

the historic Sixth Street entertainment
district. The hotel opened in 1987.

Baltimore (BWI Airport),
Maryland...................... This eight-story, 251-suite hotel is located in
Anne Arundel County, Maryland, approximately
1.5 miles from the Baltimore/ Washington
International Airport. The hotel opened in
1987.

Troy, Michigan................ This eight-story, 251-suite hotel is located in
Troy, Michigan, close to major commercial
centers and approximately 15 miles from
downtown Detroit. The hotel opened in 1987.

In May 1997, the Company acquired a 50% equity interest in the joint
venture owning the nine-story, 261-suite Embassy Suites hotel in San Antonio,
Texas. Promus remains the other 50% joint venture partner in the hotel, bringing
to 12 the number of hotels jointly owned by the Company and Promus. The hotel,
which was opened in 1985, is located near the San Antonio International Airport.
The hotel will continue to be operated as an Embassy Suites hotel and managed by
Promus.

PROPOSED ACQUISITIONS

Acquisition Hotels

The Company has entered into letters of intent or agreements to acquire the
Acquisition Hotels from various sellers. The Acquisition Hotels consist of (i)
eight all-suite hotels (four Doubletree Guest Suites hotels, two Embassy Suites
hotels and two Sheraton Suites hotels) with an aggregate of 1,807 suites and
(ii) three upscale, full-service Sheraton hotels with an aggregate of 1,282
rooms. See "Risk Factors -- Risk That Pending Acquisitions Will Not Close."

Sheraton Hotels. The Company has entered into a letter of intent to
purchase five Sheraton hotels from Sheraton for an aggregate purchase price of
$200 million as the first step in a new strategic alliance and expects to enter
into a definitive agreement to purchase these hotels in June 1997. See "Business
and Properties -- Strategic Relationships." The following sets forth a brief
description of each of the five Sheraton hotels:

Atlanta (Airport), Georgia.... This 12-story, 395-room Sheraton Gateway hotel
is located near Hartsfield International
Airport in Atlanta, Georgia and was opened in
1986. This hotel is attached to the Georgia
International Convention Center.

Atlanta (Galleria), Georgia... This 17-story, 278-suite Sheraton Suites hotel
is located adjacent to the Cumberland Mall and
Cobb Galleria Convention Centre in Atlanta,
Georgia. The hotel opened in 1990.

Chicago (O'Hare Airport),
Illinois...................... This 11-story, 297-suite hotel Sheraton Suites
hotel is located in Rosemont, Illinois near
Chicago's O'Hare International Airport. The
hotel opened in 1994.

Dallas (Park Central),
Texas......................... This 20-story, 545-room Sheraton hotel is
located near the intersection of I-635 and U.S.
75 in Dallas, Texas. The hotel opened in 1983
and offers 28 meeting rooms with an aggregate
of approximately 28,000 sq. ft. of meeting
space. The Grand Ballroom will accommodate up
to 2,000 guests.

Phoenix (Crescent), Arizona... This eight-story, 342-room Sheraton Crescent
hotel is located adjacent to Metrocenter, one
of Arizona's largest shopping and entertainment
complexes, in Phoenix, Arizona. The hotel
opened in 1986. This hotel offers 17 meeting
rooms with an aggregate of approximately 28,000
sq. ft. of meeting space and can accommodate
groups of up to 1,000.

S-16
<PAGE> 18

Doubletree Guest Suites Hotels. In furtherance of its relationship with
Doubletree, the Company has entered into contracts to purchase four existing
Doubletree Guest Suites hotels for an aggregate purchase price of approximately
$83.1 million. The following sets forth a brief description of each of the four
Doubletree Guest Suites hotels:

Lake Buena Vista (Disney
World), Florida............... This seven-story, 229-suite hotel is located on
the Walt Disney World(R) property and leased
under a ground lease expiring in 2032 , but
under which the lessee has renewal options
through the year 2057. The hotel opened in
1987.

Nashville (Airport),
Tennessee..................... This three-story, 138-suite hotel is located
near the Century City Plaza and Highland Ridge
office parks and approximately two miles from
the airport in Nashville, Tennessee. The hotel
opened in 1988.

Raleigh/Durham, North
Carolina...................... This seven-story, 203-suite hotel is located
within the Research Triangle in Raleigh, North
Carolina. The hotel opened in 1987.

Tampa (Rocky Point),
Florida....................... This seven-story, 203-suite hotel is located on
Tampa Bay in the Rocky Point Business District
of Tampa. The hotel opened in 1986.

Embassy Suites Hotels. In furtherance of its close and long-standing
relationship with Promus, the Company has entered into a letter of intent to
purchase two Embassy Suites hotels from Promus for an aggregate purchase price
of approximately $46.7 million and to participate with Promus in the
identification of sites for the development of five to ten new Embassy Suites
hotels to be developed by Promus and purchased by newly-formed individual
partnerships to be owned 90% by the Company and 10% by Promus. Promus will
license and manage these newly developed hotels on behalf of the Lessee, which
will lease the hotels from the owning partnerships. No definitive agreement has
been entered into with respect to the acquisition of the two hotels, no sites
have been identified for new development, and no assurance can be given that
either of the two hotels proposed to be purchased will be successfully acquired
by the Company, or that any of the new hotels proposed for development will
actually be built or, if built, that an interest therein will be acquired by the
Company.

The following sets forth a brief description of each of the two existing
Embassy Suites hotels which the Company expects to acquire:

Dallas (Market Center),
Texas...................... This nine-story, 244-suite Embassy Suites hotel is
located near the World Trade Center, the Infomart
and the garment district of Dallas, Texas. The
hotel was opened in 1980.

Syracuse, New York......... This five-story, 215-suite Embassy Suites hotel is
located near the Syracuse central business district
and Syracuse University in Syracuse, New York. The
hotel was opened in 1989.

Other Potential Hotel Transactions

The Company is in the early stages of evaluation and negotiation with
respect to a number of other available hotel transactions which, if the Company
were to elect to pursue all of such transactions, would require additional
investments by the Company of more than $250 million. Due to the preliminary
status of such negotiations and evaluations, no assurance can be given that the
Company will elect to pursue, or succeed in the completion of, any of these
transactions.

PURCHASE OF OUTSTANDING COMMON STOCK FROM PROMUS

As of June 3, 1997, Promus owned 1,626,792 shares of Common Stock and
1,000,000 Units redeemable on a one-for-one basis, for shares of Common Stock,
subject to certain restrictions. The shares of Common

S-17
<PAGE> 19

Stock and Units were purchased by Promus from the Company pursuant to two
Subscription Agreements entered into in 1995 in connection with the Company's
acquisition of hotels that were, or were capable of being converted to, Embassy
Suites hotels to be managed by Promus. All of the shares of Common Stock owned
by Promus, including those issuable to Promus upon redemption of the Units, are
registered for resale under the Securities Act pursuant to an existing
registration statement. Promus has informed the Company that it intends to sell
1,200,000 shares of the Common Stock in order to raise funds for its proposed
development activities, including development of new Embassy Suites hotels to be
jointly owned with the Company. In order to eliminate the potential adverse
market effect of the sale of these shares, the Company determined that it would
be in the best interest of its shareholders if the Company purchased such shares
directly from Promus. Consequently, the Company has negotiated an agreement with
Promus pursuant to which Promus will sell its block of 1,200,000 shares to the
Company at a price per share equal to the net amount per share received by the
Company from the Offering. As part of such agreement, Promus has agreed that it
will not sell any additional shares for a period of 18 months following the date
hereof. The purchase of such shares from Promus is contingent, among other
things, upon the successful completion of the Offering. See "Use of Proceeds."

As part of the Company's continuing relationship with Promus, following the
Offering, Promus will (i) manage 50 of the Company's hotels and own 12 Hotels
jointly with the Company; (ii) retain a direct equity investment in the Company
valued at more than $50 million; (iii) continue to guarantee a $25 million loan
to the Company, the proceeds of which were used to fund a portion of the
renovation costs relating to the CSS Hotels; (iv) make subordinated loans to the
Lessee of up to approximately $3.2 million in aggregate principal amount if
needed to make rental payments due under certain Percentage Leases; and (v)
under a letter of intent with the Company, develop at jointly selected locations
five to ten new Embassy Suites hotels for acquisition by new joint ventures with
the Company.

S-18
<PAGE> 20

USE OF PROCEEDS

The net proceeds to the Company from the sale of the 10,200,000 shares of
Common Stock offered hereby (based upon an assumed offering price of $37 3/8,
the last reported sale price on June 3, 1997) will be approximately $361.7
million ($416.0 million if the over-allotment option is fully exercised). The
Company will contribute all but approximately $42.5 million of the net proceeds
of the Offering to the Partnership, and after such contribution, will own an
approximate 92.5% general partner interest in the Partnership (92.7% general
partner interest if the over-allotment option is fully exercised). The
Partnership intends to use such net proceeds to fund a substantial portion of
the purchase price of the Acquisition Hotels. The remaining approximately $42.5
million of net proceeds of the Offering will be utilized to purchase 1,200,000
shares of the Company's outstanding Common Stock from Promus. Pending such use,
or in the event any of the Acquisition Hotels are not acquired, the net proceeds
may be temporarily applied to reduce indebtedness under the Line of Credit. See
"Risk Factors -- Risk That Pending Acquisitions Will Not Close."

The following table illustrates the sources and uses of funds to complete
the acquisitions by the Company of the Acquisition Hotels and the purchase of
Common Stock from Promus, including the net proceeds of the Offering:

<TABLE>
<CAPTION>
(IN MILLIONS)
-------------
<S> <C>
Sources of Funds:
Net proceeds from the Offering............................ $361.7
Borrowings under Line of Credit........................... 10.6
------
$372.3
======
Uses of Funds:
Acquisition of 5 Sheraton Hotels.......................... $200.0
Acquisition of 4 Doubletree Guest Suites Hotels........... 83.1
Acquisition of 2 Embassy Suites Hotels.................... 46.7
Acquisition of Common Stock from Promus................... 42.5
------
$372.3
======
</TABLE>

At March 31, 1997, the Company had approximately $366.2 million of
indebtedness and capital lease obligations outstanding, including $243.0 million
under its $400 million Line of Credit, substantially all of which had been
borrowed to fund the acquisition, upgrading and conversion of hotels. The
outstanding balance under the Line of Credit bears interest at LIBOR plus 1.75%,
ranging from 7.31% to 7.75%, with a weighted average of 7.55%. Amounts
outstanding under the Line of Credit will be payable in full during October
1999, unless otherwise extended by the lenders.

S-19
<PAGE> 21

PRICE RANGE OF COMMON STOCK AND DISTRIBUTION POLICY

The Common Stock is currently listed on the NYSE under the symbol "FCH."
Prior to March 13, 1996, the Common Stock was traded on The Nasdaq Stock Market
under the symbol "FLCO." The following table sets forth for the indicated
periods the reported high and low sale prices for the Common Stock and the cash
distributions declared per share:

<TABLE>
<CAPTION>
CASH
PRICE RANGE DISTRIBUTIONS
------------ DECLARED
HIGH LOW PER SHARE
---- ---- -------------
<S> <C> <C> <C>
CALENDAR 1995
First Quarter......................................... $24 1/4 $18 1/2 $0.46
Second Quarter........................................ 27 22 3/4 0.46
Third Quarter......................................... 30 24 5/8 0.46
Fourth Quarter........................................ 31 3/4 24 3/4 0.46
CALENDAR 1996
First Quarter......................................... 32 27 1/8 0.46
Second Quarter........................................ 31 5/8 28 1/2 0.46
Third Quarter......................................... 32 1/2 27 3/4 0.50
Fourth Quarter........................................ 36 3/4 30 3/8 0.50
CALENDAR 1997
First Quarter......................................... 37 1/2 33 1/2 0.50
Second Quarter (through June 3, 1997)................. 37 3/8 34 1/2 --(1)
</TABLE>

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

(1) The next regular quarterly distribution is currently expected to be $0.50
per share and to be payable July 30, 1997 to shareholders of record at the
close of business on July 15, 1997. Accordingly, purchasers of Common Stock
in the Offering who continue to hold such shares through the dividend record
date will be entitled to receive such second-quarter distribution.

On June 3, 1997, the last sale price of the Common Stock as reported on the
NYSE was $37 3/8 per share.

In order to maintain its qualification as a REIT, the Company must
distribute to its shareholders at least 95% of its annual taxable income (which
does not include net capital gains). For the year ended December 31, 1996, the
Company had distributions totaling $1.92 per share, of which approximately $1.61
per share was required to satisfy the 95% distribution test for maintaining its
qualification as a REIT. For the year ended December 31, 1995, the Company had
distributions totaling $1.84 per share, of which $1.60 per share was required to
satisfy the 95% REIT distribution test. Under certain circumstances the Company
may be required to make distributions in excess of cash available for
distribution in order to meet such REIT distribution requirements. In such
event, the Company presently would expect to borrow funds, or to sell assets for
cash, to the extent necessary to obtain cash sufficient to make the
distributions required to retain its qualification as a REIT for federal income
tax purposes.

The Company currently anticipates that it will continue the payment of
regular quarterly distributions at the current distribution rate for the
immediate future, unless actual results of operations, economic conditions or
other factors differ from its current expectations. Future distributions, if
any, paid by the Company will be at the discretion of the Board of Directors of
the Company and will depend on the actual cash flow of the Company, its
financial condition, capital requirements, the annual distribution requirements
under the REIT provisions of the Internal Revenue Code and such other factors as
the Board of Directors of the Company deems relevant. For a discussion of the
treatment of distributions to holders of shares of Common Stock, see "Federal
Income Tax Considerations" herein.

To the extent that cash flow from operations were to be insufficient during
any quarter, due to temporary or seasonal fluctuations in Percentage Lease
revenue, the Company expects to utilize other cash on hand or borrowings under
the Line of Credit to make such distributions. The Company's use of the Line of
Credit for

S-20
<PAGE> 22

working capital, distributions and general corporate purposes is limited to 10%
of the amount available under the Line of Credit. No assurance can be given,
however, that the Company will make distributions in the future at the current
rate, or at all.

The provisions of the Series A Preferred Stock prohibit the declaration and
payment of distributions on the Common Stock unless full cumulative dividends on
the Series A Preferred Stock have been or contemporaneously are declared and
paid or set aside for payment. All preferred dividends on the Series A Preferred
Stock are current. In addition, the terms of the Company's agreements, under
which the Company had incurred an aggregate of approximately $366.2 million in
debt and capital lease obligations at March 31, 1997, further restrict the
Company's ability to make distributions with respect to its capital stock,
although the Company would be permitted, in any event, to make distributions in
amounts necessary to maintain its status as a REIT.

CAPITALIZATION AND DEBT STRUCTURE

CAPITALIZATION

The following table sets forth the short-term debt and the capitalization
of the Company at March 31, 1997 and as adjusted to reflect (i) the purchase of
a 50% interest in one Current Hotel subsequent to March 31, 1997, (ii) the sale
by the Company of 10,200,000 shares of Common Stock offered hereby, at the
assumed public offering price of $37 3/8 per share (the last reported sale price
of the Common Stock on June 3, 1997), and (iii) the application of the net
proceeds therefrom to purchase the Acquisition Hotels and repurchase 1,200,000
shares of outstanding Common Stock from Promus, as described under "Use of
Proceeds."

<TABLE>
<CAPTION>
PRO FORMA
HISTORICAL AS ADJUSTED
---------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Short-term debt............................................. $ 3,399 $ 3,399
========== ==========
Long-term debt.............................................. $ 362,828 $ 373,416
---------- ----------
Minority interest........................................... 62,661 74,539
---------- ----------
Shareholders' equity:
Preferred stock, $0.01 par value, 10,000,000 shares
authorized, 6,050,000 shares issued and outstanding.... 151,250 151,250
Common stock, $0.01 par value, 50,000,000 shares
authorized, 26,593,733 shares issued and outstanding,
35,593,733 shares issued and outstanding, as
adjusted(1)............................................ 266 356
Additional paid-in capital.................................. 620,465 932,584
Unearned officers' and directors' compensation.............. (2,448) (2,448)
Earnings in excess of distributions......................... (16,456) (16,456)
---------- ----------
Total shareholders' equity........................ 753,077 1,065,286
---------- ----------
Total capitalization.............................. $1,178,566 $1,513,241
========== ==========
</TABLE>

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

(1) Includes an aggregate of 111,500 shares issued pursuant to the Company's
Restricted Stock and Stock Option Plans, of which 18,800 shares are fully
vested and 92,700 shares vest ratably over five years (unvested shares being
subject to forfeiture under certain conditions). Excludes (a) 2,904,491
shares of Common Stock issuable at the option of the Company (in lieu of
cash) upon the redemption of a like number of outstanding Units, (b)
4,689,960 shares of Common Stock issuable upon conversion of the Company's
outstanding Series A Preferred Stock and (c) 1,264,500 shares of Common
Stock issuable upon the exercise of outstanding stock options granted to
employees of the Company.

S-21
<PAGE> 23

INDEBTEDNESS OF THE COMPANY

The Company's indebtedness consists primarily of amounts borrowed under the
Line of Credit, a collateralized term loan ("Term Loan"), and a renovation loan
facility ("Renovation Loan"), each of which is described in more detail below.
In addition, the Company has assumed certain other indebtedness and capitalized
lease obligations in connection with the purchase of certain of the Current
Hotels. As of March 31, 1997, the Company's total indebtedness and capital lease
obligations were approximately $366.2 million, of which $243.0 million was
outstanding under the Line of Credit, $85.0 million was outstanding under the
Term Loan, $25.0 million was outstanding under the Renovation Loan and $13.2
million was outstanding under other assumed indebtedness and capitalized lease
obligations.

In September 1996, the Company obtained the Line of Credit, originally a
$250 million unsecured revolving credit facility from a group of lenders
co-arranged by The Chase Manhattan Bank and Wells Fargo Bank, National
Association. The Line of Credit has a term of three years ending October 1,
1999. Borrowings under the Line of Credit bear interest, at the Company's
option, (i) at the higher of the base rate announced from time to time by The
Chase Manhattan Bank ("Base Rate") or the Federal funds rate plus 0.5%, in
either case plus an applicable margin of 0% to 0.5%, or (ii) at a Eurodollar
rate based upon the 30, 60, or 90 day or 6-month LIBOR ("Eurodollar Rate") plus
an applicable margin of 1.25% to 2.0%. The applicable margin varies depending
upon the Company's long-term senior unsecured implied debt rating and, at March
31, 1997, was 0.25% in the case of Base Rate borrowings and 1.75% in the case of
Eurodollar Rate borrowings. The interest rate in effect for borrowings under the
Line of Credit was 7.4375% at March 31, 1997. Up to 10% of the amount available
under the Line of Credit may be used for general corporate or working capital
purposes. The total amount available under the Line of Credit is limited to 40%
of the aggregate value of the Company's eligible hotels, which generally
includes hotels that are unencumbered. The Company's current availability under
the Line of Credit, as of June 3, 1997, is approximately $323.6 million, of
which $253.0 million has been borrowed. The agreements governing the Line of
Credit also contain various negative and affirmative covenants, including
limitations on total indebtedness, total secured indebtedness and cash
distributions, as well as obligations to maintain a certain minimum tangible net
worth and certain interest and debt service coverage ratios. The Company is
currently in compliance with all such covenants.

In March 1997, the Company increased its Line of Credit from $250 million
to $400 million and agreed upon a reduction in unused commitment fees from 35
basis points to 25 basis points, under substantially the same terms as the
original Line of Credit. The Company is currently negotiating with the lenders
to (i) increase the Line of Credit to $500 million, (ii) increase the borrowing
base percentage, (iii) reduce pricing, and (iv) extend the maturity of the Line
of Credit by one year.

In September 1996, the Company executed an Amended and Restated Loan
Agreement with Boatmen's National Bank of Oklahoma (formerly Bank IV Oklahoma,
National Association) as Agent, and certain other Lenders, which replaced a $100
million collateralized revolving line of credit with the Term Loan of $85
million. The Term Loan is collateralized by nine of the twelve hotels previously
collateralizing the $100 million line of credit. Interest accrues on the Term
Loan at a rate equal to 150 basis points over LIBOR and the Company must make
payments of principal and interest, on a 15-year constant payment amortization
schedule commencing October 1997, adjusted annually to reflect the then current
LIBOR. The interest rate in effect under the Term Loan was 7.1875% at March 31,
1997. The Term Loan matures on September 30, 2000.

The Renovation Loan is a $25 million loan facility which was used by the
Company to fund a portion of the renovation cost of the CSS Hotels that were
converted to Embassy Suites hotels. The facility is guaranteed by Promus, bears
interest at LIBOR plus 45 basis points, requires quarterly principal payments of
$1.25 million beginning in June 1999 and matures in June 2000. At March 31,
1997, the Company had drawn the full $25 million under this loan facility and
the interest rate in effect was 6.1375%.

S-22
<PAGE> 24

During the fourth quarter of 1996, the Company entered into two separate
interest rate swap agreements to manage the relative mix of its debt between
fixed and variable rate instruments. These interest rate swap agreements modify
a portion of the interest characteristics of the Company's outstanding debt
without an exchange of the underlying principal amount and effectively convert
variable rate debt to a fixed rate. The fixed rates to be paid, the effective
fixed rate, and the variable rate to be received by the Company at March 31,
1997 are summarized in the following table:

<TABLE>
<CAPTION>
SWAP RATE
RECEIVED
SWAP RATE EFFECTIVE (VARIABLE) AT SWAP
NOTIONAL AMOUNT PAID (FIXED) FIXED RATE 3/31/97 MATURITY
- --------------- ------------ ---------- ------------- -------------
<C> <C> <C> <C> <C>
$50 million 6.11125% 7.61125% 5.5625% October 1999
$25 million 5.95500% 7.45500% 5.5625% November 1999
</TABLE>

The differences to be paid or received by the Company under the terms of
the interest rate swap agreements are accrued as interest rates change and
recognized as an adjustment to interest expense by the Company pursuant to the
terms of its interest rate agreement and will have a corresponding effect on its
future cash flows. Agreements such as these contain a credit risk that the
counterparties may be unable to meet the terms of the agreement. The Company
minimizes that risk by evaluating the creditworthiness of its counterparties,
which are limited to major banks and financial institutions, and does not
anticipate nonperformance by the counterparties.

SELECTED FINANCIAL INFORMATION

The following tables set forth selected historical and pro forma financial
information for the Company.

With respect to the Company, the following table sets forth (i) selected
historical operating and other financial information for the period from July
28, 1994 (inception of operations) to December 31, 1994 and the years ended
December 31, 1995 and 1996 and the three months ended March 31, 1996 and 1997,
(ii) selected historical balance sheet data as of December 31, 1994, 1995 and
1996, and March 31, 1996 and 1997, (iii) selected pro forma operating and other
financial information for the year ended December 31, 1996 and the three months
ended March 31, 1997 and (iv) selected pro forma balance sheet data as of March
31, 1997.

The selected historical financial information for the Company as of and for
the period from July 28, 1994 (inception of operations) to December 31, 1994 and
the years ended December 31, 1995 and 1996 has been derived from the historical
financial statements of the Company audited by Coopers & Lybrand L.L.P.,
independent accountants, whose reports with respect thereto are incorporated by
reference in the Prospectus. The selected historical financial data as of and
for the three months ended March 31, 1996 and 1997 have been derived from the
unaudited financial statements of the Company, which have been prepared by
management on the same basis as the audited financial statements, and, in the
opinion of management, include all adjustments consisting of normal recurring
accruals that the Company considers necessary for a fair presentation of the
results for such periods. Such results of operations for the three months ended
March 31, 1996 and 1997 are not necessarily indicative of results to be
anticipated for the entire year.

The pro forma operating and other information is presented as if the
purchase of each of the hotels acquired in 1996 and 1997 and the Acquisition
Hotels, the Series A Preferred Stock offering in the second quarter of 1996, the
Common Stock offering in the first quarter of 1997 and the Offering had been
consummated on January 1, 1996 and, therefore, incorporates certain assumptions
that are included in the notes to the pro forma financial statements that are
included in the Company's Report on Form 8-K dated June 4, 1997 and incorporated
by reference herein. The pro forma balance sheet data is presented as if the
purchase of the Acquisition Hotels and one Current Hotel acquired after March
31, 1997 and the Offering had been consummated on March 31, 1997. 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 periods indicated, nor does it purport to represent the Company's future
financial position and results of operations.

S-23
<PAGE> 25

FELCOR SUITE HOTELS, INC.

SELECTED CONSOLIDATED FINANCIAL INFORMATION
(IN THOUSANDS, EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>
HISTORICAL
PERIOD FROM THREE MONTHS ENDED
JULY 28, 1994 YEAR ENDED DECEMBER 31, MARCH 31,
(INCEPTION OF --------------------------------- -----------------------------------
OPERATIONS) HISTORICAL PRO FORMA HISTORICAL PRO FORMA
THROUGH --------------------- --------- ---------------------- ----------
DECEMBER 31, 1994 1995 1996 1996(1) 1996 1997 1997(1)
----------------- --------- --------- --------- --------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
OPERATING DATA:
REVENUE
Percentage lease revenue(2)..... $ 6,043 $ 23,787 $ 97,950 $169,713 $ 23,976 $ 35,370 $ 49,629
Income from unconsolidated
partnerships.................. 513 2,010 3,123 320 1,127 842
Interest income................. 207 1,691 984 -- 146 95 --
--------- --------- --------- -------- --------- ---------- ----------
TOTAL REVENUE................... 6,250 25,991 100,944 172,836 24,442 36,592 50,471
--------- --------- --------- -------- --------- ---------- ----------
EXPENSES
General and administrative(3)... 355 870 1,819 3,303 382 972 1,072
Depreciation.................... 1,487 5,232 26,544 44,707 4,516 10,417 13,172
Taxes, insurance and other...... 881 2,563 13,897 23,956 3,529 5,207 7,395
Interest expense................ 109 2,004 9,803 24,190 2,424 5,601 7,297
Minority interest in other
partnerships.................. 236 21 109
Minority interest in
Partnership(4)................ 907 3,131 5,590 6,308 1,620 1,417 1,628
--------- --------- --------- -------- --------- ---------- ----------
TOTAL EXPENSES.................. 3,739 13,800 57,653 102,700 12,471 23,635 30,673
--------- --------- --------- -------- --------- ---------- ----------
Income before extraordinary
charge........................ 2,511 12,191 43,291 70,136 11,971 12,957 19,798
Extraordinary charge............ -- -- 2,354 -- -- -- --
--------- --------- --------- -------- --------- ---------- ----------
Net income (loss)............... 2,511 12,191 40,937 70,136 11,971 12,957 19,798
Preferred dividends(5).......... -- 7,734 11,798 -- 2,949 2,949
--------- --------- --------- -------- --------- ---------- ----------
Net income applicable to common
shareholders.................. $ 2,511 $ 12,191 $ 33,203 $ 58,338 $ 11,971 $ 10,008 $ 16,849
========= ========= ========= ======== ========= ========== ==========
Net income per common
share(6)...................... $ 0.54 $ 1.70 $ 1.44 $ 1.66 $ 0.53 $ 0.39 $ 0.47
========= ========= ========= ======== ========= ========== ==========
Weighted average number of
common shares outstanding..... 4,690 7,165 23,076 35,237 22,614 25,459 35,526
========= ========= ========= ======== ========= ========== ==========
OTHER DATA:
Lessee suite revenue............ $ 16,094 $ 65,649 $ 234,451 $469,087 $ 52,176 $ 93,153 $ 128,322
Funds From Operations(7)........ 4,905 20,707 69,407 119,476 18,107 23,726 34,180
Cash provided from operating
activities.................... 3,959 18,075 73,932 -- 13,325 13,228
Cash provided from financing
activities.................... 97,952 406,825 247,422 -- 80,363 211,713
Cash used in investing
activities.................... (100,793) (259,197) (480,382) -- (259,849) (221,777)
Cash available for
distributions(8).............. 4,370 18,081 60,888 101,572 15,792 20,042 29,089
Weighted average number of
shares and units
outstanding................... 6,385 8,956 26,037 38,407 25,675 28,243 38,449
</TABLE>

<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
------------------------------ ----------------------------------
HISTORICAL HISTORICAL PRO FORMA
------------------------------ --------------------- ----------
1994 1995 1996 1996 1997 1997(1)
-------- -------- -------- -------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and short term investments....................... $ 1,118 $166,821 $ 7,793 $ 660 $ 10,957 $ 9,332
Investment in hotel properties,
net................................................. 104,800 325,155 899,691 726,727 1,061,340 1,391,140
Investment in unconsolidated partnerships............. -- 13,819 59,867 -- 118,320 124,820
Total assets.......................................... 108,305 548,359 978,788 772,697 1,212,358 1,547,033
Debt and capital lease
obligations......................................... 8,750 19,666 239,425 178,543 366,227 376,815
Minority interest in Partnership...................... 25,685 58,837 76,112 69,202 62,661 74,539
Shareholders' equity.................................. 69,255 461,386 641,926 507,482 753,077 1,065,286
</TABLE>

(Footnotes on following page)

S-24
<PAGE> 26

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

(1) The pro forma financial information does not purport to represent what the
Company's financial position or results of operations would actually have
been if the purchases of the Hotels, the Series A Preferred Stock offering,
the Common Stock offering in the first quarter of 1997 and the Offering had,
in fact, occurred on such dates, or to project the Company's financial
position or results of operations at any future date or for any future
period.

(3) Pro forma general and administrative expenses represent executive and other
compensation, legal, audit, and other expenses. These amounts are based on
historical general and administrative expenses as well as probable 1997
expenses.

(4) Calculated as 7.5% of income before minority interest on a pro forma basis.

(5) Represents annual dividends on the Series A Preferred Stock of $1.95 per
share multiplied by 6,050,000 shares of Series A Preferred Stock.

(6) Net income per common share is computed by dividing net income applicable to
common shareholders by the weighted average number of common shares and
equivalents outstanding. Common share equivalents that have a dilutive
effect represent restricted shares issued to certain officers and directors.
For the periods presented, the common share equivalents had an immaterial
dilutive effect.

(7) The following table computes Funds From Operations under the NAREIT
definition. Funds From Operations under the NAREIT definition consists of
net income, computed in accordance with generally accepted accounting
principles, excluding gains or losses from debt restructurings and sales of
property, plus depreciation of real property (including furniture and
equipment) and after adjustments for unconsolidated partnerships and joint
ventures.

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

Industry analysts generally consider Funds From Operations to be an
appropriate measure of the performance of an equity REIT. Funds From
Operations should not be considered as an alternative to net income or
other measurements under generally accepted accounting principles as an
indicator of operating performance or to cash flows from operating,
investing or financing activities as a measure of liquidity. Funds from
Operations does not reflect cash expenditures for capital improvements or
principal repayment of debt.

(8) Represents net income available for common shares plus minority interest,
depreciation and amortization, depreciation from unconsolidated
subsidiaries, amortization of unearned officers' and directors'
compensation, amortization of loan costs, and the non-cash portion of
general and administrative expenses, less scheduled repayments of borrowings
and an amount equal to 4% of hotel suite revenues, which is required to be
set aside by the Company for refurbishment and replacement of furniture and
equipment, capital expenditures and other non-routine items as required by
the Percentage Leases.

S-25
<PAGE> 27

BUSINESS AND PROPERTIES

THE HOTEL INDUSTRY

The United States hotel industry has experienced significant improvement in
the past five years. According to Coopers & Lybrand L.L.P. Hospitality
Directions, after a period of extended unprofitability in the late 1980's and
early 1990's, lodging industry profit has increased every year from 1992 through
1996. The industry downturn in the late 1980s resulted primarily from an
increase in the supply of new hotel rooms that significantly outpaced growth in
demand. The industry began to turn around in 1991, and the percentage growth in
room demand exceeded percentage growth in new room supply from 1992 through
1996. Consequently, industry-wide occupancy has increased from 60.9% in 1991 to
65.8% in 1996, and ADR has increased from $59.12 in 1991 to $71.73 in 1996.

The following table contains information with respect to average occupancy,
average daily rate ("ADR") and REVPAR for the Current Hotels, the Acquisition
Hotels, all Embassy Suites hotels, all upscale U.S. hotels and all U.S. hotels
for the periods indicated.

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------
1994 1995 1996
------ ------- -------
<S> <C> <C> <C>
OCCUPANCY:
Current Hotels(1)......................................... 73.5% 72.7% 71.9%
Acquisition Hotels(2)..................................... 74.1 72.4 71.8
Embassy Suites Hotels(3).................................. 74.9 74.2 73.6
All Upscale U.S. Hotels(4)................................ 68.0 68.4 68.4
All U.S. Hotels(5)........................................ 65.2 65.1 65.7
ADR:
Current Hotels(1)......................................... $93.27 $ 98.60 $104.92
Acquisition Hotels(2)..................................... 87.14 94.63 105.59
Embassy Suites Hotels(3).................................. 96.60 101.91 107.36
All Upscale U.S. Hotels(4)................................ 74.32 81.17 85.54
All U.S. Hotels(5)........................................ 63.63 67.17 71.66
REVPAR:(6)
Current Hotels(1)......................................... $68.51 $ 71.72 $ 75.40
Acquisition Hotels(2)..................................... 64.60 68.48 75.85
Embassy Suites Hotels(3).................................. 72.38 75.66 79.00
All Upscale U.S. Hotels(4)................................ 50.54 55.52 58.51
All U.S. Hotels(5)........................................ 41.49 43.73 47.08
</TABLE>

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

(1) The information for the Current Hotels, for periods prior to their
acquisition by the Company, was obtained from the prior owners.

(2) Information with respect to the Acquisition Hotels was obtained from the
sellers.

(3) Information provided by Promus.

(4) Information obtained from Smith Travel Research. This category includes 49
hotel chains designated by such firm as "upper upscale" (including Embassy
Suites hotels, Doubletree Guest Suites hotels and Sheraton hotels) or
"upscale."

(5) Information obtained from Smith Travel Research.

(6) REVPAR is determined by dividing room or suite revenues by available rooms
or suites.

S-26
<PAGE> 28

GROWTH STRATEGY

Internal Growth Strategy

As part of its internal growth strategy, the Company converted the 18 CSS
Hotels acquired in late 1995 and early 1996 to Embassy Suites hotels (16 hotels)
and Doubletree Guest Suites hotels (two hotels), investing over $50 million in
the complete renovation and upgrade of such hotels. As a consequence, REVPAR of
the CSS Hotels for the quarter ended March 31, 1997 increased approximately
16.6% over the quarter ended March 31, 1996 and approximately 21.3% between the
five month periods ended May 31, 1997 and May 31, 1996.

Acquisition Growth Strategy

The Company's acquisition growth strategy remains focused primarily upon
the acquisition of additional existing hotels that meet the Company's investment
criteria, although it may construct additional suites and/or meeting space at
certain of its hotel properties if market and other conditions warrant. At
present, the Company intends to continue to focus its acquisition strategy
primarily upon the acquisition of upscale, full-service hotels (both all-suite
and non-suite) that will fit within one of the Company's three premium
brand/manager alliances with Promus, Doubletree and Sheraton. The Company
believes that it has benefitted, and will continue to benefit, from its
strategic relationships with its brand owner/managers.

STRATEGIC RELATIONSHIPS

Promus Hotel Corporation is the owner of the Embassy Suites brand and the
manager of 48 of the Company's Current Hotels. The relationship with Promus has
provided the foundation for the Company's historical growth and includes (i) a
substantial continuing equity investment by Promus in the Company, (ii) a 50%
equity interest in 12 of the Current Hotels, (iii) agreements to make
subordinated loans to the Lessee (in support of the Lessee's obligations under
certain Percentage Leases), (iv) the guaranty of the $25 million Renovation Loan
to the Company and (v) a recently announced agreement to develop five to ten new
Embassy Suites hotels at mutually agreed locations for acquisition by new joint
ventures with the Company.

S-27
<PAGE> 29

Sheraton has agreed (i) to provide its brand and management expertise to the
Company under long-term management contracts, (ii) to assist the Company in
identifying new hotel investment opportunities for operation under the Sheraton
name, (iii) in certain instances, to make subordinated loans to the Lessee (in
support of the Lessee's obligations under Percentage Leases), (iv) to
subordinate for designated periods of time certain of its customary fees to the
Lessee's obligations under applicable Percentage Leases, and (v) to grant the
Lessee termination rights in the event of a change in control of Sheraton or in
the event Sheraton fails to meet certain performance-based standards. This new
strategic alliance, coupled with the purchase of five Sheraton hotels (including
three non-suite hotels), provides the Company with its first entry into the
upscale, full-service, non-suite hotel market and should provide the Company
with substantial opportunities for future growth.

THE HOTELS

Embassy Suites Hotels

Forty-nine of the Current Hotels and two of the Acquisition Hotels are
Embassy Suites hotels operating under franchise licenses from Promus. Embassy
Suites hotels are upscale, full-service, all-suite hotels designed to attract
frequent business travelers, leisure travelers and weekend guests. Embassy
Suites consistently achieves one of the highest guest satisfaction ratings in
the industry. Among the services and amenities typically offered by Embassy
Suites hotels are: two-room suites, with each suite containing two telephones, a
mini-refrigerator, coffee maker, microwave oven, wet bar, and two color
televisions; complimentary, full, cooked-to-order breakfast every morning;
complimentary cocktails during two hours every evening (subject to local laws
and regulations) in an atrium environment; fitness center, indoor heated pool,
sauna, whirlpool and steam room; guest laundry and valet services; and a 100%
satisfaction guarantee. Restaurant, banquet, in-room dining and lounge services
are available to guests at customary rates. Embassy Suites hotels are
constructed, maintained and operated in accordance with a comprehensive set of
building, maintenance, operational, recordkeeping and reservation system
guidelines designed to ensure a uniformly high level of service, appearance and
quality. The Embassy Suites system was among the first hotel chains to offer
guests an unconditional 100% satisfaction guarantee.

Embassy Suites, the predecessor-in-interest to Promus, was organized in
1983, and the first Embassy Suites hotel was opened in Overland Park, Kansas in
1984. Mr. Feldman, Chairman of the Board of the Company, served as the founding
President and Chief Executive Officer of Embassy Suites from 1983 until 1990,
and as its Chairman of the Board from 1990 until January 1992. In March 1984,
Embassy Suites, Inc. acquired the 24 hotel Granada Royale Hometel(R) chain, and
converted its hotels to the Embassy Suites system during 1985. By the spring of
1986, Embassy Suites hotels were located in 20 states, making it a national
upscale all-suite chain and the largest upscale all-suite operator in the United
States. The Embassy Suites chain has continued to grow through franchising, new
hotel development and the acquisition and conversion of all-suite hotels from
other brands. From 30 hotels in 10 states at December 31, 1984, the Embassy
Suites chain has grown to 138 hotels in 34 states, the District of Columbia,
Canada, Colombia, Puerto Rico and Thailand, at March 31, 1997, making it the
largest U.S. full-service, all-suite hotel chain. Of the 138 Embassy Suites
hotels in operation at March 31, 1997, a total of 77 were being operated by
Promus as owner, lessee or manager.

Doubletree Guest Suites Hotels

Eight of the Current Hotels and four of the Acquisition Hotels are
Doubletree Guest Suites hotels. The Doubletree Guest Suites all-suite hotels
comprise one of the largest all-suite hotel chains in the United States as
measured by number of suites and system revenues. Doubletree's all-suite hotels
are targeted at business travelers and families who have a need or desire for
greater space than typically is provided at most traditional hotels. The total
guest room revenue for the year ended December 31, 1996 for Doubletree's
all-suite hotels was derived approximately 45% from business travelers, 29% from
group meetings and 26% from leisure travelers.

S-28
<PAGE> 30

At December 31, 1996, Doubletree's all-suite hotels included 36 Doubletree
Guest Suites hotels in 18 states and the District of Columbia, with a total of
7,773 guest rooms. The hotels range in size from 55 to 460 guest suites. Suite
rates generally range from $60 to $250 per night. Each guest suite has a
separate living room and dining/work area, with a color television, refrigerator
and wet bar.

Doubletree is one of the largest full-service hotel operating companies in
the United States. At December 31, 1996, Doubletree and its affiliates managed,
leased, or franchised 241 hotels with an aggregate of 56,037 rooms in 39 states,
the District of Columbia, the U.S. Virgin Islands and Mexico. This represents a
108% and 83% increase in number of hotels and aggregate room count,
respectively, for the fiscal year ended December 31, 1996 as compared to fiscal
year ended December 31, 1995. Doubletree provides hotel owners with management
and franchise services under its Doubletree Hotels(R), Doubletree Guest Suites,
Doubletree Club Hotels(R) and Club Hotels by Doubletree(R) brand names, as well
as management services for Red Lion(R) hotels and other non-Doubletree brand
hotels. At December 31, 1996, Doubletree's portfolio of hotels included 58
Doubletree Hotels, 36 Doubletree Guest Suites hotels, 16 Club Hotels, 56 Red
Lion hotels and 75 hotels operated by Doubletree under third party brand names
or as independent hotels.

Sheraton Hotels

Two of the Acquisition Hotels are Sheraton Suites hotels. Sheraton Suites
hotels typically offer two-room suites, each with a wet bar, refrigerator,
microwave, coffee maker and two televisions. Restaurant, lounge, swimming pool
and fitness center facilities are also typically available to guests. Three of
the Acquisition Hotels are full-service upscale Sheraton hotels. While each of
these hotels offers some suite accommodations, the substantial percentage of the
accommodations are non-suite rooms. Sheraton hotels generally offer numerous
amenities and facilities, such as multiple restaurants, banquet and meeting
space, recreational facilities (including indoor and/or outdoor pools and
fitness centers) and business centers.

Sheraton Hotels, including Sheraton Suites, are part of Sheraton Hotels &
Resorts, the upscale brand segment operated and franchised by ITT Sheraton
Corporation, which is a wholly-owned subsidiary of ITT Corporation. ITT Sheraton
Corporation owns, leases, manages and/or franchises over 410 luxury, upscale and
mid-scale hotels, having over 133,600 guest rooms, in over 60 countries. In the
upscale segment, which includes Sheraton hotels, there are approximately 290
properties with approximately 104,600 rooms. Sheraton's origins date back to
1937 and its history includes many firsts in the hospitality industry, including
the first hotel chain to be listed on the NYSE, the first chain to centralize
and automate the reservations function and the first to develop a toll-free
800-number system for direct consumer access.

Other All-Suite Hotels

The Company also owns one Hilton Suites hotel. Hilton Suites is one of the
brands operated and franchised by Hilton Hotels Corporation. Hilton Suites
hotels provide a private bedroom and separate living room with amenities that
include a second television with a video cassette player, wet bar with
microwave, mini-refrigerator and coffee maker. In addition, a complimentary
prepared-to-order breakfast and evening beverage reception are offered daily.

Operating Data

The following tables present ADR, Occupancy and REVPAR for the Hotels for
the twelve months ended March 31, 1997 and the years ended December 31, 1996,
1995 and 1994. For the three months ended March 31, 1997, REVPAR increased over
the three months ended March 31, 1996 by 7.9% to $83.72 for the Original Hotels,
by 16.6% to $89.22 for the CSS Hotels, by 6.8% to $85.35 for the 1996 Acquired
Hotels and by 8.2% to $77.47 for the 1997 Acquired Hotels (in each case as
identified by footnotes in the following table). For the five months ended May
31, 1997, REVPAR increased over the five months ended May 31, 1996 by 7.4% to
$85.04 for the Original Hotels, by 21.3% to $87.87 for the CSS Hotels, by 8.6%
to $88.16 for the 1996 Acquired Hotels and by 7.7% to $79.70 for the 1997
Acquired Hotels.

S-29
<PAGE> 31
<TABLE>
<CAPTION>
ADR($)
-------
TWELVE
# OF MONTHS
SUITES/ YEAR YEAR ENDED
LOCATION BRAND ROOMS OPENED ACQUIRED 3/31/97
-------- ----- ------- ------ -------- -------
<S> <C> <C> <C> <C> <C>
ACQUISITION HOTELS(1):
Syracuse, NY............................ Embassy Suites 215 1989 1997 96.07
Dallas (Market Center), TX.............. Embassy Suites 244 1980 1997 118.42
Lake Buena Vista (Disney World), FL..... Doubletree Guest Suites(7) 229 1987 1997 126.56
Tampa (Rocky Point), FL................. Doubletree Guest Suites 203 1986 1997 102.54
Raleigh/Durham, NC...................... Doubletree Guest Suites 203 1987 1997 100.74
Nashville (Airport), TN................. Doubletree Guest Suites 138 1988 1997 84.59
Phoenix (Crescent), AZ.................. Sheraton 342 1986 1997 108.49
Atlanta (Airport), GA................... Sheraton 395 1986 1997 101.95
Dallas (Park Central), TX............... Sheraton 545 1983 1997 98.69
Atlanta (Galleria), GA.................. Sheraton Suites 278 1990 1997 118.74
Chicago (O'Hare), IL.................... Sheraton Suites 297 1994 1997 120.52
------
Total Acquisition Hotels........ 107.49
CURRENT HOTELS(2):
Birmingham, AL.......................... Embassy Suites(4) 242 1987 1996 105.68
Flagstaff, AZ........................... Embassy Suites(3) 119 1988 1995 92.41
Phoenix (Camelback), AZ................. Embassy Suites(7)(4) 233 1985 1996 145.93
Anaheim, CA............................. Embassy Suites(4) 222 1987 1996 94.90
Burlingame (S.F. Airport So.), CA....... Embassy Suites(7)(4) 339 1986 1995 118.69
Covina, CA.............................. Embassy Suites(8)(6) 264 1980 1997 79.82
El Segundo (LAX South), CA.............. Embassy Suites(4) 350 1985 1996 80.36
Los Angeles (LAX Airport North), CA..... Embassy Suites(7)(6) 215 1990 1997 102.98
Milpitas, CA............................ Embassy Suites(4) 267 1987 1996 114.59
Napa, CA................................ Embassy Suites(4) 205 1985 1996 116.91
Oxnard (Mandalay Beach), CA............. Embassy Suites(4) 249 1986 1996 122.81
San Rafael (Marin Co.), CA.............. Embassy Suites(8)(5) 235 1990 1996 113.21
South San Francisco (Airport North),
CA.................................... Embassy Suites(4) 312 1988 1996 116.16
Avon (Beaver Creek Resort), CO.......... Embassy Suites(5) 72 1989 1996 201.24
Boca Raton (Embassy), FL................ Embassy Suites(5) 263 1989 1996 88.22
Deerfield Beach, FL..................... Embassy Suites(4) 244 1987 1996 126.76
Ft. Lauderdale, FL...................... Embassy Suites(4) 359 1986 1996 109.30
Jacksonville, FL........................ Embassy Suites(9)(3) 210 1985 1994 107.94
Miami (Airport), FL..................... Embassy Suites(4) 314 1987 1996 92.67
Orlando (North), FL..................... Embassy Suites(9)(3) 210 1985 1994 106.98
Orlando (South), FL..................... Embassy Suites(9)(3) 244 1985 1994 118.10
Atlanta (Buckhead), GA.................. Embassy Suites(5) 317 1988 1996 138.63
Atlanta (Perimeter Center), GA.......... Embassy Suites(8)(6) 241 1985 1997 118.66
Brunswick, GA........................... Embassy Suites(3) 130 1988 1995 73.89
Chicago-Lombard, IL..................... Embassy Suites(8)(3) 262 1990 1995 112.12
Deerfield, IL........................... Embassy Suites(5) 237 1987 1996 102.36
Indianapolis (North), IN................ Embassy Suites(8)(5) 222 1985 1996 101.24
Overland Park, KS....................... Embassy Suites(8)(6) 199 1984 1997 105.60
Baton Rouge, LA......................... Embassy Suites(4) 224 1985 1996 90.86
New Orleans, LA......................... Embassy Suites(3) 282 1984 1994 124.94
Boston-Marlborough, MA.................. Embassy Suites(3) 100 1988 1995 107.37
Minneapolis (Airport), MN............... Embassy Suites(4) 311 1986 1995 115.46

<CAPTION>
ADR($) OCCUPANCY(%)
------------------------ -----------------------------
YEAR ENDED TWELVE YEAR ENDED
DECEMBER 31, MONTHS DECEMBER 31,
------------------------ ENDED -------------------
LOCATION 1996 1995 1994 3/31/97 1996 1995 1994
-------- ------ ------ ------ ------- ----- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
ACQUISITION HOTELS(1):
Syracuse, NY............................ 94.98 95.09 91.70 75.6 74.6 72.1 74.9
Dallas (Market Center), TX.............. 117.93 109.72 103.43 72.6 73.3 72.0 75.0
Lake Buena Vista (Disney World), FL..... 121.25 113.40 114.91 84.0 83.1 75.8 74.4
Tampa (Rocky Point), FL................. 98.35 90.25 85.63 74.9 75.2 73.8 75.2
Raleigh/Durham, NC...................... 96.60 84.87 79.57 73.9 74.2 76.3 71.7
Nashville (Airport), TN................. 84.21 79.01 74.77 75.4 74.4 76.0 77.8
Phoenix (Crescent), AZ.................. 107.71 95.53 72.94 69.6 71.2 72.9 74.4
Atlanta (Airport), GA................... 102.13 82.20 71.01 64.0 66.7 67.8 72.9
Dallas (Park Central), TX............... 96.03 85.74 77.78 67.5 70.6 74.2 72.6
Atlanta (Galleria), GA.................. 118.59 104.06 94.65 64.8 67.1 73.6 79.0
Chicago (O'Hare), IL.................... 119.27 108.43 104.41 71.9 69.2 65.9 71.5
------ ------ ------ ----- ----- ---- ----
Total Acquisition Hotels........ 105.59 94.63 87.14 70.9 71.8 72.4 74.1
CURRENT HOTELS(2):
Birmingham, AL.......................... 101.33 94.13 88.49 62.9 64.3 68.3 68.5
Flagstaff, AZ........................... 92.04 89.98 89.13 70.1 69.8 67.0 69.3
Phoenix (Camelback), AZ................. 140.12 130.49 121.73 67.4 69.0 73.3 74.3
Anaheim, CA............................. 91.48 85.94 85.04 67.4 65.8 69.0 63.2
Burlingame (S.F. Airport So.), CA....... 114.58 102.42 99.41 80.9 77.7 78.7 76.2
Covina, CA.............................. 79.13 75.64 79.91 57.1 53.8 53.6 51.1
El Segundo (LAX South), CA.............. 80.76 83.55 85.67 75.5 73.0 63.3 64.3
Los Angeles (LAX Airport North), CA..... 102.67 102.72 100.12 78.3 77.5 70.4 80.0
Milpitas, CA............................ 108.11 93.57 88.03 76.5 75.4 79.6 73.4
Napa, CA................................ 115.84 111.52 112.72 66.2 67.1 65.0 67.8
Oxnard (Mandalay Beach), CA............. 120.36 117.25 116.73 60.9 62.7 62.9 66.7
San Rafael (Marin Co.), CA.............. 111.78 108.49 101.64 77.5 77.0 78.8 78.6
South San Francisco (Airport North),
CA.................................... 108.33 93.80 92.43 67.1 67.3 67.7 67.5
Avon (Beaver Creek Resort), CO.......... 185.60 150.72 149.21 50.2 51.3 61.8 57.3
Boca Raton (Embassy), FL................ 85.67 86.26 83.36 71.7 73.2 73.6 71.1
Deerfield Beach, FL..................... 119.06 119.93 122.46 61.6 61.3 65.7 64.9
Ft. Lauderdale, FL...................... 105.92 106.44 105.47 70.7 70.2 66.2 66.5
Jacksonville, FL........................ 106.17 96.43 84.41 77.3 76.7 75.4 75.8
Miami (Airport), FL..................... 86.07 88.52 84.99 74.5 74.4 76.1 77.0
Orlando (North), FL..................... 103.56 97.49 93.47 83.8 83.6 80.0 79.2
Orlando (South), FL..................... 114.74 109.37 103.61 85.8 84.2 78.8 79.0
Atlanta (Buckhead), GA.................. 138.39 120.82 94.56 74.5 74.9 81.2 82.2
Atlanta (Perimeter Center), GA.......... 117.93 102.40 92.68 76.7 77.7 77.9 80.7
Brunswick, GA........................... 71.03 61.22 49.07 70.9 74.2 74.0 75.5
Chicago-Lombard, IL..................... 109.64 101.28 95.21 76.7 77.6 77.0 75.3
Deerfield, IL........................... 100.96 96.74 90.90 75.7 74.3 77.4 74.3
Indianapolis (North), IN................ 100.22 98.60 90.93 71.8 70.6 73.2 72.3
Overland Park, KS....................... 102.94 97.93 91.73 75.7 75.0 74.4 76.0
Baton Rouge, LA......................... 87.27 81.08 79.57 63.4 61.7 70.2 69.3
New Orleans, LA......................... 119.90 114.48 105.76 75.6 75.7 72.9 82.7
Boston-Marlborough, MA.................. 104.89 89.12 85.26 75.7 76.7 81.1 79.9
Minneapolis (Airport), MN............... 114.54 102.65 99.08 71.2 69.3 73.6 76.0

<CAPTION>
REVPAR($)
--------------------------------
TWELVE YEAR ENDED
MONTHS DECEMBER 31,
ENDED ----------------------
LOCATION 3/31/97 1996 1995 1994
-------- ------- ------ ----- -----
<S> <C> <C> <C> <C>
ACQUISITION HOTELS(1):
Syracuse, NY............................ 72.65 70.81 68.58 68.72
Dallas (Market Center), TX.............. 86.00 86.40 78.96 77.57
Lake Buena Vista (Disney World), FL..... 106.29 100.77 85.93 85.50
Tampa (Rocky Point), FL................. 76.85 74.01 66.62 64.38
Raleigh/Durham, NC...................... 74.44 71.70 64.76 57.02
Nashville (Airport), TN................. 63.78 62.65 60.02 58.14
Phoenix (Crescent), AZ.................. 75.53 76.64 69.61 54.24
Atlanta (Airport), GA................... 65.26 68.13 55.71 51.75
Dallas (Park Central), TX............... 66.57 67.79 63.65 56.48
Atlanta (Galleria), GA.................. 76.95 79.52 76.55 74.75
Chicago (O'Hare), IL.................... 86.71 82.50 71.44 74.67
------ ------ ----- -----
Total Acquisition Hotels........ 76.24 75.85 68.48 64.60
CURRENT HOTELS(2):
Birmingham, AL.......................... 66.44 65.20 64.30 60.62
Flagstaff, AZ........................... 64.79 64.23 60.31 61.80
Phoenix (Camelback), AZ................. 98.41 96.70 95.69 90.40
Anaheim, CA............................. 63.96 60.22 59.27 53.76
Burlingame (S.F. Airport So.), CA....... 96.04 89.06 80.66 75.72
Covina, CA.............................. 45.55 42.59 40.56 40.84
El Segundo (LAX South), CA.............. 60.68 58.97 52.91 55.10
Los Angeles (LAX Airport North), CA..... 80.67 79.59 72.32 80.09
Milpitas, CA............................ 87.62 81.47 74.44 64.58
Napa, CA................................ 77.42 77.78 72.53 76.48
Oxnard (Mandalay Beach), CA............. 74.85 75.43 73.72 77.91
San Rafael (Marin Co.), CA.............. 87.69 86.04 85.46 79.92
South San Francisco (Airport North),
CA.................................... 77.95 72.89 63.52 62.37
Avon (Beaver Creek Resort), CO.......... 100.93 95.26 93.21 85.44
Boca Raton (Embassy), FL................ 63.21 62.68 63.48 59.27
Deerfield Beach, FL..................... 78.13 72.94 78.85 79.42
Ft. Lauderdale, FL...................... 77.31 74.31 70.46 70.14
Jacksonville, FL........................ 83.42 81.40 72.75 64.01
Miami (Airport), FL..................... 69.00 64.02 67.41 65.43
Orlando (North), FL..................... 89.65 86.58 77.97 74.04
Orlando (South), FL..................... 101.29 96.66 86.19 81.83
Atlanta (Buckhead), GA.................. 103.33 103.66 98.12 77.74
Atlanta (Perimeter Center), GA.......... 91.01 91.66 79.82 74.74
Brunswick, GA........................... 52.41 52.72 45.30 37.07
Chicago-Lombard, IL..................... 86.05 85.06 77.94 71.68
Deerfield, IL........................... 77.45 75.05 74.85 67.53
Indianapolis (North), IN................ 72.72 70.70 72.14 65.77
Overland Park, KS....................... 79.98 77.21 72.81 69.72
Baton Rouge, LA......................... 57.58 53.86 56.96 55.12
New Orleans, LA......................... 94.45 90.82 83.42 87.48
Boston-Marlborough, MA.................. 81.24 80.47 72.29 68.08
Minneapolis (Airport), MN............... 82.21 79.38 75.52 75.27
</TABLE>

S-30
<PAGE> 32
<TABLE>
<CAPTION>
ADR($)
-------
TWELVE
# OF MONTHS
SUITES/ YEAR YEAR ENDED
LOCATION BRAND ROOMS OPENED ACQUIRED 3/31/97
-------- ----- ------- ------ -------- -------
<S> <C> <C> <C> <C> <C>
Minneapolis (Downtown), MN.............. Embassy Suites(4) 218 1984 1995 96.79
St. Paul, MN............................ Embassy Suites(4) 210 1983 1995 92.75
Kansas City (Country Club Plaza), MO.... Embassy Suites(7)(8)(6) 266 1976 1997 105.14
Charlotte, NC........................... Embassy Suites(8)(5) 274 1989 1996 113.78
Raleigh, NC............................. Embassy Suites(8)(6) 225 1987 1997 114.10
Parsippany, NJ.......................... Embassy Suites(8)(5) 274 1989 1996 127.92
Piscataway, NJ.......................... Embassy Suites(5) 225 1988 1996 106.37
Secaucus, NJ............................ Embassy Suites(8)(6) 261 1986 1997 125.49
Cleveland, OH........................... Embassy Suites(5) 268 1990 1995 102.77
Tulsa, OK............................... Embassy Suites(9)(3) 240 1985 1994 89.46
Myrtle Beach (Kingston Plantation),
SC.................................... Embassy Suites(10)(5) 255 1987 1996 122.45
Nashville, TN........................... Embassy Suites(9)(3) 296 1986 1994 104.04
Austin (Airport North), TX.............. Embassy Suites(8)(6) 261 1984 1997 109.17
Corpus Christi, TX...................... Embassy Suites(3) 150 1984 1995 85.05
Dallas (Love Field), TX................. Embassy Suites(3) 248 1986 1995 105.41
Dallas (Park Central), TX............... Embassy Suites(9)(3) 279 1985 1994 106.05
San Antonio (Airport), TX............... Embassy Suites(8)(6) 261 1985 1997 101.50
San Antonio (Northwest), TX............. Embassy Suites(8)(6) 217 1979 1997 102.28
Dana Point, CA.......................... Doubletree Guest Suites(6) 198 1992 1997 109.20
Boca Raton (Doubletree), FL............. Doubletree Guest Suites(4) 182 1989 1995 79.36
Tampa (Busch Gardens), FL............... Doubletree Guest Suites(4) 129 1985 1995 88.00
Baltimore, MD........................... Doubletree Guest Suites(11)(6) 251 1987 1997 91.36
Troy, MI................................ Doubletree Guest Suites(11)(6) 251 1987 1997 95.68
Bloomington, MN......................... Doubletree Guest Suites(6) 219 1980 1997 109.65
Omaha, NE............................... Doubletree Guest Suites(6) 189 1973 1997 91.58
Austin (Downtown), TX................... Doubletree Guest Suites(11)(6) 189 1987 1997 110.22
Lexington, KY........................... Hilton Suites(5) 174 1987 1996 97.32
------
Total Current Hotels................ 107.35
------
Total All Hotels.................... 107.38
======

<CAPTION>
ADR($) OCCUPANCY(%)
------------------------ -----------------------------
YEAR ENDED TWELVE YEAR ENDED
DECEMBER 31, MONTHS DECEMBER 31,
------------------------ ENDED -------------------
LOCATION 1996 1995 1994 3/31/97 1996 1995 1994
-------- ------ ------ ------ ------- ----- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
Minneapolis (Downtown), MN.............. 96.37 93.26 93.08 55.4 55.4 66.5 69.6
St. Paul, MN............................ 91.20 82.44 79.81 66.6 65.7 77.1 80.2
Kansas City (Country Club Plaza), MO.... 102.41 98.86 93.47 77.3 76.3 65.2 70.5
Charlotte, NC........................... 110.83 100.52 85.81 71.3 72.4 73.8 75.4
Raleigh, NC............................. 112.31 103.53 92.74 82.4 82.1 80.6 82.7
Parsippany, NJ.......................... 126.09 116.02 109.42 77.9 76.5 74.0 73.5
Piscataway, NJ.......................... 102.28 101.98 96.46 69.8 72.8 72.5 75.6
Secaucus, NJ............................ 122.48 111.62 107.92 83.7 83.9 81.0 81.1
Cleveland, OH........................... 103.85 99.40 86.98 70.1 67.1 71.2 69.6
Tulsa, OK............................... 88.11 82.14 80.16 71.9 73.7 72.4 72.6
Myrtle Beach (Kingston Plantation),
SC.................................... 119.33 110.10 106.27 73.5 74.3 75.6 74.8
Nashville, TN........................... 103.00 100.92 94.27 74.3 73.2 73.0 75.6
Austin (Airport North), TX.............. 108.56 107.92 93.82 73.0 72.8 74.1 76.0
Corpus Christi, TX...................... 82.95 77.66 77.54 73.9 73.3 77.6 83.6
Dallas (Love Field), TX................. 104.14 98.95 92.81 75.2 75.9 70.4 72.9
Dallas (Park Central), TX............... 105.13 95.50 86.24 74.6 75.7 77.7 78.8
San Antonio (Airport), TX............... 99.66 97.33 99.90 75.7 76.2 75.4 78.4
San Antonio (Northwest), TX............. 100.14 100.29 99.96 69.9 70.6 69.4 72.0
Dana Point, CA.......................... 107.02 79.09 68.56 39.4 37.7 63.1 64.7
Boca Raton (Doubletree), FL............. 78.26 79.83 83.02 55.3 52.8 50.4 48.4
Tampa (Busch Gardens), FL............... 85.08 80.66 79.58 74.7 74.3 73.2 79.4
Baltimore, MD........................... 89.41 82.03 82.97 73.8 75.9 75.7 69.8
Troy, MI................................ 93.11 84.25 75.03 74.5 74.1 72.4 77.1
Bloomington, MN......................... 108.83 104.67 83.35 71.8 72.7 78.6 76.2
Omaha, NE............................... 91.29 89.61 97.86 75.7 75.6 78.6 80.3
Austin (Downtown), TX................... 107.27 102.50 91.64 77.1 76.8 80.8 78.5
Lexington, KY........................... 96.71 88.12 82.70 76.3 77.5 79.6 79.1
------ ------ ------ ----- ----- ---- ----
Total Current Hotels................ 104.92 98.60 93.27 72.1 71.9 72.7 73.5
------ ------ ------ ----- ----- ---- ----
Total All Hotels.................... 105.04 97.88 92.18 71.9 71.9 72.7 73.6
====== ====== ====== ===== ===== ==== ====

<CAPTION>
REVPAR($)
--------------------------------
TWELVE YEAR ENDED
MONTHS DECEMBER 31,
ENDED ----------------------
LOCATION 3/31/97 1996 1995 1994
-------- ------- ------ ----- -----
<S> <C> <C> <C> <C>
Minneapolis (Downtown), MN.............. 53.63 53.40 62.04 64.78
St. Paul, MN............................ 61.72 59.88 63.56 64.00
Kansas City (Country Club Plaza), MO.... 81.30 78.11 64.47 65.90
Charlotte, NC........................... 81.08 80.28 74.14 64.68
Raleigh, NC............................. 94.07 92.20 83.42 76.73
Parsippany, NJ.......................... 99.64 96.45 85.89 80.39
Piscataway, NJ.......................... 74.27 74.47 73.90 72.89
Secaucus, NJ............................ 105.04 102.76 90.37 87.54
Cleveland, OH........................... 72.03 69.63 70.79 60.54
Tulsa, OK............................... 64.28 64.92 59.51 58.18
Myrtle Beach (Kingston Plantation),
SC.................................... 90.04 88.62 83.27 79.52
Nashville, TN........................... 77.28 75.35 73.67 71.27
Austin (Airport North), TX.............. 79.74 79.06 80.00 71.30
Corpus Christi, TX...................... 62.85 60.80 60.24 64.81
Dallas (Love Field), TX................. 79.31 79.05 69.71 67.64
Dallas (Park Central), TX............... 79.06 79.63 74.24 68.00
San Antonio (Airport), TX............... 76.88 75.94 73.38 78.28
San Antonio (Northwest), TX............. 71.53 70.69 69.55 71.98
Dana Point, CA.......................... 43.00 40.36 49.92 44.35
Boca Raton (Doubletree), FL............. 43.89 41.32 40.19 40.19
Tampa (Busch Gardens), FL............... 65.72 63.20 59.05 63.19
Baltimore, MD........................... 67.44 67.88 62.09 57.88
Troy, MI................................ 71.28 69.04 61.01 57.85
Bloomington, MN......................... 78.70 79.12 82.29 63.52
Omaha, NE............................... 69.34 68.98 70.42 78.58
Austin (Downtown), TX................... 85.02 82.34 82.86 71.91
Lexington, KY........................... 74.26 74.99 70.16 65.38
------ ------ ----- -----
Total Current Hotels................ 77.40 75.40 71.72 68.51
------ ------ ----- -----
Total All Hotels.................... 77.19 75.48 71.13 67.82
====== ====== ===== =====
</TABLE>

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

(1) Information with respect to the Acquisition Hotels was obtained from the
sellers.
(2) Information for the Current Hotels, for periods prior to their acquisition
by the Company, was obtained from the prior owners.
(3) These hotels combine to form the Original Hotels.
(4) These hotels combine to form the CSS Hotels.
(5) These hotels combine to form the 1996 Acquired Hotels.
(6) These hotels combine to form the 1997 Acquired Hotels.
(7) These hotels are situated upon parcels of land subject to ground leases.
(8) The Company owns a 50% equity interest in the entity that owns these
hotels.
(9) These hotels secure the Term Loan.
(10) In the process of conversion from another brand.
(11) The Company owns a 90% equity interest in the entity that owns these
hotels.

The following table summarizes the information for the Current Hotels by
categories, as follows:
<TABLE>
<CAPTION>
ADR($) OCCUPANCY(%) REVPAR(
---------------------------------- ------------------------------- -------
TWELVE YEAR ENDED TWELVE YEAR ENDED TWELVE
MONTHS DECEMBER 31, MONTHS DECEMBER 31, MONTHS
ENDED ------------------------ ENDED --------------------- ENDED
CATEGORY OF HOTELS 3/31/97 1996 1995 1994 3/31/97 1996 1995 1994 3/31/97
------------------ ------- ------ ------ ------ ------- ----- ---- ---- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Original Hotels......................... 105.19 102.82 95.97 89.76 76.2 76.5 75.2 77.0 80.17
CSS Hotels.............................. 106.82 103.31 97.75 95.89 68.5 67.8 69.6 69.7 73.16
1996 Acquired Hotels.................... 113.42 111.54 104.51 95.01 73.0 73.0 75.2 74.7 82.80
1997 Acquired Hotels.................... 105.03 103.36 96.98 91.55 72.9 72.6 73.0 74.5 76.53

<CAPTION>
REVPAR($)
----------------------
YEAR ENDED
DECEMBER 31,
----------------------
CATEGORY OF HOTELS 1996 1995 1994
------------------ ------ ----- -----
<S> <C> <C> <C>
Original Hotels......................... 78.65 72.17 69.12
CSS Hotels.............................. 70.05 68.01 66.87
1996 Acquired Hotels.................... 81.46 78.56 70.98
1997 Acquired Hotels.................... 75.07 70.79 68.21
</TABLE>

S-31
<PAGE> 33

FRANCHISE/MANAGEMENT ARRANGEMENTS

Franchise Licenses

All of the Current Hotels are, and the Company anticipates that most of the
additional hotel properties in which it invests will be, operated under major
nationally-recognized brand names. The Company believes that the public's
perception of quality associated with a franchisor is an important feature in
the operation of a hotel. Franchisors provide a variety of benefits for
franchisees which include national advertising, publicity and other marketing
programs designed to increase brand awareness, training of personnel, continuous
review of quality standards and centralized reservation systems.

Embassy Suites Hotels. Embassy Suites(R) is a registered trademark of
Promus. Promus has issued franchise license agreements to the Lessee for all of
the Company's Current Hotels that are Embassy Suites hotels. The Embassy Suites
franchise licenses generally expire 20 years after the date of their original
issuance. The franchise licenses for certain of the Current Hotels require the
completion of certain improvements.

The Embassy Suites hotel franchise licenses generally specify certain
management, operational, recordkeeping, accounting, reporting and marketing
standards and procedures with which the Lessee must comply. The franchise
licenses obligate the Lessee to comply with the franchisor's standards and
requirements with respect to training of operational personnel, safety,
maintaining specified insurance, the types of services and products ancillary to
guest suite services that may be provided by the Lessee, display of signage, and
the quality and condition of furniture, fixtures and equipment included in guest
suites, lobbies and other common areas.

Other Hotels. One of the Current Hotels is a Hilton Suites hotel
operating under a franchise license granted to the Lessee by Hilton Inns, Inc.
The terms of the Hilton Suites franchise license agreement are substantially
similar to those of the Embassy Suites license agreements.

The right to use the Doubletree Guest Suites brand is granted under the
management agreements between the Lessee and Doubletree. There are no separate
franchise license agreements with respect to these hotels. Similarly, the right
to use the Sheraton brand on hotels to be acquired by the Company will be
granted under the management agreements to be entered into between the Lessee
and an affiliate of Sheraton with respect to such hotels. There will be no
separate franchise license agreements with respect to these hotels.

EMBASSY SUITES(R), DOUBLETREE GUEST SUITES(R) AND SHERATON(R) ARE
REGISTERED TRADEMARKS OF PROMUS, DOUBLETREE AND SHERATON, RESPECTIVELY. NONE OF
PROMUS, DOUBLETREE OR SHERATON HAS ENDORSED OR APPROVED THE OFFERING MADE
HEREBY. THE GRANT OF A LICENSE TO USE ANY OF THE FOREGOING TRADEMARKS IN
CONNECTION WITH CERTAIN OF THE HOTELS IS NOT INTENDED AS, AND SHOULD NOT BE
INTERPRETED AS, AN EXPRESS OR IMPLIED APPROVAL OR ENDORSEMENT BY THE OWNER OF
ANY SUCH TRADEMARK (OR ANY AFFILIATE OR DIVISION OF SUCH OWNER) OF THE COMPANY,
THE PARTNERSHIP OR THE COMMON STOCK OFFERED HEREBY.

Management of the Hotels

Forty-eight of the Current Hotels are, and any additional hotels that may
be acquired by the Company for operation as Embassy Suites hotels (including the
two Embassy Suites hotels included in the Acquisition Hotels) are expected to
be, managed by Promus, subject to the supervision of the Lessee. The Dallas
(Love Field), Texas and Deerfield, Illinois Embassy Suites hotels are managed by
independent third party managers. The Current Hotels operated as Doubletree
Guest Suites hotels are, and any additional hotels that may be acquired by
Company for operation as Doubletree Guest Suites hotels (including the four
Doubletree Guest Suites hotels included in the Acquisition Hotels), are expected
to be, managed by a subsidiary of Doubletree. All five of the Sheraton hotels
included in the Acquisition Hotels are, and any additional hotels acquired by
the Company for operation as Sheraton hotels are expected to be, managed by a
subsidiary of Sheraton.

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<PAGE> 34

Embassy Suites Hotels. Promus is the largest operator of full-service,
all-suite hotels in the U.S. Of the 138 Embassy Suites hotels in operation at
March 31, 1997, a total of 77 were operated by Promus as owner, lessee or
manager. The Lessee believes that Promus, by virtue of its size, and other
factors, is better able to attract, retain and motivate high caliber on-site
management and operations personnel than would an operator of a relatively small
number of hotels. As manager, Promus provides the Current Hotels managed by it
with employees, accounting services, site-based marketing, and day-to-day
operations management, utilizing its proprietary yield-management system.

With respect to those Embassy Suites hotels managed by Promus that are
jointly owned by Promus and the Company, and with respect to the Embassy Suites
hotels included in the Acquisition Hotels, Promus has agreed to make
subordinated loans to the Lessee with respect to such hotels in a maximum amount
at any one time outstanding of approximately $3.2 million. To date, no advance
has been requested by the Lessee, or made by Promus, under such agreements.

Doubletree Guest Suites Hotels. Doubletree Guest Suites is the second
largest all-suite hotel brand in the United States. Doubletree provides hotel
owners with management and franchise services under its Doubletree Hotels,
Doubletree Guest Suites, Doubletree Club Hotels and Club Hotels by Doubletree
brand names, as well as management services for Red Lion and other
non-Doubletree brand hotels.

With respect to certain of the Doubletree Guest Suites hotels in which the
Company has an interest, and the Doubletree Guest Suites hotels included in the
Acquisition Hotels, Doubletree has agreed to make subordinated loans to the
Lessee with respect to such hotels in a maximum amount at any one time
outstanding of approximately $3.0 million. To date, no advance has been
requested by the Lessee, or made by Doubletree, under such agreements.

Sheraton Hotels. Sheraton owns, leases, manages and/or franchises over 410
hotels around the world, making it one of the world's largest hotel companies.
The primary focus of Sheraton's operations has been in the upscale,
full-service, non-suite hotel market.

Sheraton has agreed to make subordinated loans to the Lessee, with respect
to the five Sheraton Hotels included in the Acquisition Hotels, in a maximum
amount at any one time outstanding of approximately $3.3 million, if needed to
enable the Lessee to meet its rental obligations to the Company under the
Percentage Leases for such hotels.

Fees

The Lessee typically pays a franchise fee ranging from 0% to 5% of suite
revenue, and marketing and reservation fees ranging from 1% to 3.5% of suite
revenue. In the cases where there is not a separate franchise agreement, the
right to use the brand name is included in the management agreement. Base
management fees typically range from 2% to 3% of total revenues. Incentive
management fees are based upon the hotel's income and typically range from 50%
to 100%, subject to a maximum annual payment of between 2% and 3% of hotel
revenues. In many cases managers and franchisors have agreed to subordinate all
or a portion of their fees at a specific hotel either for a set period of time,
or until the hotel provides a predetermined return to the Lessee, or both. In
addition, certain managers also charge an allocated share of the cost of
providing certain centralized services, such as accounting.

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MANAGEMENT

The Board of Directors currently consists of seven members, four of whom
are not officers or employees of the Company or affiliates of any subsidiary or
lessee thereof ("Independent Directors"). The Board of Directors is divided into
three classes who serve staggered three-year terms with the term of each
director expiring at the annual meeting of shareholders held three years after
his election. The Company has seven executive officers and 15 other full-time,
permanent employees.

Set forth below is certain information regarding the directors and
executive officers of the Company.

<TABLE>
<CAPTION>
YEAR
FIRST TERM
NAME POSITION ELECTED CLASS EXPIRES
---- -------- -------- --------- -------
<S> <C> <C> <C> <C>
Hervey A. Feldman.......... Chairman of the Board 1994 Class I 1998
Thomas J. Corcoran, Jr..... President and Chief Executive 1994 Class II 1999
Officer, Director
Richard S. Ellwood......... Independent Director 1994 Class III 2000
Richard O. Jacobson........ Independent Director 1994 Class III 2000
Charles N. Mathewson....... Director 1994 Class I 1998
Thomas A. McChristy........ Independent Director 1994 Class III 2000
Donald J. McNamara......... Independent Director 1994 Class II 1999
William S. McCalmont....... Senior Vice President, Chief 1996 -- --
Financial Officer and Treasurer
Lawrence D. Robinson....... Senior Vice President, General 1996 -- --
Counsel and Secretary
Jack Eslick................ Vice President, Director of Asset 1996 -- --
Management
June H. McCutchen.......... Vice President, Director of Design 1995 -- --
and Construction
William P. Stadler......... Vice President, Director of 1995 -- --
Acquisition and Development
</TABLE>

Hervey A. Feldman (age 59) is the Chairman of the Board of the Company and
has served in such capacity since its formation in May 1994. He is also a
co-founder of FelCor, Inc. and has served as its Chairman since its formation in
1991. Prior to that time, he held executive positions with Embassy Suites,
serving as its Chairman of the Board from June 1990 until January 1992, and as
its President and Chief Executive Officer from the founding of that company in
January 1983 to April 1990. Prior to 1990, Mr. Feldman had spent over 25 years
in the hotel industry, including serving in various management positions with
Brock Hotel Corporation during a period when that company was one of the largest
franchisees of Holiday Inn(R) hotels in the U.S.; as Executive Vice President
for North American Development of Holiday Inns, Inc.; and President and Chief
Executive Officer of Brock Residence Inns, Inc., which founded the
extended-stay, all-suite chain now known as Residence Inns by Marriott(R).

Thomas J. Corcoran, Jr. (age 48) is the President and Chief Executive
Officer of the Company and has served in such capacity since its formation in
May 1994. He is also a co-founder of FelCor, Inc. and has served as its
President and Chief Executive Officer since its formation in 1991. From October
1990 to December 1991, he served as the Chairman, President and Chief Executive
Officer of Fiesta Foods, Inc., a manufacturer of tortilla chips and taco shells.
From 1979 to 1990, Mr. Corcoran held various positions with Integra -- A Hotel
and Restaurant Company (formerly Brock Hotel Corporation), including serving as
the President and Chief Executive Officer of that company from 1986 to 1990, and
with ShowBiz Pizza Time, Inc., an operator and franchisor of family
entertainment center/pizza restaurants.

Richard S. Ellwood (age 65) is the founder and principal owner of R.S.
Ellwood & Co., Inc., a real estate investment banking firm which was organized
in 1987. Prior to 1987, as an investment banker, Mr. Ellwood was elected
successively in 1968 a general partner of White Weld & Co., in 1978 a managing
director of Warburg Paribas Becker, Incorporated and in 1984 a managing director
and senior banker of Merrill Lynch

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<PAGE> 36

Capital Markets. Mr. Ellwood has extensive experience in hotel financing. He was
a founder of Hotel Investors Trust, a REIT, and served as a Trustee from 1970
until its merger with another REIT in 1987. He is currently a director of two
additional REITs, namely Apartment Investment and Management Company and
Corporate Realty Income Trust.

Richard O. Jacobson (age 60) is the President and Chief Executive Officer
of Jacobson Warehouse Company, Inc., a privately-held warehouse company with
facilities in 15 locations in seven states, which Mr. Jacobson founded 29 years
ago. He is also President and Chief Executive Officer of Jacobson Transportation
Company, Inc., a truckload common carrier with authority to operate in 48 states
and Canada. Mr. Jacobson is a member of the Boards of Directors of Advanced
Oxygen Technology, Inc., AlaTenn Resources, Inc., Allied Group, Inc., Firstar
Bank Des Moines, N.A., Firstar Bank of Iowa, N.A. and Heartland Express, Inc.

Charles N. Mathewson (age 68) has served, for more than the past five
years, in various positions with International Game Technology ("IGT"), a
company engaged in the design and manufacture of microprocessor based gaming
products and gaming monitoring systems. Since February 1988, he has served as
the Chairman of the Board of IGT. He has served as a director of IGT since
December 1985, as President from December 1986 to February 1988, and as Chief
Executive Officer from December 1986 until June 1993 and from February 1996
until the present. Mr. Mathewson also is a member of the Board of Directors of
Baron Asset Fund.

Thomas A. McChristy (age 70) is the President of T.A. McChristy Co. Inc., a
real estate investment company, and has served in that capacity since 1957. Mr.
McChristy also served as the President and Chief Operating Officer of Syntech
International, Inc., a lottery systems and equipment manufacturing company, from
1986 to 1988 and as its Chief Executive Officer from 1989 to 1992.

Donald J. McNamara (age 44) is the founder and Chairman of The Hampstead
Group, a real estate investment company with substantial activities in the
hospitality and retirement housing industries. Mr. McNamara also is the Chairman
of the Board of Directors of Bristol Hotel Company and a director of Mountasia
Entertainment International.

William S. McCalmont (age 41) has served as Senior Vice President, Chief
Financial Officer and Treasurer of the Company since August 1996. For
approximately 12 years prior to joining the Company, Mr. McCalmont had been
employed in various positions with The Promus Companies Incorporated and with
Harrah's Entertainment, Inc., which was created as a result of the spin-off of
Promus Hotel Corporation. During his 12-year career with these companies, Mr.
McCalmont served in various management positions in finance at the Embassy
Suites Hotel division, was Director of Finance, Corporate Director of Asset
Management and Project Finance, and Vice President and Treasurer of its parent,
and most recently served as the Vice President and Treasurer of Harrah's.

Lawrence D. Robinson (age 53) has served as Senior Vice President, General
Counsel and Secretary of the Company since May 1996. From 1972 to 1989, Mr.
Robinson was a partner in the Kansas City-based law firm of Stinson, Mag &
Fizzell, for which he founded and managed a Dallas, Texas office from 1982 to
1989. From 1989 through April 1996, Mr. Robinson was a partner in the
Houston-based law firm of Bracewell & Patterson, L.L.P., where he served as the
managing partner of its Dallas office until 1992, as the head of that office's
corporate and securities law section and as chairman of its firm-wide
hospitality group. Mr. Robinson continues to maintain an "of counsel"
relationship with that firm.

Jack Eslick (age 45) joined the Company in April 1996 as its Vice
President, Director of Asset Management. Mr. Eslick has over 20 years experience
in hotel operations. From April 1991 until he joined the Company, Mr. Eslick
served as Vice President of Operations of Promus, where he had direct
responsibility for all operations in a region that grew from 14 hotels to 26
hotels. Prior to April 1991, he served in various capacities with Holiday Inns,
Inc., including serving as general manager of various hotels and as a Regional
Director of Operations.

June H. McCutchen (age 41) joined the Company in October 1995 as Vice
President, Director of Design and Construction. Her most recent experience was
as Account Executive for Hospitality Restoration &

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<PAGE> 37

Builders, Inc. since 1994. From 1992 to 1994 she was Project Manager for
American General Hospitality, Inc. where she managed all capital improvement
work for over 35 properties each year. Prior to 1992, Ms. McCutchen was Project
Manager for Hilton Hotels, Inc. from 1987 to 1992, and prior to 1987, she served
as design coordinator and purchasing manager for Embassy Suites, Inc.

William P. Stadler (age 42) began his employment with the Company in July
1995 as Vice President, Director of Acquisition and Development. Mr. Stadler has
over 17 years of experience in hotel acquisition and development, having served
as Vice President-Development for Coastal Hotel Group from 1994 until he joined
the Company in 1995, as Vice President-Development for Embassy Suites, Inc. from
1992 to 1994, as Senior Vice President-Development for Landmark Hotels, Inc.
from 1989 to 1991 and as Vice President-Development for Marriott Corporation
from 1985 to 1989.

PRINCIPAL SHAREHOLDERS

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS

The following table sets forth information, as of June 3, 1997, regarding
each person known to the Company to be the beneficial owner of more than five
percent (5%) of its Common Stock. Unless otherwise indicated, such shares of
Common Stock are owned directly and the indicated person has sole voting and
investment power with respect thereto.

<TABLE>
<CAPTION>
BEFORE OFFERING AFTER OFFERING
------------------------ ---------------------------
AMOUNT AND AMOUNT AND
NATURE OF NATURE OF
NAME AND ADDRESS BENEFICIAL PERCENT OF BENEFICIAL PERCENT OF
OF BENEFICIAL OWNER OWNERSHIP CLASS(1) OWNERSHIP CLASS(7)
------------------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Capital Growth Management Limited
Partnership................................ 2,185,000(2) 8.2% 2,185,000(2) 6.1%
One International Place
Boston, Massachusetts 02110
Franklin Resources, Inc...................... 3,291,304(3) 11.7 3,291,304(3) 8.9
777 Mariners Island Blvd.
San Mateo, California 94404
FMR Corp. ................................... 2,332,001(4) 8.7 2,332,001(4) 6.5
82 Devonshire Street
Boston, Massachusetts 02109
LaSalle Advisors Limited Partnership......... 1,643,600(5) 6.2 1,643,600(5) 4.6
100 East Pratt Street
Baltimore, Maryland 21202
Promus Hotels, Inc. ......................... 2,626,792(6) 9.5 1,426,792(6)(8) 3.9
755 Crossover Lane
Memphis, Tennessee 38117
</TABLE>

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

(1) Based upon 26,587,733 shares outstanding as of June 3, 1997.

(2) Based solely upon information contained in Schedule 13G, dated February 11,
1997. Capital Growth Management Limited Partnership reported that it had
sole voting power, but not sole dispositive power, with respect to such
shares, and disclaims any beneficial interest in these shares.

(3) Based solely upon information contained in Schedule 13G, dated February 12,
1997. Franklin Resources, Inc. reported that, through its subsidiaries, it
has sole voting and dispositive power with respect to these shares. Includes
1,471,756 shares of Common Stock issuable upon conversion of 1,898,550
shares of the Series A Preferred Stock.

(4) Based solely upon information contained in Schedule 13G, dated February 14,
1997. FMR Corp. reported that, through its subsidiaries, it had sole
dispositive power with respect to such shares and sole voting

S-36
<PAGE> 38

power with respect to 479,806 of such shares. Includes 220,961 shares of
Common Stock issuable upon conversion of 285,000 shares of Series A
Preferred Stock.

(5) Based solely upon information contained in Schedule 13G, dated February 11,
1997. Represents (i) 916,900 shares owned by LaSalle Advisors Limited
Partnership ("LaSalle"), as to which LaSalle reported it had sole voting and
dispositive power with respect to 448,100 shares, shared voting power with
respect to 174,500 shares and shared dispositive power with respect to
468,800 shares, and (ii) 726,700 shares beneficially owned by ABKB/LaSalle
Securities Limited Partnership ("ABKB/LaSalle"), as to which ABKB/LaSalle
reported that it had sole voting and dispositive power with respect to
160,100 shares, shared voting power with respect to 448,870 shares and
shared dispositive power with respect to 566,600 shares.

(6) Based upon information provided by Promus as of June 3, 1997. Includes
1,000,000 units in the Partnership held by Promus which are currently
redeemable for a like number of shares of Common Stock.

(7) Based upon 35,587,733 shares to be outstanding after the close of the
Offering, assuming the underwriters' over-allotment option is not exercised.

(8) As adjusted to reflect the purchase of 1,200,000 shares of Common Stock by
the Company. See "Use of Proceeds."

FEDERAL INCOME TAX CONSIDERATIONS

This discussion supplements the discussion set forth in the accompanying
Prospectus under the heading "Federal Income Tax Considerations." Hunton &
Williams has acted as tax counsel to the Company in connection with the
Offering. In the opinion of Hunton & Williams, the Company qualified to be taxed
as a REIT pursuant to sections 856 through 860 of the Internal Revenue Code of
1986, as amended (the "Code"), for its taxable years ended December 31, 1994
through December 31, 1996, and the Company's organization and proposed method of
operation will enable it to qualify to be taxed as a REIT for its taxable year
ending December 31, 1997, and future taxable years. Investors should be aware,
however, that opinions of counsel are not binding upon the Internal Revenue
Service (the "Service") or any court. It must be emphasized that Hunton &
Williams' opinion is based on various assumptions and is conditioned upon
certain representations made by the Company as to factual matters, including
representations regarding the nature of the Company's properties and the future
conduct of its business. Such factual assumptions and representations are set
out in the federal income tax opinion that will be delivered by Hunton &
Williams at the closing of the Offering. Moreover, such qualification and
taxation as a REIT depend upon the Company's ability to meet on a continuing
basis, through actual annual operating results, distribution levels, and stock
ownership, the various qualification tests imposed under the Code. Hunton &
Williams will not review the Company's compliance with those tests on a
continuing basis. Accordingly, no assurance can be given that the actual results
of the Company's operations for any particular taxable year will satisfy such
requirements. For a discussion of the tax consequences of failure to qualify as
a REIT, see "Federal Income Tax Considerations -- Failure to Qualify" in the
Prospectus.

TAXATION OF TAXABLE U.S. SHAREHOLDERS

As long as the Company qualifies as a REIT, distributions made to the
Company's taxable U.S. shareholders out of the Company's current or accumulated
earnings and profits (and not designated as capital gain dividends) will be
taken into account by such U.S. shareholders as ordinary income and will not be
eligible for the dividends received deduction generally available to
corporations. For purposes of determining whether distributions to the Company's
shareholders are out of current or accumulated earnings and profits, the
Company's earnings and profits are allocated first to the Preferred Stock and
then allocated to the Common Stock. As used herein, the term "U.S. shareholder"
means a holder of Common Stock that for U.S. federal income tax purposes is (i)
a citizen or resident of the United States, (ii) a corporation, partnership, or
other entity created or organized in or under the laws of the United States or
of any political subdivision

S-37
<PAGE> 39

thereof, (iii) an estate whose income from sources without the United States is
includible in gross income for U.S. federal income tax purposes regardless of
its connection with the conduct of a trade or business within the United States,
or (iv) any trust with respect to which (A) a U.S. court is able to exercise
primary supervision over the administration of such trust and (B) one or more
U.S. fiduciaries have the authority to control all substantial decisions of the
trust. Distributions that are designated as capital gain dividends will be taxed
as long-term capital gains (to the extent they do not exceed the Company's
actual net capital gain for the taxable year) without regard to the period for
which a shareholder has held his Common Stock. However, corporate shareholders
may be required to treat up to 20% of certain capital gain dividends as ordinary
income.

Distributions in excess of the Company's current and accumulated earnings
and profits will not be taxable to a shareholder to the extent that they do not
exceed the adjusted basis of the shareholder's Common Stock, but rather will
reduce the adjusted basis of such stock. To the extent that such distributions
in excess of current and accumulated earnings and profits exceed the adjusted
basis of a shareholder's Common Stock, such distributions will be included in
income as long-term capital gain (or short-term capital gain if the Common Stock
has been held for one year or less) assuming the Common Stock is a capital asset
in the hands of the shareholder. In addition, any distribution declared by the
Company in October, November, or December of any year and payable to a
shareholder of record on a specified date in any such month shall be treated as
both paid by the Company and received by the shareholder on December 31 of such
year, provided that the distribution is actually paid by the Company during
January of the following calendar year.

Shareholders may not include in their individual income tax returns any net
operating losses or capital losses of the Company. Instead, such losses would be
carried over by the Company for potential offset against its future income
(subject to certain limitations). Taxable distributions from the Company and
gain from the disposition of the Common Stock will not be treated as passive
activity income and, therefore, shareholders generally will not be able to apply
any "passive activity losses" (such as losses from certain types of limited
partnerships in which the shareholder is a limited partner) against such income.
In addition, taxable distributions from the Company generally will be treated as
investment income for purposes of the investment interest limitations. Capital
gains from the disposition of Common Stock (or distributions treated as such)
will be treated as investment income only if the shareholder so elects, in which
case such capital gains will be taxed at ordinary income rates. The Company will
notify shareholders after the close of the Company's taxable year as to the
portions of the distributions attributable to that year that constitute ordinary
income, return of capital, and capital gain.

TAXATION OF SHAREHOLDERS ON THE DISPOSITION OF THE COMMON STOCK

In general, any gain or loss realized upon a taxable disposition of the
Common Stock by a shareholder who is not a dealer in securities will be treated
as long-term capital gain or loss if the Common Stock has been held for more
than one year and otherwise as short-term capital gain or loss. However, any
loss upon a sale or exchange of Common Stock by a shareholder who has held such
stock 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
Company required to be treated by such shareholder as long-term capital gain.
All or a portion of any loss realized upon a taxable disposition of the Common
Stock may be disallowed if other Common Stock is purchased within 30 days before
or after the disposition.

CAPITAL GAINS AND LOSSES

A capital asset generally must be held for more than one year in order for
gain or loss derived from its sale or exchange to be treated as long-term
capital gain or loss. The highest marginal individual income tax rate is 39.6%,
and the tax rate on net capital gains applicable to individuals is 28%. Thus,
the tax rate differential between capital gain and ordinary income for
individuals may be significant. In addition, the characterization of income as
capital or ordinary may affect the deductibility of capital losses. Capital
losses not offset by capital gains may be deducted against an individual's
ordinary income only up to a maximum annual amount of $3,000. Unused capital
losses may be carried forward. All net capital gain of a corporate taxpayer is
subject to tax at ordinary corporate rates. A corporate taxpayer can deduct
capital losses only to the extent of capital gains, with unused losses being
carried back three years and forward five years.

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<PAGE> 40

INFORMATION REPORTING REQUIREMENTS AND BACKUP WITHHOLDING

The Company will report to its U.S. shareholders and to the Service the
amount of distributions paid during each calendar year, and the amount of tax
withheld, if any. Under the backup withholding rules, a shareholder may be
subject to backup withholding at the rate of 31% with respect to distributions
paid unless such holder (i) is a corporation or comes within certain other
exempt categories and, when required, demonstrates this fact, or (ii) provides a
taxpayer identification number, certifies as to no loss of exemption from backup
withholding, and otherwise complies with the applicable requirements of the
backup withholding rules. A shareholder who does not provide the Company with
his correct taxpayer identification number also may be subject to penalties
imposed by the Service. Any amount paid as backup withholding will be creditable
against the shareholder's income tax liability. In addition, the Company may be
required to withhold a portion of capital gain distributions to any shareholders
who fail to certify their nonforeign status to the Company. The Service issued
proposed regulations in April 1996 regarding the backup withholding rules as
applied to Non-U.S. Shareholders. The proposed regulations would alter the
technical requirements relating to backup withholding compliance and are
proposed to be effective for distributions made after December 31, 1997. See
"-- Taxation of Non-U.S. Shareholders" herein.

TAXATION OF TAX-EXEMPT SHAREHOLDERS

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

TAXATION OF NON-U.S. SHAREHOLDERS

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

Distributions to Non-U.S. Shareholders that are not attributable to gain
from sales or exchanges by the Company of U.S. real property interests and are
not designated by the Company as capital gains dividends will

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be treated as dividends of ordinary income to the extent that they are made out
of current or accumulated earnings and profits of the Company. Such
distributions ordinarily will be subject to a withholding tax equal to 30% of
the gross amount of the distribution unless an applicable tax treaty reduces or
eliminates that tax. However, if income from an investment in the Common Stock
is treated as effectively connected with a Non-U.S. Shareholder's conduct of a
U.S. trade or business, the Non-U.S. Shareholder generally will be subject to
federal income tax at graduated rates, in the same manner as U.S. shareholders
are taxed with respect to such distributions (and also may be subject to the 30%
branch profits tax in the case of a Non-U.S. Shareholder that is a non-U.S.
corporation). The Company expects to withhold U.S. income tax at the rate of 30%
on the gross amount of any such distributions made to a Non-U.S. Shareholder
unless (i) a lower treaty rate applies and any required form evidencing
eligibility for that reduced rate is filed with the Company or (ii) the Non-U.S.
Shareholder files an IRS Form 4224 with the Company claiming that the
distribution is effectively connected income. The Service issued proposed
regulations in April 1996 that would modify the manner in which the Company
complies with the withholding requirement.

Distributions in excess of current and accumulated earnings and profits of
the Company will not be taxable to a shareholder to the extent that such
distributions do not exceed the adjusted basis of the shareholder's Common
Stock, but rather will reduce the adjusted basis of such stock. To the extent
that such distributions in excess of current and accumulated earnings and
profits exceed the adjusted basis of a Non-U.S. Shareholder's shares of Common
Stock, such distributions will give rise to tax liability if the Non-U.S.
Shareholder otherwise would be subject to tax on any gain from the sale or
disposition of his shares of Common Stock, as described below. Because it
generally cannot be determined at the time a distribution is made whether or not
such distribution will be in excess of current and accumulated earnings and
profits, the entire amount of any distribution normally will be subject to
withholding at the same rate as a dividend. However, a Non-U.S. Shareholder can
file a claim for refund with the Service for the overwithheld amount to the
extent it is determined subsequently that a distribution was, in fact, in excess
of the current and accumulated earnings and profits of the Company.

In August 1996, the U.S. Congress passed the Small Business Job Protection
Act of 1996, which requires the Company to withhold 10% of any distribution in
excess of its current and accumulated earnings and profits. Consequently,
although the Company intends to withhold at a rate of 30% on the entire amount
of any distribution, to the extent that the Company does not do so, any portion
of a distribution not subject to withholding at a rate of 30% will be subject to
withholding at a rate of 10%.

For any year in which the Company qualifies as a REIT, distributions that
are attributable to gain from sales or exchanges by the Company of U.S. real
property interests will be taxed to a Non-U.S. Shareholder under the provisions
of the Foreign Investment in Real Property Tax Act of 1980 ("FIRPTA"). Under
FIRPTA, distributions attributable to gain from sales of U.S. real property
interests are taxed to a Non-U.S. Shareholder as if such gain were effectively
connected with a U.S. business. Non-U.S. Shareholders thus would be taxed at the
normal capital gain rates applicable to U.S. shareholders (subject to applicable
alternative minimum tax and a special alternative minimum tax in the case of
nonresident alien individuals). Distributions subject to FIRPTA also may be
subject to a 30% branch profits tax in the hands of a non-U.S. corporate
shareholder not entitled to treaty relief or exemption. The Company is required
to withhold 35% of any distribution that is designated by the Company as a
capital gains dividend. The amount withheld is creditable against the Non-U.S.
Shareholder's FIRPTA tax liability.

Gain recognized by a Non-U.S. Shareholder upon a sale of his shares of
Common Stock generally will not be taxed under FIRPTA if the Company is a
"domestically controlled REIT," 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 non-U.S. persons. Because the shares of Common
Stock are traded publicly, no complete assurance can be given that the Company
is or will be a "domestically controlled REIT." In addition, a Non-U.S.
Shareholder that owns, actually and constructively, 5% or less of the Company's
shares throughout a specified "look-back" period will not recognize gain on the
sale of his shares under FIRPTA if the shares are traded on an established
securities market. Gain not subject to FIRPTA will be taxable to a Non-U.S.
Shareholder if (i) investment in the Common Stock is effectively connected with
the Non-U.S. Shareholder's U.S. trade or business, in which case the Non-U.S.
Shareholder will be subject to the

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same treatment as U.S. Shareholders with respect to such gain, or (ii) the
Non-U.S. Shareholder is a nonresident alien individual who was present in the
United States for 183 days or more during the taxable year and certain other
conditions apply, in which case the nonresident alien individual will be subject
to a 30% tax on the individual's capital gains. If the gain on the sale of
Common Stock were to be subject to taxation under FIRPTA, the Non-U.S.
Shareholder would be subject to the same treatment as U.S. Shareholders with
respect to such gain (subject to applicable alternative minimum tax, a special
alternative minimum tax in the case of nonresident alien individuals, and the
possible application of the 30% branch profits tax in the case of non-U.S.
corporations).

TAX ASPECTS OF THE PARTNERSHIP AND SUBSIDIARY PARTNERSHIPS

Hunton & Williams is of the opinion that, based on certain factual
assumptions and representations, the Partnership and each of its subsidiary
partnerships (each, a "Subsidiary Partnership") will be classified as
partnerships for federal income tax purposes and not as corporations or
associations taxable as corporations or as publicly traded partnerships.
Opinions of counsel are not binding upon the Service or any court, and no
complete assurance can be given that the Service will not challenge the status
of the Partnership or a Subsidiary Partnership as a partnership for federal
income tax purposes. If the Partnership or a Subsidiary Partnership were treated
as a corporation under the publicly traded partnership rules, the Company would
not be able to qualify as a REIT. See "Federal Income Tax
Considerations -- Requirements for Qualification -- Income Tests" and "-- Asset
Tests" in the Prospectus.

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UNDERWRITING

Under the terms and subject to the conditions contained in an Underwriting
Agreement dated the date hereof (the "Underwriting Agreement"), the U.S.
Underwriters named below for whom Morgan Stanley & Co. Incorporated, Smith
Barney Inc., Alex. Brown & Sons Incorporated, Montgomery Securities, PaineWebber
Incorporated and Salomon Brothers Inc are acting as U.S. Representatives, and
the International Underwriters named below for whom Morgan Stanley & Co.
International Limited, Smith Barney Inc., Alex. Brown & Sons Incorporated,
Montgomery Securities, PaineWebber International (U.K.) Ltd. and Salomon
Brothers International Limited are acting as International Representatives, have
severally agreed to purchase, and the Company has agreed to sell to them,
severally, the respective number of shares of Common Stock set forth opposite
the names of such Underwriters below:

<TABLE>
<CAPTION>
NUMBER OF
NAME SHARES
---- ----------
<S> <C>
U.S. Underwriters:
Morgan Stanley & Co. Incorporated.........................
Smith Barney Inc. ........................................
Alex. Brown & Sons Incorporated...........................
Montgomery Securities.....................................
PaineWebber Incorporated..................................
Salomon Brothers Inc .....................................

----------

Subtotal.................................................. 8,160,000
----------

International Underwriters:
Morgan Stanley & Co. International Limited................
Smith Barney Inc. ........................................
Alex. Brown & Sons Incorporated...........................
Montgomery Securities.....................................
PaineWebber International (U.K.) Ltd. ....................
Salomon Brothers International Limited....................

----------

Subtotal.................................................. 2,040,000
----------
Total............................................. 10,200,000
==========
</TABLE>

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

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<PAGE> 44

Pursuant to the Agreement between U.S. and International Underwriters, each
U.S. Underwriter has represented and agreed that, with certain exceptions: (i)
it is not purchasing any Shares (as defined herein) for the account of anyone
other than a United States or Canadian Person (as defined herein) and (ii) it
has not offered or sold, and will not offer or sell, directly or indirectly, any
Shares or distribute any prospectus relating to the Shares outside the United
States or Canada or to anyone other than a United States or Canadian Person.
Pursuant to the Agreement between U.S. and International Underwriters, each
International Underwriter has represented and agreed that, with certain
exceptions: (i) it is not purchasing any Shares for the account of any United
States or Canadian Person and (ii) it has not offered or sold, and will not
offer or sell, directly or indirectly, any Shares or distribute any prospectus
relating to the Shares in the United States or Canada or to any United States or
Canadian Person. With respect to any Underwriter that is a U.S. Underwriter and
an International Underwriter, the foregoing representations and agreements (i)
made by it in its capacity as a U.S. Underwriter apply only to it in its
capacity as a U.S. Underwriter and (ii) made by it in its capacity as an
International Underwriter apply only to it in its capacity as an International
Underwriter. The foregoing limitations do not apply to stabilization
transactions or to certain other transactions specified in the Agreement between
U.S. and International Underwriters. As used herein, "United States or Canadian
Person" means any national or resident of the United States or Canada, or any
corporation, pension, profit-sharing or other trust or other entity organized
under the laws of the United States or Canada or of any political subdivision
thereof (other than a branch located outside the United States and Canada of any
United States or Canadian Person), and includes any United States or Canadian
branch of a person who is otherwise not a United States or Canadian Person. All
shares of Common Stock to be purchased by the Underwriters under the
Underwriting Agreement are referred to herein as the "Shares".

Pursuant to the Agreement between U.S. and International Underwriters,
sales may be made between the U.S. Underwriters and International Underwriters
of any number of Shares as may be mutually agreed. The per share price of any
Shares so sold shall be the public offering price set forth on the cover page
hereof, in United States dollars, less an amount not greater than the per share
amount of the concession to dealers set forth below.

Pursuant to the Agreement between U.S. and International Underwriters, each
U.S. Underwriter has represented that it has not offered or sold, and has agreed
not to offer or sell, any Shares, directly or indirectly, in any province or
territory of Canada or to, or for the benefit of, any resident of any province
or territory of Canada in contravention of the securities laws thereof and has
represented that any offer or sale of Shares in Canada will be made only
pursuant to an exemption from the requirement to file a prospectus in the
province or territory of Canada in which such offer or sale is made. Each U.S.
Underwriter has further agreed to send to any dealer who purchases from it any
of the Shares a notice stating in substance that, by purchasing such Shares,
such dealer represents and agrees that it has not offered or sold, and will not
offer or sell, directly or indirectly, any of such Shares in any province or
territory of Canada or to, or for the benefit of, any resident of any province
or territory of Canada in contravention of the securities laws thereof and that
any offer or sale of Shares in Canada will be made only pursuant to an exemption
from the requirement to file a prospectus in the province or territory of Canada
in which such offer or sale is made, and that such dealer will deliver to any
other dealer to whom it sells any of such Shares a notice containing
substantially the same statement as is contained in this sentence.

Pursuant to the Agreement between U.S. and International Underwriters, each
International Underwriter has represented and agreed that (i) it has not offered
or sold and, prior to the date six months after the closing date for the sale of
the Shares to the International Underwriters, will not offer or sell, any Shares
to persons in the United Kingdom except to persons whose ordinary activities
involve them in acquiring, holding, managing or disposing of investments (as
principal or agent) for the purposes of their businesses or otherwise in
circumstances which have not resulted and will not result in an offer to the
public in the United Kingdom within the meaning of the Public Offers of
Securities Regulations 1995; (ii) it has complied and will comply with all
applicable provisions of the Financial Services Act 1986 with respect to
anything done by it in relation to the 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 offering of the Shares to a person who is of a kind described in
Article 11(3) of the Financial Services Act 1986

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<PAGE> 45

(Investment Advertisements) (Exemptions) Order 1996 or is a person to whom such
document may otherwise lawfully be issued or passed on.

Pursuant to the Agreement between U.S. and International Underwriters, each
International Underwriter has further represented that it has not offered or
sold, and has agreed not to offer or sell, directly or indirectly, in Japan or
to or for the account of any resident thereof, any of the Shares acquired in
connection with the distribution contemplated hereby, except for offers or sales
to Japanese International Underwriters or dealers and except pursuant to any
exemption from the registration requirements of the Securities and Exchange Law
and otherwise in compliance with applicable provisions of Japanese law. Each
International Underwriter has further agreed to send to any dealer who purchases
from it any of the Shares a notice stating in substance that, by purchasing such
Shares, such dealer represents and agrees that it has not offered or sold, and
will not offer or sell, any of such Shares, directly or indirectly, in Japan or
to or for the account of any resident thereof except for offers or sales to
Japanese International Underwriters or dealers and except pursuant to any
exemption from the registration requirements of the Securities and Exchange Law
and otherwise in compliance with applicable provisions of Japanese law, and that
such dealer will send to any other dealer to whom it sells any of such Shares a
notice containing substantially the same statement as is contained in this
sentence.

The Underwriters initially propose to offer part of the shares of Common
Stock directly to the public at the public offering price set forth on the cover
page hereof and part to certain dealers at a price that represents a concession
not in excess of $. a share under the public offering price. Any Underwriter
may allow, and such dealers may reallow, a concession not in excess of $. a
share to other Underwriters or to certain dealers. After the initial offering of
the shares of Common Stock, the offering price and other selling terms may from
time to time be varied by the Representatives.

The Company has granted to the U.S. Underwriters an option, exercisable for
30 days from the date of this Prospectus, to purchase up to an aggregate of
1,530,000 additional shares of Common Stock at the public offering price set
forth on the cover page hereof, less underwriting discounts and commissions. The
U.S. Underwriters may exercise such option solely for the purpose of covering
over-allotments, if any, made in connection with the offering of the shares of
Common Stock offered hereby. To the extent such option is exercised, each U.S.
Underwriter will become obligated, subject to certain conditions, to purchase
approximately the same percentage of such additional shares of Common Stock as
the number set forth next to such U.S. Underwriter's name in the preceding table
bears to the total number of shares of Common Stock set forth next to the names
of all U.S. Underwriters in the preceding table.

The Common Stock is listed on the NYSE under the symbol "FCH".

Each of the Company and Messrs. Feldman and Corcoran have agreed not to,
during the period of 90 days from the date of this Prospectus Supplement, and
Promus has agreed not to, during the period of 18 months from the date of this
Prospectus Supplement, without the prior written consent of Morgan Stanley & Co.
Incorporated on behalf of the Underwriters, (i) offer, pledge, sell, contract to
sell, sell any option or contract to purchase, purchase any option or contract
to sell, grant any option, right or warrant to purchase or otherwise transfer or
dispose of, directly or indirectly, any shares of Common Stock or any securities
convertible into or exercisable or exchangeable for Common Stock or (ii) enter
into any swap or other arrangement that transfers to another, in whole or in
part, any of the economic consequences of ownership of the Common Stock, whether
any such transaction described in clause (i) or (ii) above is to be settled by
delivery of Common Stock or such other securities, in cash or otherwise. The
restrictions described in this paragraph do not apply to (x) the sale of Shares
to the Underwriters, (y) the issuance by the Company of shares of Common Stock
pursuant to any employee stock option plans existing on the date of this
Prospectus Supplement or upon the redemption or conversion of securities
outstanding on the date of this Prospectus Supplement or (z) transactions by any
person other than the Company relating to shares of Common Stock or other
securities acquired in open market transactions after the completion of the
offering of the Shares.

In order to facilitate the offering of the Common Stock, the Underwriters
may engage in transactions that stabilize, maintain or otherwise affect the
price of the Common Stock. Specifically, the Underwriters may

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<PAGE> 46

over-allot in connection with the offering, creating a short position in the
Common Stock for their own account. In addition, to cover over-allotments or to
stabilize the price of the Common Stock, the Underwriters may bid for, and
purchase, shares of Common Stock in the open market. Finally, the underwriting
syndicate may reclaim selling concessions allowed to an Underwriter or a dealer
for distributing the Common Stock in the offering, if the syndicate repurchases
previously distributed Common Stock in transactions to cover syndicate short
positions, in stabilization transactions or otherwise. Any of these activities
may stabilize or maintain the market price of the Common Stock above independent
market levels. The Underwriters are not required to engage in these activities,
and may end any of these activities at any time.

The Company and the Underwriters have agreed to indemnify each other
against certain liabilities, including liabilities under the Securities Act.

LEGAL MATTERS

The validity of the shares of Common Stock offered hereby will be passed
upon for the Company by Bracewell & Patterson, L.L.P., Dallas, Texas. Lawrence
D. Robinson, the Senior Vice President, General Counsel and Secretary of the
Company, maintains an "of counsel" relationship with Bracewell & Patterson,
L.L.P. In addition, the description of federal income tax consequences contained
herein and in the section of the Prospectus entitled "Federal Income Tax
Considerations" is based on the opinion of Hunton & Williams, Richmond,
Virginia. The validity of the shares of Common Stock offered hereby will be
passed upon for the Underwriters by King & Spalding, Atlanta, Georgia. Bracewell
& Patterson, L.L.P., Hunton & Williams and King & Spalding will rely on the
opinion of Miles & Stockbridge, a Professional Corporation, Baltimore, Maryland,
with respect to all matters involving Maryland law.

EXPERTS

The consolidated financial statements and financial statement schedule of
FelCor Suite Hotels, Inc. as of December 31, 1996 and 1995 and for the years
ended December 31, 1996 and 1995 and for the period July 28, 1994 (inception of
operations) through December 31, 1994 and the financial statements of DJONT
Operations, L.L.C. as of December 31, 1996 and 1995 and for the years ended
December 31, 1996 and 1995 and for the period July 28, 1994 (inception of
operations) through December 31, 1994 are incorporated by reference in this
Prospectus Supplement by reference to the Company's Annual Report on Form 10-K.
The combined financial statements of the DS Hotels as of and for the year ended
December 31, 1996 are incorporated by reference in this Prospectus Supplement by
reference to the Company's Report on Form 8-K, dated June 4, 1997. The above
said financial statements have been so incorporated in reliance on the reports
of Coopers & Lybrand L.L.P., independent accountants, given on the authority of
said firm as experts in auditing and accounting.

The combined financial statements of the Promus/GE EPT Combined Limited
Partnership Hotels, EPT Meadowlands Limited Partnership Hotel and Barshop -- HII
Joint Venture Hotel, each as of and for the years ended December 31, 1996 and
1995, are incorporated by reference in this Prospectus Supplement by reference
to the Company's Report on Form 8-K dated June 4, 1997. The above said financial
statements have been so incorporated in reliance on the reports of Arthur
Andersen LLP, independent accountants given on the authority of said firm as
experts in auditing and accounting.

The combined financial statements of the AEW Doubletree Portfolio as of and
for the year ended December 31, 1996, are incorporated by reference in this
Prospectus Supplement by reference to the Company's Report on Form 8-K dated
June 4, 1997. The above said financial statements have been so incorporated in
reliance on the report of Ernst & Young LLP, independent accountants given on
the authority of said firm as experts in auditing and accounting.

The financial statements of the PSH Master L.P. I Hotels as of and for the
years ended December 31, 1996 and 1995, are incorporated by reference in this
Prospectus Supplement by reference to the Company's Report on Form 8-K dated
June 4, 1997. The above said financial statements have been so incorporated in
reliance on the report of Deloitte & Touche LLP (which expresses an unqualified
opinion on those financial statements and includes an explanatory paragraph
about the entity's ability to continue as a going concern), independent
accountants given on the authority of said firm as experts in auditing and
accounting.

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Caption: "FelCor Suite Hotels, Inc."

1. First Picture -- Color photo of interior of Sheraton hotel. Caption:
"Sheraton Crescent Hotel, Phoenix, Arizona."

2. Second Picture -- Color photo of exterior of Embassy Suites hotel.
Caption: "Embassy Suites Hotel, Deerfield Beach, Florida."

3. Third Picture -- Color photo of exterior of Embassy Suites hotel.
Caption: "Embassy Suites Hotel, Dallas (Love Field), Texas."

4. Fourth Picture -- Color photo of exterior of Embassy Suites hotel.
Caption: "Embassy Suites Hotel - Beaver Creek Lodge, Avon (Vail),
Colorado."

5. Fifth Picture -- Color photo of exterior of Doubletree Guest Suites
hotel. Caption: "Doubletree Guest Suites Hotel, Troy, Michigan."

6. Sixth Picture -- Color photo of interior of Embassy Suites hotel.
Caption: "Embassy Suites, Chicago-Lombard, Illinois."

7. Seventh Picture -- Color photo of exterior of Doubletree Guest Suites
hotel. Caption: "Doubletree Guest Suites Hotel, Boca Raton, Florida."

8. Eighth Picture -- Color photo of exterior of Sheraton Suites hotel.
Caption: "Sheraton Suites Hotel, Chicago (O'Hare), Illinois.
<PAGE> 48

[FELCOR SUITES HOTELS LOGO]