INNKEEPERS USA TRUST/FL
S-3, 1998-07-09
REAL ESTATE INVESTMENT TRUSTS
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      AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 9, 1998
                                                      REGISTRATION NO. 333-
================================================================================
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549
                            -----------------------
                                    FORM S-3
                             REGISTRATION STATEMENT
                                      UNDER
                           THE SECURITIES ACT OF 1933
                            -----------------------

                              INNKEEPERS USA TRUST
             (Exact name of registrant as specified in its charter)
                           -------------------------

             MARYLAND                                            65-0503831
  (State or other jurisdiction                               (I.R.S. Employer
of incorporation or organization)                           Identification No.)

<TABLE>
<S><C>
                                                                                              JEFFREY H. FISHER
                                                                                            INNKEEPERS USA TRUST
                  306 ROYAL POINCIANA PLAZA                                               306 ROYAL POINCIANA PLAZA
                  PALM BEACH, FLORIDA 33480                                               PALM BEACH, FLORIDA 33480
                       (561) 835-1800                                                          (561) 835-1800
(Address, including zip code, and telephone number, including    (Name, address, including zip code, and telephone number, including
   area code, of registrant's principal executive offices)                          area code, of agent for service)
</TABLE>
                           -------------------------

                                   Copies to:

                             DAVID C. WRIGHT, ESQ.
                               HUNTON & WILLIAMS
                              951 EAST BYRD STREET
                         RICHMOND, VIRGINIA 23219-4074
                                 (804) 788-8200

         APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: From
time to time after the effective date of this Registration Statement as
determined by market conditions and other factors.

         IF THE ONLY SECURITIES BEING REGISTERED ON THIS FORM ARE BEING OFFERED
PURSUANT TO DIVIDEND OR INTEREST REINVESTMENT PLANS, PLEASE CHECK THE FOLLOWING
BOX.  | |

         IF ANY OF THE SECURITIES BEING REGISTERED ON THIS FORM ARE TO BE
OFFERED ON A DELAYED OR CONTINUOUS BASIS PURSUANT TO RULE 415 UNDER THE
SECURITIES ACT OF 1933, OTHER THAN SECURITIES OFFERED ONLY IN CONNECTION WITH
DIVIDEND OR INTEREST REINVESTMENT PLANTS, CHECK THE FOLLOWING BOX.  |X|

<TABLE>
<CAPTION>
========================================================================================================================
         Title of Each                                           Proposed             Proposed
           Class of                Aggregate Amount To           Maximum               Maximum            Amount of
         Securities To                Be Registered           Offering Price          Aggregate         Registration
         Be Registered                                       Per Share (1)(2)      Offering Price          Fee(1)
========================================================================================================================
<S><C>
8.625% Series A Cumulative              4,630,000                  $25              $115,750,000           $34,146
      Convertible Preferred
      Shares, $.01 par value
Common Shares,                          6,857,493
     $.01 par value(2)
========================================================================================================================
</TABLE>

         (1) Estimated solely for purposes of calculating the registration fee
pursuant to Rule 457(i) of the General Rules and Regulations under the
Securities Act of 1933. No additional consideration will be received by the
Registrant for the Common Shares issued upon conversion of the 8.625% Series A
Cumulative Convertible Preferred Shares and therefore, pursuant to Rule 457(i),
no registration fee is required with respect to the registration of Common
Shares hereunder.

         (2)  Represents Common Shares issuable upon conversion of the 8.625%
Series A Cumulative Convertible Preferred Shares.

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

================================================================================

<PAGE>



[RED HERRING APPEARS HERE]

                   SUBJECT TO COMPLETION, DATED _______, 1998

PROSPECTUS

                              INNKEEPERS USA TRUST
                           4,630,000 8.625% SERIES A
                    CUMULATIVE CONVERTIBLE PREFERRED SHARES
                            6,857,493 COMMON SHARES

         This Prospectus relates to the public offer and sale of up to 4,630,000
8.625% Series A Cumulative Convertible Preferred Shares, par value $.01 per
share (the "Series A Preferred Shares"), and up to 6,857,493 common shares of
beneficial interest, $.01 par value (the "Common Shares") that are issuable upon
conversion of the Series A Preferred Shares, by the selling shareholders named
herein or their transferees, pledgees, donees or successors (the "Selling
Shareholders"). See "Selling Shareholders" and "Plan of Distribution."

         Each Series A Preferred Share is convertible by the holder at any time
into 1.4811 Common Shares per Series A Preferred Share, subject to adjustment in
certain circumstances. The Common Shares are traded on the New York Stock
Exchange ("NYSE") under the symbol "KPA." To ensure compliance with certain
requirements related to the Company's qualification as a real estate investment
trust ("REIT") under the Internal Revenue Code of 1986 (the "Code"), as amended,
the Company's Declaration of Trust limits the number of Common Shares and Series
A Preferred Shares that may be owned by any single person or affiliated group to
9.8% of the number of outstanding Common Shares and 9.8% of the number of
outstanding shares of any series of preferred shares of beneficial interest (the
"Preferred Shares"), including the Series A Preferred Shares, respectively (the
"Ownership Limitation"). The Declaration of Trust also restricts the
transferability of Common Shares and Series A Preferred Shares if the purported
transfer would prevent the Company from qualifying as a REIT. See "The Ownership
Limitation."

         The Series A Preferred Shares were originally issued by the Company in
May 1998 in a private placement in which EVEREN Securities, Inc., as the initial
purchaser (the "Initial Purchaser"), resold the Series A Preferred Shares
pursuant to Rule 144A of the Securities Act of 1933, as amended (the "Securities
Act"), and to executive officers and members of the Board of Trustees of the
Company (collectively, the "Private Placement"). As of the date of this
Prospectus, no Series A Preferred Shares have been converted into Common Shares.
Prior to the date of this Prospectus, there has been no public market for the
Series A Preferred Shares. Although the Series A Preferred Shares are eligible
for trading in the Private Offering, Resales and Trading through Automated
Linkages ("PORTAL") Market of the National Association of Securities Dealers,
Inc., there can be no assurance that an active trading market for the Series A
Preferred Shares will develop.

         SEE "RISK FACTORS" BEGINNING ON PAGE 7 FOR CERTAIN RISK FACTORS
RELATING TO AN INVESTMENT IN THE SERIES A PREFERRED SHARES AND THE COMMON
SHARES.


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

         The Company has been advised by the Selling Shareholders that the
Selling Shareholders, acting as principals for their own account, directly or
through agents, dealers or underwriters to be designated from time to time, may
sell the Series A Preferred Shares and the Common Shares issuable upon
conversion of the of the Series A Preferred Shares from time to time on terms to
be determined at the time of the sale through customary brokerage channels or
private sales at market prices then prevailing or at negotiated prices then
obtainable. To the extent required, the names of the Selling Shareholders, the
purchase price, the name of any agent, dealer or underwriter, the amount of the
expenses of the offering and any applicable commission or discount with respect
to a particular offer will be set forth in an accompanying Prospectus Supplement
or, if appropriate, post-effective amendment to the Registration Statement of
which this Prospectus is a part. Each of the Selling Shareholders reserves the
right to accept and, together with its agents from time to time, to reject in
whole or in part any proposed purchase of the Series A Preferred Shares or the
Common Shares issuable upon conversion of the of the Series A Preferred Shares
to be made directly or through agents. The aggregate proceeds to the Selling
Shareholders from the sale of the Series A Preferred Shares or the Common Shares
issuable upon conversion of the Series A Preferred Shares offered by the Selling
Shareholders hereby will be the purchase price of such Series A Preferred Shares
less any discounts or commissions charged to them by their agent, dealer or
underwriter. For information concerning indemnification arrangements between the
Company and the Selling Shareholders, see "Plan of Distribution."

         The Company will not receive any cash proceeds from the sale of the
Series A Preferred Shares or the Common Shares issuable upon conversion of the
Series A Preferred Shares by the Selling Shareholders but has agreed to bear
certain expenses of registration of the sale of the Series A Preferred Shares or
the Common Shares issuable upon conversion of the Series A Preferred Shares
under federal and state securities laws.

         The Selling Shareholders and any agents or broker-dealers that
participate with the Selling Shareholders in the distribution of the Series A
Preferred Shares or the Common Shares issuable upon conversion of the Series A
Preferred Shares may be deemed to be "underwriters" within the meaning of the
Securities Act, and any commissions received by them and any profit on the
resale of the Series A Preferred Shares or the Common Shares issuable upon
conversion of the Series A Preferred Shares may be deemed to be underwriting
commissions or discounts under the Securities Act.

               The date of this Prospectus is ___________, 1998.



<PAGE>

                             AVAILABLE INFORMATION

         The Company is subject to the informational requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in
accordance therewith files reports, proxy statements and other information with
the Securities and Exchange Commission (the "Commission") pursuant to the
Exchange Act. Such reports, proxy statements and other information filed by the
Company may be examined and copied, upon payment of the prescribed fees, at the
Public Reference Section of the Commission at Room 1024, Judiciary Plaza, 450
Fifth Street, N.W., Washington, D.C. 20549 and at the regional offices of the
Commission located at 7 World Trade Center, 13th Floor, New York, New York 10048
and at Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois
60661-2511. Copies of such material can be obtained by mail from the Public
Reference Section of the Commission, 450 Fifth Street, N.W., Washington, D.C.
20549 at prescribed rates or from the Commission's site on the World Wide Web at
http:\\www.sec.gov. The Common Shares are listed on the New York Stock Exchange,
and such reports, proxy and informational statements and other information
concerning the Company can be inspected and copied at the New York Stock
Exchange, 20 Broad Street, New York, New York 10005.

         The Company has filed with the Commission, 450 Fifth Street, N.W.,
Washington D.C. 20549, a Registration Statement on Form S-3 under the Securities
Act, and the rules and regulations promulgated thereunder, with respect to the
Common Shares offered pursuant to this Prospectus. This Prospectus, which is
part of the Registration Statement, does not contain all of the information set
forth in the Registration Statement and the exhibits and financial schedules
thereto. For further information concerning the Company and the Common Shares
offered hereby, reference is made to the Registration Statement and the exhibits
and schedules filed therewith, which may be examined without charge at, or
copies obtained upon payment of prescribed fees from, the Commission and its
regional offices at the locations listed above. Any statements contained in this
Prospectus concerning the provisions of any document referred to herein are not
necessarily complete, and in each instance reference is made to the copy of such
document filed as an exhibit to the Registration Statement or otherwise filed
with the Commission. Each such statement is qualified in its entirety by such
reference.


                INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE

         The following documents filed by the Company with the Commission (File
No. 34-0-24568) are incorporated herein by reference:

                  (a) The Company's Current Reports on Form 8-K filed with the
                      Commission on July 18, 1997, January 22, 1998 and June 17,
                      1998;

                  (b) Annual Report on Form 10-K for the year ended December 31,
                      1997;

                  (c) Quarterly Report on Form 10-Q for the three months ended
                      March 31, 1998;

                  (d) The Company's Registration Statement on Form 8-A, dated
                      September 19, 1996; and

                  (e) The Company's Proxy Statement for the Annual Meeting of
                      Shareholders held on May 6, 1998.

         All documents filed by the Company pursuant to Sections 13(a), 13(c),
14 or 15(d) of the Exchange Act subsequent to the date of this Prospectus and
prior to the termination of the offering of the securities made hereby shall be
deemed to be incorporated by reference in this Prospectus and made a part hereof
from the date of the filing of such documents. Any statement contained in a
document incorporated or deemed to be incorporated by reference herein shall be
deemed to be modified or superseded for purposes of this Prospectus to the
extent that a statement contained herein or in any other document subsequently
filed with the Commission which also is deemed to be incorporated by reference
herein modifies or supersedes such statement. Any such statement so modified or
superseded shall not be deemed, except as so modified or superseded, to
constitute a part of this Prospectus.

         The Company will provide without charge to each person to whom this
Prospectus is delivered, upon the written or oral request of such person, a copy
of any and all of the documents incorporated by reference herein (not including
the exhibits to such documents, unless such exhibits are specifically
incorporated by reference in such documents). Requests for such copies should be
directed to Innkeepers USA Trust, 306 Royal Poinciana Plaza, Palm Beach, Florida
33480, Attention: Secretary, telephone (561) 835-1800.



                                       ii


<PAGE>




                               PROSPECTUS SUMMARY

         The following summary is qualified in its entirety by the more detailed
information and financial statements and the notes thereto appearing elsewhere
in this Prospectus or incorporated by reference herein or therein. Unless the
context otherwise indicates, all references herein to (i) the "Company" include
Innkeepers USA Trust and its subsidiaries, (ii) the "Partnership" include
Innkeepers USA Limited Partnership and its subsidiary partnerships and (iii) the
"JF Lessee" include JF Hotel, Inc. and its sister corporations, which lease
hotels from the Company. This Prospectus contains forward-looking statements
within the meaning of Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Exchange Act, which involve risks and uncertainties. The
Company's actual results may differ materially from the results discussed in
such forward looking statements. Factors that might cause such a difference
include those discussed in "Risk Factors" and in the Company's periodic reports
filed with the Securities and Exchange Commission.


                                  THE COMPANY

         Innkeepers USA Trust is the only publicly-traded REIT primarily focused
on the ownership of upscale extended-stay hotels. The Company currently owns 62
hotels (the "Hotels") containing an aggregate of 7,439 rooms located in 24
states. The Hotels consist of (i) 45 upscale and two mid-priced extended-stay
hotels, including 38 Residence Inn by Marriott hotels, six Summerfield Suites
hotels, two Sierra Suites hotels and one Sunrise Suites hotel (the six
Summerfield Suites hotels, two Sierra Suites hotels and one Sunrise Suites hotel
are collectively referred to herein as the "Summerfield Hotels"), and (ii) 15
mid-priced limited or full service hotels, including 12 Hampton Inn hotels, one
Comfort Inn hotel and one Holiday Inn Express hotel. The Company's primary
objective is to acquire high quality hotels in its target markets, which
generally have high barriers to entry and strong demand characteristics.

         The Company has implemented a strategy of utilizing multiple lessees
and hotel management companies for the operation and management of its hotel
properties. The Company leases 53 of the Hotels to the JF Lessee and leases the
Summerfield Hotels to subsidiaries (collectively, together with their
sublessees, the "Summerfield Lessee" and, together with the JF Lessee, the
"Lessees") of Patriot American Hospitality, Inc. ("Patriot") pursuant to
percentage leases (the "Percentage Leases"). The Percentage Leases allow the
Company to participate in increased revenue from the Hotels by providing for the
payment of rent based on percentages of room revenues ("Percentage Rent"). The
JF Lessee has entered into management contracts with Residence Inn by Marriott,
Inc., a subsidiary of Marriott International, Inc. ("Marriott"), the largest
operator of upscale extended-stay hotels in the United States, to manage 20 of
the Residence Inn by Marriott hotels. The Summerfield Lessee has entered into
management contracts with other subsidiaries of Patriot (collectively, the
"Summerfield Manager") to manage the nine Summerfield Hotels.

         In April 1998, the Company entered into an agreement to acquire six
newly-constructed Residence Inn by Marriott hotels from Marriott, (the
"Acquisition Hotels") after the completion thereof. The Acquisition Hotels,
which are being developed by Marriott, will contain 810 rooms. The Acquisition
Hotels will be acquired for purchase prices aggregating approximately $89
million, an allocable portion of which will be paid at the closing of each
Acquisition Hotel. Up to fifteen percent (15%) of the purchase price for each
Acquisition Hotel is payable in common units of limited partnership interest in
the Partnership ("Common Units"), with the number of Common Units to be issued
being based on the trading prices of the Common Shares at the time of the
closing for the Acquisition Hotel. The Acquisition Hotels are located in the
following markets: Chicago/O'Hare, Illinois (192 rooms); South San Jose,
California (150 rooms); Gaithersburg, Maryland (132 rooms); Detroit/Livonia,
Michigan (112 rooms); Richmond/Northwest, Virginia (104 rooms); and
Atlanta/Peachtree, Georgia (120 rooms). Each Acquisition Hotel is located in an
existing market in which the Company owns other Hotels. The Acquisition Hotels
are scheduled to open at various times throughout 1998. To the extent that any
closing of an Acquisition Hotel occurs after its opening date, the purchase
price of the Acquisition Hotel may be subject to adjustment. The Company will
lease each Acquisition Hotel to the JF Lessee, and the JF Lessee will retain
Marriott to manage the Acquisition Hotels. The closing of the acquisition of the
Acquisition Hotels is subject to customary conditions and,

                                       1


<PAGE>


if consummated, will increase to 44 the number of Residence Inn by Marriott
hotels owned by the Company, 26 of which will be managed by Marriott. See "Risk
Factors--Acquisition of Hotels with Limited Operating History."

         A wholly-owned subsidiary of the Company serves as the sole general
partner of the Partnership and currently holds an approximately 85.4% interest
in the Partnership. The limited partners of the Partnership (the "Limited
Partners") hold either Common Units or the Class B preferred units of limited
partnership interest of the Partnership (the "Class B Preferred Units;" the
Common Units and the Class B Preferred Units are referred to herein collectively
as the "Units").


                             THE PRIVATE PLACEMENT

         In May 1998, the Company issued 4,630,000 Series A Preferred Shares in
the Private Placement. The net proceeds to the Company from the Private
Placement were approximately $111,700,000, after deducting the discount to the
Initial Purchaser and expenses. The Company contributed all of the net proceeds
from the Private Placement to the Partnership in exchange for 4,630,000 units of
limited partnership interest of the Partnership having distribution, liquidation
and redemption and other features substantially identical to the terms of the
Series A Preferred Shares (the "Series A Preferred Units"). The Partnership used
all of the net proceeds of the Private Placement to repay outstanding
indebtedness under the Partnership's $250 million uncollateralized line of
credit (the "Line of Credit") and for working capital.

         Pursuant to a Registration Rights Agreement (the "Registration Rights
Agreement"), among the Company and the Initial Purchaser, the Company agreed to
file a shelf registration statement under the Securities Act (together with all
exhibits, schedules and amendments thereto, the "Registration Statement"), of
which this Prospectus forms a part, relating to resales of the Series A
Preferred Shares and the Common Shares issuable upon conversion of the Series A
Preferred Shares. The Company is required under the Registration Rights
Agreement to maintain the effectiveness of the Registration Statement until May
28, 2000 (or such shorter period that will terminate when all Series A Preferred
Shares and Shares covered by the Registration Statement have been sold pursuant
to the Registration Statement).


                                       2


<PAGE>


                                  THE OFFERING

Securities Offered......................     Up to 4,630,000 Series A Preferred
                                             Shares and up to 6,857,493 Common
                                             Shares of the Company issuable upon
                                             conversion of the Series A
                                             Preferred Shares, subject to
                                             adjustment under certain
                                             circumstances.

Dividends...............................     Dividends on the Series A Preferred
                                             Shares are cumulative from the date
                                             of original issue and are payable
                                             quarterly in arrears on or about
                                             the fourth Tuesday of January,
                                             April, July and October to
                                             shareholders of record on or about
                                             the last Friday of December, March,
                                             June and September, respectively,
                                             commencing on July 28, 1998.  Such
                                             dividends will be in an amount per
                                             share equal to the greater of (i)
                                             $0.53906 per quarter (or $2.15624
                                             per annum) or (ii) the cash
                                             dividend (exclusive of non-regular
                                             dividends) paid or payable on the
                                             number of Common Shares into which
                                             a Series A Preferred Share is then
                                             convertible (determined on each of
                                             the quarterly dividend payment
                                             dates referred to above).  See
                                             "Description of Shares of
                                             Beneficial Interest--Series A
                                             Preferred Shares--Dividends."

                                             Holders of Common Shares are
                                             entitled to receive dividends if,
                                             as and when authorized and declared
                                             by the Board of Trustees of the
                                             Company (the "Board of Trustees")
                                             out of assets legally available
                                             therefor. The Company intends to
                                             continue to pay quarterly dividends
                                             to holders of its Common Shares.

Conversion Rights.......................     The Series A Preferred Shares are
                                             convertible, in whole or in part,
                                             at the option of the holder at any
                                             time, unless previously redeemed,
                                             into Common Shares at a conversion
                                             rate of 1.4811 Common Shares per
                                             Series A Preferred Share, subject
                                             to adjustment in certain
                                             circumstances. See "Description of
                                             Shares of Beneficial
                                             Interest--Series A Preferred
                                             Shares--Conversion Rights."

Liquidation Preference..................     Equal to $25 per Series A Preferred
                                             Share (the "Liquidation
                                             Preference"), plus accrued and
                                             unpaid dividends, whether or not
                                             declared.  See "Description of
                                             Shares of Beneficial
                                             Interest--Series A Preferred
                                             Shares--Liquidation Preference."

                                             Holders of Common Shares are
                                             entitled to share ratably in the
                                             remaining assets of the Company
                                             legally available for distribution
                                             to its shareholders in the event of
                                             its liquidation, dissolution or
                                             winding-up after payment of or
                                             adequate provision for all known
                                             debts and liabilities of the
                                             Company.

                                       3


<PAGE>


Redemption at the Option of the
Company.................................     Except as set forth under
                                             "--Special Redemption" below, the
                                             Series A Preferred Shares are not
                                             redeemable by the Company prior to
                                             May 18, 2003.  On and after such
                                             date, the Series A Preferred Shares
                                             will be redeemable at the option of
                                             the Company, in whole or in part,
                                             at the Liquidation Preference plus
                                             accrued and unpaid dividends
                                             (whether or not declared) to the
                                             redemption date without interest,
                                             payable at the Company's option in
                                             (i) Common Shares, equal in number
                                             to the Liquidation Preference plus
                                             accrued and unpaid dividends
                                             divided by the average closing
                                             price of the Common Shares on the
                                             NYSE for the 10 days prior to the
                                             business day immediately preceding
                                             the date of redemption, or (ii)
                                             cash.  See "Description of Shares
                                             of Beneficial Interest--Series A
                                             Preferred Shares--Restrictions on
                                             Ownership."

Special Redemption......................     Series A Preferred Shares may be
                                             redeemed at any time to the extent
                                             necessary to preserve the Company's
                                             status as a real estate investment
                                             trust ("REIT") for federal income
                                             tax purposes.  In addition, at any
                                             time prior to such date, if ever,
                                             as the Series A Preferred Shares
                                             qualify as "publicly offered
                                             securities" under the Plan Asset
                                             Regulation (as defined herein), or
                                             qualify for another exception from
                                             the "look-through" rule (described
                                             herein), if the Company determines
                                             that Benefit Plan Investors (see
                                             "Description of Shares of
                                             Beneficial Interest - Series A
                                             Preferred Shares - Redemption") own
                                             in excess of 20% of the Series A
                                             Preferred Shares (as a result of
                                             transfers or conversions by
                                             non-Benefit Plan Investors or
                                             otherwise), the Company may redeem
                                             any number of the Series A
                                             Preferred Shares held by Benefit
                                             Plan Investors on a pro-rata basis
                                             or any other basis as determined by
                                             the Board of Trustees in its sole
                                             discretion so that Benefit Plan
                                             Investors, as a group, own less
                                             than 25% of the Series A Preferred
                                             Shares (but in no event may such
                                             redemptions reduce Benefit Plan
                                             Investor ownership to less than 20%
                                             of the Series A Preferred Shares).
                                             See "Description of Shares of
                                             Beneficial Interest - Preferred
                                             Shares."

Ranking.................................     With respect to the payment of
                                             dividends and amounts upon
                                             liquidation, the Series A Preferred
                                             Shares rank senior to the Common
                                             Shares.  The Company may issue
                                             shares of beneficial interest that
                                             rank in parity to the Series A
                                             Preferred Shares as to the payment
                                             of dividends or amounts upon
                                             liquidation, dissolution and
                                             winding up (the "Parity Shares")
                                             and, with approval from the holders
                                             of two-thirds of the outstanding
                                             Series A Preferred Shares and the
                                             Parity Shares, may issue shares of
                                             beneficial interest that rank
                                             senior to the Series A Preferred
                                             Shares as to the payment of
                                             dividends or amounts upon
                                             liquidation, dissolution and
                                             winding up.  Distributions on the
                                             Series A Preferred Shares generally
                                             are preceded immediately by an
                                             identical distribution on the
                                             Partnership's Series A Preferred
                                             Units.  The Series A Preferred
                                             Units rank in parity with the
                                             4,063,329 currently outstanding
                                             Class B Preferred Units.  See
                                             "Description of Shares of
                                             Beneficial Interest--Series A
                                             Preferred Shares--Ranking,"
                                             "--Dividends" and "--Liquidation
                                             Preference."

Maturity................................     The Series A Preferred Shares have
                                             no stated maturity and are not
                                             entitled to the benefits of any
                                             sinking fund or subject to any
                                             obligation on the Company to redeem
                                             or retire the Series A Preferred
                                             Shares.  See


                                       4


<PAGE>



                                             "Description of Shares of
                                             Beneficial Interest--Series A
                                             Preferred Shares."

Trading.................................     The Series A Preferred Shares
                                             currently are eligible for trading
                                             on the PORTAL Market.  The Common
                                             Shares are listed on the NYSE under
                                             the symbol "KPA."

                                             The Company has agreed to use its
                                             best efforts to list the Series A
                                             Preferred Shares on a national
                                             exchange or the Nasdaq National
                                             Market as soon as practicable after
                                             the date that the Commission
                                             declares the Registration Statement
                                             effective and other eligibility
                                             requirements for such listing are
                                             satisfied. There can be no
                                             assurance that such listing will be
                                             effected. See "Risk Factors--Risk
                                             that Market for Series A Preferred
                                             Shares Will Not Develop; No
                                             Assurance of Exchange Listing."

Voting Rights...........................     Holders of Series A Preferred
                                             Shares generally have no voting
                                             rights. However, whenever dividends
                                             on any Series A Preferred Shares
                                             shall be in arrears for six or more
                                             quarters (whether consecutive or
                                             not), the holders of such shares
                                             (voting separately as a voting
                                             group with all other series of
                                             Parity Shares upon which like
                                             voting rights have been conferred
                                             and are exercisable) will be
                                             entitled to vote for the election
                                             of two additional Trustees of the
                                             Company until all dividends
                                             accumulated on such Series A
                                             Preferred Shares have been fully
                                             paid or declared and a sum
                                             sufficient for the payment thereof
                                             set aside for payment.  Certain
                                             changes to the terms of the Series
                                             A Preferred Shares that would be
                                             materially adverse to the rights of
                                             holders of the Series A Preferred
                                             Shares cannot be made without the
                                             affirmative vote of holders of at
                                             least two-thirds of the outstanding
                                             Series A Preferred Shares.  In
                                             addition, the approval of
                                             two-thirds of the outstanding
                                             Series A Preferred Shares and any
                                             outstanding Parity Shares is
                                             required for the Company to issue
                                             shares of beneficial interest that
                                             rank senior to the Series A
                                             Preferred Shares.  See "Description
                                             of Shares of Beneficial
                                             Interest--Series A Preferred
                                             Shares--Voting Rights."

                                             Each outstanding Common Share
                                             entitles the holder to one vote on
                                             all matters submitted to a vote of
                                             shareholders, including the
                                             election of trustees, and except as
                                             otherwise required by law or except
                                             as provided with respect to any
                                             other class or series of shares of
                                             beneficial interest, the holders of
                                             such Common Shares possess the
                                             exclusive voting power. See
                                             "Description of Shares of
                                             Beneficial Interest--Common
                                             Shares."

                                       5
<PAGE>



Registration Rights.....................     Pursuant to the Registration Rights
                                             Agreement, the Company has agreed,
                                             for the benefit of all holders of
                                             the Series A Preferred Shares, that
                                             if after the Registration Statement
                                             has been declared effective, the
                                             Registration Statement thereafter
                                             ceases to be effective or usable
                                             (subject to certain exceptions) in
                                             connection with resales of Series A
                                             Preferred Shares or Common Shares
                                             issuable upon conversion thereof in
                                             accordance with and during the
                                             periods specified in the
                                             Registration Rights Agreement (a
                                             "Registration Default"), additional
                                             distributions ("Special
                                             Distributions") shall be payable
                                             quarterly in arrears to holders of
                                             Series A Preferred Shares or Common
                                             Shares entitled to such
                                             registration under the Registration
                                             Rights Agreement (in addition to
                                             the regular distribution accruing
                                             or payable on such shares) and will
                                             accrue beginning (and including)
                                             the date on which any such
                                             Registration Default shall occur
                                             and ending (but excluding) the date
                                             on which all Registration Defaults
                                             have been cured.

                                             Special Distributions will accrue
                                             at a rate of $0.0625 per Series A
                                             Preferred Share per annum
                                             (equivalent to 0.25% of the
                                             Liquidation Preference) during the
                                             90-day period immediately following
                                             the occurrence of any Registration
                                             Default, which rate shall increase
                                             by $0.0625 per Series A Preferred
                                             Share per annum (equivalent to
                                             0.25% of the Liquidation
                                             Preference) at the beginning of
                                             each subsequent 90-day period, but
                                             in no event shall Special
                                             Distributions exceed $0.25 per
                                             Series A Preferred Share in any
                                             12-month period (equivalent to
                                             1.00% of the Liquidation
                                             Preference). Special Distributions
                                             will accrue on any Common Shares
                                             into which the Series A Preferred
                                             Shares have been converted or
                                             redeemed, at a rate adjusted to
                                             provide the holder thereof with the
                                             same economic benefit as though
                                             such Common Shares had not been
                                             converted or redeemed from Series A
                                             Preferred Shares. See "Registration
                                             Rights."

Transfer and Ownership Limitations.......    Subject to certain exceptions, no
                                             person, directly or indirectly, may
                                             own more than 9.8% of (i) the
                                             number of outstanding Common Shares
                                             or (ii) the number of outstanding
                                             Series A Preferred Shares.
                                             Additionally, no Benefit Plan
                                             Investor may acquire Series A
                                             Preferred Shares without the prior
                                             written consent of the Company. See
                                             "Notice to Investors; Transfer
                                             Restrictions."  Benefit Plan
                                             Investors, as a group, may not own
                                             25% or more of the Series A
                                             Preferred Shares.  See "Description
                                             of Shares of Beneficial
                                             Interest--Series A Preferred
                                             Shares--Restrictions on Ownership"
                                             and "ERISA Considerations."


                                  RISK FACTORS

         Prospective investors should carefully consider the matters discussed
under "Risk Factors" beginning on page 7 before making an investment decision
regarding the Series A Preferred Shares or the Common Shares offered hereby.


                           TAX STATUS OF THE COMPANY

         The Company elected to be taxed as a REIT under Sections 856 through
860 of the Code, commencing with its short taxable year ended December 31, 1994.
As a REIT, the Company generally is not subject to federal income tax on its
taxable income that it distributes to its shareholders. A REIT is subject to a
number of


                                       6


<PAGE>



organizational and operational requirements, including a requirement that it
currently distribute at least 95% of its annual taxable income. Failure to
qualify as a REIT will render the Company subject to federal income tax
(including any applicable alternative minimum tax) on its taxable income at
regular corporate rates, and distributions to the shareholders in any such year
will not be deductible by the Company. Even if the Company qualifies for
taxation as a REIT, the Company may be subject to certain federal, state and
local taxes on its income and property. In connection with the Company's
election to be taxed as a REIT, the Company's Declaration of Trust imposes
certain restrictions on the ownership and transfer of the Common Shares and the
Series A Preferred Shares. The Company has adopted the calendar year as its
taxable year. See "Description of Shares of Beneficial Interest" and "Federal
Income Tax Considerations."



                                       7

<PAGE>




                                  RISK FACTORS

         Prospective investors and Series A Preferred Share and Common Share
holders should carefully consider the following information in conjunction with
the other information contained in this Prospectus.

RISKS RELATED TO ISSUANCE OF ADDITIONAL PREFERRED SHARES AND INCURRENCE OF DEBT

         The terms of the Series A Preferred Shares restrict the Company's
ability to issue securities senior to the Series A Preferred Shares; however,
the Company may issue securities ranking in parity with the Series A Preferred
Shares. The issuance of additional preferred shares in parity with or superior
to the Series A Preferred Shares could have the effect of diluting the interests
of holders of the Series A Preferred Shares. None of the provisions relating to
the Series A Preferred Shares contain any provisions affording the holders of
the Series A Preferred Shares protection in the event of a highly leveraged or
other transaction that might adversely affect the ability of the Company to pay
dividends on the Series A Preferred Shares.

RISK THAT MARKET FOR SERIES A PREFERRED SHARES WILL NOT DEVELOP; NO ASSURANCE OF
EXCHANGE LISTING

         The Series A Preferred Shares may not be offered or sold except
pursuant to the Registration Statement or an exemption from the registration
requirements of the Securities Act, applicable state securities laws and the
transfer restrictions described under "Benefit Plan Ownership and Transfer
Restrictions." There is no established trading market for the Series A Preferred
Shares. While the Series A Preferred Shares have been accepted for trading in
the PORTAL Market, there can be no assurance that an active trading market for
the Series A Preferred Shares will develop in the PORTAL Market or elsewhere.
Furthermore, while the Company may in the future apply to list the Series A
Preferred Shares on a national exchange or the Nasdaq National Market, if and
when such market's listing requirements are met, the Series A Preferred Shares
do not currently meet the listing requirements of any national exchange or the
Nasdaq National Market. Accordingly, no assurance can be given as to (i) the
likelihood that an active market for the Series A Preferred Shares will develop,
(ii) the liquidity of any such market, (iii) the ability of the securityholders
to sell their Series A Preferred Shares or (iv) the prices that securityholders
may obtain for their Series A Preferred Shares.

RISK OF RAPID GROWTH; DEPENDENCE ON LESSEES AND THIRD-PARTY MANAGERS

         The Company's ability to grow depends upon the ability of the Lessees
and any third-party manager retained by the Lessees, such as Marriott or the
Summerfield Manager, to manage effectively the Hotels, as well as any additional
hotels in which the Company invests. The Lessees' or any third-party managers'
ability to operate additional hotels under Percentage Leases or management
agreements, as applicable, with current staffing levels and office locations,
may diminish as the Company acquires additional hotels. Such growth may require
the Lessees to hire additional personnel, engage additional third-party managers
and operate in new geographic locations. In order to qualify as a REIT, the
Company cannot operate the Hotels or participate in decisions affecting the
daily operations of the Hotels. The JF Lessee has limited assets, and the
Lessees must generate sufficient cash flow from the operation of the Hotels,
after payment of all operating expenses, to fund the Lessees' rent obligations
under the Percentage Leases. There can be no assurance that the Lessees or their
third-party managers will effectively operate the Hotels. In the event that the
Lessees and their third-party managers fail to effectively operate the Hotels,
the Company's internal growth strategy and acquisition strategy would be more
difficult to achieve and, therefore, cash available for distribution to the
shareholders of the Company could be adversely affected. If the Company
terminates a Percentage Lease following a default under a Percentage Lease, a
default could concurrently be triggered under the Company's loan agreements,
which could result in a foreclosure of the Hotels securing borrowings under the
Company's loan agreements. In addition, a material default under a Percentage
Lease could trigger cross-defaults under one or more Percentage Leases, which
could have a material adverse effect on cash available for distribution to the
shareholders of the Company.


                                       8


<PAGE>


RISK RELATING TO FINANCING AND DISTRIBUTIONS

         The Company anticipates that its growth and acquisition strategies will
be largely financed through externally generated funds such as borrowings under
credit facilities and other secured and unsecured debt financing and from
issuance of equity securities. Because the Company must distribute 95% of its
taxable income to maintain its qualification as a REIT, the Company's ability to
rely upon income from operations or cash flow from operations to finance its
growth and acquisition activities will be limited. Accordingly, were the Company
unable to obtain funds from borrowings or the capital markets to finance its
growth and acquisition activities, the Company's ability to grow could be
curtailed, cash available for distribution to shareholders of the Company could
be adversely affected and the Company could be required to reduce distributions.

LEVERAGE

         To the extent the Company continues to incur debt, which it expects to
do, its debt available for distribution to shareholders of the Company. There
can be no assurances that the Company will be able service requirements will
reduce cash available for distribution to shareholders of the Company. Variable
rate debt, such as the Line of Credit, creates higher debt service requirements
if interest rates increase, which may decrease cash to meet its debt service
obligations. To the extent that it cannot meet its debt service obligations, the
Company risks the loss of some or all of its Hotels to foreclosure or forced
sale. Changes in economic conditions could result in higher interest rates on
variable rate debt, including borrowings under the Line of Credit, reduce the
availability of debt financing generally or at rates deemed favorable to the
Company, reduce cash available for distribution to shareholders of the Company
and increase the risk of loss upon a sale or foreclosure. The Company also may
obtain one or more forms of interest rate protection on variable rate debt
(e.g., swap agreements or interest rate cap contracts) and will consider
additional long-term fixed-rate financing to further hedge against the possible
adverse effects of interest rate fluctuations. Adverse economic conditions could
cause the terms on which such borrowings may become available to be less
favorable than at present. In such circumstances, if the Company is in need of
capital to repay indebtedness in accordance with its terms or otherwise, it
could be required to liquidate one or more Hotels or lose one or more Hotels to
foreclosure, either of which could result in a material financial loss to the
Company.

ERISA CONSIDERATIONS

         The Company intends to use reasonable efforts to restrict ownership of
the Series A Preferred Shares so that no assets of the Company will be deemed to
be Plan Assets, as defined in the Plan Asset Regulation promulgated by the
Department of Labor. Although (i) the Company intends to restrict the
acquisition of the Series A Preferred Shares by Benefit Plan Investors to less
than 25% of the outstanding Series A Preferred Shares (excluding shares held by
persons having discretionary authority or control over the Company's assets or
who provide investment advice to the Company for a fee, or any affiliates
thereof), (ii) the Articles Supplementary (see "Description of Shares of
Beneficial Interest") provide that any transfers to Benefit Plan Investors that
would increase aggregate Benefit Plan Investor ownership of the Series A
Preferred Shares (calculated in the same manner) to 25% or more will be void ab
initio, and (iii) the Articles Supplementary provide that Series A Preferred
Shares owned by Benefit Plan Investors at or above 25% will be designated
Shares-in-Trust (as defined herein), there can be no assurance that such
mechanisms will be sufficient to prevent the assets of the Company from being
deemed to be Plan Assets (see "Description of Shares of Beneficial Interest -
Series A Preferred Shares -- Redemption"). See "ERISA Considerations" and
"Description of Shares of Beneficial Interest--Series A Preferred
Shares--Restrictions on Ownership."

         If the assets of the Company were deemed to be Plan Assets, certain
transactions that the Company might enter into, or may have entered into, in the
ordinary course of business might constitute non-exempt prohibited transactions
under ERISA and/or Section 4975 of the Code and might have to be foregone or
rescinded. See "ERISA Considerations." There is also a risk that the Plan Asset
Regulation (see "Description of Shares of Beneficial Interest -- Series A
Preferred Shares -- Redemption")could be interpreted to mean that Company assets
will be deemed to be Plan Assets if 25% or more of the value of any class of the
Company's equity securities,


                                       9


<PAGE>


including its publicly-traded Common Shares, is held by Benefit Plan Investors.
The Company is unable to determine what percentage of its Common Shares is held
by Benefit Plan Investors.

         No Benefit Plan Investor may purchase Series A Preferred Shares without
the Company's prior written consent. In addition, as required by the terms of
the Series A Preferred Shares, any purported purchase of the Series A Preferred
Shares, or any change in relative ownership due to conversions by non-Benefit
Plan Investors, that would increase aggregate Benefit Plan Investor ownership of
Series A Preferred Shares to 25% or more, will result in Shares-in-Trust
pursuant to the Articles Supplementary. The Company has the right to purchase
such Shares-in-Trust for their fair market value (as determined by the Board of
Trustees in its sole discretion). See "Description of Shares of Beneficial
Interest--Series A Preferred Shares--Restrictions on Ownership--ERISA-Related
Restrictions."

TAX RISKS

         Consequences of Failure to Maintain REIT Status. The Company intends to
operate in a manner so as to qualify as a REIT for federal income tax purposes.
Investors should be aware, however, that the continued qualification of the
Company as a REIT will depend on the Company's satisfaction of certain asset,
income, organizational, and shareholder ownership requirements on a continuing
basis. If the Company were to fail to qualify as a REIT in any taxable year, it
would be subject to federal income tax (including any applicable alternative
minimum tax) on its taxable income at regular corporate rates, and distributions
to shareholders would not be deductible by the Company in computing its taxable
income. Any such corporate tax liability could be substantial and would reduce
the amount of cash available for distribution to shareholders of the Company. In
addition, the Company might be required to liquidate certain investments or
borrow funds to pay the applicable tax. Unless entitled to relief under certain
Code provisions, the Company would be precluded from reinstatement as a REIT for
the four taxable years following loss of REIT status.

         Failure to Satisfy Distribution Requirements Will Result in the
Imposition of Corporate Income and or Excise Tax. The Company must distribute
annually at least 95% of its taxable income (excluding any net capital gain) in
order to maintain REIT status and to avoid corporate income taxation of the
earnings that it distributes. In addition, the Company will be subject to a 4%
nondeductible excise tax on the amount, if any, by which certain distributions
paid by it with respect to any calendar year are less than the sum of (i) 85% of
its ordinary income for that year, (ii) 95% of its capital gain net income for
that year, and (iii) 100% of its undistributed taxable income from prior REIT
taxable years. To the extent that the Company elects to retain and pay income
tax on the net long-term capital gains it receives during a taxable year, such
amounts will be treated as having been distributed for purposes of the 4% excise
tax.

         The Company has made and intends to continue to make distributions to
its shareholders to comply with the 95% distribution requirement and to avoid
both corporate income tax and the nondeductible excise tax. However, differences
in timing between the recognition of taxable income and the actual receipt of
cash could require the Company to borrow funds or sell assets on a short-term
basis to meet the 95% distribution requirement and to avoid corporate income tax
and the nondeductible excise tax. The requirement to distribute a substantial
portion of the Company's taxable income could cause the Company (i) to sell
assets in adverse market conditions to meet those distribution requirements, or
(ii) to distribute amounts that would otherwise be spent on future acquisitions,
capital expenditures, or repayment of debt. Gain from the disposition of any
asset held primarily for sale to customers in the ordinary course of business
generally will be subject to a 100% penalty tax.

         Failure of the Partnership to be Classified as a Partnership for
Federal Income Tax Purposes; Impact on REIT Status. The Company believes that
the Partnership and its subsidiary partnerships (the "Subsidiary Partnerships")
will be classified as partnerships for federal income tax purposes. If the
Internal Revenue Service (the "Service") were to challenge successfully the tax
status of the Partnership or a Subsidiary Partnership as a partnership for
federal income tax purposes, the Partnership or a Subsidiary Partnership would
be taxable as a corporation. In such event, the Company would cease to qualify
as a REIT for a variety of reasons. Furthermore, the imposition of a corporate
tax on the Partnership or a Subsidiary Partnership would substantially reduce
the amount of cash available for distribution to the shareholders of the
Company.


                                       10


<PAGE>


OWNERSHIP LIMITATION

         In order for the Company to maintain its qualification as a REIT, not
more than 50% in value of its outstanding shares of beneficial interest may be
owned, directly or indirectly, by five or fewer individuals (as defined in the
Code to include certain entities) during the last half of any taxable year. See
"Ownership Limitation." Furthermore, if any interestholder of a Lessee owns,
actually or constructively, 10% or more of the shares of beneficial interest of
the Company, such Lessee could become a related-party tenant of the Company,
which likely would result in loss of REIT status for the Company. For the
purpose of preserving the Company's REIT qualification, the Company's
Declaration of Trust prohibits direct or indirect ownership (taking into account
applicable ownership provisions of the Code) of more than 9.8% of the number of
outstanding shares of beneficial interest of any class or series of the
Company's shares of beneficial interest (the "Ownership Limitation"). Generally,
the shares of beneficial interest owned by related or affiliated owners will be
aggregated for purposes of the Ownership Limitation. Any transfer of shares of
beneficial interest that would violate the Ownership Limitation will be void ab
initio, the intended transferee of such shares will be deemed never to have had
an interest in such shares, and such shares will be designated
"Shares-in-Trust." Further, the Company shall be deemed to have been offered
Shares-in-Trust for purchase at the lesser of the market price (as defined in
the Declaration of Trust) on the date the Company accepts the offer and the
price per share in the transaction that created such Shares-in-Trust (or, in the
case of a gift, devise or non-transfer event (as defined in the Declaration of
Trust), the market price on the date of such gift, devise or non-transfer
event). Therefore, the record holder of shares of beneficial interest in excess
of the Ownership Limitation will experience a financial loss when such shares
are redeemed, if the market price falls between the date of purchase and the
date of redemption.

ACQUISITION OF HOTELS WITH LIMITED OPERATING HISTORY

         The Company and the Lessees have negotiated the Percentage Rent
formulas for certain Hotels with limited operating history based on certain
assumptions of occupancy and average daily rate ("ADR") for these Hotels on an
anticipated stabilized basis. Consequently, the Company will be subject to risks
that these Hotels will not achieve anticipated occupancy or ADR levels or may
not achieve such levels within anticipated time frames. Room revenues may be
less than required to result in the payment of Percentage Rent at levels at a
particular Hotel that provide the Company with an attractive return on its
investment. The fixed obligation of the Lessee to pay a certain sum in annual
rent under each of the Percentage Leases regardless of the level of room revenue
achieved for the Summerfield Hotels reduces under the terms of the Percentage
Leases beginning in 1999, when the rent payable under the Percentage Leases
becomes more heavily weighted towards Percentage Rent. If the room revenues at
that time were less than currently anticipated, the rent payable with respect to
these Hotels would be lower than anticipated, which could have a material
adverse effect on cash available for distribution to shareholders of the
Company. Additionally, the Company has entered into a contract with Marriott to
purchase the six Acquisition Hotels, all of which are currently under
development by Marriott. See "The Company." Acquisition of hotels under
development entails risks that completion delays will delay receipt of rent
payments by the Company. The purchase of each Acquisition Hotel is subject to
certain conditions, and there can be no assurance that such acquisitions will
close as contemplated.

DEVELOPMENT AND CONSTRUCTION ACTIVITIES

         The Company has undertaken in the past, and may undertake in the
future, development and substantial renovation of hotels. Risks associated with
additional development and construction activities may include: (i) the
abandonment of development opportunities explored by the Company; (ii)
construction costs of a hotel exceeding original estimates due to increased
materials, labor or other expenses, which could make completion of the hotel
uneconomical; (iii) operating results at a newly-completed hotel are dependent
on a number of factors, including market and general economic conditions,
competition and market acceptance; (iv) financing may not be available on
favorable terms for the development of a hotel; and (v) construction and
stabilization may not be completed on schedule, resulting in increased debt
service expense and construction costs. Development activities are also subject
to risks relating to the inability to obtain, or delays in obtaining, all
necessary zoning, land-use, building, occupancy, and other required governmental
permits and authorizations. The occurrence of any of the events described above
could adversely affect the Company's ability to achieve its projected yields on
hotels under

                                       11


<PAGE>



development or renovation and could adversely affect cash available for
distribution to the shareholders of the Company.

LIMITATION ON RESALE OF CERTAIN HOTELS

         In November 1996, the Company acquired seven Residence Inn by Marriott
hotels (the "DeBoer Hotels") from affiliates of Jack P. DeBoer (the "DeBoer
Group"). The Class B Preferred Units were issued in connection with the
acquisition of the DeBoer Hotels. Due to the potential adverse tax consequences
to members of the DeBoer Group that may result from a sale of the DeBoer Hotels,
the Company has agreed with the DeBoer Group that for a period of up to ten
years following the closing of the acquisition of the DeBoer Hotels, (i) any
taxable sale of a DeBoer Hotel will require the consent of the applicable
members of the DeBoer Group and (ii) the Company will maintain at all times
outstanding indebtedness of at least approximately $40 million, subject to
reduction upon the occurrence of certain events, including certain redemptions
or taxable transfers of Class B Preferred Units by the applicable members of the
DeBoer Group (the "Required Indebtedness"), which may cause the Company to be
unable to sell some or all of the DeBoer Hotels in circumstances in which it
would be advantageous for the Company to do so. In the event that the Company
fails to maintain the Required Indebtedness or sells a DeBoer Hotel in a taxable
sale, the Company will be liable for any resulting income tax liabilities
incurred by the applicable members of the DeBoer Group.

         Due to the potential adverse tax consequences for certain Summerfield
affiliates that may result from the sale of any or all of the Summerfield
Hotels, the Company has agreed that for a period of up to seven years following
the closing of the acquisition of the Summerfield Hotels, any taxable sale of a
Summerfield Hotel will require the consent of the applicable Summerfield
affiliates, which may cause the Company to be unable to sell some or all of the
Summerfield Hotels in circumstances in which it would be advantageous for the
Company to do so. If the Company sells a Summerfield Hotel without such consent,
the Company could be liable for the tax liability on the built-in gain of the
Summerfield affiliates.

ENVIRONMENTAL MATTERS

         Under various federal, state and local laws and regulations, an owner
or operator of real estate may be liable for the costs of removal or remediation
of certain hazardous or toxic substances on such property. Such laws often
impose such liability without regard to whether the owner knew of, or was
responsible for, the presence of hazardous or toxic substances. Furthermore, a
person that arranges for the disposal or transports for disposal or treatment of
a hazardous substance at a property owned by another may be liable for the costs
of removal or remediation of hazardous substances released into the environment
at the property. The costs of remediation or removal of such substances may be
substantial, and the presence of such substances, or the failure to promptly
remediate such substances, may adversely affect the owner's ability to sell real
estate or to borrow using such real estate as collateral. In connection with the
ownership and operation of the Hotels, the Company or the Lessee, as the case
may be, may be potentially liable for any such costs.

         Phase I environmental site assessments ("ESAs") generally are obtained
on hotels acquired by the Company. The Company generally intends to obtain an
ESA on any other hotel acquired in the future. The ESAs are and were intended to
identify potential environmental contamination for which the Hotels may be
responsible. The ESAs included historical reviews of the Hotels, reviews of
certain public records, preliminary investigations of the sites and surrounding
properties, screening for the presence of hazardous substances, toxic substances
and underground storage tanks, and the preparation and issuance of a written
report. The ESAs did not include invasive procedures, such as soil sampling or
ground water analysis.

         The ESAs have not revealed any environmental liability or compliance
concerns that the Company believes would have a material adverse effect on the
Company's business, assets, results of operations or liquidity nor is the
Company aware of any such liability. Nevertheless, it is possible that these
ESAs do not reveal all environmental liabilities or that there are material
environmental liabilities or compliance concerns of which the Company is
unaware. Moreover, no assurances can be given that (i) future laws, ordinances
or regulations will not impose any material environmental liability, or (ii) the
current environmental condition of the Hotels will not be


                                       12


<PAGE>


affected by the condition of the properties in the vicinity of the Hotels (such
as the presence of leaking underground storage tanks) or by third parties
unrelated to the Company or the Lessees.

CONCENTRATION OF INVESTMENTS IN CALIFORNIA

         Ten of the 62 Hotels, which generated approximately 30% of the
Company's pro forma percentage lease revenue in 1997, are located in California.
As a result, localized adverse events or conditions, such as economic recessions
and natural disasters, could have a significant negative effect on the
operations of the combined Hotels, and ultimately cash available for
distribution to shareholders of the Company.

INVESTMENT CONCENTRATION IN SINGLE INDUSTRY; EMPHASIS ON UPSCALE EXTENDED-STAY
MARKET SEGMENT

         The Company's current growth strategy is to acquire primarily upscale
extended-stay hotels. The Company will not seek to invest in assets selected to
reduce the risks associated with an investment in that segment of the hotel
industry, and, therefore, is subject to risks inherent in concentrating
investments in a single industry and in a single market segment within that
industry. The upscale extended-stay segment is particularly dependent on
corporate training and consultant activity, both of which would be adversely
affected by an economic downturn. Therefore, the adverse effect on rent under
the Percentage Leases and cash available for distribution to shareholders of the
Company resulting from a downturn in the hotel industry or the failure of the
upscale extended-stay market segment to continue to grow in accordance with
expectations would be more pronounced than if the Company had diversified its
investments outside of the hotel industry or in additional hotel market
segments.

EMPHASIS ON ACQUIRING HOTELS WITH CERTAIN FRANCHISE AFFILIATIONS

         Thirty-eight of the Hotels operate as Residence Inn hotels and 12
operate as Hampton Inn hotels. The Summerfield Hotels include six Summerfield
Suites hotels and two Sierra Suites hotels. The Company will be subject to risks
inherent in concentrating investments in any franchise brand, in particular the
Residence Inn, Summerfield Suites and the Hampton Inn brands, such as a
reduction in business following any adverse publicity related to a brand, which
could have an adverse effect on the Company's rent under the Percentage Leases
and distributions to shareholders. Furthermore, the Summerfield Suites and
Sierra Suites brands are relatively new brands with a relatively small number of
such hotels currently open and do not currently have, and may not develop in the
future, substantial name recognition or effective reservation systems. If name
recognition and effective registration systems are not established, the revenues
from such hotels, and therefore, the Lessees' obligation to make payments based
on percentages of room revenue from the Hotels payable by the Lessees pursuant
to the Percentage Leases ("Percentage Rent"), particularly at the higher tier,
may be adversely affected, in which case cash available for distribution would
be adversely affected. In addition, dependence upon a lessee, manager or major
franchisor such as Marriott, Promus or Summerfield, respectively, may adversely
affect the Company's ability to negotiate favorable contractual provisions with
such franchisors, lessees or managers.

NO ASSURANCE OF FUTURE ACQUISITIONS OF SIMILAR BRAND HOTELS

         While the Company believes that its relationships with the companies
franchising the Company's current brands, including Marriott and Summerfield,
may continue to provide the Company with acquisition opportunities, there can be
no assurance that the Company will acquire any additional Marriott or
Summerfield Suites or other brand hotels or that the acquisition of the
Acquisition Hotels will occur in the time or manner contemplated.

CONFLICTS OF INTEREST

         Jeffrey H. Fisher is Chairman of the Board, Chief Executive Officer and
President of the Company, Frederic M. Shaw is Executive Vice President and Chief
Operating Officer of the Company and Messrs. Fisher and Shaw are the
shareholders of the JF Lessee. Rolf E. Ruhfus, a Trustee of the Company, founded
Summerfield Hotel Corporation, which was sold to Patriot and is now part of the
All-Suites Division of Wyndham International, Inc., the shares of which are
paired and trade as a single unit with shares of Patriot. In connection with the
Patriot acquisition of Summerfield Hotel Corporation, Mr. Ruhfus received an
equity interest in Patriot and became a

                                       13


<PAGE>



director of Wyndham International, Inc. The Summerfield Lessee and the
Summerfield Manager are owned by Patriot. The Company acquired the DeBoer Hotels
from Mr. DeBoer, a Trustee of the Company. As a result, there are inherent
conflicts of interest in the ongoing lease, acquisition, disposition and
operation of the Hotels, and the interests of shareholders may not have been,
and in the future may not be, reflected solely in all decisions made or actions
taken by officers and Trustees of the Company.

Percentage Leases

         The JF Lessee. The Partnership and the JF Lessee, which is owned by Mr.
Fisher (80%) and Mr. Shaw (20%), are parties to Percentage Leases with respect
to 53 of the Hotels owned by the Partnership, with each such Percentage Lease
having an initial term of at least 10 years. Pursuant to the terms of the
Percentage Leases, the JF Lessee is required to pay the greater of Base Rent or
Percentage Rent, and is entitled to all profits from the operation of the Hotels
after the payment of the rent payable under the Percentage Leases, operating
expenses and other expenses (including management fees). Payments of Rent under
the Percentage Leases constitute a substantial portion of the Partnership's and
the Company's revenues. For the year ended December 31, 1997, the JF Lessee
incurred or paid the Partnership an aggregate of approximately $57.5 million in
lease payments under the Percentage Leases for the 47 Hotels owned and leased to
JF Hotel at year end and had combined net income of approximately $3.5 million
from the operation of the Hotels leased by the JF Lessee. In addition to his
ownership of the JF Lessee, Mr. Shaw serves as President of, and derives a
salary and bonus from, the JF Lessee.

         Franchise Licenses. The JF Lessee holds all of the franchise licenses
for the Hotels leased by the JF Lessee (to the extent such hotels have franchise
agreements) and are expected to hold any franchise licenses required for
subsequently acquired hotels that are leased to the JF Lessee. The JF Lessee
pays the franchise fees for all of the Company's Hotels which are leased to the
JF Lessee and are subject to franchise fees, except for franchise license
application and transfer fees, which are paid by the Partnership. During 1997,
the Partnership incurred or paid franchise license application, transfer and
related fees for the Hotels in the aggregate amount of approximately $165,600.
In addition, in 1996 and 1997, the Partnership loaned to the JF Lessee an
aggregate of approximately $530,250, which the JF Lessee was required to make
available to Marriott for initial working capital at certain of the Residence
Inn by Marriott hotels that are managed by Marriott under management contracts
with the JF Lessee. The Partnership's loans to the JF Lessee for working capital
at the Marriott-managed hotels bear no interest and are payable on demand.

         Jack P. DeBoer. In November 1996, the Company acquired the seven DeBoer
Hotels from the DeBoer Group. Mr. DeBoer and certain of his affiliates have in
the past, and continue to be, involved in the development of hotels, including
extended-stay hotels. Mr. DeBoer is the President, Chairman of the Board and a
major shareholder of Candlewood Hotel Company, Inc. ("Candlewood"), a public
hotel company that is the owner, operator and franchisor of Candlewood hotels,
an economy extended-stay hotel chain founded by Mr. DeBoer. Hotels developed by
Mr. DeBoer and his affiliates, including Candlewood hotels, may compete with the
Company's hotels for guests, and other hotel companies with which Mr. DeBoer is
affiliated, including Candlewood, may compete with the Company for acquisition
opportunities. Accordingly, the interests of the Company and Mr. DeBoer could be
different in connection with matters relating to the Company's Hotels or
proposed acquisitions that are competitive with hotels owned or being considered
for acquisition or development by Mr. DeBoer and his affiliates.

         Rolf E. Ruhfus. In June 1997, the Company acquired the Summerfield
Hotels from affiliates of Mr. Ruhfus for a total purchase price of approximately
$118.6 million, consisting of (i) approximately $89.5 million in cash and (ii)
approximately 1.94 million common units (the "Summerfield Units"), which were
assumed to have a value of $15 per Common Unit. The Company leases the
Summerfield Hotels to the Summerfield Lessee, which is owned by Patriot. Mr.
Ruhfus is a shareholder of Patriot and on the board of Wyndham International,
Inc., the shares of which are paired and trade as a single unit with shares of
Patriot. For the year ended December 31, 1997, the Summerfield Lessee incurred
or paid the Partnership an aggregate of approximately $7.8 million in lease
payments under the Percentage Leases for the Summerfield Hotels.

         The Summerfield Hotels include six Summerfield Suites hotels and one
Sunrise Suites hotel--which are upscale extended-stay hotels--and two Sierra
Suites hotels--which are mid-price extended-stay hotels. Mr. Ruhfus


14


<PAGE>


and certain of his affiliates have in the past, and continue to be, involved in
the development of hotels, including extended-stay hotels. Mr. Ruhfus is a
shareholder of Patriot which is the operator and franchisor of Summerfield
Suites and Sierra Suites hotels. Hotels developed by Mr. Ruhfus and his
affiliates, or Patriot, including Summerfield Suites and Sierra Suites hotels,
may compete with the Company's hotels for guests. Accordingly, the interests of
the Company and Mr. Ruhfus could be different in connection with matters
relating to the Company's Hotels or proposed acquisitions that are competitive
with hotels owned or being considered for acquisition or development by Mr.
Ruhfus and his affiliates.

SUMMERFIELD SUITES -- WEST HOLLYWOOD, CALIFORNIA

         The Summerfield Suites -- West Hollywood, California formerly was an
apartment/hotel. In obtaining land use approvals for the hotel, the former
owners agreed, among other things, that nine apartment residents in the hotel
would be permitted to continue residing in the building under their existing,
rent-controlled apartment leases. The owners also agreed to conduct business in
a manner consistent with the surrounding property uses (primarily residential);
specifically, among other things, refuse pick-up and deliveries are prohibited
during certain night-time hours, free on-site parking must be provided to hotel
employees, functions must be limited to 25 people and at night must be held
indoors, limits are placed on the manner and timing of (a) unloading guests in
front of the hotel, (b) service of food and alcohol and (c) use of outdoor patio
and roof-top deck, and reasonable measures must be taken to assure that noise
and odors from the kitchen do not disturb neighbors. The municipality also
imposed a fee for occupancy taxes that were then-past due and for the loss of
apartment rental units at the building. The approximately $60,000 annual fee is
payable through 2009. Under the percentage lease applicable to the hotel, the
Summerfield Lessee is responsible for making the payment to the municipality. If
the fee is not paid, the municipality may have the right to revert the building
from its currently authorized use mix, which includes nine apartment units and
the balance permitted for hotel use, to a 50/71 apartment/hotel suite mix, with
the reverted apartment units possibly subject to any then-applicable rent
control provisions. Any such reversion would have a material adverse affect on
the revenues at the hotel, the lease payment payable by the Summerfield Lessee
and, therefore, the Company's cash available for distribution to shareholders of
the Company.

ADVERSE EFFECT OF SHARES AVAILABLE FOR FUTURE ISSUANCE AND SALE ON MARKET PRICE
OF COMMON SHARES

         The Company's Declaration of Trust authorizes the Board of Trustees to
issue up to 120,000,000 shares of capital stock, consisting of 100,000,000
Common Shares and 20,000,000 Preferred Shares. The Board of Trustees will be
able to issue an aggregate of 49,890,080 unissued and unreserved Common Shares
and to classify and issue 15,370,000 unissued Preferred Shares. The Company's
acquisition strategy depends in part on access to additional capital through
sales and issuances of equity securities. The market price of the Common Shares
may be adversely affected by the availability for future sale and issuance of
such unissued and unreserved Common Shares and Preferred Shares.

         In addition, the market price of Common Shares may also be adversely
affected by the availability for future sale and issuance of 5,840,547 Common
Shares that could be issued upon the redemption of Units of the Partnership. The
Company has previously effected shelf registrations of 6,876,188 Common Shares
issuable to certain Limited Partners of the Partnership upon redemption of their
Units so as to permit such shares to be freely tradeable. In addition to
effecting a shelf registration for 1,572,861 Common Shares issuable upon
redemption of certain of the Summerfield Units in June of 1998 and its
obligation to effect a shelf registration for 365,086 Common Shares issuable
upon the redemption of certain of the Summerfield Units on or before June 20,
1999, the Company has granted the holders of the Summerfield Units the right to
require the Company to effect two underwritten offerings of the Common Shares
issuable upon redemption of the Summerfield Units upon demand by the holders
thereof. The Company also has entered into an agreement to issue Units in
connection with the acquisition of the Acquisition Hotels. The Company has
reserved Common Shares for issuance upon redemption of such Units and expects to
effect one or more registration statements to permit such shares to be freely
traded. The existence of such shelf registration statements and demand
registration rights and the ability of holders of Units to receive Common Shares
in exchange for their Units and to thereafter sell such Common Shares, may have
an adverse effect on the market price of the Common Shares.


                                       15


<PAGE>


         In May 1998, the Company issued the Series A Preferred Shares in the
Private Placement. The Series A Preferred Shares are immediately convertible at
a rate of 1.4811 Common Shares for each Series A Preferred Share. The conversion
of such Series A Preferred Shares may have an adverse effect on the market price
of the Common Shares. See "Description of Shares of Beneficial Interest - Series
A Preferred Shares" for a description of the Series A Preferred Shares.

COMMON SHARE PRICE FLUCTUATIONS

         A number of factors may adversely influence the price of the Common
Shares in public trading markets, many of which are beyond the control of the
Company. In particular, an increase in market interest rates will result in
higher yields on other financial instruments and may lead purchasers of Common
Shares to demand a higher annual distribution rate on the price paid for the
Common Shares, which could adversely affect the market price of the Common
Shares. As a result, Shares acquired upon the conversion of Series A Preferred
Shares could decline in value after the date on which they are issued.


        RATIO OF EARNINGS TO FIXED CHARGES AND PREFERRED STOCK DIVIDENDS

         The following table sets forth the ratio of earnings to fixed charges
and preferred stock dividends.

<TABLE>
<CAPTION>
                                                                                                    Three Months
                                                                                                   ---------------
                                                           Year ended December 31,                 ended March 31,
                                                  ----------------------------------------         ---------------
<S><C>
                                                  1994         1995       1996        1997        1997        1998
                                                  ----         ----       ----        ----        ----        ----
Ratio of earnings to fixed charges......          3.01         2.59       2.21        2.60        2.30        2.01
</TABLE>

         The ratio of earnings to fixed charges was computed by dividing
earnings by fixed charges. For this purpose, earnings consist of income before
gains from sales of property, Common Unit minority interest and extraordinary
items plus fixed charges (excluding capitalized interest). Fixed charges consist
of interest expense (including interest costs capitalized), the amortization of
loan origination fees and Class B Preferred Unit distributions.


                                USE OF PROCEEDS

         The Company will not receive any proceeds from the sales of the Series
A Preferred Shares or Common Shares by the Selling Shareholders. See "Selling
Shareholders" for a list of those persons and entities receiving the proceeds
from the sales of the Series A Preferred Shares or Common Shares pursuant to
this Prospectus. The Company will not receive any proceeds from the issuance of
Common Shares upon conversion of the Series A Preferred Shares.


              DISTRIBUTION POLICY AND PRICE RANGE OF COMMON SHARES

         The Company currently pays regular quarterly distributions to the
holders of Common Shares. The Company declared dividends of $0.28 per share for
the first quarter of 1998, a 45% increase over the quarterly distribution rate
in September 1994. Future distributions paid by the Company will be at the
discretion of the Board of Trustees and will depend on the Company's actual cash
available for distribution to shareholders of the Company, its financial
condition, capital requirements, the distribution requirements under federal
income tax provisions for qualification as a REIT and such other factors as the
Board of Trustees may deem relevant.

         Distributions by the Company to the extent of its current and
accumulated earnings and profits for federal income tax purposes generally will
be taxable to shareholders as ordinary income. Distributions in excess of
current and accumulated earnings and profits will be treated as a non-taxable
return of capital and a reduction of the

                                       16


<PAGE>



shareholder's basis in its shares of beneficial interest to the extent thereof,
and thereafter as taxable gain. Distributions that are treated as a reduction of
the shareholder's basis in its shares of beneficial interest will have the
effect of deferring taxation until the sale of its shares of beneficial
interest. The Company has determined that, for federal income tax purposes,
approximately 14% of the per share distribution paid on the Common Shares for
the year ended December 31, 1997 represented a return of capital to common
shareholders.

         The Common Shares were listed for quotation on the Nasdaq National
Market until September 24, 1996 under the symbol "NKPR." The Company's Common
Shares were listed on the NYSE under the symbol "KPA" commencing September 25,
1996. The following table sets forth for the indicated periods the closing high
and low sales prices for the Common Shares and the cash distributions declared
per share:

<TABLE>
<CAPTION>
                                                                                                           Cash
                                                                      Price Range                     Distributions
                                                             --------------------------                 Declared
                                                             High                   Low                 Per Share
                                                             ----                   ---                 ---------
<S><C>
1995
- ----
First Quarter                                              $ 8.625               $ 7.125                 $0.19375
Second Quarter                                               9.125                 8.000                  0.215
Third Quarter                                                9.500                 8.375                  0.215
Fourth Quarter                                               9.625                 8.625                  0.215

1996
- ----
First Quarter                                               10.250                 8.875                  0.225
Second Quarter                                              10.250                 9.000                  0.225
Third Quarter                                               11.250                 9.500                  0.225
Fourth Quarter                                              13.875                10.500                  0.225

1997
- ----
First Quarter                                               15.500                13.000                  0.250
Second Quarter                                              15.000                12.875                  0.250
Third Quarter                                               17.188                13.625                  0.260
Fourth Quarter                                              17.500                14.125                  0.260

1998
- ----
First Quarter                                               16.375                14.500                  0.280
Second Quarter                                              16.875                12.375                  0.280
Third Quarter (through July 7, 1998)                        13.9375               12.875                    --
</TABLE>

         On July 7, 1998, the last reported sale price of the Common Shares on
the NYSE was $13.75 per share.

                                       17


<PAGE>




                                  THE COMPANY

         Innkeepers USA Trust is the only publicly-traded REIT primarily focused
on the multi-brand ownership of upscale extended-stay hotels. The Company
currently owns 62 hotels containing an aggregate of 7,439 rooms located in 24
states. The Hotels consist of (i) 45 upscale and two mid-priced extended-stay
hotels, including 38 Residence Inn by Marriott hotels, six Summerfield Suites
hotels, two Sierra Suites hotels and one Sunrise Suites hotel and (ii) 15
mid-priced limited or full service hotels, including 12 Hampton Inn hotels, one
Comfort Inn hotel and one Holiday Inn Express hotel. The Company's primary
objective is to acquire high quality hotels in its target markets, which have
high barriers to entry and strong demand characteristics.

         For the Company to qualify as a REIT, the Company cannot operate
hotels. The Company, therefore, leases all of its Hotels. The Company has
implemented a strategy of utilizing multiple lessees and hotel management
companies for the operation and management of its hotel properties. The Company
leases 53 of the Hotels to the JF Lessee and leases the Summerfield Hotels to
the Summerfield Lessee pursuant to the Percentage Leases. The Percentage Leases
allow the Company to participate in increased revenue from the Hotels by
providing for the payment of Percentage Rent. The JF Lessee has entered into
management contracts with Residence Inn by Marriott, a subsidiary of Marriott,
the largest operator of upscale extended-stay hotels in the United States, to
manage 20 of the Residence Inn by Marriott hotels. The Summerfield Lessee has
entered into management contracts with the Summerfield Manager to manage the
nine Summerfield Hotels. The Company believes that its third party managers'
resources, hotel operations experience and relationships with potential sellers
will continue to enhance the Company's ability to grow.

         In April 1998, the Company entered into an agreement to acquire the
Acquisition Hotels after the completion thereof. The Acquisition Hotels, which
are being developed by Marriott, will contain 810 rooms. The Acquisition Hotels
will be acquired for purchase prices aggregating approximately $89 million, an
allocable portion of which will be paid at the closing of each Acquisition
Hotel. Up to fifteen percent (15%) of the purchase price for each Acquisition
Hotel is payable in Common Units, with the number of Common Units to be issued
being based on the trading prices of the Common Shares at the time of the
closing for the Acquisition Hotel. The Acquisition Hotels are located in the
following markets: Chicago/O'Hare, Illinois (192 rooms); South San Jose,
California (150 rooms); Gaithersburg, Maryland (132 rooms); Detroit/Livonia,
Michigan (112 rooms); Richmond/Northwest, Virginia (104 rooms); and
Atlanta/Peachtree, Georgia (120 rooms). Each Acquisition Hotel is located in an
existing market in which the Company owns other Hotels. The Acquisition Hotels
are scheduled to open at various times throughout 1998. To the extent that any
closing of an Acquisition Hotel occurs after its opening date, the purchase
price of the Acquisition Hotel may be subject to adjustment. The Company will
lease each Acquisition Hotel to the JF Lessee, and the JF Lessee will retain
Marriott to manage the Acquisition Hotels. The closing of the acquisition of the
Acquisition Hotels is subject to customary conditions and, if consummated, will
increase to 44 the number of Residence Inn by Marriott hotels owned by the
Company, 26 of which will be managed by Marriott. See "Risk Factors--Acquisition
of Hotels with Limited Operating History."

         The Company's executive offices are located at 306 Royal Poinciana Way,
Palm Beach, Florida 33480, and its telephone number is (561) 835-1800. The
Company also maintains a website at www.innkeepersusa.com.


                                   THE HOTELS

         The Company owns 38 Residence Inn by Marriott hotels, six Summerfield
Suites hotels, 12 Hampton Inn hotels, two Sierra Suites hotels, one Comfort Inn,
one Holiday Inn Express, one Sunrise Suites hotel and one full service hotel.
The Company is the largest REIT owner of Residence Inn by Marriott hotels.
Residence Inn by Marriott and Summerfield Suites hotels are upscale, all-suite,
extended-stay hotels designed to appeal to business travelers who stay at a
hotel for five or more consecutive room nights primarily as a result of
relocations, consulting work, corporate training and project assignments. Sierra
Suites hotels are mid-priced extended-stay hotels designed to appeal to business
travelers. Hampton Inn and Comfort Inn are mid-priced hotels, which are designed
for business and leisure travelers. Mid-priced hotels generally minimize public
meeting areas and have functional,


                                       18


<PAGE>


moderate guest and lobby finishes. All of the Hotels (other than the Sunrise
Suites-Tinton Falls, New Jersey) are constructed, maintained and operated in
accordance with a comprehensive set of franchisor or manager building,
maintenance, operational, recordkeeping and reservation system guidelines
designed to ensure uniform service, appearance and quality.


                             THE PERCENTAGE LEASES

         Each Percentage Lease contains provisions similar to those described
below, and the Company intends that future percentage leases with respect to
additional hotels it may acquire will contain similar provisions.

         Percentage Lease Terms. Each Percentage Lease has a non-cancelable term
of at least ten years, subject to earlier termination upon the occurrence of
defaults thereunder and certain other events described in the Percentage Lease.
Certain of the Percentage Leases contain renewal terms of up to 15 years, at the
Lessee's option.

         Amounts Payable Under the Percentage Leases. During the term of each
Percentage Lease, the Lessee is obligated to pay to the Partnership (i) the
greater of the fixed obligation of the Lessee to pay a sum certain in annual
rent under each of the Percentage Leases regardless of the level of room revenue
achieved ("Base Rent") or Percentage Rent, and (ii) certain other amounts,
including interest accrued on any late payments or charges (the "Additional
Charges"). Percentage Rent is based on percentages of room revenues for each of
the Hotels. For all Percentage Leases, both the Base Rent and the specified
level necessary for the payment of a higher tier of Percentage Rent under the
applicable Percentage Lease (the "Revenue Break Point") in each Percentage Rent
formula are (a) adjusted annually for inflation and (b) in the case of the
certain of the Hotels managed by Marriott, increased to specified levels (not
tied to inflation) in the first years after execution. With respect to
adjustments for inflation, the adjustment will be calculated at the beginning of
each calendar year based upon the change in the CPI during the prior calendar
year. The Company receives between 30% and 36.5% of room revenue up to the
Revenue Break Point and between 68% and 70% of room revenue in excess of the
Revenue Break Point. The Base Rent for seven of the Hotels leased to the
Summerfield Lessee reduces in 1999, and beginning in 2000 will adjust annually
for inflation.

         Other than real estate and personal property taxes, ground lease rent
(where applicable), the cost of certain furniture and equipment and certain
capital expenditures, and property and casualty insurance (for the hotels leased
by the JF Lessee), which are obligations of the Company, the Percentage Leases
require the Lessee to pay Base Rent, Percentage Rent, Additional Charges and the
operating expenses of the Hotels (including insurance, utility and other charges
incurred in the operation of the Hotels) during the terms of the Percentage
Leases. The Percentage Leases also provide for rent reductions and abatements in
the event of damage or destruction or a partial taking of any Hotel.

         Maintenance and Modifications. Under the Percentage Leases, the Company
is required to pay for capital improvements at each Hotel. In addition, the
Percentage Leases obligate the Company to make available to the Lessee for the
repair, replacement and refurbishment of furniture and equipment in the Hotels,
when and as deemed necessary by the Lessee, an amount equal to 4% or 5% of room
revenues, per month on a cumulative basis. The Company's obligation is carried
forward to the extent that the Lessee has not expended such amount, and any
unexpended amounts remain the property of the Company upon termination of the
Percentage Leases. In addition, the Company intends to cause the expenditure of
amounts in excess of the obligated amounts if necessary to comply with the
reasonable requirements of any franchise license or Marriott Management
Agreement and otherwise to the extent that the Company deems such expenditures
to be in the best interests of the Company. Otherwise, the Lessee is required,
at its expense, to (i) maintain the Hotels in good order and repair, (ii) pay
for all operating expenses of the Hotels and (iii) comply with the requirements
of any Company loan agreement (to the extent applicable to property operations
or cash management), any franchise agreement and (with respect to the JF Lessee)
the Marriott Management Agreements.

         The Lessees, at their expense, may make non-capital and capital
additions, modifications or improvements to the Hotels, provided that such
action does not significantly alter the character or purposes of the Hotels or


                                       19


<PAGE>


significantly detract from the value or operating efficiencies of the Hotels.
All such alterations, replacements and improvements shall be subject to all the
terms and provisions of the Percentage Leases and become the property of the
Company upon termination of the Percentage Leases. The Company owns, with
respect to the Hotels, substantially all personal property (other than
inventory, linens and other nondepreciable personal property) not affixed to, or
deemed a part of, the real estate or improvements thereon, except to the extent
that ownership of such personal property would cause the rent under a Percentage
Lease not to qualify as "rents from real property" for REIT income test
purposes.

JF Lessee

         Mr. Fisher is the majority shareholder and Mr. Shaw is the other
shareholder of the JF Lessee.  The JF Lessee leases 53 of the Hotels and
operates 31 of the Hotels.  The JF Lessee may not operate any hotels not owned
by the Company.

Summerfield Lessee

         The Summerfield Lessee is a subsidiary of Patriot that leases the nine
Summerfield Hotels pursuant to the Percentage Leases.

TRADEMARK MATTERS

         HAMPTON INN(R) IS A REGISTERED TRADEMARK OF PROMUS, COMFORT INN(R) IS A
REGISTERED TRADEMARK OF CHOICE, RESIDENCE INN BY MARRIOTT(R) IS A REGISTERED
TRADEMARK OF MARRIOTT, HOLIDAY INN EXPRESS(R) AND HOLIDAY INN EXPRESS &
SUITES(R) ARE REGISTERED TRADEMARKS OF HOLIDAY INN FRANCHISING AND SUMMERFIELD
SUITES(R) AND SUNRISE SUITES(R) ARE REGISTERED TRADEMARKS OF SUMMERFIELD. SIERRA
SUITES IS A TRADEMARK OF SUMMERFIELD THAT IS THE SUBJECT OF A PENDING
REGISTRATION APPLICATION. NONE OF PROMUS, CHOICE, MARRIOTT, HOLIDAY INN
FRANCHISING OR SUMMERFIELD HAS ENDORSED OR APPROVED THE OFFERING. A GRANT OF A
HAMPTON INN, COMFORT INN, RESIDENCE INN BY MARRIOTT, HOLIDAY INN EXPRESS,
HOLIDAY INN EXPRESS & SUITES, SUMMERFIELD SUITES, SIERRA SUITES OR SUNRISE
SUITES FRANCHISE LICENSE FOR ANY HOTEL IS NOT INTENDED AS, AND SHOULD NOT BE
INTERPRETED AS, AN EXPRESS OR IMPLIED APPROVAL OR ENDORSEMENT BY PROMUS, CHOICE,
MARRIOTT, HOLIDAY INN FRANCHISING OR SUMMERFIELD (OR ANY OF THEIR AFFILIATES,
SUBSIDIARIES OR DIVISIONS) OF THE COMPANY, THE PARTNERSHIP OR APPROVAL OF THE
SERIES A PREFERRED SHARES OR THE SHARES OFFERED HEREBY.

LEGAL PROCEEDINGS

         The Company is not currently involved in any material litigation nor,
to the Company's knowledge, is any material litigation currently threatened
against the Company or any of the Hotels. The Lessees have advised the Company
that they are not currently involved in any material litigation.



                                       20


<PAGE>




                  DESCRIPTION OF SHARES OF BENEFICIAL INTEREST

         The summary of certain terms and provisions of the Series A Preferred
Shares and the Common Shares issuable upon conversion thereof contained in this
Prospectus does not purport to be complete and is subject to, and qualified in
its entirety by reference to, the terms and provisions of the Declaration of
Trust, the Company's Bylaws (the "Bylaws") and the Articles Supplementary
setting forth the particular terms of the Series A Preferred Shares (the
"Articles Supplementary").

         The Declaration of Trust currently authorizes the issuance of up to
120,000,000 shares, consisting of 100,000,000 Common Shares and 20,000,000
preferred shares of beneficial interest, $0.01 par value per share ("Preferred
Shares"). The Preferred Shares may be issued from time to time in one or more
series, without shareholder approval, with such designations, preferences,
conversion or other rights, voting powers, restrictions, limitations as to
dividends or other distributions, qualifications and terms and conditions of
redemption thereof as shall be established by the Board of Trustees. Thus,
without shareholder approval, the Company could authorize the issuance of
Preferred Shares with voting, conversion and other rights that could dilute the
voting power and other rights of the holders of Common Shares.

PREFERRED SHARES

         Preferred Shares may be issued from time to time, in one or more
series, as authorized by the Board of Trustees. Prior to issuance of shares of
each series, the Board is required by the Maryland REIT Law and the Company's
Declaration of Trust to set for each such series, subject to the provisions of
the Company's Declaration of Trust regarding Shares-in-Trust, the preferences,
conversion or other rights, voting powers, restrictions, limitations as to
dividends or other distributions, qualifications and terms or conditions of
redemption for each series. The Board could authorize the issuance of Preferred
Shares with terms and conditions that could have the effect of delaying,
deferring or preventing a takeover or other transaction which holders of some,
or a majority, of the Common Shares might believe to be in their best interests
or in which holders of some, or a majority, of the Common Shares might receive a
premium for their Common Shares over the then market price of such Common
Shares.

SERIES A PREFERRED SHARES

         In May 1998, the Company issued the 4,630,000 Series A Preferred Shares
in the Private Placement. The Series A Preferred Shares sold to "qualified
institutional buyers" ("QIBs"), as defined in Rule 144A by the Initial
Purchaser, are eligible for trading among QIBs in the Private Offering, Resale
and Trading through Automated Linkages Market of the National Association of
Securities Dealers, Inc. (the "PORTAL Market").

         The Series A Preferred Shares are validly issued, fully paid and
nonassessable. The holders of the Series A Preferred Shares have no preemptive
rights with respect to any shares of beneficial interest of the Company or any
other securities of the Company convertible into or carrying rights or options
to purchase any such shares. The Series A Preferred Shares are not subject to
any sinking fund or other obligation of the Company to redeem or retire the
Series A Preferred Shares. Unless converted by the holders of Series A Preferred
Shares or redeemed by the Company, the Series A Preferred Shares have a
perpetual term, with no maturity.

         The Series A Preferred Shares currently do not meet all of the
eligibility requirements for listing on a national securities exchange or the
Nasdaq National Market, and there can be no assurance that such listing will be
effected. See "Risk Factors--Risk that Market for Series A Preferred Shares Will
Not Develop; No Assurance of Exchange Listing."

Ranking

         The Series A Preferred Shares rank senior to the Junior Shares (as
defined below), including the Common Shares, with respect to payment of
dividends and amounts upon liquidation, dissolution or winding up. While any

                                       21


<PAGE>


Series A Preferred Shares are outstanding, the Company may not authorize, create
or increase the authorized amount of any class or series of shares that ranks
prior to or senior to the Series A Preferred Shares with respect to the payment
of dividends or amounts upon liquidation, dissolution or winding up without the
consent of the holders of two-thirds of the outstanding Series A Preferred
Shares. However, the Company may create additional classes of shares, increase
the authorized number of Preferred Shares or issue series of Preferred Shares
ranking junior to or on a parity with the Series A Preferred Shares with
respect, in each case, to the payment of dividends and amounts upon liquidation,
dissolution and winding up without the consent of any holder of Series A
Preferred Shares. See "--Voting Rights" below.

         In November 1996, in a transaction in which the Company purchased seven
Residence Inn by Marriott hotels, the Partnership issued the 4,063,329 Class B
Preferred Units which the holder can (a) convert into Common Units at any time
and (b) cause to be redeemed for Common Shares or, at the election of the
Company, an equivalent amount of cash at any time after November 1, 1998. An
annual preferred distribution of $1.155 is currently payable on each Class B
Preferred Unit. Holders of Class B Preferred Units may convert, on a one-for-one
basis, their Class B Preferred Units to Common Units. The Company may issue
Parity Shares and, with approval from the holders of two-thirds of the Parity
Shares, may issue shares of beneficial interest that rank senior to the Series A
Preferred Shares.

Dividends

         Holders of Series A Preferred Shares are entitled to receive, when, as
and if declared by the Board of Trustees of the Company, out of funds of the
Company legally available for payment thereof, cumulative cash dividends. Such
dividends will be in an amount per share equal to the greater of (i) $0.53906
per quarter ($2.15264 per annum) (equal to a rate of 8.625% of the liquidation
preference of $25 per Series A Preferred Share (the "Liquidation Preference")
per annum) or (ii) the cash dividend (exclusive of non-regular dividends such as
a special capital gain distribution) declared on the number of Common Shares (or
portions thereof) into which each Series A Preferred Share is convertible (i.e.,
an amount equal to the number of Common Shares (or portions thereof) into which
one Series A Preferred Share is convertible multiplied by the most current
quarterly distribution on or before the applicable payment date). Dividends on
the Series A Preferred Shares are payable quarterly in arrears on or about the
fourth Tuesday of January, April, July and October of each year, commencing July
28, 1998 (and, in the case of any accrued but unpaid dividends, at such
additional times and for such interim periods, if any, as determined by the
Board of Trustees). Each such dividend is payable to holders of record as they
appear on the share records of the Company at the close of business on or about
the last Friday of December, March, June and September. Any dividends payable on
the Series A Preferred Shares for any period greater or less than a full
dividend period will be computed on the basis of a 360-day year consisting of
twelve 30-day months. Dividends are cumulative from the most recent dividend
payment date to which full dividends have been paid, whether or not in any
dividend period or periods such dividends shall be declared or there shall be
funds of the Company legally available for the payment of such dividends.
Accumulations of dividends on Series A Preferred Shares will not bear interest.

         The Company contributed the net proceeds of the sale of the Series A
Preferred Shares to the Partnership in exchange for an equal number of Series A
Preferred Units in the Partnership, the economic terms of which are
substantially identical to those of the Series A Preferred Shares. The
Partnership is required to make all required distributions on the Series A
Preferred Units (which will mirror the payments of distributions, including
accrued and unpaid distributions upon redemption, and of the liquidation
preference amount on the Series A Preferred Shares) prior to any distribution of
cash or assets to the holders of the Common Units or to the holders of any other
interests in the Partnership, except for (a) any other series of preferred units
ranking on a parity with the Series A Preferred Units as to distributions or
liquidation rights, including the Class B Preferred Units, and (b) distributions
required to enable the Company to maintain its qualification as a REIT.

         No dividend will be declared or paid or other distribution of cash or
other property declared or made directly by the Company or any person acting on
behalf of the Company on Parity Shares unless full cumulative dividends have
been declared and paid or are contemporaneously declared and funds sufficient
for payment set aside on the Series A Preferred Shares for all prior and
contemporaneous dividend periods; PROVIDED, HOWEVER, that



                                       22



<PAGE>

if accumulated and accrued dividends on the Series A Preferred Shares for all
prior and contemporaneous dividend periods have not been paid in full then any
dividend declared on the Series A Preferred Shares for any dividend period and
on any Parity Shares will be declared ratably in proportion to accumulated,
accrued and unpaid dividends on the Series A Preferred Shares and such Parity
Shares.

         No distributions on the Series A Preferred Shares shall be authorized
by the Board of Trustees or paid or set apart for payment by the Company at such
time as the terms and provisions of any agreement of the Company, including any
agreement relating to its indebtedness, prohibits such authorization, payment or
setting apart for payment or provides that such authorization, payment or
setting apart for payment would constitute a breach thereof or a default
thereunder, or if such authorization or payment shall be restricted or
prohibited by law. Distributions on the Series A Preferred Shares will accrue
whether or not the Company has earnings, whether or not there are funds legally
available for the payment of such distributions and whether or not such
distributions are authorized. Accrued but unpaid distributions on the Series A
Preferred Shares will not bear interest and holders of the Series A Preferred
Shares will not be entitled to any distributions in excess of full cumulative
distributions as described above.

         The Company will not (i) declare, pay or set apart funds for the
payment of any dividend or other distribution with respect to any Junior Shares
(as defined below) (other than in Junior Shares) or (ii) redeem, purchase or
otherwise acquire for consideration any Junior Shares through a sinking fund or
otherwise (other than a redemption or purchase or other acquisition of Common
Shares made for purposes of an employee incentive or benefit plan of the Company
or any subsidiary, a conversion into or exchange for Junior Shares or
redemptions for the purpose of preserving the Company's qualification as a
REIT), unless (A) all cumulative dividends with respect to the Series A
Preferred Shares and any shares at the time such dividends are payable have been
paid or such dividends have been declared and funds have been set apart for
payment of such dividends and (B) sufficient funds have been paid or set apart
for the payment of the dividend for the current dividend period with respect to
the Series A Preferred Shares and any Parity Shares.

         Any distribution payment made on the Series A Preferred Shares shall
first be credited against the earliest accrued but unpaid distribution due with
respect to such shares which remains payable.

         If, for any taxable year, the Company elects to designate as "capital
gain distributions" (as defined in Section 857 of the Code) any portion (the
"Capital Gains Amount") of the distributions paid or made available for the year
to the holders of all classes of shares (the "Total Distributions"), then the
portion of the Capital Gains Amount that will be allocable to the holders of
Series A Preferred Shares will be the Capital Gains Amount multiplied by a
fraction, the numerator of which will be the total distributions (within the
meaning of the Code) paid or made available to the holders of the Series A
Preferred Shares for the year and the denominator of which shall be the Total
Distributions.

         As used herein, (i) the term "dividend" does not include dividends
payable solely in Junior Shares on Junior Shares, or in options, warrants or
rights to holders of Junior Shares to subscribe for or purchase any Junior
Shares, and (ii) the term "Junior Shares" means the Common Shares, and any other
class of shares of beneficial interest of the Company now or hereafter issued
and outstanding that ranks junior as to the payment of dividends or amounts upon
liquidation, dissolution and winding up to the Series A Preferred Shares.

Redemption

         Except as otherwise provided under the Declaration of Trust to protect
the Company's status as a REIT or to prevent the Company's assets from being
deemed plan assets ("Plan Assets") under the plan asset regulation promulgated
by the Department of Labor under ERISA at 29 C.F.R. ss. 2510.3-101 (the "Plan
Asset Regulation"), Series A Preferred Shares will not be redeemable by the
Company prior to May 18, 2003. On and after May 19, 2003, the Company, at its
option upon not less than 30 nor more than 60 days' written notice, may redeem
the Series A Preferred Shares, in whole or in part, at any time or from time to
time at a price equal to the Liquidation Preference plus accrued and unpaid
dividends, payable at the Company's option in (i) Common Shares, equal in number
to the Liquidation Preference plus accrued and unpaid dividends divided by the
average closing price of the


                                       23


<PAGE>


Common Shares on the NYSE for the 10 days prior to the business day immediately
preceding the date of redemption, or (ii) cash.

         Notice of redemption will be given by publication in a newspaper of
general circulation in the City of New York, such publication to be made once a
week for two successive weeks commencing not less than 30 nor more than 60 days
prior to the redemption date. A similar notice will be mailed by the Company,
postage prepaid, not less than 30 nor more than 60 days prior to the redemption
date, addressed to the respective holders of record of the Series A Preferred
Shares to be redeemed at their respective addresses as they appear on the Shares
transfer records of the Company. The redemption date will be a date selected by
the Company not less than 30 nor more than 60 days after the date on which the
Company mails such notice. If fewer than all of the shares of Series A Preferred
Shares are to be redeemed, the shares to be redeemed may be selected by lot or
pro rata or by any other method determined by the Board of Trustees.

         The notice of redemption mailed to holders of the Series A Preferred
Shares shall state, among other things, (i) that the Company has elected to
redeem such Series A Preferred Shares, (ii) the date fixed for redemption, (iii)
the number of Series A Preferred Shares to be redeemed (and, if fewer than all
the outstanding Series A Preferred Shares are to be redeemed, the number of
Series A Preferred Shares to be redeemed from such holder) and (iv) the place(s)
where (or the manner in which) the Series A Preferred Shares are to be
surrendered for payment.

         In the case of a redemption date falling after a dividend payment
record date and prior to the related payment date, the holders of the Series A
Preferred Shares at the close of business on such record date will be entitled
to receive the dividend payable on such shares on the corresponding dividend
payment date, notwithstanding the redemption of such shares prior to such
dividend payment date. Except as provided for in the preceding sentence, no
payment or allowance will be made for accrued dividends on any Series A
Preferred Shares called for redemption.

         In the event that full cumulative dividends on the Series A Preferred
Shares and any shares have not been paid or declared and set apart for payment,
the Series A Preferred Shares may not be redeemed in part and the Company may
not purchase, redeem or otherwise acquire Series A Preferred Shares or any
Parity Shares other than in exchange for Junior Shares; provided, however, that
the foregoing shall not prevent the purchase by the Company of Shares-in-Trust
or the redemption (described below) of Series A Preferred Shares owned by
Benefit Plan Investors in order to ensure that the Company continues to meet the
requirements for qualification as a REIT or to prevent the Company's assets from
being deemed Plan Assets under the Plan Asset Regulation. See "--Restrictions on
Ownership."

         On and after the date fixed for redemption, provided that the Company
has made available at the office of the Registrar and Transfer Agent a
sufficient amount of cash or Common Shares to effect the redemption, dividends
will cease to accrue on the Series A Preferred Shares called for redemption
(except that, in the case of a redemption date after a dividend record date and
prior to the related payment date, holders of Series A Preferred Shares on the
dividend record date will be entitled on such dividend payment date to receive
the dividend payable on such shares), such shares shall no longer be deemed to
be outstanding and all rights of the holders of such shares as holders of Series
A Preferred Shares shall cease except the right to receive any cash or Common
Shares payable upon such redemption, without interest from the date of such
redemption. At the close of business on the redemption date, each holder of
Series A Preferred Shares (unless the Company defaults in the delivery of the
cash or Common Shares) will be, without any further action, deemed a holder of
the amount of cash or Common Shares, as the case may be, for which such Series A
Preferred Shares are redeemable.

         Fractional Common Shares will not be issued upon redemption of the
Series A Preferred Shares, but, in lieu thereof, the Company will pay a cash
adjustment based on the average of the closing prices of the Common Shares on
the ten (10) trading days prior to the business day immediately preceding the
date fixed for redemption.

         At any time prior to such time, if ever, as the Series A Preferred
Shares qualify as a "publicly offered security" under the Plan Asset Regulation,
or qualify for another exception from the "look-through" rule, if the Company
determines that, as a result of transfers, conversions or otherwise, (i)
employee benefit plans (as defined


                                       24


<PAGE>


in Section 3(3) of ERISA), whether or not they are subject to Title I of ERISA;
(ii) plans described in Section 4975 of the Code; (iii) entities whose
underlying assets include Plan Assets by reason of a Plan's investment in such
entity (including, but not limited to, an insurance company general account);
and (iv) entities that otherwise constitute "benefit plan investors" within the
meaning of the Plan Asset Regulation ("Benefit Plan Investors") own 20% of the
aggregate number of outstanding Series A Preferred Shares (excluding for this
purpose any shares held by persons exercising investment management authority
over the assets of the Company or providing investment advice for a fee with
respect to such assets and any affiliates of such persons), the Company will
have the right to cause Series A Preferred Shares that are held by Benefit Plan
Investors to be redeemed so that following such redemption Benefit Plan
Investors own less than 25% of the outstanding Series A Preferred Shares
(excluding for this purpose any shares held by persons exercising investment
management authority over the assets of the Company or providing investment
advice for a fee with respect to such assets and any affiliates of such
persons). No such redemption may reduce Benefit Plan Investor ownership to less
than 20% of the Series A Preferred Shares. Any such redemption will follow the
redemption procedures set forth herein, except that the redemption date may be
fewer than 30 days after the first notice of redemption to the extent necessary
to prevent the Company's assets from being deemed Plan Assets and the redemption
price shall be the fair market value of such Series A Preferred Shares, as
determined by the Board of Trustees in its sole discretion. If fewer than all
the outstanding Series A Preferred Shares that are held by Benefit Plan
Investors are to be redeemed, the number of Series A Preferred Shares to be
redeemed will be determined by the Board of Trustees and such shares will be
redeemed on a pro-rata basis from the holders of such shares that are Benefit
Plan Investors in proportion to the number of Series A Preferred Shares held by
such holders or by any other method as may be determined by the Board of
Trustees in its sole discretion. See "--Restrictions on Ownership--ERISA-
Related Restrictions" and "ERISA Considerations."

Liquidation Preference

         The holders of Series A Preferred Shares will be entitled to receive in
the event of any liquidation, dissolution or winding up of the Company, whether
voluntary or involuntary, the Liquidation Preference plus an amount per Series A
Preferred Share equal to all dividends accrued and unpaid (whether or not
declared) thereon to the date of final distribution to such holders, and no
more.

         Until the holders of the Series A Preferred Shares have been paid the
Liquidation Preference and all accrued and unpaid dividends in full, no payment
will be made to any holder of Junior Shares upon the liquidation, dissolution or
winding up of the Company. If, upon any liquidation, dissolution or winding up
of the Company, the assets of the Company, or proceeds thereof, distributable
among the holders of the Series A Preferred Shares are insufficient to pay in
full the Liquidation Preference and all accrued and unpaid dividends and the
liquidation preference and all accrued and unpaid dividends with respect to any
other shares of Parity Shares, then such assets, or the proceeds thereof, will
be distributed among the holders of Series A Preferred Shares and any such
Shares ratably in accordance with the respective amounts which would be payable
on such Series A Preferred Shares and any such Parity Shares if all amounts
payable thereon were paid in full. None of (i) a consolidation or merger of the
Company with another corporation, (ii) a statutory share exchange by the Company
or (iii) a sale or transfer of all or substantially all of the Company's assets
will be considered a liquidation, dissolution or winding up, voluntary or
involuntary, of the Company.

Voting Rights

         Except as indicated below, the holders of Series A Preferred Shares
have no voting rights.

         If and whenever six quarterly dividends (whether or not consecutive)
payable on the Series A Preferred Shares or any other Parity Shares are in
arrears, whether or not earned or declared, the number of Trustees then
constituting the Board of Trustees of the Company will be increased by two and
the holders of Series A Preferred Shares, voting together as a class with the
holders of any other series of Parity Shares (any such other series, the "Voting
Preferred Shares"), will have the right to elect two additional Trustees to
serve on the Company's Board of Trustees at an annual meeting of shareholders or
a properly called special meeting of the holders of the Series A Preferred
Shares and such Voting Preferred Shares and at each subsequent annual meeting of
shareholders (or special meeting held in place thereof at which Trustees are to
be elected) until all such dividends and dividends for


                                       25


<PAGE>



the current quarterly period on the Series A Preferred Shares and such other
Voting Preferred Shares have been paid or declared and set aside for payment, at
which time such two additional Trustees shall resign from the Board of Trustees.

         The approval of two-thirds of the outstanding Series A Preferred Shares
(which do not include any Class B Preferred Units issued by the Partnership),
either at a meeting of shareholders or by written consent, is required in order
to amend the Declaration of Trust and Articles Supplementary to affect
materially and adversely the rights, preferences or voting powers of the holders
of the Series A Preferred Shares or to authorize, create or increase the
authorized amount of, any class of Shares having rights senior to the Series A
Preferred Shares with respect to the payment of dividends or amounts upon
liquidation, dissolution or winding up (provided that if such amendment affects
materially and adversely the rights, preferences, privileges or voting powers of
one or more but not all of the series of Parity Shares, the consent of the
holders of at least two-thirds of the outstanding shares of each such series
affected is required in lieu of the consent of the holders of two-thirds of the
Parity Shares as a class). However, the Company may create additional classes of
Parity Shares and Junior Shares, increase the authorized number of shares of
Parity Shares and Junior Shares and issue additional series of Parity Shares and
Junior Shares without the consent of any holder of Series A Preferred Shares.

Conversion Rights

         Series A Preferred Shares are convertible, in whole or in part, at any
time, at the option of the holders thereof, into authorized but previously
unissued Common Shares at a conversion price of $16.8794 per Common Share
(equivalent to a conversion rate of 1.4811 Common Shares for each Series A
Preferred Share), subject to adjustment as described below ("Conversion Price").
The right to convert Series A Preferred Shares called for redemption will
terminate at the close of business on the redemption date. For information as to
notices of redemption, see "--Redemption" above. See "--Common Shares" for a
description of the Company's Common Shares.

         Conversion of Series A Preferred Shares, or a specified portion
thereof, may be effected by delivering certificates evidencing such shares,
together with written notice of conversion and a proper assignment of such
certificates to the Company or in blank, to the office or agency to be
maintained by the Company for that purpose. Currently, such office is the
principal corporate trust office of Harris Trust and Savings Bank, the transfer
agent, registrar, dividend disbursing agent, conversion agent and redemption
agent for the Series A Preferred Shares.

         Each conversion will be deemed to have been effected immediately prior
to the close of business on the date on which the certificates for Series A
Preferred Shares shall have been surrendered and notice shall have been received
by the Company as aforesaid (and if applicable, payment of any amount equal to
the dividend payable on such shares shall have been received by the Company as
described below) and the conversion shall be at the Conversion Price in effect
at such time and on such date.

         Holders of Series A Preferred Shares at the close of business on a
dividend record date will be entitled to receive the dividend payable on such
shares on the corresponding dividend payment date notwithstanding the conversion
of such shares following such dividend record date and prior to such dividend
payment date. However, Series A Preferred Shares surrendered for conversion
during the period between the close of business on any dividend record date and
ending with the opening of business on the corresponding dividend payment date
(except shares converted after the issuance of a notice of redemption with
respect to a redemption date during such period or coinciding with such dividend
payment date, which will be entitled to such dividend) must be accompanied by
payment of an amount equal to the dividend payable on such shares on such
dividend payment date. A holder of Series A Preferred Shares on a dividend
record date who (or whose transferee) tenders any such shares for conversion
into Common Shares on such dividend payment date will receive the dividend
payable by the Company on such Series A Preferred Shares on such date, and the
converting holder need not include payment of the amount of such dividend upon
surrender of Series A Preferred Shares for conversion. Except as provided above,
the Company will make no payment or allowance for unpaid dividends, whether or
not in arrears, on converted shares or for dividends on the Common Shares issued
upon such conversion.

                                       26


<PAGE>


         Fractional Common Shares will not be issued upon conversion but, in
lieu thereof, the Company will pay a cash adjustment based on the current market
price of the Common Shares on the trading day immediately preceding the
conversion date.

Conversion Price Adjustments

         The Conversion Price is subject to adjustment upon certain events,
including (i) the payment of dividends (and other distributions) payable in
Common Shares on any class of shares of beneficial interest of the Company, (ii)
the issuance to all holders of Common Shares of certain rights or warrants
entitling them to subscribe for or purchase Common Shares at a price per share
less than the fair market value (as defined in the Articles Supplementary per
Common Share, (iii) subdivisions, combinations and reclassifications of Common
Shares and (iv) distributions to all holders of Common Shares of evidences of
indebtedness of the Company or assets (including securities, but excluding those
dividends, rights, warrants and distributions referred to in clause (i), (ii) or
(iii) above and dividends and distributions paid in cash). In addition to the
foregoing adjustments, the Company will be permitted to make such reductions in
the Conversion Price as it considers to be advisable in order that any event
treated for Federal income tax purposes as a dividend of Shares or share rights
will not be taxable to the holders of the Common Shares or, if that is not
possible, to diminish any income taxes that are otherwise payable because of
such event.

         In case the Company shall be a party to any transaction (including,
without limitation, a merger, consolidation, statutory share exchange, tender
offer for all or substantially all of the Common Shares or sale of all or
substantially all of the Company's assets), in each case as a result of which
Common Shares will be converted into the right to receive stock, securities or
other property (including cash or any combination thereof), each Series A
Preferred Share, if convertible after the consummation of the transaction, will
thereafter be convertible into the kind and amount of shares of beneficial
interest, securities and other property receivable (including cash or any
combination thereof) upon the consummation of such transaction by a holder of
that number of Common Shares or fraction thereof into which one Series A
Preferred Share was convertible immediately prior to such transaction (assuming
such holder of Common Shares failed to exercise any rights of election and
received per Common Share the kind and amount of shares of beneficial interest,
securities or other property received per Common Share by a plurality of
non-electing Common Shares). The Company may not become a party to any such
transaction unless the terms thereof are consistent with the foregoing.

         No adjustment of the Conversion Price is required to be made in any
case until cumulative adjustments amount to 1% or more of the Conversion Price.
Any adjustments not so required to be made will be carried forward and taken
into account in subsequent adjustments.

Restrictions on Ownership

         REIT-Related Restrictions. For the Company to qualify as a REIT under
the Code, not more than 50% in value of its outstanding shares of beneficial
interest may be owned, directly or indirectly, by five or fewer individuals (as
defined in the Code to include certain entities) during the last half of a
taxable year and the shares of beneficial interest must be beneficially owned by
100 or more persons during at least 335 days of a taxable year of 12 months (or
during a proportionate part of a shorter taxable year). To ensure that the
Company will comply with those share ownership rules, the Declaration of Trust
contains provisions that restrict the ownership and transfer of the Company's
shares of beneficial interest. With certain exceptions, the Declaration of Trust
provides that no person may own, or be deemed to own by virtue of the
attribution provisions of the Code, more than 9.8% of the number of outstanding
Preferred Shares of any series or more than 9.8% of the number of outstanding
Common Shares. Shares owned in excess of such limits shall be deemed
"Shares-in-Trust" pursuant to the Company's Declaration of Trust, in which case
the holder will lose certain ownership rights with respect to such shares and
the Company will have the right to purchase such Excess Shares from the holder.
Due to the attribution rules that exist with respect to these ownership
restrictions, persons holding, or treated as holding under the relevant
attribution rules, Series A Preferred Shares will be treated, for purposes of
the ownership restrictions, as owning the Common Shares into which their Series
A Preferred Shares can be converted even prior to such conversion. Accordingly,
potential purchasers should take their direct and constructive ownership of
Common Shares into account in


                                       27


<PAGE>



determining whether they can hold Series A Preferred Shares without violating
the ownership limit with respect to Common Shares.

ERISA-Related Restrictions.

         In order to preclude the application of certain fiduciary
responsibility and prohibited transaction rules under ERISA and the Code to the
Company and its management as a result of investment in the Series A Preferred
Shares by Benefit Plan Investors, such investment must remain at a level below
the 25% Threshold (as defined herein). If such rules were to apply, certain
transactions that the Company might enter into, or might have entered into, in
the ordinary course of business might have to be foregone or rescinded. The
Articles Supplementary contain provisions that restrict the ownership and
transfer of the Series A Preferred Shares by Benefit Plan Investors. Benefit
Plan Investors, as a group, may not own more than the 25% Threshold. Any
transfers to Benefit Plan Investors that would increase aggregate Benefit Plan
Investor ownership of the Series A Preferred Shares over the 25% Threshold will
be void AB INITIO. In addition, any Series A Preferred Shares owned by Benefit
Plan Investors in excess of the 25% Threshold will be deemed Shares-in-Trust.
The Company shall have the right to purchase such Shares-in-Trust for their fair
market value, as determined by the Board of Trustees in its sole discretion. For
a more detailed discussion of the ERISA-related restrictions on ownership, see
"ERISA Considerations."

Transfer Agent, Registrar, Dividend Disbursing Agent, Conversion Agent And
Redemption Agent

         Harris Trust and Savings Bank, Chicago, Illinois, is the transfer
agent, registrar, dividend disbursing agent, conversion agent and redemption
agent for the Series A Preferred Shares.

COMMON SHARES

         All Common Shares issuable upon conversion or redemption of the Series
A Preferred Shares will be duly authorized, fully paid and nonassessable when
issued. Subject to the preferential rights of any other shares or series of
shares of beneficial interest and to the provisions of the Company's Declaration
of Trust, holders of Common Shares are entitled to receive dividends if, as and
when authorized and declared by the Board of Trustees of the Company out of
assets legally available therefor and to share ratably in the remaining assets
of the Company legally available for distribution to its shareholders in the
event of its liquidation, dissolution or winding-up after payment of, or
adequate provision for, all known debts and liabilities of the Company. The
Company intends to pay quarterly dividends to holders of its Common Shares.

         Each outstanding Common Share entitles the holder to one vote on all
matters submitted to a vote of shareholders, including the election of trustees,
and, except as otherwise required by law or except as provided with respect to
any other class or series of shares of beneficial interest, the holders of such
Common Shares possess the exclusive voting power. There is no cumulative voting
in the election of trustees, which means that the holders of a majority of the
outstanding Common Shares can elect all of the trustees then standing for
election and the holders of the remaining shares of beneficial interest, if any,
will not be able to elect any trustees (except as provided below under "--Voting
Rights".

         Holders of Common Shares have no conversion, sinking fund, redemption
rights or any preemptive rights to subscribe for any securities of the Company.

         Common Shares have equal dividend, distribution, liquidation and other
rights, and have no preference, exchange or, except as expressly required by
Title 8 of the Corporations and Associations Article of the Annotated Code of
Maryland ("Title 8"), appraisal rights.

         Pursuant to Title 8, a real estate investment trust generally cannot
dissolve, amend its declaration of trust or merge, unless approved by the
affirmative vote of shareholders holding at least two-thirds of the shares
entitled to vote on the matter unless a lesser percentage (but not less than a
majority of all the votes entitled to be cast on the matter) is set forth in the
real estate investment trust's declaration of trust. The Company's Declaration
of Trust

                                       28


<PAGE>


provides for approval by a majority of all the votes entitled to be cast on the
matter in all situations permitting or requiring action by the shareholders
except with respect to: (a) the voluntary termination by the Company of its
status as a real estate investment trust or revocation of its election to be
taxed as a real estate investment trust (which requires the affirmative vote of
two-thirds of the number of Common Shares entitled to vote on such matter at a
meeting of the shareholders of the Company); (b) the removal of trustees (which
requires the affirmative vote of the holders of not less than two-thirds of the
shares then outstanding and entitled to vote generally in the election of
Trustees); (c) the amendment of the Declaration of Trust by shareholders (which
requires the affirmative vote of a majority of votes entitled to be cast on the
matter, except under certain circumstances specified in the Declaration of Trust
which require the affirmative vote of two-thirds of all the votes entitled to be
cast on the matter); and (d) the termination of the Company (which requires the
affirmative vote of two-thirds of all the votes entitled to be cast on the
matter). A declaration of trust may permit the trustees by a two-thirds vote to
amend the declaration of trust from time to time to qualify as a real estate
investment trust under the Internal Revenue Code of 1986, as amended (the
"Code"), or Title 8 without any action by the shareholders. The Company's
Declaration of Trust permits such action by the Board of Trustees.

         The Transfer Agent, registrar and dividend disbursing agent for the
Common Shares is Harris Trust and Savings Bank. The Common Shares are traded on
the NYSE under the symbol "KPA." The Company will apply to the NYSE to list the
additional Common Shares to be issued upon conversion or redemption of the
Series A Preferred Shares.

BUSINESS COMBINATIONS

         Under the Maryland General Corporation Law ("MGCL"), as applicable to
Maryland REITs, certain "business combinations" (including certain mergers,
consolidations, share exchanges and asset transfers and certain issuances and
reclassifications of equity securities) between Maryland REITs and any person
who beneficially owns 10% or more of the voting power of the trust's shares or
an affiliate of the trust who, at any time within the two-year period prior to
the date in question, was the beneficial owner of 10% or more of the voting
power of the then outstanding voting shares of beneficial interest of the trust
(an "Interested Shareholder") or an affiliate of the Interested Shareholder are
prohibited for five years after the most recent date on which the Interested
Shareholder becomes an Interested Shareholder. Thereafter, any such business
combination must be recommended by the board of trustees of such trust and
approved by the affirmative vote of at least (a) 80% of the votes entitled to be
cast by holders of outstanding voting shares of beneficial interest of the trust
and (b) two-thirds of votes entitled to be cast by holders of voting shares of
the trust other than shares held by the Interested Shareholder with whom (or
with whose affiliate) the business combination is to be effected, unless, among
other conditions, the trust's common shareholders receive a minimum price (as
defined in the MGCL) for their shares and the consideration is received in cash
or in the same form as previously paid by the Interested Shareholder for its
shares. These provisions of the MGCL do not apply, however, to business
combinations that are approved or exempted by the board of trustees of the trust
prior to the time that the Interested Shareholder becomes an Interested
Shareholder.

CONTROL SHARE ACQUISITIONS

         The MCGL, as applicable to Maryland REITs, provides that "control
shares" of a Maryland REIT acquired in a "control share acquisition" have no
voting rights except to the extent approved by a vote of two-thirds of the votes
entitled to be cast on the matter, excluding shares of beneficial interest owned
by the acquiror, by officers or by trustees who are employees of the trust.
"Control Shares" are voting shares of beneficial interest which, if aggregated
with all other such shares of beneficial interest previously acquired by the
acquiror, or in respect of which the acquiror is able to exercise or direct the
exercise of voting power (except solely by virtue of a revocable proxy), would
entitle the acquiror to exercise voting power in electing trustees within one of
the following ranges of voting power: (i) one-fifth or more but less than
one-third, (ii) one-third or more but less than a majority, or (iii) a majority
or more of all voting power. Control Shares do not include shares the acquiring
person is then entitled to vote as a result of having previously obtained
shareholder approval. A "control share acquisition" means the acquisition of
Control Shares, subject to certain exceptions.


                                       29


<PAGE>


         A person who has made or proposes to make a control share acquisition,
upon satisfaction of certain conditions (including an undertaking to pay
expenses), may compel the board of trustees to the trust to call a special
meeting of shareholders to be held within 50 days of demand to consider the
voting rights of the shares. If no request for a meeting is made, the trust may
itself present the question at any shareholders meeting.

         If voting rights are not approved at the meeting or if the acquiring
person does not deliver and acquiring person statement as required by the
statute, then, subject to certain conditions and limitations, the trust may
redeem any or all of the control shares (except those for which voting rights
have previously been approved) for fair value determined, without regard to the
absence of voting rights for the control shares, as of the date of the last
control share acquisition by the acquiror or of any meeting of shareholders at
which the voting rights of such shares are considered and not approved. If
voting rights for control shares are approved at a shareholders meeting and the
acquiror becomes entitled to vote a majority of the shares entitle to vote, all
other shareholders may exercise appraisal rights. The fair value of the shares
as determined for purposes of such appraisal rights may not be less than the
highest price per share paid by the acquiror in the control share acquisition.

         The control share acquisition statute does not apply (a) to shares
acquired in a merger, consolidation or share exchange if the trust is a party to
the transaction or (b) to acquisitions approved or exempted by the declaration
of trust or bylaws of the trust.

         The Bylaws of the Company contain a provision exempting from the
control share acquisition statute any and all acquisitions by any person of the
Company's shares of beneficial interest. There can be no assurance that such
provision will not be amended or eliminated at any time in the future.

INDEMNIFICATION OF TRUSTEES AND OFFICERS

         Title 8 permits a Maryland REIT to include in its declaration of trust
a provision limiting the liability of its trustees and officers to the trust and
its shareholders for money damages except for liability resulting from (a)
actual receipt of an improper benefit or profit in money, property or services
or (b) active and deliberate dishonesty established by a final judgment as being
material to the cause of action. The Declaration of Trust of the Company
contains such a provision which eliminates such liability to the maximum extent
permitted by Title 8.

         The Declaration of Trust of the Company obligates it, to the maximum
extent permitted by Maryland law, to indemnify and to pay or reimburse
reasonable expenses in advance of final disposition of a proceeding to (a)
present or former trustee or officer or (b) any individual who, while a Trustee
of the Company and at the request of the Company, serves or has served another
corporation, partnership, joint venture, trust, employee benefit plan or any
other enterprise as a trustee, director, officer or partner of such corporation,
partnership, joint venture, trust, employee benefit plan or other enterprise
from and against any claim or liability to which such person may become subject
or which such person may incur by reason of his status as a present or former
Trustee or officer of the Company. The Bylaws of the Company obligate it, to the
maximum extent permitted by Maryland law, to indemnify and to pay or reimburse
reasonable expenses in advance of final disposition of a proceeding to (a) any
present or former Trustee or officer who is made a party to the proceeding by
reason of his service in that capacity or (b) any individual who, while a
Trustee or officer of the Company and at the request of the Company, serves or
has served another corporation, partnership, joint venture, trust, employee
benefit plan or any other enterprise as a trustee, director, officer of such
corporation, partnership, joint venture, trust, employee benefit plan or other
enterprise and who is made a party to the proceeding by reason of his service in
that capacity, against any claim or liability to which he may become subject by
reason of such status. The Declaration of Trust and Bylaws also permit the
Company to indemnify and advance expenses to any person who served a predecessor
of the Company in any of the capacities described above and to any employee or
agent of the Company or a predecessor of the Company.

         Title 8 permits a Maryland REIT to indemnify and advance expenses to
its trustees, officers, employees and agents to the same extent as permitted by
the MGCL for directors and officers of Maryland corporations. The MGCL permits a
corporation to indemnify its present and former directors and officers, among
others, against judgments, penalties, fines, settlements and reasonable expenses
actually incurred by them in connection with any proceeding to which they maybe
made a party by reason of their service in those or other capacities unless it
is


                                       30


<PAGE>



established that (a) the act or omission of the director or officer was material
to the matter giving rise to the proceeding and (i) was committed in bad faith
or (ii) was the result of active and deliberate dishonesty, (b) the director or
officer actually received an improper personal benefit in money, property or
services or (c) in the case of any criminal proceeding, the director or officer
had reasonable cause to believe that the act or omission was unlawful. However,
under the MGCL, a Maryland corporation may not indemnify for an adverse judgment
in a suit by or in the right of the corporation or for a judgment of liability
on the basis that personal benefit was improperly received, unless in either
case a court orders indemnification and then only for expenses. In addition, the
MGCL permits a corporation to advance reasonable expenses to a director or
officer upon the corporation's receipt of (a) a written affirmation by the
director or officer of his good faith belief that he has met the standard of
conduct necessary for indemnification by the corporation and (b) a written
undertaking by him or on his behalf to repay the amount paid or reimbursed by
the corporation if it shall ultimately be determined that the standard of
conduct was not met.


                              REGISTRATION RIGHTS

         The summary herein of certain provisions of the Registration Rights
Agreement does not purport to be complete and is subject to, and is qualified in
its entirety by reference to, all the provisions of the Registration Rights
Agreement.

         Pursuant to the Registration Rights Agreement, the Company has agreed
with the Initial Purchaser, for the benefit of holders of the Series A Preferred
Shares and of any Common Shares issued upon the conversion thereof, that the
Company will, at its cost, use its best efforts to keep the Registration
Statement effective until May 18, 2000 (or such period that will terminate when
all Series A Preferred Shares and Common Shares covered by the Registration
Statement have been sold pursuant to the Registration Statement).

         The Company will provide to each Selling Shareholder copies of the
prospectus that is a part of the Registration Statement and take certain other
actions as are required to permit unrestricted resales of the Series A Preferred
Shares or the Common Shares covered thereby, as the case may be. A Selling
Shareholder selling Series A Preferred Shares or Common Shares pursuant to the
Registration Statement generally will be required to deliver a prospectus to
purchasers, will be subject to certain of the civil liability provisions under
the Securities Act in connection with such sales and will be bound by the
provisions of the Registration Rights Agreement that are applicable to such
Selling Shareholder (including certain indemnification obligations).
Additionally, prospective investors should be aware that if such a Selling
Shareholder wishes to sell such Series A Preferred Shares or Common Shares
through a broker-dealer, the broker-dealer may be unwilling to proceed with such
sale unless the Selling Shareholder indemnifies it against certain securities
law liabilities such broker-dealer may face as a result of participating in a
registered distribution.

         If there is a Registration Default, Special Distributions will be
payable quarterly in arrears to holders of Series A Preferred Shares or Common
Shares entitled to such registration under the Registration Rights Agreement (in
addition to the regular distribution accruing or payable on such shares) and
will accrue beginning (and including) the date on which any such Registration
Default shall occur and ending (but excluding) the date on which all
Registration Defaults have been cured. Special Distributions will accrue at a
rate of $0.0625 (equivalent to 0.25% of the liquidation preference) per annum
per Series A Preferred Share during the 90-day period immediately following the
occurrence of any Registration Default, which rate shall increase by $0.0625
(equivalent to 0.25% of the liquidation preference) per annum per Series A
Preferred Share at the beginning of each subsequent 90-day period, but in no
event shall the Special Distribution exceed $0.25 per Series A Preferred Share
(equivalent to 1.00% of the liquidation preference) in any twelve-month period.
Special Distributions will accrue on any Common Shares into which the Series A
Preferred Shares have been converted or redeemed, at a rate adjusted to provide
the holder thereof with the same economic benefit as though such Common Shares
had not been converted or redeemed from Series A Preferred Shares.

                                       31


<PAGE>


                BENEFIT PLAN OWNERSHIP AND TRANSFER RESTRICTIONS

         No employee benefit plan or other arrangement that is subject to ERISA,
or Section 4975 of the Code (a "Plan"), no entity whose underlying assets
include assets of a Plan pursuant to 29 C.F.R. Section 2510.3-101 or otherwise
(a "Plan Entity"), and no person investing the assets of any Plan or Plan
Entity, may purchase or hold the Series A Preferred Shares (or any interest
therein) at any time unless all of the funds to be used to acquire the Series A
Preferred Shares satisfy one of the following conditions (the "Conditions"): (i)
such funds constitute the assets of a governmental plan (as defined in Section
3(32) of ERISA and Section 414(d) of the Code); (ii) such funds constitute the
assets of an "insurance company general account," "bank collective investment
fund," or "insurance company pooled separate account," as respectively defined
in U.S. Department of Labor prohibited transaction class exemption ("PTCE")
95-60, 91-38 or 90-1, and the acquisition and holding of Series A Preferred
Shares by such account or fund satisfy the requirements of, and are entitled to
complete relief under, each such applicable PTCE; or (iii) such funds are
managed by an "in-house asset manager" or a "qualified professional asset
manager" as respectively defined in PTCE 96-23 or 84-14, and the acquisition and
holding of Series A Preferred Shares satisfy the requirements of, and are
entitled to complete relief under, each such applicable PTCE. By its purchase
and/or holding of the Series A Preferred Shares (or any interest therein), each
purchaser and holder (and, if the purchaser or holder is an insurance company
general account, a bank collective investment fund, or an insurance company
pooled separate account, or an investment fund managed by an in-house asset
manager or a qualified professional asset manager, each fiduciary with respect
to the assets used to acquire the Series A Preferred Shares) shall be deemed to
have represented, covenanted and warranted that: it is not acquiring or holding
the Series A Preferred Shares for or on behalf of, or with the assets of, a Plan
or Plan Entity, or that if it is acquiring or holding the Series A Preferred
Shares for or on behalf of, or with the assets of, a Plan or Plan Entity, that
all of the funds to be used to acquire the Series A Preferred Shares satisfy one
of the Conditions; and, it will not transfer the Series A Preferred Shares to
any Plan or Plan Entity without the prior written consent of the Company and
unless all of the funds to be used to acquire the Series A Preferred Shares
satisfy one of the Conditions.


                                       32

<PAGE>




                              OWNERSHIP LIMITATION

         For the Company to qualify as a REIT under the Code, shares of
beneficial interest in the Company must be held by a minimum of 100 persons for
at least 335 days in each taxable year subsequent to 1994 or during a
proportionate part of a shorter taxable year. In addition, at all times during
the second half of each taxable year subsequent to 1994, no more than 50% in
value of the shares of beneficial interest of the Company may be owned, directly
or indirectly and by applying certain constructive ownership rules, by five or
fewer individuals (the "5/50 Rule").

         The Ownership Limitation provides that, subject to certain exceptions
specified in the Declaration of Trust, no shareholder may own, or be deemed to
own by virtue of the attribution provisions of the Code, more than 9.8% of the
outstanding Common Shares or more than 9.8% of the outstanding shares of any
series of Preferred Shares. Generally, the shares of beneficial interest owned
by related or affiliated owners will be aggregated for purposes of the Ownership
Limitation. The Ownership Limitation will likely have the effect of discouraging
a takeover or other transaction in which the holders of some, or a majority, of
the Common Shares might receive a premium for their Common Shares over the then
prevailing market price or which such holders might believe to be otherwise
desirable.

         If any shareholder purports to transfer Common or Preferred Shares to a
person and the transfer, if effective, would result in (i) a person owning
Common or Preferred Shares, directly or constructively, in excess of the
Ownership Limitation, (ii) the Common and Preferred Shares being beneficially
owned by fewer than 100 persons (determined without reference to any rules of
attribution), (iii) the Company being "closely held" within the meaning of
Section 856(h) of the Code, or (iv) the Company constructively owning 10% or
more of the ownership interests in a tenant of its real property, within the
meaning of Section 856(d)(2)(B) of the Code, the purported transfer shall be
void ab initio, the intended transferee of such shares will be deemed never to
have had an interest in such shares, and such shares will be designated
"Shares-in-Trust." Furthermore, the Company shall be deemed to have been offered
Shares-in-Trust for purchase at the lesser of the Market Price (defined below)
on the date the Company accepts the offer and the price per share in the
transaction that created such Shares-in-Trust (or, in the case of a gift,
devise, or non-transfer event (as defined in the Declaration of Trust), the
market price on the date of such gift, devise, or non-transfer event).
Therefore, the recordholder of shares of beneficial interest in excess of the
Ownership Limitation will experience a financial loss when such shares are
redeemed, if the market price falls between the date of purchase and the date of
redemption.

         "Market Price" on any date shall mean the average of the Closing Price
(as defined below) for the five consecutive Trading Days (as defined below)
ending on such date. The "Closing Price" on any date shall mean the last sale
price, regular way, or, in case no such sale takes place on such day, the
average of the closing bid and asked prices, regular way, in either case as
reported to the principal consolidated transaction reporting system with respect
to securities listed or admitted to trading on the New York Stock Exchange or,
if the Common or Preferred Shares are not listed or admitted to trading on the
New York Stock Exchange, as reported in the principal consolidated transaction
reporting system with respect to securities listed on the principal national
securities exchange on which the Common or Preferred Shares are listed or
admitted to trading or, if the Common or Preferred Shares are not listed or
admitted to trading on any national securities exchange, the last quoted price,
or if not so quoted, the average of the high bid and low asked prices in the
over-the-counter market, as reported by the National Association of Securities
Dealers, Inc. Automated Quotation System or, if such system is no longer in use,
the principal other automated quotations system that may then be in use or, if
the Common or Preferred Shares are not quoted by any such organization, the
average of the closing bid and asked prices as furnished by a professional
market maker making a market in the Common or Preferred Shares selected by the
Board of Trustees. "Trading Day" shall mean a day on which the principal
national securities exchange on which the Common or Preferred Shares are listed
or admitted to trading is open for the transaction of business or, if the Common
or Preferred Shares are not listed or admitted to trading on any national
securities exchange, shall mean any day other than a Saturday, a Sunday or a day
on which banking institutions in the State of New York are authorized or
obligated by law or executive order to close.


                                       33


<PAGE>


         Any person who acquires or attempts to acquire Common Shares or
Preferred Shares in violation of the foregoing restrictions, or any person who
owned Common Shares or Preferred Shares that were transferred to a share trust,
will be required (i) to give immediately written notice to the Company of such
event and (ii) to provide to the Company such other information the Company may
request in order to determine the effect, if any, of such transfer on the
Company's status as a REIT.

         All persons who own, directly or indirectly, more than 5% (or such
lower percentages as required pursuant to the regulations under the Code) of the
outstanding Common Shares and Preferred Shares must, within 30 days after
January 1 of each year, provide to the Company a written statement or affidavit
stating the name and address of such direct or indirect owner, the number of
Common Shares and Preferred Shares owned directly or indirectly, and a
description of how such shares are held. In addition, each direct or indirect
shareholder shall provide to the Company such additional information as the
Company may request in order to determine the effect, if any, of such ownership
on the Company's status as a REIT and to ensure compliance with the Ownership
Limitation.

         The Ownership Limitation generally will not apply to the acquisition of
Common Shares or Preferred Shares by an underwriter that participates in a
public offering of such shares. In addition, the Board of Trustees, upon receipt
of a ruling from the Service or an opinion of counsel and upon such other
conditions as the Board of Trustees may direct, may exempt a person from the
Ownership Limitation under certain circumstances. The Board of Trustees has
granted exemptions from the Ownership Limitation, subject to certain other
ownership restrictions, in the case of certain mutual fund investment families.
The foregoing restrictions will continue to apply until (i) the Board of
Trustees determines that it is no longer in the best interests of the Company to
attempt to qualify, or to continue to qualify, as a real estate investment trust
and (ii) there is an affirmative vote of two-thirds of the number of Common
Shares and Preferred Shares entitled to vote on such matter at a regular or
special meeting of the shareholders of the Company.

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


                                       34

<PAGE>




                              SELLING SHAREHOLDERS

         The Selling Shareholders are the holders listed below and their
transferees, pledgees, donees or other successors, if not identified hereunder,
then so identified in supplements to this Prospectus. The following table sets
forth, as of a recent practicable date prior to the effectiveness of the
Registration Statement of which this Prospectus forms a part, certain
information with respect to the Selling Shareholders named below and the
respective number of Series A Preferred Shares and Common Shares issuable upon
the conversion of Series A Preferred Shares owned by each Selling Shareholder
that may be offered pursuant to this Prospectus. Because each of the Selling
Shareholders may offer all, some or none of the Series A Preferred Shares or
Common Shares issuable upon conversion of the Series A Preferred Shares, and
because the offering contemplated by this Prospectus is currently not being
underwritten, no estimate can be given as to the number of Series A Preferred
Shares or Common Shares issuable upon conversion of the Series A Preferred
Shares will be held by each of the Selling Shareholders upon or prior to
termination of this offering. Such information has been obtained from the
Selling Shareholders.

<TABLE>
<CAPTION>
                                                                           Series A Preferred     Common Shares
                                                     Series A Preferred     Shares Registered       Registered
              Selling Shareholders                      Shares Owned            Hereunder            Hereunder
              --------------------                      ------------            ---------            ---------
<S><C>

EVEREN Securities, Inc.                                      30,000               30,000               44,433

</TABLE>

                                       35


<PAGE>

<TABLE>

<S><C>

JF Hotel, Inc.                                               20,500(1)            20,500               30,363

The Jerome and Anne C. Fisher Charitable                     10,000(2)            10,000               14,811
Foundation

Wichita Consulting Company, L.P.                              7,500(3)             7,500               11,108

Miles Berger                                                  4,000(4)             4,000                5,924

Jack P. DeBoer                                                4,000(5)             4,000                5,924

The C. Gerald Goldsmith 1993 Trust                            2,000(6)             2,000                2,962

David Bulger                                                  1,000(7)             1,000                1,481

Gregory M. Fay                                                  500(8)               500                  741

Mark A. Murphy                                                  500(9)               500                  741
</TABLE>

- --------------------
(1)      Jeffrey H. Fisher, Chairman of the Board of Trustees, Chief Executive
         Officer and President of the Company, owns 80% of the common stock of
         JF Hotel, Inc., and Frederic M. Shaw, Executive Vice President and
         Chief Operating Officer of the Company, owns 20% of the common stock of
         JF Hotel, Inc.
(2)      The trustees of The Jerome and Anne C. Fisher Charitable Foundation are
         the parents of Mr. Fisher.
(3)      Mr. Ruhfus, a member of the Board of Trustees of the Company, owns all
         of the partnership interests of Wichita Consulting Company, L.P.
(4)      Mr. Berger is a trustee of the Company.
(5)      Mr. DeBoer is a trustee of the Company.
(6)      The trustee of the C. Gerald Goldsmith 1993 Trust is a trustee of the
         Company.
(7)      Mr. Bulger is the Chief Financial Officer and Treasurer of the Company.
(8)      Mr. Fay is the Chief Accounting Officer and Vice President of
         Accounting of the Company.

                                       36


<PAGE>



(9)      Mr. Murphy is the General Counsel and Secretary of the Company.


         Each Selling Shareholder is registering the entire amount of the Series
A Preferred Shares and Common Shares set forth opposite its name above. To the
extent required, the specific amount of Series A Preferred Shares or shares to
be sold by a Selling Shareholder in connection with a particular offer pursuant
to this Prospectus will be set forth in an accompanying Prospectus Supplement.

         The Company and the Selling Shareholders have agreed to indemnify each
other against certain liabilities arising under the Securities Act. The Company
has agreed to pay all expenses incident to the offer and sale of the Series A
Preferred Shares and the Common Shares to the public other than selling
commissions and fees charged to them by their agent, dealer or underwriter or by
their attorneys and accountants. See "Plan of Distribution."


                              ERISA CONSIDERATIONS

         ERISA imposes certain requirements on "employee benefit plans" (as
defined in Section 3(3) of ERISA) subject to Part 4 of Subtitle B of Title I of
ERISA, including entities such as collective investment funds and insurance
company separate accounts whose underlying assets include the assets of such
plans (collectively, "ERISA Plans") and on those persons who are fiduciaries
with respect to ERISA Plans. The fiduciaries of an ERISA Plan should consider,
among other things, the matters described below before determining whether to
invest in Series A Preferred Shares.

         ERISA imposes certain general and specific responsibilities on
fiduciaries with respect to an ERISA Plan. Those responsibilities include
satisfaction of the prudence and diversification requirements of ERISA and
compliance with prohibited transaction and other rules and standards. In
determining whether a particular investment is appropriate for an ERISA Plan,
Department of Labor ("DOL") regulations provide that the fiduciaries of an ERISA
Plan must give appropriate consideration to, among other things, the role that
the investment plays in the ERISA Plan's portfolio, taking into consideration
whether the investment is designed reasonably to further the ERISA Plan's
purposes, an examination of the risk and return factors, the portfolio's
composition with regard to diversification, the liquidity and current return of
the total portfolio relative to the anticipated cash flow needs of the ERISA
Plan and the projected return of the total portfolio relative to the ERISA
Plan's funding objectives. Before investing the assets of an ERISA Plan in the
Series A Preferred Shares, a fiduciary should determine whether such an
investment is consistent with its fiduciary responsibilities and the foregoing
regulations. For example, a fiduciary should consider whether an investment in
the Series A Preferred Shares may be too illiquid or too speculative for a
particular ERISA Plan particularly in light of the Shares-in-Trust provisions
described above, and whether the assets of the ERISA Plan would be sufficiently
diversified.

         Section 406 of ERISA and Section 4975 of the Code prohibit certain
transactions involving the assets of an ERISA Plan (as well as those plans that
are not subject to ERISA but which are subject to Section 4975 of the Code, such
as individual retirement accounts (together with ERISA Plans, "Plans")) and
certain persons (referred to as "parties in interest" or "disqualified persons")
having certain relationships to such Plans, unless a statutory or administrative
exemption is applicable to the transaction. A party in interest or disqualified
person who engages in a non-exempt prohibited transaction may be subject to
non-deductible excise taxes and other penalties and liabilities under ERISA and
the Code. NO PLAN MAY ACQUIRE SERIES A PREFERRED SHARES WITHOUT THE COMPANY'S
PRIOR WRITTEN CONSENT, WHICH CONSENT MAY BE WITHHELD IN THE COMPANY'S SOLE
DISCRETION. Each investor that is a Plan or is using Plan Assets will be
required to represent in connection with its investment in shares of beneficial
interest of the Company that such investment will not result in a non-exempt
"prohibited transaction."

         The DOL--the government agency primarily responsible for administering
the ERISA fiduciary rules and the prohibited transaction rules under ERISA and
the Code--has issued the Plan Asset Regulation that, under specified
circumstances, requires persons investing in an entity for the benefit of a Plan
or with Plan Assets to "look through" certain types of entities (such as the
Company) that are not "operating companies" as defined in the Plan


                                       37


<PAGE>



Asset Regulation, and treat as an "asset" of the Plan each underlying investment
made by such entity. The Plan Asset Regulation provides, however, that if equity
participation in any entity by Benefit Plan Investors is not significant then
the "look-through" rule will not apply to such entity. Equity participation by
Benefit Plan Investors in an entity is significant if, immediately after the
most recent acquisition of any equity interest in the entity, 25% or more of the
value of any class of equity interests in the entity (calculated by excluding
the value of any interest held by certain parties exercising control over the
assets of the entity or who provide investment advice to the entity for a fee,
or any affiliates thereof) is held by Benefit Plan Investors (the "25%
Threshold").

         As an exception to the above rules, Benefit Plan Investor ownership of
a "publicly offered security" of the Company will not cause the "look-through"
rule to apply to the Company. The Series A Preferred Shares do not currently
qualify as a publicly-offered security. The Plan Asset Regulation defines a
publicly-offered security as a security that is "widely-held," "freely
transferable," and either part of a class of securities registered under the
Exchange Act, as amended or sold pursuant to an effective registration statement
under the Securities Act (provided the securities are registered under the
Exchange Act within 120 days after the end of the fiscal year of the issuer
during which such offering occurred). A security will be "widely held" only if
it is part of a class of securities that is owned by 100 or more investors who
are independent of the issuer and of one another. A security will not fail to be
widely held if the number of investors falls below 100, after achieving such
level, as a result of events beyond the issuer's control. The Company
anticipates, although there is no assurance, that at some point in time, the
Series A Preferred Shares will become widely held and, as a result, will qualify
as a publicly-offered security, assuming such shares are "freely transferable."

         The Plan Asset Regulation provides that whether a security is "freely
transferable" is a factual question to be determined on the basis of all
relevant facts and circumstances. The Plan Asset Regulation further provides
that where a security is part of an offering in which the minimum investment is
$10,000 or less (as is the case with the Registration Statement) certain
restrictions ordinarily will not, alone or in combination, affect a finding that
such securities are freely transferable. The restrictions on transfer enumerated
in the Plan Asset Regulation as not affecting that finding include: (i) any
restriction on or prohibition against any transfer or assignment that would
result in the termination or reclassification of an entity for federal or state
tax purposes, or that otherwise would violate any federal or state law or court
order, (ii) any requirement that advance notice of a transfer or assignment be
given to the issuer, (iii) any administrative procedure that establishes an
effective date, or an event (such as completion of an offering), prior to which
a transfer or assignment will not be effective, and (iv) any limitation or
restriction on transfer or assignment that is not imposed by the issuer or an
entity acting on behalf of the issuer. The Company believes that the
restrictions imposed under the Declaration of Trust and Articles Supplementary
on the transfer of the Company's shares will not result in the failure of the
Series A Preferred Shares to be "freely transferable." The Company also is not
aware of any other facts or circumstances limiting the transferability of the
Series A Preferred Shares other than those enumerated in the Plan Asset
Regulation as those not affecting free transferability. However no assurance can
be given that the DOL or the United States Department of Treasury would not
reach a contrary conclusion.

         Assuming that the Series A Preferred Shares will be "widely held" at
some point in time and that no other facts and circumstances other than those
referred to in the preceding paragraph exist that restrict transferability of
the Series A Preferred Shares, the Series A Preferred Shares at such point in
time should qualify as publicly-offered securities and, accordingly, the assets
of the Company should not be deemed to be Plan Assets of any Plan that invests
in the Series A Preferred Shares. Prior to the time the Series A Preferred
Shares qualify as a publicly-offered security, the Company will use reasonable
efforts to maintain the ownership interests in Series A Preferred Shares held by
Benefit Plan Investors at a level below the 25% Threshold. The Articles
Supplementary provide that no Benefit Plan Investor may acquire Series A
Preferred Shares without the Company's prior written consent (which consent may
be withheld in the Company's sole discretion) prior to such shares qualifying as
a publicly-offered security or availability of another exception to the
"look-through" rule. The Company may refuse such consent in its sole and
absolute discretion. Notwithstanding such prohibition on acquisitions, aggregate
Benefit Plan Investor ownership may increase as a result of conversions by
non-Benefit Plan Investors. To prevent such increases from causing ownership by
Benefit Plan Investors to meet the 25% Threshold, the Articles Supplementary
further provide that the Company may, at any time when Benefit Plan Investor
ownership of the Series A Preferred Shares exceeds 20%, redeem shares held by
Benefit Plan Investors on a pro-rata basis (or any other method


                                       38


<PAGE>



determined by the Board of Trustees in its sole discretion) so that Benefit Plan
Investors, as a group, own less than 25% of the Series A Preferred Shares (but
in no event may such redemptions reduce Benefit Plan Investor ownership to less
than 20% of the Series A Preferred Shares). See "Description of Shares of
Beneficial Interest--Series A Preferred Shares--Redemption."

         Finally, the Articles Supplementary provide that if aggregate Benefit
Plan Investor ownership of the Series A Preferred Shares exceeds the 25%
Threshold, the Series A Preferred Shares held by Benefit Plan Investors shall be
deemed to be Shares-in-Trust, pro-rata, to the extent necessary to reduce
aggregate Benefit Plan Investor ownership of the Series A Preferred Shares to
below the 25% Threshold. In that case, the purported owners will lose certain
ownership rights with respect to the Shares-in-Trust and the Company will have
the right to purchase such Shares-in-Trust for their fair market value (as
determined by the Board of Trustees in its sole discretion), which proceeds
shall be payable to the purported owner. The Shares-in-Trust provisions shall
cease to apply at any time after the Series A Preferred Shares qualify as a
publicly-offered security or another exception to the "look-through" rules of
the Plan Asset Regulation applies. See "Description of Shares of Beneficial
Interest--Series A Preferred Shares--Restrictions on Ownership--ERISA-Related
Restrictions"

         There can be no assurance, however, that ownership of Series A
Preferred Shares by Benefit Plan Investors will always remain below the 25%
Threshold. If for any reason the assets of the Company are deemed to be Plan
Assets of a Plan because one or more Benefit Plan Investors is an owner of
shares of beneficial interest in the Company, certain transactions that the
Company might enter into, or may have entered into, in the ordinary course of
its business might constitute non-exempt "prohibited transactions" under Section
406 of ERISA and/or Section 4975 of the Code and might have to be rescinded.

         Regardless of whether the assets of the Company are deemed to be Plan
Assets, the acquisition of Series A Preferred Shares or Common Shares by a Plan
could, depending upon the facts and circumstances of such acquisition, result in
a prohibited transaction if the Company or any of its affiliates were to be a
party in interest or a disqualified person with respect to the Plan. Such a
prohibited transaction may, however, be treated as exempt under ERISA and the
Code if Series A Preferred Shares or Common Shares were acquired pursuant to and
in accordance with one or more PTCEs issued by the DOL, such as PTCE 90-1 (a
class exemption for certain transactions involving insurance company pooled
separate accounts), PTCE 91-38 (a class exemption for certain transactions
involving bank collective investment funds), PTCE 95-60 (a class exemption for
certain transactions involving insurance company general accounts), PTCE 84-14
(a class exemption for certain transactions determined by independent qualified
professional asset managers) and PTCE 96-23 (a class exemption for certain
transactions determined by in-house asset managers). If the purchase of Series A
Preferred Shares or Common Shares were to be a non-exempt prohibited
transaction, the purchase might have to be rescinded.

         In this regard, any potential investor that is an insurance company
investing assets out of its general account should consider the United States
Supreme Court's decision in John Hancock Life Insurance Co. v. Harris Trust and
Savings Bank, 114 S. Ct. 517 (1993), which in certain circumstances treats such
general account assets as assets of a Plan for certain purposes. In addition,
the Small Business Job Protection Act of 1996 added a new section 401(c) to
ERISA, which provides certain exemptive relief from the provisions of Part 4 of
subtitle B of Title I of ERISA and Section 4975 of the Code, including the
prohibited transaction restrictions imposed by ERISA and the related excise
taxes imposed by Section 4975 of the Code, for transactions involving an
insurance company general account. Pursuant to Section 401(c) of ERISA, the DOL
was required to issue regulations (the "401(c) Regulations") in final form no
later than December 31, 1997 which are to provide guidance for purposes of
determining, in cases where insurance policies or annuity contracts supported by
an insurer's general account are issued to or for the benefit of a Plan on or
before December 31, 1998, which general account assets constitute Plan Assets.
The 401(c) Regulations were published, in proposed form, in the Federal Register
on December 22, 1997 and generally provide that, until the applicable effective
dates for various requirements imposed under the 401(c) Regulations, no person
shall be subject to liability under Parts 1 and 4 of Subtitle B of Title I of
ERISA or Section 4975 of the Code on the basis of a claim that the assets of an
insurance company general account constitute Plan Assets unless (i) an action is
brought by the Secretary of Labor for certain breaches of fiduciary duty which
would also constitute a violation of federal or state criminal law or (ii) the
action is a civil action commenced prior to November 7, 1995. The proposed
401(c) Regulations state that the effective date of the 401(c) Regulations


                                       39


<PAGE>


generally will be 18 months after the publication of the 401(c) Regulations in
the Federal Register, for purposes of determining whether assets that support a
policy or contract issued to a Plan on or before December 31, 1998 constitute
Plan Assets. However, the proposed 401(c) Regulations provide earlier effective
dates by which insurers (and plan fiduciaries, with respect to the requirement
relating to independent fiduciary approval of the purchase of the policy or
contract) must satisfy several of the requirements contained in the 401(c)
Regulations.

         Under the proposed 401(c) Regulations, requirements that insurers make
certain disclosures to plan fiduciaries, including information relating to
alternative separate account arrangements, generally would become applicable to
a policy or contract (i) 90 days after publication of final 401(c) Regulations
in the Federal Register, for a policy or contract issued before the date that is
90 days after such publication date; and (ii) as of the date of publication of
final 401(c) Regulations in the Federal Register, for a policy or contract
issued at least 90 days after the date of such publication. Requirements
relating to independent fiduciary approval of the purchase of a policy or
contract, and to insurer-initiated policy or contract amendments, are effective
as of the date of the publication of the final 401(c) Regulations in the Federal
Register. For insurer-initiated amendments made after the publication of the
proposed 401(c) Regulations but prior to the publication of the final 401(c)
Regulations, certain required written notices to the Plan must be provided
within 30 days of the publication of the final 401(c) Regulations.

         Any assets of an insurance company general account which support
insurance policies or annuity contracts issued to a Plan after December 31, 1998
or issued to a Plan on or before December 31, 1998, for which the insurance
company does not comply with the 401(c) Regulations, may be treated as Plan
Assets. In addition, because Section 401(c) does not relate to insurance company
separate accounts, separate account assets are still treated as Plan Assets of
any Plan invested in such separate account. Insurance companies contemplating
the investment of general account assets in the Series A Preferred Shares of the
Company should consult with their legal advisors with respect to the
applicability of Section 401(c) of ERISA, including the general account's
ability to continue to hold the Series A Preferred Shares after the date that
the final 401(c) Regulations are published in the Federal Register.

         The Company will require fiduciaries of an ERISA Plan proposing to
invest in Series A Preferred Shares to represent that they have been informed of
and understand the Company's investment objectives, policies and strategies,
that the decision to invest the ERISA Plan's assets in the Company was made with
appropriate consideration of relevant investment factors with regard to the
ERISA Plan and is consistent with the duties and responsibilities imposed upon
fiduciaries with regard to their investment decisions under ERISA, and any
person or entity acquiring Series A Preferred Shares for the benefit of a Plan
(or with Plan Assets) to represent that the investment in the Series A Preferred
Shares of the Company will not result in a non-exempt prohibited transaction
under ERISA and/or the Code.

         Consenting to the sale of Series A Preferred Shares is in no respect a
representation by the Company and any of its affiliates that such an investment
meets all legal requirements with respect to investments by Plans generally or
any particular Plan, or that such an investment is appropriate for Plans
generally or any particular Plan.

         The discussion of ERISA and Section 4975 of the Code contained in this
Prospectus, is of necessity general, and does not purport to be complete.
Moreover, the provisions of ERISA and Section 4975 of the Code are subject to
extensive and continuing administrative and judicial interpretation and review.
Therefore, the matters discussed above may be affected by future regulations,
rulings and court decisions, some of which may have retroactive application and
effect.

         ANY FIDUCIARY OF A PLAN CONSIDERING AN INVESTMENT IN SHARES OF
BENEFICIAL INTEREST OF THE COMPANY IS STRONGLY URGED TO CONSULT ITS OWN LEGAL
AND TAX ADVISORS REGARDING THE CONSEQUENCES OF SUCH AN INVESTMENT UNDER ERISA
AND THE CODE AND THE ABILITY TO MAKE THE REPRESENTATIONS DESCRIBED ABOVE.


                                       40



<PAGE>




                       FEDERAL INCOME TAX CONSIDERATIONS


         The following summary of material federal income tax considerations
that may be relevant to a prospective holder of the Series A Preferred Shares
and/or the Common Shares is based on current law, is for general information
only, and is not tax advice. The discussion contained herein does not address
all aspects of taxation that may be relevant to particular shareholders in light
of their personal investment or tax circumstances, or to certain types of
shareholders (including insurance companies, tax-exempt organizations (except as
described below), financial institutions or broker-dealers, foreign
corporations, and persons who are not citizens or residents of the United States
(except as described below)) subject to special treatment under the federal
income tax laws.

         The statements in this discussion are based on current provisions of
the Code, existing, temporary, and currently proposed Treasury Regulations
promulgated under the Code, the legislative history of the Code, existing
administrative rulings and practices of the Service, and judicial decisions. No
assurance can be given that future legislative, judicial, or administrative
actions or decisions, which may be retroactive in effect, will not affect the
accuracy of any statements in this Prospectus with respect to the transactions
entered into or contemplated prior to the effective date of such changes.

TAXATION OF THE COMPANY

         The Company elected to be taxed as a REIT under sections 856 through
860 of the Code, effective for its short taxable year ended December 31, 1994.
The Company believes that, commencing with such taxable year, it has been
organized and has operated in such a manner as to qualify for taxation as a REIT
under the Code, and the Company intends to continue to operate in such a manner,
but no assurance can be given that the Company will operate in a manner so as to
qualify or remain qualified as a REIT.

         The sections of the Code relating to qualification and operation as a
REIT are highly technical and complex. The following discussion sets forth the
material aspects of the Code sections that govern the federal income tax
treatment of a REIT and its shareholders. The discussion is qualified in its
entirety by the applicable Code provisions, Treasury Regulations promulgated
thereunder, and administrative and judicial interpretations thereof, all of
which are subject to change prospectively or retrospectively.

         As a REIT, the Company generally is not subject to federal corporate
income tax on its net income that is distributed currently to its shareholders.
That treatment substantially eliminates the "double taxation" (i.e., taxation at
both the corporate and shareholder levels) that generally results from an
investment in a corporation. However, the Company will be subject to federal
income tax in the following circumstances. First, the Company will be taxed at
regular corporate rates on any undistributed REIT taxable income, including
undistributed net capital gains. Second, under certain circumstances, the
Company may be subject to the "alternative minimum tax" on its undistributed
items of tax preference. Third, if the Company has (i) net income from the sale
or other disposition of "foreclosure property" that is held primarily for sale
to customers in the ordinary course of business or (ii) other nonqualifying
income from foreclosure property, it will be subject to tax at the highest
corporate rate on such income. Fourth, if the Company has net income from
prohibited transactions (which are, in general, certain sales or other
dispositions of property (other than foreclosure property) held primarily for
sale to customers in the ordinary course of business), such income will be
subject to a 100% tax. Fifth, if the Company should fail to satisfy the 75%
gross income test or the 95% gross income test (as discussed below), and has
nonetheless maintained its qualification as a REIT because certain other
requirements have been met, it will be subject to a 100% tax on (i) the gross
income attributable to the greater of the amount by which the Company fails the
75% or 95% gross income test multiplied by (ii) a fraction intended to reflect
the Company's profitability. Sixth, if the Company should fail to distribute
during each calendar year at least the sum of (i) 85% of its REIT ordinary
income for such year, (ii) 95% of its REIT capital gain net income for such
year, and (iii) any undistributed taxable income from prior periods, the Company
would be subject to a 4% excise tax on the excess of such required distribution
over the amounts actually distributed. Seventh, the Company may elect to retain
and pay income tax on its net long-term capital gain. To the extent that the
Company so elects, such retained amount would be treated as having been
distributed for purposes of


                                       41


<PAGE>



the 4% excise tax described above. Finally, if the Company acquires any asset
from a C corporation (i.e., a corporation generally subject to full
corporate-level tax) in a transaction in which the basis of the asset in the
Company's hands is determined by reference to the basis of the asset (or any
other asset) in the hands of the C corporation and the Company recognizes gain
on the disposition of such asset during the 10-year period beginning on the date
on which such asset was acquired by the Company, then to the extent of such
asset's "built-in gain" (i.e., the excess of the fair market value of such asset
at the time of acquisition by the Company over the adjusted basis in such asset
at such time), such gain will be subject to tax at the highest regular corporate
rate applicable (which is to be provided in Treasury Regulations that have not
yet been promulgated). The results described above with respect to the
recognition of "built-in gain" assume that the Company would make an election
pursuant to IRS Notice 88-19 if it were to make any such acquisition.

REQUIREMENTS FOR QUALIFICATION

         The Code defines a REIT as a corporation, trust or association (i) that
is managed by one or more trustees or directors; (ii) the beneficial ownership
of which is evidenced by transferable shares, or by transferable certificates of
beneficial interest; (iii) that would be taxable as a domestic corporation, but
for sections 856 through 860 of the Code; (iv) that is neither a financial
institution nor an insurance company subject to certain provisions of the Code;
(v) the beneficial ownership of which is held by 100 or more persons; (vi) not
more than 50% in value of the outstanding shares of beneficial interest of which
is owned, directly or indirectly, by five or fewer individuals (as defined in
the Code to include certain entities) during the last half of each taxable year
(the "5/50 Rule"); (vii) that makes an election to be a REIT (or has made such
election for a previous taxable year) and satisfies all relevant filing and
other administrative requirements established by the Service that must be met in
order to elect and to maintain REIT status; (viii) that uses a calendar year for
federal income tax purposes and complies with the recordkeeping requirements of
the Code and Treasury Regulations promulgated thereunder; and (ix) that meets
certain other tests, described below, regarding the nature of its income and
assets. The Code provides that conditions (i) to (iv), inclusive, must be met
during the entire taxable year and that condition (v) must be met during at
least 335 days of a taxable year of 12 months, or during a proportionate part of
a taxable year of less than 12 months. If the Company complies with the
requirements for ascertaining the ownership of its outstanding shares of
beneficial interest in a taxable year and does not know or have reason to know
that it has violated the 5/50 Rule, it will be deemed to satisfy the 5/50 Rule
for the taxable year. The Company believes that it has issued sufficient Common
Shares with sufficient diversity of ownership to allow it to satisfy
requirements (v) and (vi). In addition, the Company's Declaration of Trust
provides for restrictions regarding transfer of the Common Shares and Series A
Preferred Shares that are intended to assist the Company in continuing to
satisfy the share ownership requirements described in (v) and (vi) above. Such
transfer restrictions are described in "Description of Shares of Beneficial
Interest--Restrictions on Ownership."

         For purposes of determining share ownership under the 5/50 Rule, a
supplemental unemployment compensation benefits plan, a private foundation, or a
portion of a trust permanently set aside or used exclusively for charitable
purposes generally is considered an individual. A trust that is a qualified
trust under Code section 401(a), however, generally is not considered an
individual and the beneficiaries of such trust are treated as holding shares of
a REIT in proportion to their actuarial interests in such trust for purposes of
the 5/50 Rule.

         The Company currently has a significant number of corporate
subsidiaries and may have additional corporate subsidiaries in the future. Code
section 856(i) provides that a corporation that is a "qualified REIT subsidiary"
shall not be treated as a separate corporation, and all assets, liabilities, and
items of income, deduction, and credit of a "qualified REIT subsidiary" shall be
treated as assets, liabilities, and items of income, deduction, and credit of
the REIT. A "qualified REIT subsidiary" is a corporation, all of the capital
stock of which is owned by the REIT. Thus, in applying the requirements
described herein, any "qualified REIT subsidiaries" acquired or formed by the
Company will be ignored, and all assets, liabilities, and items of income,
deduction, and credit of such subsidiaries will be treated as assets,
liabilities and items of income, deduction, and credit of the Company. The
Company's current corporate subsidiaries are "qualified REIT subsidiaries."

         In the case of a REIT that is a partner in a partnership, Treasury
Regulations provide that the REIT will be deemed to own its proportionate share
of the assets of the partnership and will be deemed to be entitled to the gross


                                       42


<PAGE>


income of the partnership attributable to such share. In addition, the assets
and gross income of the partnership will retain the same character in the hands
of the REIT for purposes of section 856 of the Code, including satisfying the
gross income and asset tests described below. Thus, the Company's proportionate
share of the assets, liabilities, and items of income of the Partnership and its
subsidiary partnerships (the "Subsidiary Partnerships") will be treated as
assets and gross income of the Company for purposes of applying the requirements
described herein.

Income Tests

         In order for the Company to maintain its qualification as a REIT, there
are two requirements relating to the Company's gross income that must be
satisfied annually. First, at least 75% of the Company's gross income (excluding
gross income from prohibited transactions) for each taxable year must consist of
defined types of income derived directly or indirectly from investments relating
to real property or mortgages on real property (including "rents from real
property" and, in certain circumstances, interest) or temporary investment
income. Second, at least 95% of the Company's gross income (excluding gross
income from prohibited transactions) for each taxable year must be derived from
such real property or temporary investments, and from dividends, other types of
interest, and gain from the sale or disposition of stock or securities, or from
any combination of the foregoing. The specific application of these tests to the
Company is discussed below.

         Rents received by the Company will qualify as "rents from real
property" in satisfying the gross income requirements for a REIT described above
only if several conditions are met. First, the amount of rent must not be based
in whole or in part on the income or profits of any person. However, an amount
received or accrued generally will not be excluded from the term "rents from
real property" solely by reason of being based on a fixed percentage or
percentages of receipts or sales. Second, the Code provides that rents received
from a tenant will not qualify as "rents from real property" in satisfying the
gross income tests if the Company, or an owner of 10% or more of the Company,
actually or constructively owns 10% or more of such tenant (a "Related Party
Tenant"). Third, if rent attributable to personal property, leased in connection
with a lease of real property, is greater than 15% of the total rent received
under the lease, then the portion of rent attributable to such personal property
will not qualify as "rents from real property." Finally, for rents received to
qualify as "rents from real property," the Company generally must not operate or
manage the property or furnish or render services to the tenants of such
property, other than through an "independent contractor" who is adequately
compensated and from whom the Company derives no revenue. The "independent
contractor" requirement, however, does not apply to the extent the services
provided by the Company are "usually or customarily rendered" in connection with
the rental of space for occupancy only and are not otherwise considered
"rendered to the occupant." In addition, the Company may furnish or render
"noncustomary services" to the tenants of a Hotel other than through an
independent contractor as long as the amount the Company receives with respect
to such services does not exceed 1% of its total receipts from the Hotel (the
"1% de minimis exception"). For that purpose, the amount attributable to the
Company's services will be at least equal to 150% of the Company's cost of
providing the services.

         Pursuant to the Percentage Leases, the Lessees lease from the
Partnership and the Subsidiary Partnerships the land, buildings, improvements,
furnishings, and equipment comprising the Hotels for periods ranging from ten to
thirteen years. The Percentage Leases provide that the Lessees are obligated to
pay to the Partnership or the applicable Subsidiary Partnership (i) the greater
of the Base Rent or the Percentage Rent (collectively, the "Rents") and (ii)
certain other amounts, including interest accrued on any late payments or
charges (the "Additional Charges"). The Percentage Rent is calculated by
multiplying fixed percentages by the gross room revenues for each of the Hotels.
The Base Rent accrues and is required to be paid monthly and the Percentage Rent
(if any) accrues and is required to be paid either monthly or quarterly,
depending on the hotel.

         In order for the Base Rent, the Percentage Rent, and the Additional
Charges to constitute "rents from real property," the Percentage Leases must be
respected as true leases for federal income tax purposes and not treated as
service contracts, joint ventures or some other type of arrangement. The
determination of whether the Percentage Leases are true leases depends on an
analysis of all the surrounding facts and circumstances. In making such a
determination, courts have considered a variety of factors, including the
following: (i) the intent of the parties, (ii) the form of the agreement, (iii)
the degree of control over the property that is retained by the property owner
(e.g., whether the lessee has substantial control over the operation of the
property or whether the lessee was required


                                       43


<PAGE>


simply to use its best efforts to perform its obligations under the agreement),
and (iv) the extent to which the property owner retains the risk of loss with
respect to the property (e.g., whether the lessee bears the risk of increases in
operating expenses or the risk of damage to the property).

         In addition, Code section 7701(e) provides that a contract that
purports to be a service contract (or a partnership agreement) is treated
instead as a lease of property if the contract is properly treated as such,
taking into account all relevant factors, including whether or not: (i) the
service recipient is in physical possession of the property, (ii) the service
recipient controls the property, (iii) the service recipient has a significant
economic or possessory interest in the property (e.g., the property's use is
likely to be dedicated to the service recipient for a substantial portion of the
useful life of the property, the recipient shares the risk that the property
will decline in value, the recipient shares in any appreciation in the value of
the property, the recipient shares in savings in the property's operating costs,
or the recipient bears the risk of damage to or loss of the property), (iv) the
service provider does not bear any risk of substantially diminished receipts or
substantially increased expenditures if there is nonperformance under the
contract, (v) the service provider does not use the property concurrently to
provide significant services to entities unrelated to the service recipient, and
(vi) the total contract price does not substantially exceed the rental value of
the property for the contract period. Since the determination of whether a
service contract should be treated as a lease is inherently factual, the
presence or absence of any single factor may not be dispositive in every case.

         If the Percentage Leases are recharacterized as service contracts or
partnership agreements, rather than true leases, part or all of the payments
that the Partnership or the Subsidiary Partnerships receives from the Lessees
may not be considered rent or may not otherwise satisfy the various requirements
for qualification as "rents from real property." In that case, the Company
likely would not be able to satisfy either the 75% or 95% gross income test and,
as a result, would lose its REIT status.

         Based on the following facts, the Company believes that the Percentage
Leases will be treated as true leases for federal income tax purposes: (i) the
Partnership or Subsidiary Partnership, as applicable, and the Lessees intend for
their relationship to be that of a lessor and lessee and such relationship is
documented by lease agreements, (ii) the Lessees have the right to the exclusive
possession, use, and quiet enjoyment of the Hotels during the term of the
Percentage Leases, (iii) the Lessees bear the cost of, and are responsible for,
day-to-day maintenance and repair of the Hotels, other than the cost of certain
capital improvements, and dictate how the Hotels are operated, maintained, and
improved, (iv) the Lessees bear all of the costs and expenses of operating the
Hotels (including the cost of any inventory used in their operation) during the
term of the Percentage Leases (other than real estate and personal property
taxes, ground lease rent (where applicable), property and casualty insurance
premiums, the cost of certain furniture, fixtures, and equipment, and certain
capital expenditures), (v) the Lessees benefit from any savings in the costs of
operating the Hotels during the term of the Percentage Leases, (vi) in the event
of damage to or destruction of a Hotel, the Lessees are at economic risk because
they are obligated either (A) to restore the property to its prior condition, in
which event they will bear all costs of such restoration in excess of any
insurance proceeds, or (B) to purchase the Hotel for an amount generally equal
to the fair market value of the property, less any insurance proceeds, (vii) the
Lessees have indemnified the Partnership and Subsidiary Partnerships against all
liabilities imposed on the Partnership or Subsidiary Partnerships during the
term of the Percentage Leases by reason of (A) injury to persons or damage to
property occurring at the Hotels, (B) the Lessees' use, management, maintenance
or repair of the Hotels, (C) any environmental liability caused by acts or
grossly negligent failures to act of the Lessees, (D) taxes and assessments in
respect of the Hotels that are the obligations of the Lessees, or (E) any breach
of the Percentage Leases or of any sublease of a Hotel by the Lessees, (viii)
the Lessees are obligated to pay substantial fixed rent for the period of use of
the Hotels, (ix) the Lessees stand to incur substantial losses (or reap
substantial gains) depending on how successfully they operate the Hotels, (x)
the Partnership and Subsidiary Partnerships cannot use the Hotels concurrently
to provide significant services to entities unrelated to the Lessees, and (xi)
the total contract price under the Percentage Leases does not substantially
exceed the rental value of the Hotels for the term of the Percentage Leases.

         Investors should be aware that there are no controlling Treasury
Regulations, published rulings, or judicial decisions involving leases with
terms substantially the same as the Percentage Leases that discuss whether such
leases constitute true leases for federal income tax purposes. If the Percentage
Leases are characterized as service

                                       44

<PAGE>



contracts or partnership agreements, rather than as true leases, part or all of
the payments that the Partnership and Subsidiary Partnerships receive from the
Lessees may not be considered rent or may not otherwise satisfy the various
requirements for qualification as "rents from real property." In that case, the
Company likely would not be able to satisfy either the 75% or 95% gross income
test and, as a result, would lose its REIT status.

         In order for the Rents to constitute "rents from real property,"
several other requirements also must be satisfied. One requirement is that the
Rents attributable to personal property, leased in connection with the lease of
the real property comprising a Hotel, must not be greater than 15% of the Rents
received under the Percentage Lease. The Rents attributable to the personal
property in a Hotel is the amount that bears the same ratio to total rent for
the taxable year as the average of the adjusted bases of the personal property
in the Hotel at the beginning and at the end of the taxable year bears to the
average of the aggregate adjusted bases of both the real and personal property
comprising the Hotel at the beginning and at the end of such taxable year (the
"Adjusted Basis Ratio"). With respect to certain of the Company's Hotels, the
Adjusted Basis Ratio has exceeded 15% for certain taxable years. As a
consequence, the portion of the Rents received with respect to those Hotels in
those taxable years that is attributable to personal property did not and does
not qualify as rents from real property. The amount of disqualified income under
the Percentage Leases for those Hotels, however, did not and will not prevent
the Company from qualifying as a REIT or subject it to any federal income
taxation. With respect to each other Hotel owned directly or indirectly by the
Partnership, the initial adjusted basis of the personal property in such Hotel
was less than 15% of the initial adjusted bases of both the real and personal
property comprising such Hotel. If the Adjusted Basis Ratio with respect to any
Hotel exceeds 15% and the income attributable to excess personal property would
prevent the Company from qualifying as a REIT or would subject it to any federal
income taxation, a portion of the personal property at that Hotel will be
acquired or leased (other than from the Company, the Partnership, or a
Subsidiary Partnership) by the Lessee and the lease payments under the
Percentage Lease will be adjusted appropriately. Further, the Company
anticipates that any additional personal property that the Partnership or a
Subsidiary Partnership acquires will not cause the Company to lose its REIT
status or subject it to any federal income taxation. There can be no assurance,
however, that the Service would not assert that the personal property acquired
by the Partnership, the Company, or a Subsidiary Partnership had a value in
excess of the appraised value, or that a court would not uphold such assertion.
If such a challenge were successfully asserted, the Company could fail the
Adjusted Basis Ratio as to one or more of the Hotels, which in turn potentially
could cause the Company to fail to satisfy the 75% or 95% gross income test and
thus lose its REIT status.

         Another requirement for qualification of the Rents as "rents from real
property" is that the Percentage Rent must not be based in whole or in part on
the income or profits of any person. The Percentage Rent, however, will qualify
as "rents from real property" if it is based on percentages of receipts or sales
and the percentages (i) are fixed at the time the Percentage Leases are entered
into, (ii) are not renegotiated during the term of the Percentage Leases in a
manner that has the effect of basing Percentage Rent on income or profits, and
(iii) conform with normal business practice. More generally, the Percentage Rent
will not qualify as "rents from real property" if, considering the Percentage
Leases and all the surrounding circumstances, the arrangement does not conform
with normal business practice, but is in reality used as a means of basing the
Percentage Rent on income or profits. Since the Percentage Rent is based on
fixed percentages of the gross revenues from the Hotels that are established in
the Percentage Leases, and the Company has represented that the percentages (i)
will not be renegotiated during the terms of the Percentage Leases in a manner
that has the effect of basing the Percentage Rent on income or profits and (ii)
conform with normal business practice, the Percentage Rent should not be
considered based in whole or in part on the income or profits of any person.
Furthermore, the Company has represented that, with respect to other hotel
properties that it acquires in the future, it will not charge rent for any
property that is based in whole or in part on the income or profits of any
person (except by reason of being based on a fixed percentage of gross revenues,
as described above).

         A third requirement for qualification of the Rents as "rents from real
property" is that the Company must not own, directly or constructively, 10% or
more of any Lessee. The constructive ownership rules generally provide that if
10% or more in value of the shares of beneficial interest of the Company is
owned, directly or indirectly, by or for any person, the Company is considered
as owning the stock owned, directly or indirectly, by or for such person. The
Company does not own directly equity interests in any Lessee. In addition, the
Declaration of Trust prohibits transfers of Common and Preferred Shares that
would cause the Company, or an owner of 10% or more of


                                       45


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the Company, to own, actually or constructively, 10% or more of the ownership
interests in a tenant of the Company's, the Partnership's or the Subsidiary
Partnership's real property (any such tenant so owned, a "Related Party
Tenant"), within the meaning of Section 856(d)(2)(B) of the Code. Thus, the
Company should never own, actually or constructively, 10% or more of any Lessee.
Furthermore, the Company has represented that, with respect to other hotels that
it acquires in the future, it will not rent any property to a Related Party
Tenant. However, because the Code's constructive ownership rules for purposes of
the Related Party Tenant rules are broad and it is not possible to monitor
continually direct and indirect transfers of Common and Preferred Shares, no
absolute assurance can be given that such transfers or other events of which the
Company has no knowledge will not cause the Company to own constructively 10% or
more of a Lessee at some future date.

         A fourth requirement for qualification of the Rents as "rents from real
property" is, other than pursuant to the 1% DE MINIMIS exception described
above, that the Company cannot furnish or render noncustomary services to the
tenants of the Hotels, or manage or operate the Hotels, other than through an
independent contractor who is adequately compensated and from whom the Company
itself does not derive or receive any income. Provided that the Percentage
Leases are respected as true leases, the Company should satisfy that requirement
because the Company, the Partnership, and the Subsidiary Partnerships are not
performing any services other than customary ones for the Lessees. Furthermore,
the Company has represented that, with respect to other hotel properties that it
acquires in the future, it will not perform noncustomary services with respect
to the tenant of the property. As described above, however, if the Percentage
Leases are recharacterized as service contracts or partnership agreements, the
Rents likely would be disqualified as "rents from real property" because the
Company would be considered to furnish or render services to the occupants of
the Hotels and to manage or operate the Hotels other than through an independent
contractor who is adequately compensated and from whom the Company derives or
receives no income.

         If a portion of the Rents from a particular Hotel does not qualify as
"rents from real property" because the amount attributable to personal property
exceeds 15% of the total Rents for a taxable year, the portion of the Rents that
is attributable to personal property will not be qualifying income for purposes
of either the 75% or 95% gross income test. Thus, if such Rents attributable to
personal property, plus any other nonqualifying income, during a taxable year
exceed 5% of the Company's gross income during the year, the Company would lose
its REIT status. If, however, the Rents do not qualify as "rents from real
property" because either (i) the Percentage Rent is considered based on income
or profits of the Lessees, (ii) the Company owns, actually or constructively,
10% or more of any Lessee, or (iii) the Company furnishes noncustomary services
to the tenants of the Hotels, other than pursuant to the 1% DE MINIMIS exception
described above, or manages or operates the Hotels, other than through a
qualifying independent contractor, none of the Rents would qualify as "rents
from real property." In that case, the Company likely would lose its REIT status
because it would be unable to satisfy either the 75% or 95% gross income tests.

         In addition to the Rents, the Lessees are required to pay to the
Company or the Partnership, as applicable, the Additional Charges. To the extent
that the Additional Charges represent either (i) reimbursements of amounts that
the Lessees are obligated to pay to third parties or (ii) penalties for
nonpayment or late payment of such amounts, the Additional Charges should
qualify as "rents from real property." To the extent, however, that the
Additional Charges represent interest that is accrued on the late payment of the
Rents or the Additional Charges, the Additional Charges should not qualify as
"rents from real property," but instead should be treated as interest that
qualifies for the 95% gross income test.

         The term "interest" generally does not include any amount received or
accrued (directly or indirectly) if the determination of such amount depends in
whole or in part on the income or profits of any person. However, an amount
received or accrued generally will not be excluded from the term "interest"
solely by reason of being based on a fixed percentage or percentages of receipts
or sales. Furthermore, to the extent that interest from a loan that is based on
the residual cash proceeds from sale of the property securing the loan
constitutes a "shared appreciation provision" (as defined in the Code), income
attributable to such participation feature will be treated as gain from the sale
of the secured property.


                                       46



<PAGE>


         The net income derived from a prohibited transaction is subject to a
100% tax. The term "prohibited transaction" generally includes a sale or other
disposition of property (other than foreclosure property) that is held primarily
for sale to customers in the ordinary course of a trade or business. All
inventory required in the operation of the Hotels will be purchased by the
Lessees or their designee as required by the terms of the Percentage Leases.
Accordingly, the Company believes that no asset owned by the Company, the
Partnership, or a Subsidiary Partnership is held for sale to customers and that
a sale of any such asset will not be in the ordinary course of business of the
Company, the Partnership, or a Subsidiary Partnership. Whether property is held
"primarily for sale to customers in the ordinary course of a trade or business"
depends, however, on the facts and circumstances in effect from time to time,
including those related to a particular property. Nevertheless, the Company will
attempt to comply with the terms of safe-harbor provisions in the Code
prescribing when asset sales will not be characterized as prohibited
transactions. Complete assurance cannot be given, however, that the Company can
comply with the safe-harbor provisions of the Code or avoid owning property that
may be characterized as property held "primarily for sale to customers in the
ordinary course of a trade or business."

         The Company will be subject to tax at the maximum corporate rate on any
income from foreclosure property (other than income that would be qualified
income under the 75% gross income test), less expenses directly connected with
the production of such income. However, gross income from such foreclosure
property will qualify under the 75% and 95% gross income tests. "Foreclosure
property" is defined as any real property (including interests in real property)
and any personal property incident to such real property (i) that is acquired by
a REIT as the result of such REIT having bid in such property at foreclosure, or
having otherwise reduced such property to ownership or possession by agreement
or process of law, after there was a default (or default was imminent) on a
lease of such property or on an indebtedness that such property secured and (ii)
for which such REIT makes a proper election to treat such property as
foreclosure property. However, a REIT will not be considered to have foreclosed
on a property where such REIT takes control of the property as a
mortgagee-in-possession and cannot receive any profit or sustain any loss except
as a creditor of the mortgagor. Under the Code, property generally ceases to be
foreclosure property with respect to a REIT at the close of the third taxable
year following the year in which the REIT acquired such property (or longer if
an extension is granted by the Secretary of the Treasury). The foregoing grace
period is terminated and foreclosure property ceases to be foreclosure property
on the first day (i) on which a lease is entered into with respect to such
property that, by its terms, will give rise to income that does not qualify
under the 75% gross income test or any amount is received or accrued, directly
or indirectly, pursuant to a lease entered into on or after such day that will
give rise to income that does not qualify under the 75% gross income test, (ii)
on which any construction takes place on such property (other than completion of
a building, or any other improvement, where more than 10% of the construction of
such building or other improvement was completed before default became
imminent), or (iii) which is more than 90 days after the day on which such
property was acquired by the REIT and the property is used in a trade or
business that is conducted by the REIT (other than through an independent
contractor from whom the REIT itself does not derive or receive any income). As
a result of the rules with respect to foreclosure property, if a Lessee defaults
on its obligations under a Percentage Lease for a Hotel, the Company terminates
the Lessee's leasehold interest, and the Company is unable to find a replacement
Lessee for such Hotel within 90 days of such foreclosure, gross income from
hotel operations conducted by the Company from such Hotel would cease to qualify
for the 75% and 95% gross income tests. In such event, the Company likely would
be unable to satisfy the 75% and 95% gross income tests and, thus, would fail to
qualify as a REIT.

         It is possible that, from time to time, the Company, the Partnership,
or a Subsidiary Partnership will enter into hedging transactions with respect to
one or more of its assets or liabilities. Any such hedging transactions could
take a variety of forms, including interest rate swap contracts, interest rate
cap or floor contracts, futures or forward contracts, and options. To the extent
that the Company, the Partnership, or a Subsidiary Partnership enters into an
interest rate swap or cap contract, option, futures contract, forward rate
agreement, or similar financial instrument to reduce interest rate risk with
respect to indebtedness incurred or to be incurred to acquire or carry real
estate assets, any periodic income or gain from the disposition of such contract
should be qualifying income for purposes of the 95% gross income test, but not
the 75% gross income test. To the extent that the Company, the Partnership, or a
Subsidiary Partnership hedges with other types of financial instruments or in
other situations, it may not be entirely clear how the income from those
transactions will be treated for purposes of the various income


                                       47


<PAGE>


tests that apply to REITs under the Code. The Company intends to structure any
hedging transactions in a manner that does not jeopardize its status as a REIT.

         If the Company fails to satisfy one or both of the 75% or 95% gross
income tests for any taxable year, it may nevertheless qualify as a REIT for
such year if it is entitled to relief under certain provisions of the Code.
Those relief provisions generally will be available if (i) the Company's failure
to meet such tests is due to reasonable cause and not due to willful neglect,
(ii) the Company attaches a schedule of the sources of its income to its return,
and (iii) any incorrect information on the schedule was not due to fraud with
intent to evade tax. It is not possible, however, to state whether in all
circumstances the Company would be entitled to the benefit of those relief
provisions. As discussed above in "Federal Income Tax Considerations -- Taxation
of the Company," even if those relief provisions apply, a tax would be imposed
with respect to (i) the gross income attributable to the greater of the amount
by which the Company failed the 75% or 95% gross income test, multiplied by (ii)
a fraction intended to reflect the Company's profitability.

Asset Tests

         The Company, at the close of each quarter of its taxable year, also
must satisfy two tests relating to the nature of its assets. First, at least 75%
of the value of the Company's total assets must be represented by cash or cash
items (including certain receivables), government securities, "real estate
assets," or, in cases where the Company raises new capital through stock or
long-term (at least five-year) debt offerings, temporary investments in stock or
debt instruments during the one-year period following the Company's receipt of
such capital. The term "real estate assets" includes interests in real property,
interests in mortgages on real property to the extent the mortgage balance does
not exceed the value of the associated real property, and shares of other REITs.
For purposes of the 75% asset requirement, the term "interest in real property"
includes an interest in land and improvements thereon, such as buildings or
other inherently permanent structures (including items that are structural
components of such buildings or structures), a leasehold in real property, and
an option to acquire real property (or a leasehold in real property). Second, of
the investments not included in the 75% asset class, the value of any one
issuer's securities owned by the Company may not exceed 5% of the value of the
Company's total assets and the Company may not own more than 10% of any one
issuer's outstanding voting securities (except for its ownership interest in the
Partnership, the Subsidiary Partnerships, and any qualified REIT subsidiary).

         If the Company should fail to satisfy the asset tests at the end of a
calendar quarter, such a failure would not cause it to lose its REIT status if
(i) it satisfied all of the asset tests at the close of the preceding calendar
quarter and (ii) the difference between the value of the Company's assets and
the asset test requirements arose from changes in the market values of its
assets and was not wholly or partly caused by an acquisition of one or more
nonqualifying assets. If the condition described in clause (ii) of the preceding
sentence were not satisfied, the Company still could avoid disqualification by
eliminating any difference within 30 days after the close of the quarter in
which it arose.

Distribution Requirements

         The Company, in order to qualify as a REIT, is required to distribute
dividends (other than capital gain dividends) to its shareholders in an amount
at least equal to (i) the sum of (A) 95% of its "REIT taxable income" (computed
without regard to the dividends paid deduction and its net capital gain) and (B)
95% of the net income (after tax), if any, from foreclosure property, minus (ii)
the sum of certain items of noncash income. Such distributions must be paid in
the taxable year to which they relate, or in the following taxable year if
declared before the Company timely files its tax return for such year and if
paid on or before the first regular dividend payment date after such
declaration. To the extent that the Company does not distribute all of its net
capital gain or distributes at least 95%, but less than 100%, of its "REIT
taxable income," as adjusted, it will be subject to tax thereon at regular
ordinary and capital gains corporate tax rates. Furthermore, if the Company
should fail to distribute during each calendar year at least the sum of (i) 85%
of its REIT ordinary income for such year, (ii) 95% of its REIT capital gain
income for such year, and (iii) any undistributed taxable income from prior
periods, the Company would be subject to a 4% nondeductible excise tax on the
excess of such required distribution over the amounts actually distributed. The
Company may elect to retain and pay income tax on its net long-term capital
gains. Any such retained amounts


                                       48


<PAGE>


would be treated as having been distributed by the Company for purposes of the
4% excise tax described above. The Company has made, and intends to continue to
make, timely distributions sufficient to satisfy all annual distribution
requirements.

         It is possible that, from time to time, the Company may experience
timing differences between (i) the actual receipt of income and actual payment
of deductible expenses and (ii) the inclusion of that income and deduction of
such expenses in arriving at its REIT taxable income. For example, under one of
the Percentage Leases, the Percentage Rent is not due until 30 days after the
end of the calendar quarter. In that case, the Partnership still would be
required to recognize as income the Percentage Rent in the calendar quarter to
which it relates. Further, it is possible that, from time to time, the Company
may be allocated a share of net capital gain attributable to the sale of
depreciated property that exceeds its allocable share of cash attributable to
that sale. Therefore, the Company may have less cash available for distribution
than is necessary to meet its annual 95% distribution requirement or to avoid
corporate income tax or the excise tax imposed on certain undistributed income.
In such a situation, the Company may find it necessary to arrange for short-term
(or possibly long-term) borrowings or to raise funds through the issuance of
additional Common or Preferred Shares.

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

Recordkeeping Requirements

         Pursuant to applicable Treasury Regulations, the Company must maintain
certain records and request on an annual basis certain information from its
shareholders designed to disclose the actual ownership of its outstanding
shares. The Company has complied and intends to continue to comply with such
requirements.

Partnership Anti-Abuse Rule

         The U.S. Department of the Treasury has issued a final regulation (the
"Anti-Abuse Rule") under the partnership provisions of the Code (the
"Partnership Provisions") that authorizes the Service, in certain abusive
transactions involving partnerships, to disregard the form of the transaction
and recast it for federal tax purposes as the Service deems appropriate. The
Anti-Abuse Rule applies where a partnership is formed or utilized in connection
with a transaction (or series of related transactions) a principal purpose of
which is to reduce substantially the present value of the partners' aggregate
federal tax liability in a manner inconsistent with the intent of the
Partnership Provisions. The Anti-Abuse Rule states that the Partnership
Provisions are intended to permit taxpayers to conduct joint business (including
investment) activities through a flexible economic arrangement that accurately
reflects the partners' economic agreement and clearly reflects the partners'
income without incurring an entity-level tax. The purposes for structuring a
transaction involving a partnership are determined based on all of the facts and
circumstances, including a comparison of the purported business purpose for a
transaction and the claimed tax benefits resulting from the transaction. A
reduction in the present value of the partners' aggregate federal tax liability
through the use of a partnership does not, by itself, establish inconsistency
with the intent of the Partnership Provisions.

         The Anti-Abuse Rule contains an example in which a corporation that
elects to be treated as a REIT contributes substantially all of the proceeds
from a public offering to a partnership in exchange for a general partnership
interest. The limited partners of the partnership contribute real property
assets to the partnership, subject to liabilities that exceed their respective
aggregate bases in such property. In addition, some of the limited partners have
the right, beginning two years after the formation of the partnership, to
require the redemption of their limited partnership interests in exchange for
cash or REIT stock (at the REIT's option) equal to the fair market value of
their respective interests in the partnership at the time of the redemption. The
example concludes that the use of the partnership is not inconsistent with the
intent of the Partnership Provisions and, thus, cannot be recast by the Service.
However, the Redemption Rights do not conform in all respects to the redemption
rights contained in the


                                       49


<PAGE>


foregoing example. Moreover, the Anti-Abuse Rule is extraordinarily broad in
scope and is applied based on an analysis of all of the facts and circumstances.
As a result, there can be no assurance that the Service will not attempt to
apply the Anti-Abuse Rule to the Company. If the conditions of the Anti-Abuse
Rule are met, the Service is authorized to take appropriate enforcement action,
including disregarding the Partnership for federal tax purposes or treating one
or more of its partners as nonpartners. Any such action potentially could
jeopardize the Company's status as a REIT.

FAILURE TO QUALIFY

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

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 current or accumulated earnings and
profits (and not designated as capital gain dividends or retained capital gains)
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 a distribution is made out of
the Company's current and accumulated earnings and profits, the Company's
earnings and profits will be allocated first to the Preferred Shares and then to
the Common Shares. As used herein, the term "U.S. shareholder" means a holder of
Common or Series A Preferred Shares 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 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. persons 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 the shareholder has held his Common or Series A Preferred Shares. However,
corporate shareholders may be required to treat up to 20% of certain capital
gain dividends as ordinary income. The Company may elect to retain and pay
income tax on its net long-term capital gains. In that case, the Company's
shareholders would include in income their proportionate share of the Company's
undistributed long-term capital gains. In addition, the shareholders would be
deemed to have paid their proportionate share of the tax paid by the Company,
which would be credited or refunded to the shareholders. Each shareholder's
basis in his shares would be increased by the amount of the undistributed
long-term capital gain included in the shareholder's income, less the
shareholder's share of the tax paid by the Company.

         Distributions in excess of current and accumulated earnings and profits
will not be taxable to a shareholder to the extent that they do not exceed the
adjusted basis of the shareholder's Common and Series A Preferred Shares, but
rather will reduce the adjusted basis of such shares. To the extent that such
distributions in excess of current and accumulated earnings and profits exceed
the adjusted basis of a shareholder's Common and Series A Preferred Shares, such
distributions will be included in income as long-term capital gain (or
short-term capital gain if the shareholder's shares have been held for one year
or less) assuming the shareholder's shares are capital assets 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


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<PAGE>


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 and Series A Preferred Shares 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 and gain from the disposition of Common and Series A Preferred Shares
generally will be treated as investment income for purposes of the investment
interest limitations. 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 AND SERIES A PREFERRED
SHARES

         In general, any gain or loss realized upon a taxable disposition of the
Common or Series A Preferred Shares by a shareholder who is not a dealer in
securities will be treated as long-term capital gain or loss if the Common or
Preferred Shares have 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 or Series A Preferred Shares 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
or Series A Preferred Shares may be disallowed if other Common or Series A
Preferred Shares are purchased within 30 days before or after the disposition.

REDEMPTION OF SERIES A PREFERRED SHARES

         A redemption of Series A Preferred Shares will be treated under Section
302 of the Code as a distribution that is taxable at ordinary income tax rates
as a dividend (to the extent of the Company's current or accumulated earnings
and profits), unless the redemption satisfies certain tests set forth in Section
302(b) of the Code enabling the redemption to be treated as sale of the Series A
Preferred Shares (in which case the redemption will be treated in the same
manner as a sale described in the preceding paragraph). The redemption will
satisfy such tests if it (i) is "substantially disproportionate" with respect to
the holder's interest in the Company's shares of beneficial interest, (ii)
results in a "complete termination" of the holder's interest in all classes of
the Company's shares of beneficial interest, or (iii) is "not essentially
equivalent to a dividend" with respect to the holder, all within the meaning of
Section 302(b) of the Code. In determining whether any of these tests have been
met, shares of beneficial interest considered to be owned by the holder by
reason of certain constructive ownership rules set forth in the Code, as well as
shares of beneficial interest actually owned, generally must be taken into
account. Because the determination as to whether any of the three alternative
tests of Section 302(b) of the Code described above will be satisfied with
respect to any particular holder of Series A Preferred Shares depends upon the
facts and circumstances at the time that the determination must be made,
prospective investors are advised to consult their own tax advisors to determine
such tax treatment.

        If a redemption of Series A Preferred Shares does not meet any of the
three tests described above, the redemption proceeds will be treated as a
distribution, as described above under "Taxation of Taxable U.S. Shareholders."
In that case, a shareholder's adjusted tax basis in the redeemed Series A
Preferred Shares will be transferred to any of such shareholder's remaining
holders of the Company's shares of beneficial interest. If the shareholder does
not retain any ownership in the Company's shares of beneficial interest, such
basis could be transferred to a related person or it may be lost.


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<PAGE>


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 income tax rate for noncorporate
taxpayers is 39.6%. The maximum tax rate on net capital gains applicable to
noncorporate taxpayers is 28% for sales and exchanges of assets held for more
than one year but not more than 18 months, and 20% for sales and exchanges of
assets held for more than 18 months. The maximum tax rate on long-term capital
gain from the sale or exchange of "section 1250 property" (i.e., depreciable
real property) held for more than 18 months is 25% to the extent that such gain
would have been treated as ordinary income if the property were "section 1245
property." With respect to distributions designated by the Company as capital
gain dividends and any retained capital gains that the Company is deemed to
distribute, the Company may designate whether such a distribution is taxable to
its noncorporate shareholders at a 20%, 25%, or 28% rate (according to the rate
that would apply to the Company if it were subject to income tax). Thus, the tax
rate differential between capital gain and ordinary income for noncorporate
taxpayers 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 a noncorporate
taxpayer'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.

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 has
issued final regulations regarding the backup withholding rules as applied to
Non-U.S. Shareholders. The regulations alter the technical requirements relating
to backup withholding compliance and are effective for distributions made after
December 31, 1999. See "Federal Income Tax Considerations -- Taxation of
Non-U.S. Shareholders."

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 by a REIT to an exempt employee pension trust
do not constitute UBTI, provided that the shares of the REIT are not otherwise
used in an unrelated trade or business of the exempt employee pension trust.
Based on that ruling, amounts distributed by the Company to Exempt Organizations
generally should not constitute UBTI. However, if an Exempt Organization
finances its acquisition of Common or Series A Preferred Shares 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 shares is required to
treat a percentage (the "UBTI Percentage") of the dividends from the Company as
UBTI (the "UBTI Rule"). 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


                                       52


<PAGE>


which the dividends are paid. The UBTI rule applies to a pension trust holding
more than 10% of the Company's shares only if (i) the UBTI Percentage is at
least 5%, (ii) the Company qualifies as a REIT by reason of the modification of
the 5/50 Rule that allows the beneficiaries of the pension trust to be treated
as holding shares of the Company in proportion to their actuarial interests in
the pension trust, and (iii) the Company is a "pension-held" REIT (i.e., either
(A) one pension trust owns more than 25% of the value of the Company's shares or
(B) a group of pension trusts individually holding more than 10% of the value of
the Company's shares collectively owns more than 50% of the value of the
Company's shares). Because the Ownership Limitation prohibits any shareholder
from owning more than 9.8% of any class of the Company's shares, the Company
should not be a "pension-held" REIT.

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
will be made herein to provide more than a summary of such rules. PROSPECTIVE
NON-U.S. SHAREHOLDERS SHOULD CONSULT WITH THEIR OWN TAX ADVISORS TO DETERMINE
THE IMPACT OF FEDERAL, STATE, AND LOCAL INCOME TAX LAWS WITH REGARD TO AN
INVESTMENT IN THE COMMON OR SERIES A PREFERRED SHARES, 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 or retained capital
gains will be treated as dividends of ordinary income to the extent that they
are made out of current or accumulated earnings and profits of the Company. Such
distributions 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 the investment in the Common or
Series A Preferred Shares is treated as effectively connected with the 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 foreign 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 to the Non-US
Shareholder's conduct of a U.S. trade or business. The Service has issued final
regulations that modify the manner in which the Company complies with the
withholding requirements. Those regulations are effective for distributions made
after December 31, 1999.

         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 or
Series A Preferred Shares, but rather will reduce the adjusted basis of such
Shares. 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 Common or Series A Preferred Shares, such distributions will give
rise to tax liability if the Non-U.S. Shareholder would otherwise be subject to
tax on any gain from the sale or disposition of his Common or Series A Preferred
Shares, 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.

         The Company is required to withhold 10% of any distribution in excess
of the Company's 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%.


                                       53


<PAGE>


         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 foreign 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 Common or
Series A Preferred Shares 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 shares of beneficial interest was held directly or indirectly by foreign
persons. However, because the Common Shares are, and the Series A Preferred
Shares may be, publicly traded, no assurance can be given that the Company is or
will continue to be a "domestically controlled REIT." In addition, a Non-U.S.
Shareholder that owns, actually and constructively, 5% or less of the Common or
Series A Preferred Shares throughout a specified "look-back" period will not
recognize gain on the sale of his Common or Series A Preferred Shares, as
applicable, taxable under FIRPTA if the Common or Series A Preferred Shares are
traded on an established securities market. Furthermore, gain not subject to
FIRPTA will be taxable to a Non-U.S. Shareholder if (i) investment in the Common
or Series A Preferred Shares 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 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 the Common or Series A Preferred Shares 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).

OTHER TAX CONSEQUENCES

         The Company, the Partnership, the Subsidiary Partnerships, and the
Company's shareholders may be subject to state or local taxation in various
state or local jurisdictions, including those in which it or they own property,
transact business, or reside. The state and local tax treatment of the Company
and its shareholders may not conform to the federal income tax consequences
discussed above. CONSEQUENTLY, PROSPECTIVE SHAREHOLDERS SHOULD CONSULT THEIR OWN
TAX ADVISORS REGARDING THE EFFECT OF STATE AND LOCAL TAX LAWS ON AN INVESTMENT
IN THE COMPANY.

TAX ASPECTS OF THE PARTNERSHIP AND SUBSIDIARY PARTNERSHIPS

         The following discussion summarizes certain federal income tax
considerations applicable to the Company's direct or indirect investment in the
Partnership and the Subsidiary Partnerships (each of the Partnership and the
Subsidiary Partnerships is referred to herein as a "Hotel Partnership"). The
discussion does not cover state or local tax laws or any federal tax laws other
than income tax laws.

Classification as a Partnership

         The Company will be entitled to include in its income its distributive
share of each Hotel Partnership's income and to deduct its distributive share of
each Hotel Partnership's losses only if each Hotel Partnership is classified for
federal income tax purposes as a partnership rather than as a corporation or an
association taxable as a corporation. An entity will be classified as a
partnership rather than as a corporation for federal income tax


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<PAGE>


purposes if the entity (i) is treated as a partnership under Treasury
regulations, effective January 1, 1997, relating to entity classification (the
"Check-the-Box Regulations") and (ii) is not a "publicly traded" partnership.

         Pursuant to the Check-the-Box Regulations, an unincorporated entity
with at least two members may elect to be classified either as an association or
as a partnership. If such an entity fails to make an election, it generally will
be treated as a partnership for federal income tax purposes. The federal income
tax classification of an entity that was in existence prior to January 1, 1997,
such as certain of the Hotel Partnerships, will be respected for all periods
prior to January 1, 1997 if (i) the entity had a reasonable basis for its
claimed classification, (ii) the entity and all members of the entity recognized
the federal tax consequences of any changes in the entity's classification
within the 60 months prior to January 1, 1997, and (iii) neither the entity nor
any member of the entity was notified in writing by a taxing authority on or
before May 8, 1996 that the classification of the entity was under examination.
Each Hotel Partnership had a reasonable basis for its claimed classification
under the Treasury Regulations in effect prior to January 1, 1997 and intends to
continue to be classified as a partnership for federal income tax purposes. In
addition, the Company has represented that no Hotel Partnership will elect to be
classified as an association taxable as a corporation under the Check-the-Box
Regulations.

         A "publicly traded" partnership is a partnership whose interests are
traded on an established securities market or are readily tradable on a
secondary market (or the substantial equivalent thereof). A publicly traded
partnership will be treated as a corporation for federal income tax purposes
unless at least 90% of such partnership's gross income for a taxable year
consists of "qualifying income" under section 7704(d) of the Code, which
generally includes any income that is qualifying income for purposes of the 95%
gross income test applicable to REITs (the "90% Passive-Type Income Exception").
See "Federal Income Tax Considerations-Requirements for Qualification -- Income
Tests." The U.S. Treasury Department has issued regulations (the "PTP
Regulations") that provide limited safe harbors from the definition of a
publicly traded partnership. Pursuant to one of those safe harbors (the "Private
Placement Exclusion"), interests in a partnership will not be treated as readily
tradable on a secondary market or the substantial equivalent thereof if (i) all
interests in the partnership were issued in a transaction (or transactions) that
was not required to be registered under the Securities Act of 1933, as amended,
and (ii) the partnership does not have more than 100 partners at any time during
the partnership's taxable year. In determining the number of partners in a
partnership, a person owning an interest in a flow-through entity (i.e., a
partnership, grantor trust, or S corporation) that owns an interest in the
partnership is treated as a partner in such partnership only if (a)
substantially all of the value of the owner's interest in the flow-through
entity is attributable to the flow-through entity's interest (direct or
indirect) in the partnership and (b) a principal purpose of the use of the
flow-through entity is to permit the partnership to satisfy the 100-partner
limitation. Each Hotel Partnership qualifies for the Private Placement
Exclusion. If a Hotel Partnership is considered a publicly traded partnership
under the PTP Regulations because it is deemed to have more than 100 partners,
such Hotel Partnership should not be treated as a corporation because it should
be eligible for the 90% Passive-Type Income Exception.

         If for any reason a Hotel Partnership were taxable as a corporation,
rather than as a partnership, for federal income tax purposes, the Company would
not be able to qualify as a REIT. See "Federal Income Tax Considerations --
Requirements for Qualification -- Income Tests" and "-- Requirements for
Qualification -- Asset Tests." In addition, any change in a Hotel Partnership's
status for tax purposes might be treated as a taxable event, in which case the
Company might incur a tax liability without any related cash distribution. See
"Federal Income Tax Considerations -- Requirements for Qualification --
Distribution Requirements." Further, items of income and deduction of such Hotel
Partnership would not pass through to its partners, and its partners would be
treated as shareholders for tax purposes. Consequently, such Hotel Partnership
would be required to pay income tax at corporate tax rates on its net income,
and distributions to its partners would constitute dividends that would not be
deductible in computing such Hotel Partnership's taxable income.

Income Taxation of Each Hotel Partnership and its Partners

         Partners, Not the Hotel Partnerships, Subject to Tax. A partnership is
not a taxable entity for federal income tax purposes. Rather, the Company will
be required to take into account its allocable share of each Hotel Partnership's
income, gains, losses, deductions, and credits for any taxable year of such
Hotel Partnership ending


                                       55


<PAGE>


within or with the taxable year of the Company, without regard to whether the
Company has received or will receive any distribution from such Hotel
Partnership.

         Hotel Partnership Allocations. Although a partnership agreement
generally will determine the allocation of income and losses among partners,
such allocations will be disregarded for tax purposes under section 704(b) of
the Code if they do not comply with the provisions of section 704(b) of the Code
and the Treasury Regulations promulgated thereunder. If an allocation is not
recognized for federal income tax purposes, the item subject to the allocation
will be reallocated in accordance with the partners' interests in the
partnership, which will be determined by taking into account all of the facts
and circumstances relating to the economic arrangement of the partners with
respect to such item. Each Hotel Partnership's allocations of taxable income and
loss are intended to comply with the requirements of section 704(b) of the Code
and the Treasury Regulations promulgated thereunder.

         Tax Allocations With Respect to Contributed Properties. Pursuant to
section 704(c) of the Code, income, gain, loss, and deduction attributable to
appreciated or depreciated property that is contributed to a partnership in
exchange for an interest in the partnership must be allocated for federal income
tax purposes in a manner such that the contributor is charged with, or benefits
from, the unrealized gain or unrealized loss associated with the property at the
time of the contribution. The amount of such unrealized gain or unrealized loss
is generally equal to the difference between the fair market value of the
contributed property at the time of contribution and the adjusted tax basis of
such property at the time of contribution. The Treasury Department has issued
regulations requiring partnerships to use a "reasonable method" for allocating
items affected by section 704(c) of the Code and outlining several reasonable
allocation methods. The Partnership generally has elected to use the
"traditional" method for allocating Code section 704(c) items with respect to
Hotels that it acquires in exchange for Units.

         Under the partnership agreement for each Hotel Partnership,
depreciation or amortization deductions of the Hotel Partnership generally will
be allocated among the partners in accordance with their respective interests in
the Hotel Partnership, except to the extent that the Hotel Partnership is
required under Code section 704(c) to use a method for allocating tax
depreciation deductions attributable to the Hotels or other contributed
properties that results in the Company receiving a disproportionately large
share of such deductions. In addition, gain on sale of a Hotel will be specially
allocated to the Limited Partners to the extent of any "built-in" gain with
respect to such Hotel for federal income tax purposes. Because the Partnership
generally has elected to use the traditional method for allocating Code section
704(c) items with respect to the Hotels that it acquires in exchange for Units,
the Company (i) may be allocated lower amounts of depreciation deductions for
tax purposes with respect to such Hotels than would be allocated to the Company
if such Hotels were to have a tax basis equal to their fair market value at the
time of contribution and (ii) may be allocated taxable gain in the event of a
sale of such Hotels in excess of the economic profit allocated to the Company as
a result of such sale. These allocations possibly could cause the Company to
recognize taxable income in excess of cash proceeds, which might adversely
affect the Company's ability to comply with the REIT distribution requirements,
although the Company does not anticipate that this event will occur. The
application of section 704(c) to the Hotel Partnerships is not entirely clear,
however, and may be affected by Treasury Regulations promulgated in the future.

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

         If the allocation of the Company's distributive share of the Hotel
Partnership's loss would reduce the adjusted tax basis of the Company's
partnership interest in the Hotel Partnership below zero, the recognition of
such loss will be deferred until such time as the recognition of such loss would
not reduce the Company's adjusted tax basis below zero. To the extent that the
Hotel Partnership's distributions, or any decrease in the Company's share of the
indebtedness of the Hotel Partnership (such decrease being considered a
constructive cash distribution to the partners), would reduce the Company's
adjusted tax basis below zero, such distributions (including such


                                       57


<PAGE>


constructive distributions) will constitute taxable income to the Company. Such
distributions and constructive distributions normally will be characterized as
capital gain, and if the Company's partnership interest in the Hotel Partnership
has been held for longer than the long-term capital gain holding period
(currently one year), the distributions and constructive distributions will
constitute long-term capital gain.

         Depreciation Deductions Available to the Partnership. To the extent
that a Hotel Partnership has acquired Hotels for cash, the Hotel Partnership's
initial basis in such Hotels for federal income tax purposes generally was equal
to the purchase price paid by the Hotel Partnership. The Hotel Partnerships
depreciate such depreciable Hotel property for federal income tax purposes under
either the modified accelerated cost recovery system of depreciation ("MACRS")
or the alternative depreciation system of depreciation ("ADS"). The Hotel
Partnerships use MACRS for furnishings and equipment. Under MACRS, the Hotel
Partnerships generally depreciate such furnishings and equipment over a
seven-year recovery period using a 200% declining balance method and a half-year
convention. If, however, a Hotel Partnership places more than 40% of its
furnishings and equipment in service during the last three months of a taxable
year, a mid-quarter depreciation convention must be used for the furnishings and
equipment placed in service during that year. The Hotel Partnerships use ADS for
buildings and improvements. Under ADS, the Hotel Partnerships generally
depreciate such buildings and improvements over a 40-year recovery period using
a straight line method and a mid-month convention. However, to the extent that a
Hotel Partnership has acquired Hotels in exchange for Units, the Hotel
Partnership's initial basis in each Hotel for federal income tax purposes should
be the same as the transferor's basis in that Hotel on the date of acquisition.
Although the law is not entirely clear, the Hotel Partnerships generally
depreciate such depreciable property for federal income tax purposes over the
same remaining useful lives and under the same methods used by the transferors.
A Hotel Partnership's tax depreciation deductions are allocated among the
partners in accordance with their respective interests in the Hotel Partnership
(except to the extent that the Hotel Partnership is required under Code section
704(c) to use a method for allocating depreciation deductions attributable to
the Hotels or other contributed properties that results in the Company receiving
a disproportionately large share of such deductions).

Sale of the Partnership's or a Subsidiary Partnership's Property

         Generally, any gain realized by a Hotel Partnership on the sale of
property held for more than one year will be long-term capital gain, except for
any portion of such gain that is treated as depreciation or cost recovery
recapture. Any gain recognized by a Hotel Partnership on the disposition of the
Hotels will be allocated first to the Limited Partners under section 704(c) of
the Code to the extent of their "built-in gain" on those Hotels for federal
income tax purposes. The Limited Partners' "built-in gain" on the Hotels sold
will equal the excess of the Limited Partners' proportionate share of the book
value of those Hotels over the Limited Partners' tax basis allocable to those
Hotels at the time of the sale. Any remaining gain recognized by a Hotel
Partnership on the disposition of the Hotels will be allocated among the
partners in accordance with the applicable partnership agreement.

         The Company's share of any gain realized by a Hotel Partnership on the
sale of any property held by the Hotel Partnership as inventory or other
property held primarily for sale to customers in the ordinary course of the
Hotel Partnership's trade or business will be treated as income from a
prohibited transaction that is subject to a 100% penalty tax. Such prohibited
transaction income also may have an adverse effect upon the Company's ability to
satisfy the income tests for REIT status. See "Federal Income Tax Considerations
- -- Requirements For Qualification -- Income Tests" above. The Company, however,
does not presently intend to acquire or hold or to allow the Hotel Partnerships
to acquire or hold any property that represents inventory or other property held
primarily for sale to customers in the ordinary course of the Company's, the
Partnership's or a Subsidiary Partnership's trade or business.


                              PLAN OF DISTRIBUTION

         The Selling Shareholders may sell all or a portion of the Series A
Preferred Shares and the Common Shares issuable upon conversion of the Series A
Preferred Shares offered hereby from time to time while the Registration
Statement of which this Prospectus is a part remains effective. Pursuant to the
Registration Rights Agreement, the Company is obligated to maintain the
effectiveness of the Registration Statement until May 28, 2000 (or such


                                       57


<PAGE>


shorter period that will terminate when all Series A Preferred Shares and the
Common Shares issuable upon conversion of the Series A Preferred Shares covered
by this Prospectus have been sold pursuant to this Prospectus). The Selling
Shareholders may sell Series A Preferred Shares or the Common Shares issuable
upon conversion of the Series A Preferred Shares on terms to be determined at
the times of such sales through customary brokerage channels, negotiated
transactions or by a combination of these methods, at fixed prices that may be
changed, at market prices then prevailing or at negotiated prices then
obtainable. There is no assurance that the Selling Shareholders will sell any or
all of the Series A Preferred Shares or the Common Shares issuable upon
conversion of the Series A Preferred Shares offered pursuant to this Prospectus.
Each of the Selling Shareholders reserves the right to accept and, together with
its agents from time to time, to reject in whole or in part any proposed
purchase of the Series A Preferred Shares or the Common Shares issuable upon
conversion of the Series A Preferred Shares to be made directly or through
agents. The Company will not receive any of the proceeds from the sale of Series
A Preferred Shares or the Common Shares issuable upon conversion of the Series A
Preferred Shares pursuant to this Prospectus. The aggregate proceeds to the
Selling Shareholders from the sale of the Series A Preferred Shares and the
Common Shares issuable upon conversion of the Series A Preferred Shares offered
by the Selling Shareholders hereby will be the purchase price of such Series A
Preferred Shares or the Common Shares issuable upon conversion of the Series A
Preferred Shares less any discounts or commissions charged to them by their
agent, dealer or underwriter or their attorneys and agents.

         The Company has been advised by the Selling Shareholders that the
Selling Shareholders, acting as principals for their own account, may sell
Series A Preferred Shares or the Common Shares issuable upon conversion of the
Series A Preferred Shares from time to time directly to purchasers.
Alternatively, the Selling Shareholders may, from time to time, sell Series A
Preferred Shares or the Common Shares issuable upon conversion of the Series A
Preferred Shares through agents, dealers or underwriters to be designated by the
Selling Shareholders from time to time who may receive compensation in the form
of underwriting discounts, commissions or concessions from the Selling
Shareholders and the purchasers of the Series A Preferred Shares or the Common
Shares issuable upon conversion of the Series A Preferred Shares for whom they
may act as agent. To the extent required, the aggregate principal amount of the
Series A Preferred Shares and the number of the Common Shares issuable upon
conversion of the Series A Preferred Shares to be sold, the names of the Selling
Shareholders, the purchase price, the name of any agent, dealer or underwriter
and any applicable commissions with respect to a particular offer will be set
forth in an accompanying Prospectus Supplement or, if appropriate, a
post-effective amendment to the Registration Statement of which this Prospectus
is a part. The Selling Shareholders and any agents, broker-dealers or
underwriters that participate with the Selling Shareholders in the distribution
of the Series A Preferred Shares or the Common Shares issuable upon conversion
of the Series A Preferred Shares may be deemed to be "underwriters" within the
meaning of the Securities Act, in which event any discounts, commissions or
concessions received by such broker-dealers, agents or underwriters and any
profit on the resale of the Series A Preferred Shares or the Common Shares
issuable upon conversion of the Series A Preferred Shares purchased by them may
be deemed to be underwriting discounts or commissions under the Securities Act.

         A Selling Shareholder may elect to engage a broker or dealer to effect
sales in one or more of the following transactions; (a) block trades in which
the broker or dealer so engaged will attempt to sell the Series A Preferred
Shares or Common Shares issuable upon conversion of the Series A Preferred
Shares as agent and may position and resell a portion of the block as principal
to facilitate the transaction, (b) purchases by a broker or dealer as principal
and resale by such broker or dealer for its account pursuant to this Prospectus,
and (c) ordinary brokerage transactions and all transactions in which the broker
solicits purchases. In effecting sales, brokers and dealers engaged by Selling
Shareholders may arrange for other brokers or dealers to participate. Brokers or
dealers may receive commissions or discounts from Selling Shareholders in
amounts to be negotiated (and, if such broker-dealer acts as agent for the
purchaser of such Series A Preferred Shares or Common Shares issuable upon
conversion of the Series A Preferred Shares, from such purchaser).
Broker-dealers may agree with the Selling Shareholders to sell a specified
number of such Series A Preferred Shares or Common Shares issuable upon
conversion of the Series A Preferred Shares at a stipulated price, and, to the
extent such broker-dealer is unable to do so acting as agent for a Selling
Shareholder, to purchase as principal any unsold Series A Preferred Shares or


                                       58


<PAGE>


Common Shares issuable upon conversion of the Series A Preferred Shares at the
price required to fulfill the broker-dealer commitment to such Selling
Shareholder. Broker-dealers who acquire Series A Preferred Shares or Common
Shares issuable upon conversion of the Series A Preferred Shares as principal
may thereafter resell such Series A Preferred Shares or Common Shares issuable
upon conversion of the Series A Preferred Shares from time to time in
transactions (which may involve crosses and block transaction and sales to and
through other broker-dealers, including transactions of the nature described
above) in the over-the-counter market or otherwise at prices and on terms then
prevailing at the time of sale, at prices then related to the then-current
market price or in negotiated transactions and, in connection with such resales,
may pay to or receive from the purchasers of such Series A Preferred Shares or
Common Shares issuable upon conversion of the Series A Preferred Shares
commissions as described above.

         To comply with the securities laws of certain states, if applicable,
the Series A Preferred Shares and the Common Shares issuable upon conversion of
the Series A Preferred Shares must be sold in such states only through
registered or licensed brokers or dealers. In addition, in certain states the
Series A Preferred Shares and the Common Shares issuable upon conversion of the
Series A Preferred Shares may not be offered or sold unless they have been
registered or qualified for sale in such state or an exemption from the
registration or qualification requirement is available and is complied with.

         The Company will not receive any of the proceeds from the offering of
the Series A Preferred Shares and Common Shares issuable upon conversion of the
Series A Preferred Shares by the Selling Shareholders hereby and will pay all
expenses incident to the offering and sale of the Series A Preferred Shares and
the Common Shares hereunder other than underwriting discounts, selling
commissions and fees and legal and accounting fees incurred by the Selling
Shareholders. Pursuant to the Registration Rights Agreement, the Company and the
Selling Shareholders have agreed to indemnify each other against certain
liabilities, including liabilities under the Securities Act.

         Prior to the date hereof, there has been no public market for the
Series A Preferred Shares and there can be no assurance regarding the future
development of a market for the Series A Preferred Shares. The Series A
Preferred Shares are eligible for trading on the PORTAL Market; however, no
assurance can be given as to the liquidity of, or trading market for, the Series
A Preferred Shares. Accordingly, no assurance can be given as to the liquidity
of or the trading market for the Series A Preferred Shares.

         In addition, any securities covered by this Prospectus which qualify
for sale pursuant to Rule 144 or Rule 144A of the Securities Act may be sold
under Rule 144 or Rule 144A rather than pursuant to this Prospectus. There is no
assurance that any Selling Shareholder will sell any or all of the Series A
Preferred Shares or Shares described herein, and any Selling Shareholder may
transfer, devise or gift such securities by other means not described herein.

         For additional information concerning the registration rights of
Selling Shareholders, see "Description of Shares of Beneficial Interest -
Preferred Shares Registration Rights."


                                    EXPERTS

         The consolidated financial statements and related financial statement
schedule of Innkeepers USA Trust, as of December 31, 1996 and 1997, and the
years ended December 31, 1995, 1996 and 1997; the combined financial statements
of the JF Lessee as of December 31, 1996 and 1997 and for the years ended
December 31, 1995, 1996 and 1997; and the combined financial statements of the
Summerfield Hotels as of January 3, 1997 and for the year ended January 3, 1997,
all of which have been incorporated by reference in this Prospectus, have been
audited by PricewaterhouseCoopers LLP, independent accountants, as set forth in
their reports thereon incorporated by reference herein. Such financial
statements and financial statement schedule are incorporated herein by reference
in reliance upon such reports given on their authority as experts in accounting
and auditing.


                                 LEGAL MATTERS

         The validity of the Series A Preferred Shares and the Common Shares
issuable upon conversion of the Series A Preferred Shares will be passed upon
for the Company by Hunton & Williams.


                                       59


<PAGE>


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

         NO DEALER, SALESPERSON OR OTHER INDIVIDUAL HAS BEEN AUTHORIZED TO GIVE
ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN
THIS PROSPECTUS IN CONNECTION WITH THE OFFERING COVERED BY THIS PROSPECTUS. IF
GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS
HAVING BEEN AUTHORIZED BY THE COMPANY OR THE SELLING SHAREHOLDERS. THIS
PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER
TO BUY, THE 8.625% SERIES A CUMULATIVE CONVERTIBLE PREFERRED SHARES AND THE
COMMON SHARES ISSUABLE UPON CONVERSION OF THE 8.625% SERIES A CUMULATIVE
CONVERTIBLE PREFERRED SHARES, IN ANY JURISDICTION WHERE, OR TO ANY PERSON TO
WHOM, IT IS UNLAWFUL TO MAKE ANY SUCH OFFER OR SOLICITATION. NEITHER THE
DELIVERY OF THIS PROSPECTUS NOR ANY OFFER OR SALE MADE HEREUNDER SHALL, UNDER
ANY CIRCUMSTANCES, CREATE AN IMPLICATION THAT THERE HAS NOT BEEN ANY CHANGE IN
THE FACTS SET FORTH IN THIS PROSPECTUS OR IN THE AFFAIRS OF THE COMPANY SINCE
THE DATE HEREOF.

                             ---------------------
                               TABLE OF CONTENTS
                             ---------------------

                                                       PAGE
                                                       ----

AVAILABLE INFORMATION...................................iv
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE.........iv
PROSPECTUS SUMMARY.......................................1
The Company..............................................1
The Private Placement....................................2
Risk Factors.............................................5
Tax Status of the Company................................6
RISK FACTORS.............................................7
RATIO OF EARNINGS TO FIXED CHARGES AND PREFERRED
  STOCK DIVIDENDS.......................................15
USE OF PROCEEDS.........................................15
DISTRIBUTION POLICY AND PRICE RANGE OF
  COMMON SHARES.........................................15
THE COMPANY.............................................17
THE HOTELS..............................................17
THE PERCENTAGE LEASES...................................18
DESCRIPTION OF SHARES OF BENEFICIAL INTEREST............20
REGISTRATION RIGHTS.....................................30
BENEFIT PLAN OWNERSHIP AND TRANSFER RESTRICTIONS........30
OWNERSHIP LIMITATION....................................32
SELLING SHAREHOLDERS....................................34
ERISA CONSIDERATIONS....................................36
FEDERAL INCOME TAX CONSIDERATIONS.......................40
PLAN OF DISTRIBUTION....................................56
EXPERTS.................................................58
LEGAL MATTERS...........................................58


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


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





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



                              INNKEEPERS USA TRUST





                                   4,630,000
                           8.625% SERIES A CUMULATIVE
                          CONVERTIBLE PREFERRED SHARES
         

                                   6,857,493
                                 COMMON SHARES






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

                                   PROSPECTUS

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




                               ___________, 1998



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


<PAGE>


                                    PART II

                     INFORMATION NOT REQUIRED IN PROSPECTUS

ITEM 14.      OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION

         The estimated expenses in connection with the offering are as follows:

         Securities and Exchange Commission registration fee  $  34,146
         Accounting fees and expenses                             6,000
         Blue Sky fees and expenses
         Legal fees and expenses                                 10,000
         Printing.                                                5,000
         Miscellaneous                                            5,000
                                                               --------

                  TOTAL                                        $ 60,146

ITEM 15.      INDEMNIFICATION OF OFFICERS AND DIRECTORS.

         The Maryland REIT Law permits a Maryland real estate investment trust
to include in its Declaration of Trust a provision limiting the liability of its
trustees and officers to the trust and its shareholders for money damages except
for liability resulting from (a) actual receipt of an improper benefit or profit
in money, property or services or (b) active and deliberate dishonesty
established by a final judgment as being material to the cause of action. The
Declaration of Trust of the Company contains such a provision which eliminates
such liability to the maximum extent permitted by the Maryland REIT Law.

         The Declaration of Trust of the Company authorizes it, to the maximum
extent permitted by Maryland law, to obligate itself to indemnify and to pay or
reimburse reasonable expenses in advance of final disposition of a proceeding to
(a) any present or former Trustee or officer or (b) any individual who, while a
Trustee of the Company and at the request of the Company, serves or has served
another real estate investment trust, corporation, partnership, joint venture,
trust, employee benefit plan or any other enterprise as a trustee, director,
officer or partner of such real estate investment trust, corporation,
partnership, joint venture, trust, employee benefit plan or other enterprise.
The Bylaws of the Company obligate it, to the maximum extent permitted by
Maryland law, to indemnify and to pay or reimburse reasonable expenses in
advance of final disposition of a proceeding to (a) any present or former
Trustee or officer who is made a party to the proceeding by reason of his
service in that capacity or (b) any individual who, while a Trustee of the
Company and at the request of the Company, serves or has served another real
estate investment trust, corporation, partnership, joint venture, trust,
employee benefit plan or any other enterprise as a trustee, director, officer or
partner of such real estate investment trust, corporation, partnership, joint
venture, trust, employee benefit plan or other enterprise and who is made a
party to the proceeding by reason of his service in that capacity. The
Declaration of Trust and Bylaws also permit the Company to indemnify and advance
expenses to any person who served a predecessor of the Company in any of the
capacities described above and to any employee or agent of the Company or a
predecessor of the Company. The Bylaws require the Company to indemnify a
Trustee or officer who has been successful, on the merits or otherwise, in the
defense of any proceeding to which he is made a party by reason of his service
in that capacity.

         Maryland REIT Law permits a Maryland real estate investment trust to
indemnify and advance expenses to its trustees, officers, employees and agents
to the same extent as is permitted by the MGCL for directors and officers of
Maryland corporations. The MGCL permits a corporation to indemnify its present
and former directors and officers, among others, against judgments, penalties,
fines, settlements and reasonable expenses actually incurred by them in
connection with any proceeding to which they may be


                                      II-1


<PAGE>


made a party by reason of their service in those or other capacities unless it
is established that (a) the act or omission of the director or officer was
material to the matter giving rise to the proceeding and (i) was committed in
bad faith or (ii) was the result of active and deliberate dishonesty, (b) the
director or officer actually received an improper personal benefit in money,
property or services or (c) in the case of any criminal proceeding, the director
or officer had reasonable cause to believe that the act or omission was
unlawful. However, a Maryland corporation may not indemnify for an adverse
judgment in a suit by or in the right of the corporation. In accordance with the
MGCL, the Bylaws of the Company require it, as a condition to advancing
expenses, to obtain (a) a written affirmation by the Trustee or officer of his
good faith belief that he has met the standard of conduct necessary for
indemnification by the Company as authorized by the Bylaws and (b) a written
statement by or on his behalf to repay the amount paid or reimbursed by the
Company if it shall ultimately be determined that the standard of conduct was
not met.

ITEM 16.      EXHIBITS.

3.1    -          Amended  and  Restated  Declaration  of Trust of the
                  Registrant  (previously  filed as Exhibit  3.1 to the
                  Company's  Registration Statement on Form S-11 (Registration
                  No. 33-81362) and incorporated by reference herein)

3.1(a) -          Amendment  of  Declaration  of Trust of the  Registrant
                  (previously  filed as Exhibit 3.1 to  Registration  Statement
                  on Form S-11 (Registration No. 33-81362) and incorporated by
                  reference herein)

3.1(b) -          Articles  Supplementary to the Declaration of Trust of the
                  Registrant  (previously filed as Exhibit 3.1(b) to
                  Registration Statement on form S-3 (Registration Statement No.
                  333-53919) and incorporated by reference herein)


3.2    -          Bylaws of the Registrant  (previously filed as Exhibit 3.2 to
                  the Company's  Registration  Statement on Form S-11
                  (Registration No. 33-81362) and incorporated by reference
                  herein)

4.1    -          Form of  Common  Share  Certificate  (previously  filed  as
                  Exhibit  4.1 to the  Company's  Registration  Statement  on
                  Form  S-11 (Registration No. 33-81362) and incorporated by
                  reference herein)


4.2*   -          Form of Series A Preferred Share Certificate

5.1*   -          Opinion of Hunton & Williams

8.1*   -          Opinion of Hunton & Williams with respect to certain tax
                  matters

10.1   -          Second Amended and Restated  Agreement of Limited  Partnership
                  of Innkeepers USA Limited  Partnership  (previously  filed as
                  Exhibit 4.2 to Registration Statement on Form S-3
                  (Registration No. 333-12809) and incorporated by reference
                  herein)

10.2*  -          Registration Rights Agreement dated May 18, 1998 between the
                  Company and the Initial Purchaser

12.1*  -          Statement regarding computation of ratio of earnings to fixed
                  charges

23.1*  -          Consent of PricewaterhouseCoopers LLP


                                      II-2


<PAGE>


23.2*  -          Consent of Hunton & Williams (included in Exhibit 5.1)

24.1*  -          Power of Attorney (located on the signature page of this
                  Registration Statement)

- -------------
*Filed herewith




ITEM 17.      UNDERTAKINGS.

                  The undersigned registrant hereby undertakes:

         (1)      To file, during any period in which offers or sales are being
made of the securities registered hereby, a post-effective amendment to this
registration statement (i) to include any prospectus required by Section
10(a)(3) of the Securities Act of 1933; (ii) to reflect in the prospectus any
facts or events arising after the effective date of the registration statement
(or the most recent post-effective amendment thereof) which, individually or in
the aggregate, represent a fundamental change in the information set forth in
the registration statement; and (iii) to include any material information with
respect to the plan of distribution not previously disclosed in the registration
statement or any material change to such information in the registration
statement; provided, however, that the undertakings set forth in subparagraphs
(i) and (ii) above do not apply if the information required to be included in a
post-effective amendment by those paragraphs is contained in periodic reports
filed with or furnished to the Commission by the registrant pursuant to Section
13 or 15(d) of the Securities Exchange Act of 1934 that are incorporated by
reference in this registration statement;

         (2)      That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed to be
a new registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof; and

         (3)      To remove from registration by means of a post-effective
amendment any of the securities being registered which remain unsold at the
termination of the offering.

         The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
registrant's annual report pursuant to Section 13(a) or 15(d) of the Securities
Exchange Act of 1934 (and, where applicable, each filing of an employee benefit
plan's annual report pursuant to Section 15(d) of the Securities Exchange Act of
1934) that is incorporated by reference in this registration statement shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof; and


                                      II-3


<PAGE>


         Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to trustees, directors, officers and controlling
persons of the registrant pursuant to the provisions described under Item 15
above or otherwise, the registrant has been advised that the in the opinion of
the Securities and Exchange Commission such indemnification is against public
policy as expressed in the Act and is, therefore, unenforceable. In the event
that a claim for indemnification against such liabilities (other than the
payment by the registrant of expenses incurred or paid by a trustee, director,
officer or controlling person of the registrant in the successful defense of any
action, suit or proceeding) is asserted against the registrant by such trustee,
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.

         The undersigned registrant hereby undertakes to deliver or cause to be
delivered with the prospectus, to each person to whom the prospectus is sent or
given, the latest annual report to security holders that is incorporated by
reference in the prospectus and furnished pursuant to and meeting the
requirements of Rule 14a-3 or Rule 14c-3 under the Securities Exchange Act of
1934; and, where interim financial information required to be presented by
Article 3 of Regulation S-X is not set forth in the prospectus, to deliver, or
cause to be delivered to each person to whom the prospectus is sent or given,
the latest quarterly report that is specifically incorporated by reference in
the prospectus to provide such interim financial information.

         The undersigned registrant hereby undertakes that:

         (1)      For purposes of determining any liability under the Securities
Act of 1933, the information omitted from the form of prospectus filed as part
of this registration statement in reliance upon Rule 430A and contained in the
form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or
497(h) under the Securities Act shall be deemed to be part of this registration
statement as of the time it was declared effective.

         (2)      For the purpose of determining any liability under the
Securities Act of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at that time
shall be deemed to be the initial bona fide offering thereof.


                                      II-4


<PAGE>


                                   SIGNATURES


         Pursuant to the requirements of the Securities Act of 1933, the
registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form S-3 and has duly caused this registration
statement to be signed on its behalf by the undersigned thereunto duly
authorized, in the Town of Palm Beach, State of Florida, on the 8th day of July,
1998.


                                     INNKEEPERS USA TRUST,
                                     a Maryland real estate investment trust
                                     (Registrant)



                                     By /s/ Jeffrey H. Fisher
                                        ____________________________________
                                        Jeffrey H. Fisher
                                        Chairman of the Board , President and
                                        Chief Executive Officer


                                      




<PAGE>


                               POWER OF ATTORNEY

         Each person whose signature appears below hereby constitutes and
appoints Jeffrey H. Fisher, Mark A. Murphy and David Bulger, and each or any of
them, his true and lawful attorney-in-fact with full power of substitution and
resubstitution, for him and in his name, place and stead, in any and all
capacities, to sign any and all amendments (including post-effective amendments)
to this Registration Statement and any registration statement that is to be
effective upon filing pursuant to Rule 424(b) under the Securities Act of 1933,
as amended, and to cause the same to be filed with all exhibits thereto and
other documents in connection therewith, with the Securities and Exchange
Commission, hereby granting to said attorneys-in-fact and agents, and each of
them, full power and authority to do and perform each and every act and thing
whatsoever requisite or desirable to be done in and about the premises, as fully
to all intents and purposes as the undersigned might or could do in person,
hereby ratifying and confirming all acts and things that said attorneys-in-fact
and agents, or either of them, or their substitutes or substitute, may lawfully
do or cause to be done by virtue hereof.

         Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed below on the 8th day of July, 1998 by the
following persons in the capacities indicated.

<TABLE>
<CAPTION>
                  Signature                          Title
                  ---------                          -----
<S><C>
  /s/ Jeffrey H. Fisher                              Chairman of the Board, President and
 _________________________________________           Chief Executive Officer (Principal Executive Officer)
      Jeffrey H. Fisher

                                                     Trustee
 _________________________________________
      Bruce Zenkel


  /s/ Miles Berger                                   Trustee
 _________________________________________
      Miles Berger


 /s/ C. Gerald Goldsmith                            Trustee
__________________________________________
      C. Gerald Goldsmith


 _________________________________________           Trustee
      Rolf E. Ruhfus


  /s/ Jack P. DeBoer                                 Trustee
 _________________________________________
      Jack P. DeBoer

                                                     Trustee
 _________________________________________
      Thomas J. Crocker


  /s/ David Bulger                                   Chief Financial Officer and Treasurer
 _________________________________________           (Principal Financial Officer)
      David Bulger


  /s/ Gregory M. Fay                                 Vice President of Accounting
 _________________________________________           (Principal Accounting Officer)
      Gregory M. Fay
</TABLE>


                                      II-6



<PAGE>




EXHIBITS

3.1    -          Amended  and  Restated  Declaration  of Trust of the
                  Registrant  (previously  filed as Exhibit  3.1 to the
                  Company's  Registration Statement on Form S-11 (Registration
                  No. 33-81362) and incorporated by reference herein)

3.1(a) -          Amendment  of  Declaration  of Trust of the  Registrant
                  (previously  filed as Exhibit 3.1 to  Registration  Statement
                  on Form S-11 (Registration No. 33-81362) and incorporated by
                  reference herein)

3.1(b) -          Articles  Supplementary to the Declaration of Trust of the
                  Registrant  (previously filed as Exhibit 3.1(b) to
                  Registration Statement on form S-3 (Registration Statement No.
                  333-53919) and incorporated by reference herein)


3.2    -          Bylaws of the Registrant  (previously filed as Exhibit 3.2 to
                  the Company's  Registration  Statement on Form S-11
                  (Registration No. 33-81362) and incorporated by reference
                  herein)

4.1    -          Form of  Common  Share  Certificate  (previously  filed  as
                  Exhibit  4.1 to the  Company's  Registration  Statement  on
                  Form  S-11 (Registration No. 33-81362) and incorporated by
                  reference herein)


4.2*   -          Form of Series A Preferred Share Certificate

5.1*   -          Opinion of Hunton & Williams

8.1*   -          Opinion of Hunton & Williams with respect to certain tax
                  matters

10.1   -          Second Amended and Restated  Agreement of Limited  Partnership
                  of Innkeepers USA Limited  Partnership  (previously  filed as
                  Exhibit 4.2 to Registration Statement on Form S-3
                  (Registration No. 333-12809) and incorporated by reference
                  herein)

10.2*  -          Registration Rights Agreement dated May 18, 1998 between the
                  Company and the Initial Purchaser

12.1*  -          Statement regarding computation of ratio of earnings to fixed
                  charges

23.1*  -          Consent of PricewaterhouseCoopers LLP

23.2*  -          Consent of Hunton & Williams (included in Exhibit 5.1)

24.1*  -          Power of Attorney (located on the signature page of this
                  Registration Statement)

- -------------
*Filed herewith



                                                                    EXHIBIT 4.2

KPAPP 11                                                _____

                                             CUSIP NO. 4576J0 30 2
                                             SEE REVERSE FOR IMPORTANT
                                             NOTICE  ON TRANSFER RESTRICTIONS
                                             AND OTHER INFORMATION


                              INNKEEPERS USA TRUST
                         A REAL ESTATE INVESTMENT TRUST
                 FORMED UNDER THE LAWS OF THE STATE OF MARYLAND



is the registered holder of_____________________________________
Fully Paid and Non-Assessable Series A Cumulative Convertible Preferred Shares
of Beneficial Interest, $.01 Par Value Per Share, of Innkeepers USA Trust (the
"Company"), a Maryland real estate investment trust formed under the laws of the
State of Maryland and under and subject to the provisions of the Declaration of
Trust, filed with the State Department of Assessments and Taxation of Maryland,
and the Bylaws of the Company, both as amended from time to time. The shares
represented by this certificate are subject to all of the provisions of the
Declaration of Trust and Bylaws of the Company and any amendments thereto and
are transferable only on the share transfer books of the Company by the holder
of record in person or by its duly authorized attorney or legal representative
upon surrender of this Certificate properly endorsed. This certificate is not
valid until countersigned and registered by the Company's transfer agent and
registrar.
         In Witness Whereof, the Company has caused this Certificate to be
executed on its behalf by its duly authorized officers.

Dated: _______________


   ____________________________

__________________________(SEAL)

                     SECRETARY                          CHAIRMAN OF THE BOARD,
                                         CHIEF EXECUTIVE OFFICER AND PRESIDENT






<PAGE>



                              INNKEEPERS USA TRUST
                                IMPORTANT NOTICE

         THE SECURITY EVIDENCED HEREBY HAS NOT BEEN REGISTERED UNDER THE U.S.
SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR ANY STATE
SECURITIES LAWS, AND, ACCORDINGLY, NEITHER THIS SECURITY, THE COMMON SHARES
ISSUABLE UPON CONVERSION OF THIS SECURITY, NOR ANY INTEREST OR PARTICIPATION
HEREIN OR THEREIN MAY BE REOFFERED, SOLD, PLEDGED OR OTHERWISE TRANSFERRED IN
THE ABSENCE OF SUCH REGISTRATION OR UNLESS SUCH TRANSACTION IS EXEMPT FROM, OR
NOT SUBJECT TO, SUCH REGISTRATION REQUIREMENTS.

         THE HOLDER OF THIS SECURITY, BY ITS ACQUISITION HEREOF, AGREES THAT IT
WILL NOT, PRIOR TO THE DATE WHICH IS TWO YEARS AFTER THE LATER OF THE ORIGINAL
ISSUE DATE HEREOF AND THE LAST DATE ON WHICH THE COMPANY OR ANY AFFILIATE OF THE
COMPANY WAS THE OWNER OF THIS SECURITY (OR ANY PREDECESSOR OF SUCH SECURITY),
RESELL OR OTHERWISE TRANSFER THE SECURITY EVIDENCED HEREBY OR THE COMMON SHARES
ISSUABLE UPON CONVERSION OF SUCH SECURITY EXCEPT (A) TO THE COMPANY, OR ANY
SUBSIDIARY THEREOF, (B) TO A PERSON THE HOLDER REASONABLY BELIEVES IS A
QUALIFIED INSTITUTIONAL BUYER, AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT
(A "QIB"), IN COMPLIANCE WITH RULE 144A, (C) PURSUANT TO THE EXEMPTION FROM THE
REGISTRATION REQUIREMENTS PROVIDED BY RULE 144 UNDER THE SECURITIES ACT (IF
AVAILABLE), (D) PURSUANT TO A REGISTRATION STATEMENT THAT HAS BEEN DECLARED
EFFECTIVE AND THAT CONTINUES TO BE EFFECTIVE AT THE TIME OF SUCH TRANSFER OR (E)
PURSUANT TO ANOTHER AVAILABLE EXEMPTION, IF ANY, FROM SUCH REGISTRATION
REQUIREMENTS OR IN A TRANSACTION NOT SUBJECT TO THE SECURITIES ACT; AND AGREES
THAT IT WILL DELIVER TO EACH PERSON TO WHOM THE SECURITY EVIDENCED HEREBY IS
TRANSFERRED A NOTICE SUBSTANTIALLY TO THE EFFECT OF THIS LEGEND.

         NONE OF THE FOLLOWING ENTITIES MAY ACQUIRE AN INTEREST IN THIS SECURITY
FROM AN ORIGINAL PURCHASER OR ANY SUBSEQUENT TRANSFEREE WITHOUT THE COMPANY'S
PRIOR WRITTEN CONSENT, WHICH CONSENT MAY BE WITHHELD IN THE COMPANY'S SOLE
DISCRETION: (A) AN EMPLOYEE BENEFIT PLAN AS DEFINED IN SECTION 3(3) OF THE U.S.
EMPLOYEE RETIREMENT INCOME SECURITY ACT OF 1974, AS AMENDED ("ERISA"), WHETHER
OR NOT SUBJECT TO ERISA, OR A PLAN DESCRIBED IN SECTION 4975 OF THE INTERNAL
REVENUE CODE OF 1986, AS AMENDED (THE "CODE") (INCLUDING, WITHOUT LIMITATION,
FOREIGN PLANS AND GOVERNMENTAL PLANS), (B) AN ENTITY WHOSE UNDERLYING ASSETS
INCLUDE THE ASSETS OF ANY SUCH PLAN BY REASON OF THE PLAN'S DIRECT OR INDIRECT
INVESTMENT IN SUCH ENTITY AND (C) AN ENTITY THAT OTHERWISE CONSTITUTES A
"BENEFIT PLAN INVESTOR" (COLLECTIVELY, "BENEFIT PLAN INVESTORS") WITHIN THE
MEANING OF THE PLAN ASSET REGULATION PROMULGATED BY THE DEPARTMENT OF LABOR. ANY
BENEFIT PLAN INVESTOR THAT PURCHASES AN INTEREST IN THIS SECURITY SHALL BE
DEEMED TO HAVE REPRESENTED AND WARRANTED THAT SUCH PURCHASE IS EXEMPT OR IS
ELIGIBLE FOR COVERAGE UNDER ONE OR MORE STATUTORY OR ADMINISTRATIVE EXEMPTIONS
FROM THE PROHIBITED TRANSACTION RULES OF ERISA AND THE CODE.

         THE 8.625% SERIES A CUMULATIVE CONVERTIBLE PREFERRED SHARES OF
BENEFICIAL INTEREST, $.01 PAR VALUE PER SHARE, REPRESENTED BY THIS CERTIFICATE
ARE SUBJECT TO RESTRICTIONS ON TRANSFER FOR THE PURPOSE OF THE COMPANY'S
MAINTENANCE OF ITS STATUS AS A REAL ESTATE INVESTMENT TRUST UNDER THE CODE. NO
PERSON MAY (I) BENEFICIALLY OWN OR CONSTRUCTIVELY OWN COMMON SHARES IN EXCESS OF
9.8% OF THE NUMBER OF OUTSTANDING COMMON SHARES; (II) BENEFICIALLY OWN OR
CONSTRUCTIVELY OWN PREFERRED SHARES OF ANY SERIES OF PREFERRED SHARES IN EXCESS
OF 9.8% OF THE NUMBER OF OUTSTANDING PREFERRED SHARES OF SUCH SERIES, (III)
BENEFICIALLY OWN EQUITY SHARES THAT WOULD RESULT IN THE EQUITY SHARES BEING
BENEFICIALLY OWNED BY FEWER THAN 100 PERSONS (DETERMINED WITHOUT REFERENCE TO
ANY RULES OF ATTRIBUTION), (IV) BENEFICIALLY OWN EQUITY SHARES THAT WOULD RESULT
IN THE COMPANY BEING "CLOSELY HELD" UNDER SECTION 856(h) OF THE CODE, OR (V)
CONSTRUCTIVELY OWN EQUITY SHARES THAT WOULD CAUSE THE COMPANY TO CONSTRUCTIVELY
OWN 10% OR MORE OF THE OWNERSHIP INTERESTS IN A TENANT OF THE COMPANY'S REAL
PROPERTY, WITHIN THE MEANING OF SECTION 856(d)(2)(B) OF THE CODE. ANY PERSON WHO
ATTEMPTS TO BENEFICIALLY OWN OR CONSTRUCTIVELY OWN EQUITY SHARES IN EXCESS OF
THE ABOVE LIMITATIONS MUST IMMEDIATELY NOTIFY THE COMPANY IN WRITING. IF THE
RESTRICTIONS ABOVE ARE VIOLATED, THE EQUITY SHARES REPRESENTED HEREBY WILL BE
TRANSFERRED AUTOMATICALLY AND BY OPERATION OF LAW TO A SHARE TRUST AND SHALL BE
DESIGNATED SHARES-IN-TRUST. ALL TERMS USED IN THIS LEGEND THAT ARE DEFINED IN
THE COMPANY'S AMENDED AND RESTATED DECLARATION OF TRUST, AS THE SAME MAY BE
FURTHER AMENDED FROM TIME TO TIME, SHALL HAVE THE SAME MEANINGS ASCRIBED TO THEM
THEREIN. A COPY OF SUCH DECLARATION OF TRUST, INCLUDING THE RESTRICTIONS ON
TRANSFER, WILL BE SENT WITHOUT CHARGE TO EACH SHAREHOLDER WHO SO REQUESTS.

         THE COMPANY MAY REQUIRE EVIDENCE OF A PROPOSED TRANSFEREE'S STATUS AND
OWNERSHIP INTEREST BEFORE PERMITTING ANY TRANSFER AND MAY REDEEM ANY SHARES HELD
IN VIOLATION OF THE PRECEDING PARAGRAPH. THE COMPANY WILL FURNISH TO ANY
SHAREHOLDER WITHOUT CHARGE A FULL STATEMENT OF THE TRANSFER RESTRICTIONS UPON
REQUEST TO THE SECRETARY OF THE COMPANY AT ITS PRINCIPAL OFFICE.

         THE COMPANY WILL FURNISH TO ANY SHAREHOLDER, ON REQUEST AND WITHOUT
CHARGE, A FULL STATEMENT OF THE INFORMATION REQUIRED BY SECTION 8-203(d) OF THE
CORPORATIONS AND ASSOCIATIONS ARTICLE OF THE ANNOTATED CODE OF MARYLAND WITH
RESPECT TO THE DESIGNATIONS AND ANY PREFERENCES, CONVERSION AND OTHER RIGHTS,
VOTING POWERS, RESTRICTIONS, LIMITATIONS AS TO DIVIDENDS AND OTHER
DISTRIBUTIONS, QUALIFICATIONS, AND TERMS AND CONDITIONS OF REDEMPTION OF THE
SHARES OF EACH CLASS OF BENEFICIAL INTEREST WHICH THE COMPANY HAS AUTHORITY TO
ISSUE AND, IF THE COMPANY IS AUTHORIZED TO ISSUE ANY PREFERRED OR SPECIAL CLASS
IN SERIES, (I) THE DIFFERENCES IN THE RELATIVE RIGHTS AND PREFERENCES BETWEEN
THE SHARES OF EACH SERIES TO THE EXTENT SET AND (II) THE AUTHORITY OF THE BOARD
OF TRUSTEES TO SET SUCH RIGHTS AND PREFERENCES OF SUBSEQUENT SERIES. THE
FOREGOING SUMMARY DOES NOT PURPORT TO BE COMPLETE AND IS SUBJECT TO AND
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE DECLARATION OF TRUST OF THE
COMPANY, A COPY OF WHICH WILL BE SENT WITHOUT CHARGE TO EACH SHAREHOLDER WHO SO
REQUESTS. SUCH REQUEST MUST BE MADE TO THE SECRETARY OF THE COMPANY AT ITS
PRINCIPAL OFFICE OR TO THE TRANSFER AGENT.

         The following abbreviations, when used in the inscription on the face
of this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations.

<TABLE>
<S><C>
         TEN COM  -- as tenants in common            UNIF GIFT MIN ACT --................Custodian...................
                                                                              (Cust)                 (Minor)
         TEN ENT  -- as tenants by the entireties                                           under Uniform Gifts to Minors
         JT TEN   -- as joint tenants with right of
                     survivorship and not as tenants                                        Act..................
                     in common                                                                     (State)


    Additional abbreviations may also be used though not in the above list.

         For value received, _______________________ hereby sell, assign and transfer unto
</TABLE>


  PLEASE INSERT SOCIAL SECURITY OR OTHER
      IDENTIFYING NUMBER OF ASSIGNEE
- ------------------------------


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

- -------------------------------------------------------------------------------
             PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS OF ASSIGNEE

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

- -------------------------------------------------------------------------------
                                                                      SHARES
- -------------------------------------------------------------------------------
REPRESENTED BY THE WITHIN CERTIFICATE, AND DO HEREBY IRREVOCABLY CONSTITUTE AND
APPOINT

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

- -------------------------------------------------------------------------------
ATTORNEY TO TRANSFER THE SAID SHARES ON THE BOOKS OF THE WITHIN-NAMED
CORPORATION WITH FULL POWER OF SUBSTITUTION IN THE PREMISES.
DATED:
      -------------------------
                                                            -------------------
                     IN THE PRESENCE OF

- -----------------------------------------------------------
NOTICE: THE SIGNATURE TO THIS ASSIGNMENT MUST CORRESPOND WITH THE
NAME AS WRITTEN UPON THE FACE OF THE CERTIFICATE IN EVERY PARTICULAR,
WITHOUT ALTERATION OR ENLARGEMENT, OR ANY CHANGE WHATEVER.



                                                                   EXHIBIT 5.1


                                  July 8, 1998


Innkeepers USA Trust
306 Royal Poinciana Way
Palm Beach, Florida  33480

Gentlemen:

         We have acted as counsel for Innkeepers USA Trust, a Maryland real
estate investment trust (the "Company"), in connection with the Registration
Statement on Form S-3 (the "Registration Statement"), filed by the Company under
the Securities Act of 1933, as amended, relating to the sale of up to 4,630,000
8.625% Series A Cumulative Convertible Preferred Shares of Beneficial Interest
of the Company (the "Series A Preferred Shares") and up to 6,857,493 common
shares of beneficial interest, $0.01 par value of the Company, issuable upon
conversion of the Series A Preferred Shares (the "Common Shares") by certain
holders of the Series A Preferred Shares and Common Shares, as described in the
Registration Statement.

         In connection therewith, we have relied upon, among other things, our
examination of such documents, records of the Company, certificates of its
officers and public officials, as we have deemed necessary for purposes of the
opinion expressed below.

         Based upon the foregoing, and having regard for such legal
considerations as we have deemed relevant, we are of the opinion that (i) the
issuance of the Series A Preferred Shares as described in the Registration
Statement was validly authorized and the Series A Preferred Shares are legally
issued, fully paid and nonassessable and, (ii) upon conversion of the Series A
Preferred Shares as described in the Registration Statement, the Common Shares
will be legally issued, fully paid and nonassessable.

         We consent to the filing of this opinion as Exhibit 5.1 to the
Registration  Statement  and to the  reference  to this firm under the heading
"Legal Matters" therein.

                                            Very truly yours,

                                            HUNTON & WILLIAMS


                                                                   EXHIBIT 8.1

                                  July 8, 1998


Innkeepers USA Trust
306 Royal Poinciana Way
Palm Beach, Florida  33480


                              Innkeepers USA Trust
                                Qualification as
                          Real Estate Investment Trust


Ladies and Gentlemen:

         We have acted as counsel to Innkeepers USA Trust, a Maryland real
estate investment trust (the "Company"), in connection with the preparation of a
Form S-3 registration statement filed with the Securities and Exchange
Commission ("SEC") on July 8, 1998, as amended through the date hereof (the
"Registration Statement"), with respect to the offer and sale from time to time
of up to 4,630,000 Series A Cumulative Convertible preferred shares of
beneficial interest of the Company (the "Series A Preferred Shares") and up to
6,857,493 of common shares of beneficial interest of the Company (together, the
"Secondary Shares") that are issuable upon the conversion of the Series A
Preferred Shares by the selling shareholders named in the Registration Statement
or their transferees, pledgees, donees, or successors (the "Selling
Shareholders").

         The Company, through Innkeepers USA Limited Partnership, a Virginia
limited partnership (the "Operating Partnership"), and its subsidiary
partnerships (the "Subsidiary Partnerships"), currently owns 62 hotels and
associated personal property (the "Current Hotels"). The Company, or a
wholly-owned subsidiary of the Company, owns a 1% general partnership interest,
and the Operating Partnership owns a 99% limited partnership interest, in each
Subsidiary Partnership. The Operating Partnership and Subsidiary Partnerships
lease (i) 53 of the Current Hotels to JF Hotel, Inc., a Virginia corporation,
and its affiliated sister corporations (collectively, the "JF Lessee") pursuant
to substantially similar operating leases (the "JF Leases") and (ii) nine of the
Current Hotels to subsidiaries of Patriot American Hospitality, inc. ("Patriot")
(the "Summerfield Lessee") pursuant to substantially similar operating leases
(the "Summerfield Leases" and, together with the JF Leases, the "Leases"). The
JF Lessee operates 31 of the Current Hotels. A wholly-owned subsidiary of
Marriott International, Inc., a Delaware corporation, operates and manages 20 of
the Current Hotels on behalf of the JF Lessee pursuant to substantially similar
management agreements (the "Marriott Management Agreements") with the JF Lessee.
TMH Hotels, Inc., a Kansas corporation, operates and manages two of the Current
Hotels on behalf of the JF Lessee pursuant to substantially similar management
agreements (the "TMH Management Agreements") with the JF Lessee. Other
subsidiaries of Patriot operate and manage nine of the Current Hotels on behalf
of the Summerfield Lessee pursuant to substantially similar management
agreements (the "Summerfield Management Agreements" and, together with the
Marriott Management Agreements and the TMH Management Agreements, the
"Management Agreements") with the Summerfield Lessee.


                                       1


         In giving the opinions set forth herein, we have examined the
following:

1.   the Company's Amended and Restated Declaration of Trust, as filed with the
Department of Assessments and Taxation of the State of Maryland on September 21,
1994, as amended on October 4, 1995 and September 18, 1996;

2.   the Articles  Supplementary  to the  Declaration of Trust,  as filed with
the Department of Assessments and Taxation of the State of Maryland on May __,
1998;

3.   the Company's Amended and Restated By-Laws;

4.   the prospectus contained as part of the Registration Statement (the
"Prospectus");

5.   the Second Amended and Restated Agreement of Limited Partnership of the
Operating Partnership, dated as of November 1, 1996 (the "Operating Partnership
Agreement"), among the Company, Innkeepers Financial Corporation, as general
partner ("IFC"), and several limited partners;

6.   the partnership agreements of the Subsidiary Partnerships, which are listed
on Exhibit A attached hereto;

7.   the Leases;

8.   the Management Agreements; and

9.   such other documents as we have deemed necessary or appropriate for
purposes of this opinion.

         In connection with the opinions rendered below, we have assumed, with
your consent, that:

1.   each of the documents referred to above has been duly authorized,
executed, and delivered;  is authentic, if an original, or is accurate, if a
copy; and has not been amended;

2.   during its taxable year ending December 31, 1998 and subsequent taxable
years, the Company has operated and will continue to operate in such a manner
that makes and will continue to make the representations contained in a
certificate, dated the date hereof and executed by a duly appointed officer of
the Company (the "Officer's Certificate"), true for such years;

3.   the Company will not make any amendments to its organizational documents,
the Operating Partnership Agreement, or the partnership agreement of any
Subsidiary Partnership after the date of this opinion that would affect its
qualification as a real estate investment trust (a "REIT") for any taxable year;

4.   each partner  (each,  a "Partner") of the  Operating  Partnership,  other
than IFC,  that is a corporation  or other entity has a valid legal existence;

5.   each Partner, other than IFC, has full power, authority, and legal right to
enter into and to perform the terms of the Operating Partnership Agreement and
the transactions contemplated thereby; and


                                       2


<PAGE>


6.   no action will be taken by the Company, the Operating Partnership, the
Subsidiary Partnerships, or the Partners after the date hereof that would have
the effect of altering the facts upon which the opinions set forth below are
based.

         In connection with the opinions rendered below, we also have relied
upon the correctness of the representations contained in the Officer's
Certificate.

         Based on the factual matters in the documents and assumptions set forth
above, the representations set forth in the Officer's Certificate, the
discussions in the Prospectus under the caption "Federal Income Tax
Considerations" (which are incorporated herein by reference), and without
further investigation as to such factual matters, we are of the opinion that:

    (a)  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, 1997, and the Company's organization and current and proposed
         method of operation will enable it to continue to qualify as a REIT for
         its taxable year ended December 31, 1998, and in the future; and

    (b)  the descriptions of the law contained in the Prospectus under the
         caption "Federal Income Tax Considerations" are correct in all material
         respects, and the discussions thereunder fairly summarize the federal
         income tax considerations that are likely to be material to a holder of
         the Secondary Shares.

         We have performed no due diligence and have made no efforts to verify
the accuracy and genuineness of the documents and assumptions set forth above,
and the representations set forth in the Officer's Certificate. We will not
review on a continuing basis the Company's compliance with such documents,
assumptions or representations. Accordingly, no assurance can be given that the
actual results of the Company's operations will satisfy the requirements for
qualification and taxation as a REIT.

         The foregoing opinions are based on current provisions of the Code and
the Treasury regulations thereunder (the "Regulations"), published
administrative interpretations thereof, and published court decisions. The
Internal Revenue Service has not issued Regulations or administrative
interpretations with respect to various provisions of the Code relating to REIT
qualification. No assurance can be given that the law will not change in a way
that will prevent the Company from qualifying as a REIT.

         We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement. In giving this consent, we do not admit that we are in
the category of persons whose consent is required by Section 7 of the Securities
Act of 1933, as amended, or the rules and regulations promulgated thereunder by
the SEC.


                                       3


<PAGE>





         The foregoing opinions are limited to the U.S. federal income tax
matters addressed herein, and no other opinions are rendered with respect to
other federal tax matters or to any issues arising under the tax laws of any
other country, or any state or locality. We undertake no obligation to update
the opinions expressed herein after the date of this letter. This opinion letter
is solely for the information and use of the addressee, and it may not be
distributed, relied upon for any purpose by any other person, quoted in whole or
in part or otherwise reproduced in any document, or filed with any governmental
agency without our express written consent.


                                            Very truly yours,

                                            Hunton & Williams


                                       4


<PAGE>



                                   EXHIBIT A
                                   ---------

                       SUBSIDIARY PARTNERSHIP AGREEMENTS
                       ---------------------------------

1.  the Limited Partnership Agreement of Innkeepers Financing Partnership, L.P.,
a Virginia limited partnership, dated March 20, 1995, between Innkeepers USA
Trust, as general partner, and Innkeepers USA Limited Partnership (the
"Operating Partnership"), as limited partner;

2.  the Limited Partnership Agreement of Innkeepers Financing Partnership II,
L.P., a Virginia limited partnership, dated October 6, 1995, between Innkeepers
Financial Corporation II, as general partner, and the Operating Partnership, as
limited partner;

3.  the Limited Partnership Agreement of Innkeepers Financing Partnership III,
L.P., a Virginia limited partnership, dated March 6, 1997, between Innkeepers
Financial Corporation III, as general partner, and the Operating Partnership, as
limited partner;

4.  the Limited Partnership Agreement of Innkeepers Residence San Mateo, L.P., a
Virginia limited partnership, dated October 9, 1996, between Innkeepers
Residence San Mateo, Inc., as general partner, and the Operating Partnership, as
limited partner;

5.  the Limited Partnership Agreement of Innkeepers Residence Sili I, L.P., a
Virginia limited partnership, dated October 9, 1996, between Innkeepers
Financial Corporation III, as general partner, and the Operating Partnership, as
limited partner;

6.  the Limited Partnership Agreement of Innkeepers Residence Sili II, L.P., a
Virginia limited partnership, dated October 9, 1996, between Innkeepers
Residence Sili II, Inc., as general partner, and the Operating Partnership, as
limited partner;

7.  the Limited Partnership Agreement of Innkeepers Residence Denver-Downtown,
L.P., a Virginia limited partnership, dated October 9, 1996, between Innkeepers
Financial Corporation III, as general partner, and the Operating Partnership, as
limited partner;

8.  the Limited Partnership Agreement of Innkeepers Residence Atlanta-Downtown,
L.P., a Virginia limited partnership, dated October 9, 1996, between Innkeepers
Residence Atlanta-Downtown, Inc., as general partner, and the Operating
Partnership, as limited partner;

9.  the Limited Partnership Agreement of Innkeepers Residence Wichita East,
L.P., a Virginia limited partnership, dated October 9, 1996, between Innkeepers
Financial Corporation III, as general partner, and the Operating Partnership, as
limited partner;

10. the Limited Partnership Agreement of Innkeepers Residence East Lansing,
L.P., a Virginia limited partnership, dated October 9, 1996, between Innkeepers
Residence East Lansing, Inc., as general partner, and the Operating Partnership,
as limited partner;

11. the Limited Partnership Agreement of Innkeepers Residence Portland, L.P., a
Virginia limited partnership, dated October 9, 1996, between Innkeepers
Residence Portland, Inc., as general partner, and the Operating Partnership, as
limited partner;

12. the Limited Partnership Agreement of Innkeepers Residence Grand Rapids,
L.P., a Virginia limited partnership, dated October 9, 1996, between Innkeepers
Residence Grand Rapids, Inc., as general partner, and the Operating Partnership,
as limited partner;


                                       1


<PAGE>


13. the Limited Partnership Agreement of Innkeepers Hampton Norcross, L.P., a
Virginia limited partnership, dated October 9, 1996, between Innkeepers Hampton
Norcross, Inc., as general partner, and the Operating Partnership, as limited
partner;

14. the Limited Partnership Agreement of Innkeepers Residence Eden Prairie,
L.P., a Virginia limited partnership, dated January 1, 1997, between Innkeepers
Residence Eden Prairie, Inc., as general partner, and the Operating Partnership,
as limited partner;

15. the Limited Partnership Agreement of Innkeepers Residence Arlington (TX),
L.P., a Virginia limited partnership, dated January 24, 1997, between Innkeepers
Residence Arlington, Inc., as general partner, and the Operating Partnership, as
limited partner;

16. the Limited Partnership Agreement of Innkeepers Residence Addison (TX),
L.P., a Virginia limited partnership, dated January 24, 1997, between Innkeepers
Residence Addison, Inc., as general partner, and the Operating Partnership, as
limited partner;

17. the Limited Partnership Agreement of Innkeepers Schaumburg, L.P., dated as
of June 26, 1997, between Innkeepers Financial Corporation V, as general
partner, and the Operating Partnership, as limited partner;

18. the Limited Partnership Agreement of Innkeepers Financing Partnership IV,
L.P., dated as of June 26, 1997, between Innkeepers Financial Corporation V, as
general partner, and the Operating Partnership, as limited partner;

19. the Limited Partnership Agreement of Innkeepers Westchester, L.P., dated as
of June 26, 1997, between Innkeepers Financial Corporation V, as general
partner, and the Operating Partnership, as limited partner;

20. the Limited Partnership Agreement of Innkeepers Summerfield General, L.P.,
dated as of July 2, 1997, between Innkeepers Financial Corporation IV, as
general partner, and the Operating Partnership, as limited partner;

21. the Limited Partnership Agreement of Innkeepers Sunrise Tinton Falls, L.P.,
dated as of July 2, 1997, between Innkeepers Financial Corporation IV, as
general partner, and the Operating Partnership, as limited partner;

22. the Limited Partnership Agreement of Innkeepers Summerfield General II,
L.P., dated as of July 2, 1997, between Innkeepers Financial Corporation V, as
general partner, and the Operating Partnership, as limited partner;

23. the Limited Partnership Agreement of Innkeepers Residence Shelton, L.P.,
dated as of October 31, 1997, between Innkeepers Residence Shelton, Inc., as
general partner, and the Operating Partnership, as limited partner;

24. the Limited Partnership Agreement of Innkeepers RI Altamonte, L.P., dated as
of December 23, 1997, between Innkeepers RI Altamonte, Inc., as general partner,
and the Operating Partnership, as limited partner;

25. the Limited Partnership Agreement of Innkeepers RI General, L.P., dated as
of December 23, 1997, between Innkeepers RI General, Inc., as general partner,
and the Operating Partnership, as limited partner;

26. the Limited Partnership Agreement of Innkeepers RI Northwest, L.P., dated as
of January 14, 1998, between Innkeepers RI Northwest, Inc., as general partner,
and the Operating Partnership, as limited partner; and

27. the Limited Partnership Agreement of Westborough Sierra Associates, L.P.,
dated as of August 7, 1997, between Innkeepers Westborough, L.L.C., as general
partner, and the Operating Partnership, as limited partner.


                                       2



                                                                  EXHIBIT 10.2










                              INNKEEPERS USA TRUST
                              --------------------

                     8.625% Series A Cumulative Convertible
                    Preferred Shares of Beneficial Interest






                         Registration Rights Agreement
                         -----------------------------

                               dated May 18, 1998








                            EVEREN SECURITIES, INC.
                            -----------------------



<PAGE>


                         Registration Rights Agreement
                             (Innkeepers USA Trust)


                                                                  May 18, 1998



         INTRODUCTORY. This Registration Rights Agreement (this "Agreement") is
made and entered into as of May 18, 1998, by and among Innkeepers USA Trust, a
Maryland real estate investment trust (the "Company"), and EVEREN Securities
Inc. (the "Initial Purchaser") for the benefit of the Holders (as defined
herein). This Agreement is entered into pursuant to that certain purchase
agreement (the "Purchase Agreement"), dated May 12, 1998, between the Company,
Innkeepers USA Limited Partnership, a Virginia limited partnership (the
"Partnership") and the Initial Purchaser. In order to induce the Initial
Purchaser to enter into the Purchase Agreement, the Company and the Partnership
have agreed to provide the registration rights provided for in this Agreement to
the Initial Purchaser and its direct and indirect transferees. The execution of
this Agreement is a condition to the closing of the transactions contemplated by
the Purchase Agreement.

         The parties hereby agree as follows:


                                  DEFINITIONS.

         As used in this Agreement, the following terms shall have the following
meanings:

         Affiliate: As to any specified person shall mean any other person
directly or indirectly controlling or controlled by or under direct or indirect
common control with such specified person. For the purposes of this definition,
"control," when used with respect to any person, means the power to direct the
management and policies of such person, directly or indirectly, whether through
the ownership of voting securities, by contract or otherwise and the terms
"controlling and "controlled" have the meanings correlative to the foregoing.

         Agreement:  This Registration Rights Agreement, as the same may be
amended, supplemented or modified from time to time in accordance with the terms
hereof.

         Business Day: With respect to any act to be performed under this
Agreement, each Monday, Tuesday, Wednesday, Thursday and Friday that is not a
day on which banking institutions in New York, or other applicable place where
such act is to occur, are authorized or obligated by applicable law, regulation
or executive order to close.

         Commission:  The United States Securities and Exchange Commission.

         Common Shares:  Common Shares of beneficial interest $0.01 par value
per share, of the Company.

         Company:  Innkeepers USA Trust, a Maryland real estate investment
trust, and any successor thereto.

        Controlling Person:  Any person who controls a specified person within
the meaning of Section 15 of the Securities Act or Section 20 of the Exchange
Act.


         Exchange Act:  The Securities and Exchange Act of 1934, as amended, and
the rules and regulations promulgated by the Commission thereunder.

         General Partner:  Innkeepers Financial Corporation, a Virginia
corporation and general partner of the Partnership.

         Holder:  Each record owner of any Registrable Shares from time to time,
including the Initial Purchaser and its Affiliates.

        Initial Purchaser:  EVEREN Securities, Inc. an Illinois corporation.


                                       1


<PAGE>


         Initial Purchaser's Option:  The option granted by the Company to the
Initial Purchaser in the Purchase Agreement to purchase up to 630,000 Series A
Preferred Shares.

         Issue Date:  The First Closing Date, as defined in the Purchase
Agreement, which is the first date of issuance of the Series A Preferred Shares.

         NASD:  National Association of Securities Dealers, Inc., or its
subsidiary NASD Regulation, Inc., as the context requires.

         Offering Memorandum:  The final Offering Memorandum of the Company
dated May 12, 1998 pursuant to which the Series A Preferred Shares are offered
and sold.

         Partnership: Innkeepers USA Limited Partnership, a Virginia limited
partnership, in which the sole partner is Innkeepers Financial Corporation, a
Virginia corporation and a wholly-owned subsidiary of the Company.

         Person:  An individual, partnership, corporation, trust, or
unincorporated organization, or government agency or political subdivision
thereof or any other legal entity.

         Proceeding: An action, claim, suit or proceeding (including, without
limitation, an investigation or partial proceeding, such as a deposition),
whether commenced or, to the knowledge of the person subject thereto,
threatened.

         Prospectus: The prospectus included in any Registration Statement,
including any preliminary prospectus, and all other amendments and supplements
to any such prospectus, including post effective amendments, and all material
incorporated by reference or deemed to be incorporated by reference, it any, in
such prospectus.

         Purchase Agreement:  As defined in the Introductory paragraph of this
Agreement.

         Register, registered and registration: Such terms refer to a
registration effected by preparing and filing a registration statement in
compliance with the Securities Act, and the declaration or ordering of the
effectiveness of such registration statement by the Commission.

         Registrable Shares: The Series A Preferred Shares and the Underlying
Common Shares, upon original issuance thereof and at all times subsequent
thereto, until, in the case of any Share, the earliest to occur of (i) the date
on which it has been registered effectively under the Securities Act and
disposed of in accordance with the registration statement relating to it, (ii)
the date on which it either is transferred in compliance with Rule 144 (or any
similar provision then in effect) or is eligible for resale in compliance with
Rule 144(k), as promulgated by the Commission under the Securities Act, (iii)
the date on which it is eligible for general resale, without restriction,
pursuant to another available exemption from registration under the Securities
Act, if any, or (iv) the date on which it is sold to the Company.

         Registration Expenses: Any and all expenses incident to the performance
of or compliance with this Agreement, including, without limitation: (i) all
Commission, stock exchange, NASD registration, listing, inclusion and filing
fees, (ii) all fees and expenses incurred in connection with compliance with
Canadian, federal or state securities or blue sky laws (including, without
limitation, any registration, listing and filing fees and reasonable fees and
disbursements of counsel in connection with blue sky qualification of any of the
Registrable Shares and the preparation of a Blue Sky Memorandum and compliance
with the rules of the NASD), (iii) all expenses of any Persons in preparing or
assisting in preparing, word processing, duplicating, printing, delivering and
distributing any Registration Statement, any Prospectus, any amendments or
supplements thereto, certificates and other documents relating to the
performance of and compliance with this Agreement, (iv) the fees and
disbursements of counsel for the Company and of the independent public
accountants (including, without limitation, the expenses of any special audit
and "cold comfort" letters required by or incident to such performance) of the
Company (provided that Registration Expenses shall not include the fees and
expenses of any counsel to the Holders or the Selling Shareholders) and (v) any
fees and disbursements customarily paid in connection with the issuance or sales
of securities (including the fees and expenses of any experts retained by the
Company in connection with any Registration Statement), but excluding brokers'
commissions and transfer taxes, if any, relating to the sale or disposition of
Registrable Shares by a holder or by a Selling Shareholder.


                                       2


<PAGE>


         Registration Statement: One or more registration statements, on the
appropriate form, of the Company that cover the resale of any of the Registrable
Shares pursuant to the provisions of this Agreement, including the Prospectus,
any required amendments and supplements to such registration statement or
Prospectus, including pre- and post-effective amendments, all exhibits thereto,
and all material incorporated by reference or deemed to be incorporated by
reference, if any, in such registration statement.

         Rule 144: Rule 144 promulgated by the Commission pursuant to the
Securities Act, as such rule may be amended from time to time, or any similar or
successor rule or regulation hereafter adopted by the Commission as a
replacement thereto having substantially the same effect as such rule.

         Rule 144A: Rule 144A promulgated by the Commission pursuant to the
Securities Act, as such rule may be amended from time to time, or any similar or
successor rule or regulation hereafter adopted by the Commission as a
replacement thereto having substantially the same effect as such rule.

         Rule 158: Rule 158 promulgated by the Commission pursuant to the
Securities Act, as such rule may be amended from time to time, or any similar or
successor rule or regulation hereafter adopted by the Commission as a
replacement thereto having substantially the same effect as such rule.

         Rule 424: Rule 424 promulgated by the Commission pursuant to the
Securities Act, as such rule may be amended from time to time, or any similar or
successor rule or regulation hereafter adopted by the Commission as a
replacement thereto having substantially the same effect as such rule.

         Securities Act:  The Securities Act of 1933, as amended, and the rules
and regulations promulgated by the Commission thereunder.

         Selling Shareholder: An entity (i) which beneficially owns Registrable
Shares and (ii) which is listed (or which the Company has an obligation to list
pursuant to Section 5 of this Agreement) as a potential selling shareholder in
the Registration Statement filed pursuant to this Agreement.

         Series A Preferred Shares: The 8.625% Series A Cumulative Convertible
Preferred Shares of Beneficial Interest, liquidation preference $25.00 per
share, of the Company, sold by the Company to the Initial Purchaser pursuant to
the terms and conditions of the Purchase Agreement, including any shares sold
pursuant to the Initial

         Shares:  The Series A Preferred Shares and the Underlying Common
Shares.

         Underlying Common Shares:  The Common Shares into which the Series A
Preferred Shares are convertible or which may be issued upon redemption of the
Series A Preferred Shares.

         Underlying Offering:  A sale of securities of the Company to an
underwriter or underwriters for reoffering to the public.

         Units:  Units of limited partnership interest in the Partnership.


                              SHELF REGISTRATION.

         As set forth in Section 5 of this Agreement, the Company agrees to file
with the Commission as soon as reasonably practicable, but in no event later
than sixty (60) calendar days after the Issue Date, as shelf Registration
Statement with respect to the sale from time to time by the Holders (or
beneficial owners, in the case of shares held in street name or held by a
nominee of The Depository Trust Company) of any and all Registrable Shares. The
Company shall use its best efforts to cause such Registration Statement to be
declared effective by the Commission as soon as practicable thereafter and to
remain effective until such time as non of the Shares are Registrable Shares.


                                   EXPENSES.

         As between the Company, on the one hand, and the Holders and Selling
Shareholders, on the other, the Company shall pay all Registration Expenses in
connection with the registration of the Registrable Shares pursuant to this
Agreement; and the Holder or Holders or Selling Shareholders shall pay all
broker's commissions and


                                       3


<PAGE>


transfer taxes, if any, and any other expense not specifically allocated to the
Company pursuant to this Agreement relating to the sale or disposition of such
Holder's Registrable Shares pursuant to any Registration Statement; provided,
however, that in connection with an Underwritten Offering, the Selling
Shareholders participating in such Underwritten Offering shall reimburse the
Company for all Registration Expenses reasonably incurred by the Company and any
expenses incidental thereto, in each case to the extent that such expenses would
not have been incurred by the Company but for the Underwritten Offering,
including, without limitation, all reasonable expenses incurred by the Company
in causing the preparation of accountants' "comfort letters" and opinions of
counsel to the Company requested by such Selling Shareholders or the
representative underwriter; and among such Selling Shareholders such expenses
shall be allocated pro rata, according to the number of Shares sold by each
Selling Shareholder in such offering, or such other method as may be agreed upon
by Selling Shareholders.


                              RULES 144 AND 144A.

         During such time as any of the Shares are Registrable Shares, the
Company shall use its best efforts to file the reports required to be filed by
it under the Securities Act and the Exchange Act in a timely manner sufficient
to satisfy the condition set forth in Rule 144(c), and during such time as any
Series A Preferred Shares are Registrable Shares as described herein, the
Company shall make available such other information, if any, as required by, and
so long as necessary to permit sales of such Series A Preferred Shares pursuant
to, Rule 144A.


                            REGISTRATION PROCEDURES.

THE COMPANY SHALL USE ITS BEST EFFORTS TO CAUSE THE REGISTRATION STATEMENT
RELATING TO THE REGISTRABLE SHARES TO BE DECLARED EFFECTIVE UNDER THE SECURITIES
ACT. PURSUANT TO SUCH OBLIGATION THE COMPANY SHALL:

prepare and file with the Commission, as specified in this Agreement, a
Registration Statement, which Registration Statement shall comply as to form in
all material respects with the requirements of the Securities Act, and use its
best efforts to cause such Registration Statement to become effective as soon as
possible after filing and remain effective until such time, as none of the
Shares are Registrable Shares;

notify Holders (including notifying The Depository Trust Company in the manner
required by The Depository Trust Company) of the Registrable Shares of their
right under this Agreement to be named as Selling Shareholders in the
Registration Statement and, pursuant to Section 5(B) below, include as named
Selling Shareholders in the Registration Statement those beneficial owners of
Registrable Shares who return such completed questionnaires to the Company as
the Company may reasonably request;

subject to Section 5(A)(i) of this Agreement, (i) prepare and file with the
Commission such amendments and post-effective amendments to each such
Registration Statement as may be necessary to keep such Registration Statement
effective for the period described in Section 5(A)(a), (ii) cause each such
Prospectus contained therein to be supplemented by any required Prospectus
supplement, and as so supplemented to be filed pursuant to Rule 424 or any
similar rule that may be adopted under the Securities Act, and (iii) comply with
the provisions of the Securities Act so as to permit the sale and resale of such
Registrable Shares by the Holder or Holders (and, in the case of Shares held in
street name or by a nominee of The Depository Trust Company, the Selling
Shareholders) in accordance with customary methods of sale or distribution,
including through brokers' transactions and block trades, as well as any other
intended method or methods of distribution reasonably requested by the Initial
Purchaser or Holder (or, in the case of Shares held in street name or by a
nominee of The Depository Trust Company, the Selling Shareholders) by written
notice to the Company prior to the filing of the Registration Statement, or the
applicable prospectus supplement or post-effective amendment; provided, however,
that while the Company must disclose the possibility of Underwritten Offerings
in the "Plan of Distribution" section, if so requested by a Holder (or, in the
case of Shares held in street name or by a nominee of The Depository Trust
Company, a beneficial owner) of Registrable Shares, and must allow certain due
diligence as set forth in paragraph (j) below, nothing in this Agreement shall
obligate the Company to enter into an underwriting or indemnity agreement with
any underwriter, to make any public announcements (other than such as may be
required by law or the stock exchange rules applicable to the Company) or to
participate in any "roadshow" sales presentations.

furnish to any Selling Shareholder named in any Prospectus, without charge, as
many copies of such Prospectus, and any amendment or supplement thereto as such
Selling Shareholder may reasonably request, in order to facilitate the public
sale or other disposition of the Registrable Shares; the Company consents to the
use of any such


                                       4


<PAGE>


Prospectus by such Selling Shareholder in connection with the offering and sale
of the Registrable Shares covered by any such Prospectus in accordance with the
plan of distribution described therein;

use its best efforts to register or qualify, or obtain exemption from
registration or qualification for, all Registrable Shares by the time the
Registration Statement is declared effective by the Commission under all
applicable Canadian, federal or state securities or "blue sky" laws of such
jurisdictions as the Initial Purchaser or any Selling Shareholder shall
reasonably request in writing, keep each such registration or qualification or
exemption effective during the period such Registration Statement is required to
be kept effective pursuant to Section 5(A)(a) of this Agreement and do any and
all other acts which may be reasonably necessary to enable each Selling
Shareholder to consummate the disposition in each such jurisdiction of such
Registrable Shares beneficially owned by such Selling Shareholder in accordance
with the Registration Statement; provided, however, that the company shall not
be required to (i) qualify generally to do business in any jurisdiction or to
register as a broker or dealer in such jurisdiction where it would not otherwise
be required to qualify or register but for this Section 5(A)(e), (ii) subject
itself to taxation in any such jurisdiction, or (iii) submit to the general
service of process in any such jurisdiction;

notify the Initial Purchaser and each Selling Shareholder promptly and, if
requested by the Initial Purchaser or any Selling Shareholder, confirm such
information in writing (i) when a Registration Statement has become effective
and when any post-effective amendments and supplements thereto become effective,
(ii) of the issuance by the Commission or any state securities authority of any
stop order suspending the effectiveness of a Registration Statement or the
initiation of any proceedings for that purpose, (iii) of any request by the
Commission or any other federal or state governmental authority for amendments
or supplements to a Registration Statement or related Prospectus or for
additional information, and (iv) of the happening of any event during the period
a Registration Statement is required to remain effective as a result of which
such Registration Statement or the related Prospectus or any documents
incorporated by reference therein contains any untrue statement of a material
fact or omits to state any material fact required to be stated therein or
necessary to make the statements therein not misleading (which information shall
be accompanied by an instruction to suspend the use of the Prospectus until the
requisite changes have been made);

during the period of time referred to in Section 5(A)(a) of this Agreement, use
reasonable efforts to avoid the issuance of, or, if issued, obtain the
withdrawal of, any enjoining order suspending the use or effectiveness of a
Registration Statement or suspending the qualification (or exemption from
qualification) of any of the Registrable Shares for sale in any jurisdiction, at
the earliest possible moment;

upon request, furnish to each requesting Selling Shareholder, without charge, at
least one conformed copy of each Registration Statement and any post-effective
amendment thereto (without documents incorporated therein by reference or
exhibits thereto, unless requested);

except as provided in Section 8 hereof, upon the occurrence of any event
contemplated by Section 5(A)(f)(iv) of this Agreement, use its best efforts
promptly to prepare a supplement or post-effective amendment to a Registration
Statement or the related Prospectus or any document incorporated therein by
reference or file any other required document so that, as thereafter delivered
by the Selling Shareholders to the purchasers of the Registrable Shares, such
Prospectus will not contain any untrue statement of a material fact or omit to
state a material fact required to be stated therein or necessary to make the
statements therein, in the light of the circumstances under which they were
made, not misleading;

if requested by the representative underwriters, if any, or any Selling
Shareholders of Registrable Shares being sold in connection with an Underwritten
Offering, (i) promptly incorporate in a Prospectus supplement or post-effective
amendment such material identifying information as the representative of the
underwriters, if any, or such Selling Shareholders indicate relates to them (and
such information shall be deemed to have been furnished in writing to the
Company by the Holders of Registrable Shares being sold in such Underwritten
Offering expressly for use in the Registration Statement), and (ii) make all
required filings of such Prospectus supplement or such post-effective amendment
as soon as practicable after the Company has received notification of such
matters to be incorporated in such Prospectus supplement or post-effective
amendment;

in connection with an Underwritten Offering of Registrable Shares:

         UPON ANY REASONABLE REQUEST RECEIVED IN CONNECTION WITH SUCH AN
              UNDERWRITTEN OFFERING, MAKE AVAILABLE FOR INSPECTION BY
              REPRESENTATIVES OF THE SELLING SHAREHOLDERS AND THE REPRESENTATIVE
              OF ANY


                                       5


<PAGE>


              UNDERWRITERS PARTICIPATING IN ANY DISPOSITION PURSUANT TO A
              REGISTRATION STATEMENT AND ANY SPECIAL COUNSEL OR ACCOUNTANT
              RETAINED BY SUCH SELLING SHAREHOLDERS OR UNDERWRITERS, ALL
              FINANCIAL AND OTHER RECORDS, PERTINENT CORPORATE DOCUMENTS AND
              PROPERTIES OF THE COMPANY AND THE PARTNERSHIP AND THEIR
              SUBSIDIARIES AND CAUSE THEIR RESPECTIVE OFFICERS, DIRECTORS AND
              EMPLOYEES TO SUPPLY ALL INFORMATION REASONABLY REQUESTED BY ANY
              SUCH REPRESENTATIVES, THE REPRESENTATIVE OF THE UNDERWRITERS, THE
              SPECIAL COUNSEL OR ACCOUNTANTS IN CONNECTION WITH A REGISTRATION
              STATEMENT, EXCEPT TO THE EXTENT THAT THE REQUESTED ITEMS ARE
              PUBLICLY AVAILABLE; PROVIDED, HOWEVER, THAT SUCH RECORDS,
              DOCUMENTS OR INFORMATION WHICH THE COMPANY DETERMINES, IN GOOD
              FAITH, TO BE CONFIDENTIAL AND NOTIFIES SUCH REPRESENTATIVES,
              REPRESENTATIVE OF THE UNDERWRITERS, SPECIAL COUNSEL FOR
              ACCOUNTANTS ARE CONFIDENTIAL SHALL BE KEPT CONFIDENTIAL AND SHALL
              NOT BE DISCLOSED BY THE REPRESENTATIVES, REPRESENTATIVE OF THE
              UNDERWRITERS, SPECIAL COUNSEL OR ACCOUNTANTS UNLESS (A) SUBJECT TO
              THE BLACK-OUT PERIODS DESCRIBED IN SECTION 6 OF THIS AGREEMENT
              DURING WHICH NO INFORMATION NEED BE PROVIDED, THE DISCLOSURE OF
              SUCH RECORDS, DOCUMENTS OR INFORMATION IS NECESSARY TO AVOID OR
              CORRECT A MATERIAL MISSTATEMENT OR OMISSION IN A REGISTRATION
              STATEMENT OR PROSPECTUS, (B) THE RELEASE OF SUCH RECORDS,
              DOCUMENTS OR INFORMATION IS ORDERED PURSUANT TO A SUBPOENA OR
              OTHER ORDER FROM A COURT OF COMPETENT JURISDICTION, OR (C) SUCH
              RECORDS, DOCUMENTS OR INFORMATION HAVE BEEN GENERALLY MADE
              AVAILABLE TO THE PUBLIC; AND PROVIDED, FURTHER, THAT THE FOREGOING
              INSPECTION AND INFORMATION GATHERING SHALL, TO THE GREATEST EXTENT
              POSSIBLE, BE COORDINATED ON BEHALF OF THE SELLING SHAREHOLDERS AND
              THE OTHER PARTIES ENTITLED THERETO BY ONE COUNSEL DESIGNATED BY
              AND ON BEHALF OF SUCH SELLING SHAREHOLDERS AND OTHER PARTIES
              REASONABLY ACCEPTABLE TO THE COMPANY;

         IN GOOD FAITH CAUSE ITS ACCOUNTANTS TO PREPARE AND DELIVER TO THE
              SELLING SHAREHOLDERS AND UNDERWRITERS A "COMFORT LETTER" AS
              DESCRIBING IN STATEMENT OF AUDITING STANDARDS NO. 72 PUBLISHED BY
              THE AMERICAN INSTITUTE OF CERTIFIED PUBLIC ACCOUNTANTS (OR ANY
              SUCCESSOR PUBLICATION); PROVIDED, HOWEVER, THAT THE NEGOTIATION OF
              SUCH COMFORT LETTER SHALL BE ENTIRELY THE RESPONSIBILITY OF THE
              SELLING SHAREHOLDERS AND THEIR REPRESENTATIVES AND THE COMPANY
              SHALL NOT BE LIABLE IN THE EVENT THAT SUCH ACCOUNTANTS FAIL OR
              REFUSE TO DELIVER ALL OR ANY PART OF THE REQUESTED LETTER;

         IN GOOD FAITH CAUSE ITS ATTORNEYS TO PREPARE AND DELIVER TO THE SELLING
              SHAREHOLDERS AND UNDERWRITERS SUCH OPINION LETTERS AS HAVE BEEN
              CUSTOMARILY DELIVERED IN THE COMPANY'S RECENT PUBLIC OFFERINGS AND
              CONCERNING SUCH OTHER MATTERS AS THE SELLING SHAREHOLDERS OR THE
              UNDERWRITERS MAY REASONABLY REQUEST; PROVIDED, HOWEVER, THAT THE
              NEGOTIATION OF SUCH OPINION LETTERS SHALL BE ENTIRELY THE
              RESPONSIBILITY OF THE SELLING SHAREHOLDERS AND THEIR
              REPRESENTATIVES AND THE COMPANY SHALL NOT BE LIABLE IN THE EVENT
              THAT SUCH ATTORNEYS FAIL OR REFUSE TO DELIVER ALL OR ANY PART OF
              THE REQUESTED LETTER;

provided however, that the Company shall not be required to comply with this
Section 5(A)(k) unless the Underwritten Offering involves at least 500,000
Shares; and provided, further, that the Company shall not be required to comply
with this Section 5(A)(k) more than once in any twelve (12) month period.
Whenever a Selling Shareholder (an "Initiating Seller") proposes to undertake an
Underwritten Offering in which the Company will be asked to provide any of the
items specified in this Section 5(A)(k), such Initiating Seller may designate
the lead underwriter and shall prepare, and the Company shall deliver at the
Initiating Seller's expense, a notice to the Holders (including giving notice to
The Depository Trust Company, in the manner required by The Depository Trust
Company) of Registrable Shares at their address set forth in Section 9(c) of
this Agreement. Such notice shall invite the Holders to participate in the
Underwritten Offering upon their written acceptance to such Initiating Seller at
a stated address with a response deadline no sooner than twenty (20) days from
the date of delivery of the notice. All holders of Registrable Shares who return
a timely acceptance to the Initiating Seller shall be entitled to participate in
the Underwritten Offering; provided, however, that if the total number of Shares
proposed to be included in the Underwritten Offering is greater than the amount
which the lead underwriter believes can successfully be sold in the Underwritten
Offering, then the Shares that each participating seller is allowed to include
in the Underwritten Offering shall be reduced to


                                       6


<PAGE>


pro rate according to the number of Shares each such seller originally proposed
to include in the Underwritten Offering.


                                       7


<PAGE>


use its reasonable best efforts to list all Registrable Shares on the New York
Stock Exchange or another nationally recognized exchange or the Nasdaq National
Market as soon as reasonably practicable after the listing requirements are met;

prepare and file in a timely manner all documents and reports required by the
Exchange Act which are incorporated by reference into any Registration
Statement;

provide a CUSIP number for all Registrable Shares, not later than the effective
date of the Registration Statement;

use its best efforts to comply with all applicable rules and regulations of the
Commission and make generally available to its securityholders, as soon as
reasonably practicable, earning statements covering at least 12 months which
satisfy the provision of Section 11(a) of the Securities act and Rule 158 (or
any similar rule promulgated under the Securities Act) thereunder;

provide and cause to be maintained a transfer agent for all Registrable Shares
covered by any Registration from and after a date not later than the effective
date of such Registration Statement;

in connection with any sale or transfer of the Registrable Shares that will
result in such Shares no longer being restricted from resale without
registration under the Securities Act, cooperate with the Selling Shareholders
and the representative of the underwriters, if any, to facilitate the timely
preparation and delivery of certificates representing the Registrable Shares to
be sold, which certificates shall not bear any restrictive legends, and to
enable such Registrable Shares to be in such denominations and registered in
such names as the representative of the underwriters, if any, or Selling
Shareholders may request at least three (3) Business Days prior to any sale of
the Registrable Shares; and

upon the effectiveness of the first Registration Statement filed under this
Agreement, the Company will take such actions and make such filings as are
necessary to effect the registration of the Series A Preferred Shares under the
Exchange Act simultaneously with or immediately following the effectiveness of
the Registration Statement; and

in order to allow Selling Shareholders to sell their Shares privately pursuant
to Rule 144 (during the periods, and in the quantities and manner allowed by
such rule) even though such Shares may also be registered for resale under the
Registration Statement, the Company agrees to disclose under the caption "Plan
of Distribution" (or other appropriate location) in the Registration Statement
that sales by the Selling Shareholders pursuant to Rule 144 may occur(provided,
however, that if the Commission staff informs the Company in writing that the
staff believes the inclusion of such a statement to be inappropriate, the
Company may delete it).

THE COMPANY MAY REQUIRE EACH HOLDER (OR EACH BENEFICIAL OWNER, IN THE CASE OF
SHARES HELD IN STREET NAME OR BY A NOMINEE OF THE DEPOSITORY TRUST COMPANY) WHO
WISHES TO BE NAMED AS A SELLING SHAREHOLDER IN THE REGISTRATION STATEMENT TO
FURNISH TO THE COMPANY SUCH INFORMATION REGARDING THE PROPOSED DISTRIBUTION BY
SUCH HOLDER (OR BENEFICIAL OWNER) OF REGISTRABLE SHARES AS THE COMPANY MAY FROM
TIME TO TIME REASONABLY REQUEST IN WRITING AND NO HOLDER (OR BENEFICIAL OWNER)
SHALL BE ENTITLED TO BE NAMED AS A SELLING SECURITYHOLDER IN ANY REGISTRATION
STATEMENT AND NO HOLDER (OR BENEFICIAL OWNER) SHALL BE ENTITLED TO USE THE
PROSPECTUS FORMING A PART THEREOF IF SUCH HOLDER (OR BENEFICIAL OWNER) DOES NOT
PROVIDE SUCH INFORMATION TO THE COMPANY. THE COMPANY SHALL, TO THE EXTENT IT
FIRST RECEIVES SUCH INFORMATION FROM HOLDERS (OR BENEFICIAL OWNERS) AFTER
INITIAL EFFECTIVENESS OF THE SHELF REGISTRATION STATEMENT, FILE A SUPPLEMENTAL
PROSPECTUS OR POST-EFFECTIVE AMENDMENT WITHIN 20 BUSINESS DAYS OF RECEIVING SUCH
COMPLETE INFORMATION UNLESS THE COMPANY RECEIVES COMPLETE INFORMATION FROM
HOLDERS (OR BENEFICIAL OWNERS) HOLDING (OR BENEFICIALLY OWNING) AT LEAST $2.0
MILLION AGGREGATE LIQUIDATION PREFERENCE OF SERIES A PREFERRED SHARES, IN WHICH
CASE SUPPLEMENTAL PROSPECTUSES WILL BE FILED WITHIN 10 BUSINESS DAYS OF
RECEIVING SUCH INFORMATION; PROVIDED, HOWEVER, THAT TO THE EXTENT THAT THE
EFFECTIVENESS OF SUCH A POST-EFFECTIVE AMENDMENT IS DELAYED AS A RESULT OF
INFORMATION PROVIDED, OR FAILED TO BE PROVIDED, BY A HOLDER (OR BENEFICIAL
OWNER), SUCH DELAY (BUT ONLY TO SUCH EXTENT) SHALL NOT BE INCLUDED IN THE
CALCULATION OF THE 30-DAY PERIOD REFERRED TO IN SECTION 7(A)(III) OF THIS
AGREEMENT.

UPON RECEIPT OF WRITTEN NOTICE FROM THE COMPANY OF THE HAPPENING OF ANY EVENT OF
THE KIND DESCRIBED IN SECTION 5(A)(F)(II), (III) OR (IV) OR SECTION 6 OF THIS
AGREEMENT, EACH SELLING SHAREHOLDER SHALL IMMEDIATELY DISCONTINUE DISPOSITION OF
REGISTRABLE SHARES PURSUANT TO A REGISTRATION STATEMENT UNTIL SUCH SELLING
SHAREHOLDER, OR ITS NOMINEE, RECEIVES COPIES OF A SUPPLEMENTED OR AMENDED
PROSPECTUS OR THE FACTS AND CIRCUMSTANCES GIVING RISE TO SUCH NOTICE ARE
OTHERWISE CURED TO THE COMPANY'S SATISFACTION. IF SO REQUESTED BY


                                       8


<PAGE>


THE COMPANY, THE SELLING SHAREHOLDERS SHALL DELIVER TO THE COMPANY (AT THE
EXPENSE OF THE COMPANY) ALL COPIES IN THEIR POSSESSION, OTHER THAN PERMANENT
FILE COPIES THEN IN THE SELLING SHAREHOLDERS' POSSESSION, OF THE PROSPECTUS
COVERING SUCH REGISTRABLE SHARES CURRENT AT THE TIME OF RECEIPT OF SUCH NOTICE.


                               BLACK OUT PERIOD.

         Following the effectiveness of a Registration Statement (and the
filings with any state securities commissions), the Company, by written notice
to the Initial Purchaser and to the Selling Shareholders, may direct the Selling
Shareholders to suspend sales of the Registrable Shares pursuant to the
Registration Statement if any of the following events shall occur: (i) an
Underwritten Offering by the Company where the Company is advised by the
representative of underwriters for such Underwritten Offering that the sale of
Registrable Shares pursuant to the Registration Statement would have a material
adverse effect on the Company's primary offering; or (ii) pending negotiations
relating to, or consummation of, a transaction or the occurrence of an event
that requires additional disclosure of material information by the Company in
the Registration Statement and which has not been so disclosed; or (iii) a
material corporate transaction is pending, the disclosure of which should be set
forth in the Registration Statement and the Board of Trustees of the Company
shall have determined in good faith that such disclosure would not be in the
best interest of the Company and its stockholders.

         In the case of an event which causes the Company to suspend the
effectiveness of a Registration Statement (a "Suspension Event"), the Company
may give written notice (a "Suspension Notice") to the Selling Shareholders at
the addresses set forth in the questionnaires such Selling Shareholders returned
to the Company pursuant to Section 5(A)(b) of this Agreement and otherwise in
the share transfer records of the Company and to the Initial Purchaser
(Attention: Jon K. Haahr) to suspend sales of the Registrable Shares so that the
Company may amend or update the Registration Statement; provided, however, that
such suspension shall continue only for so long as the Suspension Event, or its
effect is continuing and the Company is taking all reasonable steps to terminate
suspension of the effectiveness of the Registration Statement as promptly as
possible. The Selling Shareholders shall not effect any sales of the Registrable
Shares pursuant to such Registration Statement at any time after receipt of a
Suspension Notice from the Company (and prior to the receipt of an End of
Suspension Notice (defined below)). If so requested by the Company, the Selling
Shareholders will deliver to the Company (at the expense of the Company) all
copies in their possession, other than permanent file copies then in the
Holders' possession, of the Prospectus covering such Registrable Shares at the
time of receipt of the Suspension Notice. The Selling Shareholders may
recommence effecting sales of the Registrable Shares pursuant to the
Registration Statement (or such filings) following further notice to such effect
(an "End of Suspension Notice") from the Company, which End of Suspension Notice
shall be given by the Company to the Selling Shareholders and the Initial
Purchaser in the manner described above promptly following the conclusion of any
Suspension Event.


                             SPECIAL DISTRIBUTIONS

If (i) within 60 calendar days after the Issue Date, the resale of shelf
Registration Statement referred to in Section 2 of this Agreement has not been
filed with the Commission, (ii) within 120 calendar days after the Issue Date,
such resale shelf Registration Statement has not been declared effective by the
Commission other than as a result of a change in applicable law or a change in
the Commission staff's interpretation thereof or delays by the Commission beyond
the Company's control, (iii) after the Registration Statement has been declared
effective, the Registration Statement ceases to be effective or otherwise
becomes unusable by the Selling Shareholders for any reason except as provided
in Section 6 and other than as a result of a change in applicable law or a
change in the Commission staff's interpretation thereof, and the aggregate
number of calendar days in any consecutive twelve (12) month period for which
the Registration Statement shall not be usable exceeds 30 days in the aggregate
(each such event referred to in clauses (i) though (iii), inclusive, a
"Registration Default"), additional distributions ("Special Distributions")
shall be payable quarterly in arrears to Holders (in addition to any regular
distribution accruing or payable on such Shares) and will accrue beginning (and
including) the date on which any such Registration Default shall occur and
ending (but excluding) the date on which all Registration Defaults have been
cured. Special Distributions shall accrue at a rate of $0.0625 (equivalent to
0.25% of the liquidation preference) per annum per Series A Preferred Share
during the 90-calendar-day period immediately following the occurrence of any
Registration Default, which rate shall increase by $0.0625 (equivalent to 0.25%
of the liquidation preference) per annum per Series A Preferred Share at the
beginning of each subsequent 90-calendar-day period, but in no event shall such
rate exceed $0.25 (equivalent to 1.00% of the liquidation preference) per annum
per Series A Preferred Share. Special Distributions shall accrue on any
Underlying Common Shares into which the Series A Preferred Shares have been
converted or


                                       9


<PAGE>


redeemed, at a rate adjusted to provide such Holder with the same economic
benefit as though such Underlying Common Shares had not been converted or
redeemed from the Series A Preferred Shares.

Special Distributions shall cease to accrue in respect of any Registrable Share
on such date as such Share is no longer a Registrable Share.

The Company shall cause the Special Distributions to be paid on the regular
dividend date, whether or not the Company shall have declared a dividend or
other distribution on the Registrable Shares for such quarter, and shall be
payable to the holder of record of Registrable Shares on the record date
relating to such regular dividend date; provided, however, that if the holder of
record is The Depository Trust Company, or its nominee, and such record holder
cannot accommodate the transfer of such Special Distributions to the beneficial
owner entitled thereto, then the Company shall pay such Special Distributions to
the beneficial owner at the address provided in Section 9(c) of this Agreement.
If for any quarter in which Special Distributions are payable in respect of
Underlying Common Shares, no record date is declared on the Common Shares, then
the record date for such Underlying Common Shares shall be deemed to be the same
as the record date for the Series A Preferred Shares.


                       INDEMNIFICATION AND CONTRIBUTION.

Indemnification by the Company. The Company agrees to indemnify and hold
harmless (i) the Initial Purchaser, (ii) each Holder (and, in the case of shares
held in street name or by a nominee of The Depository Trust Company, each
Selling Shareholder), (iii) each Person, if any, who is a Controlling Person of
any of the foregoing, and (iv) the respective officers, directors, partners,
employees, representatives and agents of the Initial Purchaser and each Holder,
Selling Shareholder or any Controlling Person as follows:

         FROM AND AGAINST ANY AND ALL LOSS, CLAIM, LIABILITY AND DAMAGE
              WHATSOEVER, AS INCURRED, ARISING OUT OF ANY UNTRUE OR ALLEGED
              UNTRUE STATEMENT OF A MATERIAL FACT CONTAINED IN ANY REGISTRATION
              STATEMENT (OR ANY SUPPLEMENT OR AMENDMENT THERETO) PURSUANT TO
              WHICH REGISTRABLE SHARES WERE REGISTERED UNDER THE SECURITIES ACT,
              INCLUDING ALL DOCUMENTS INCORPORATED THEREIN BY REFERENCE, OR THE
              OMISSION OR ALLEGED OMISSION TO STATE A MATERIAL FACT REQUIRED TO
              BE STATED THEREIN OR NECESSARY TO MAKE THE STATEMENTS THEREIN NOT
              MISLEADING OR ARISING OUT OF ANY UNTRUE STATEMENT OR ALLEGED
              UNTRUE STATEMENT OF A MATERIAL FACT CONTAINED IN ANY PROSPECTUS
              (OR ANY AMENDMENT OR SUPPLEMENT THERETO), INCLUDING ALL DOCUMENTS
              INCORPORATED THEREIN BY REFERENCE, OR THE OMISSION OR ALLEGED
              OMISSION TO STATE A MATERIAL FACT REQUIRED TO BE STATED THEREIN OR
              NECESSARY IN ORDER TO MAKE THE STATEMENTS THEREIN, IN THE LIGHT OF
              THE CIRCUMSTANCES UNDER WHICH THEY WERE MADE, NOT MISLEADING;
              PROVIDED, HOWEVER, THAT SUCH INDEMNITY WITH RESPECT TO ANY
              REGISTRATION STATEMENT OR PROSPECTUS SHALL NOT INURE TO THE
              BENEFIT OF ANY HOLDER, SELLING SHAREHOLDER OR THE INITIAL
              PURCHASER (OR ANY CONTROLLING PERSON THEREOF) TO THE EXTENT THAT
              ANY SUCH LOSS, CLAIM, LIABILITY, DAMAGE OR EXPENSE ARISES OUT OF
              SUCH INDEMNIFIED PERSON'S FAILURE TO SEND OR GIVE A COPY OF THE
              REVISED REGISTRATION STATEMENT OR FINAL PROSPECTUS, AS THE SAME
              MAY BE THEN SUPPLEMENTED OR AMENDED, TO THE PERSON ASSERTING AN
              UNTRUE STATEMENT OR ALLEGED UNTRUE STATEMENT OR OMISSION OR
              ALLEGED OMISSION AT OR PRIOR TO THE WRITTEN CONFIRMATION OF THE
              SALE OF REGISTRABLE SHARES TO SUCH PERSON IF SUCH STATEMENT OR
              OMISSION WAS CORRECTED IN SUCH REVISED REGISTRATION STATEMENT OR
              SUCH FINAL PROSPECTUS AND THE COMPANY SHALL HAVE MADE AVAILABLE TO
              SUCH INDEMNIFIED PERSON A SUFFICIENT NUMBER OF SUCH REVISED
              REGISTRATION STATEMENT OR SUCH FINAL PROSPECTUS IN A TIMELY MANNER
              SO AS TO PERMIT SUCH HOLDER, SELLING SHAREHOLDER OR THE INITIAL
              PURCHASER TO SEND OR GIVE A COPY OF THE REVISED REGISTRATION
              STATEMENT OR SUCH FINAL PROSPECTUS CONTAINING SUCH CORRECTION
              PRIOR TO THE WRITTEN CONFIRMATION OF THE PURCHASE AND SALE OF SUCH
              REGISTRABLE SHARES;

         FROM AND AGAINST ANY AND ALL LOSS, LIABILITY, CLAIM AND DAMAGE
              WHATSOEVER, AS INCURRED, TO THE EXTENT OF THE AGGREGATE AMOUNT
              PAID IN SETTLEMENT OF ANY LITIGATION, OR INVESTIGATION OR
              PROCEEDING BY ANY GOVERNMENTAL AGENCY OR BODY, COMMENCED OR
              THREATENED, OR OF ANY CLAIM WHATSOEVER BASED UPON ANY SUCH UNTRUE
              STATEMENT OR OMISSION, IF SUCH SETTLEMENT IS EFFECTED WITH THE
              WRITTEN CONSENT OF THE COMPANY; AND

         FROM AND AGAINST ANY AND ALL EXPENSE REASONABLY INCURRED (INCLUDING
              REASONABLE FEES AND DISBURSEMENTS OF COUNSEL) IN INVESTIGATING,
              PREPARING OR DEFENDING AGAINST ANY LITIGATION, OR INVESTIGATION OR


                                       10


<PAGE>


              PROCEEDING BY ANY GOVERNMENTAL AGENCY OR BODY COMMENCED OR
              THREATENED, IN EACH CASE WHETHER OR NOT A PARTY, OR ANY CLAIM
              WHATSOEVER BASED ON ANY SUCH UNTRUE STATEMENT OR OMISSION, OR ANY
              SUCH ALLEGED STATEMENT OR OMISSION, BUT ONLY (A) TO THE EXTENT
              THAT SUCH EXPENSE WAS INCURRED IN CONNECTION WITH A MATTER
              REFERRED TO IN (I) OR (II) ABOVE, (B) IN THE CASE OF (II) ABOVE,
              TO THE EXTENT THAT A REASONABLE ESTIMATE OF SUCH EXPENSES WAS
              PROVIDED TO THE COMPANY BEFORE THE SETTLEMENT (AND THE COMPANY
              SHALL NOT BE LIABLE FOR ANY AMOUNTS IN EXCESS OF 110% OF SUCH
              ESTIMATE), AND (C) IN ANY CASE, TO THE EXTENT THAT ANY SUCH
              EXPENSE IS NOT PAID UNDER SUBPARAGRAPH (I) OR (II) ABOVE;

                          provided, however, that this indemnity agreement does
                          not apply to any Holder or Selling Shareholder with
                          respect to any loss, liability, claim, damage or
                          expense to the extent arising out of any untrue
                          statement or omission or alleged untrue statement or
                          omission made in reliance upon and in conformity with
                          written information furnished to the Company by such
                          Holder or Selling Shareholder expressly for use in a
                          Registration Statement (or any amendment thereto) or
                          any Prospectus (or any amendment or supplement
                          thereto).

Indemnification by Selling Shareholders. Each Shareholder, on a pro rata basis,
agrees to indemnify and hold harmless the Company, the Partnership, the General
Partner, and trustees, officers, partners, employees, representatives and agents
of the Company (including each Controlling Person of the Company) against any
and all loss, liability, claim, damage and expenses described in the indemnity
contained in Section 8(a) of this Agreement (provided, however, that any
settlement described in Section 8(a) of this Agreement is effected with the
written consent of such Selling Shareholder), as incurred, but only with respect
to such untrue statements or omissions, or alleged untrue statements or
omissions, made in the Registration Statement (or any amendment thereto) or any
Prospectus (or any amendment or supplement thereto) in reliance upon and in
conformity with written information furnished to the Company by the Selling
Shareholder or its underwriters, if any, expressly for use in such Registration
Statement (or any amendment thereto) or such Prospectus (or any amendment or
supplement thereto), and provided, further, that no Selling Shareholder shall be
liable for any amount in excess of the proceeds received by such Selling
Shareholder from the sale of such Selling Shareholder's Registrable Shares
pursuant to a Registration Statement or a Prospectus, as the case may be.

Conduct of Indemnification Proceedings. Each party shall give reasonably prompt
written notice to each indemnifying party of any action or proceeding commenced
against it in respect of which indemnity may be sought under this Agreement, but
failure to so notify an indemnifying party shall not relieve it from any
liability which it may have under this indemnity agreement, except to the extent
that the indemnifying party is actually and materially prejudiced by such
failure to give written notice. If the indemnifying party so elects within a
reasonable time after receipt of such written notice, the indemnifying party may
assume the defense of such action or proceeding at such indemnifying party's own
expense with counsel chosen by the indemnifying party and approved by the
indemnified parties in such action or proceeding, which approval shall not be
unreasonably withheld; provide, however, that, if such indemnified party or
parties reasonably determines that a conflict of interest exists where it is
advisable for such indemnified party or parties to be represented by separate
counsel or that, upon advice of counsel, there may be legal defenses to them
which are different from or in addition to those available to the indemnifying
party, then the indemnifying party shall not be entitled to assume such defense
and the indemnified party or parties shall be entitled to one separate counsel
(an any necessary local counsel) at the indemnifying party's expense. If an
indemnifying party is not entitled to assume the defense of such action or
proceeding as a result of the proviso to the preceding sentence, such
indemnifying party's counsel shall be entitled to conduct such indemnifying
party's defense and counsel for the indemnified party or parties shall be
entitled to conduct the defense of such indemnified party or parties, it being
understood that both such counsel will cooperate with each other to conduct the
defense of such action or proceeding as efficiently as possible. If an
indemnifying party is not so entitled to assume the defense of such action or
does not assume such defense, after having received the notice referred to in
the first sentence of this paragraph, the indemnifying party or parties will pay
the reasonable fees and expenses of not more than one counsel (and any necessary
local counsel) for the indemnified party or parties. In such event, however, no
indemnifying party will be liable for any settlement effected without the
written consent of such indemnifying party. No indemnifying party shall, without
consent of the indemnified party, consent to entry of any judgment or enter into
a settlement which does not include as an unconditional term thereof the giving
by the claimant or plaintiff to such indemnified party of a release from all
liability in respect to such claim or litigation. If an indemnifying party is
entitled to assume, and assumes, the defense of such action or proceeding in
accordance with this paragraph, such


                                       11


<PAGE>


indemnifying party shall not be liable for any fees and expenses for counsel for
the indemnified parties incurred thereafter in connection with such action or
proceeding.

Contribution. In order to provide for just and equitable contribution in
circumstances in which the indemnity agreement provided in this Section 8 is for
any reason held to be unenforceable, unavailable or insufficient although
applicable in accordance with its terms, the Company and a Selling Shareholder
shall contribute to the aggregate losses, liabilities, claims, damages and
expenses of the nature contemplated by such indemnity agreement incurred by the
Company and the Selling Shareholder in such proportion as is appropriate to
reflect the relative fault of the Company, on the one hand, and the Selling
Shareholder, on the other (taking into consideration the fact that the
provisions of the registration rights under this Agreement are a material
inducement to the Initial Purchaser and the Selling Shareholders to purchase the
Registrable Shares), in connection with the statements or omissions which
resulted in such losses, claims, damages, liabilities or expenses, as well as
any other relevant equitable considerations. Relative fault shall be determined
by reference to, among other things, whether an untrue or alleged untrue
statement of a material fact or an omission of a martial fact related to
information supplied by or available to the Company, on the one hand, or the
Selling Shareholder, on the other hand, and by the parties' relative intent,
knowledge, access to information and opportunity to correct or prevent such
statement or omission. Notwithstanding the foregoing, no Person guilty of
fraudulent misrepresentation (within the meaning of Section 11(f) of the
Securities Act) shall be entitled to contribution from any Person who was not
guilty of such fraudulent misrepresentation. No Selling Shareholder shall be
liable for any amount in excess of the proceeds received from such Selling
Shareholder from the sale of such Selling Shareholder's Registrable Shares
pursuant to a Registration Statement or a Prospectus, as the case may be. For
purposes of this Section 8, each Person, if any, who is a Controlling Person of
a Selling Shareholder shall have the same rights to contribution as such Selling
Shareholder, and each trustee of the Company, each officer of the Company who
signed the Registration Statement and each Person, if any, who is a Controlling
Person of the Company or the Partnership or the General Partner and each
partner, employee, representative or agent of the Company shall have the same
rights to contribution as the Company. Each Person entitled to contribution
agrees that upon the service of a summons or other initial legal process upon it
in any action instituted against it in respect of which contribution may be
sought, it shall promptly give written notice of such service to the Person or
Persons from whom contribution may be sought, but the omission so to notify such
Person or Persons of any such service shall not relieve the Person from whom
contribution may be sought from any obligation it may have under this Agreement
or otherwise unless failure to provide such written notice actually prejudices
such Person or Persons.


                                 MISCELLANEOUS.

Remedies. In the event a breach by the Company or by a Holder or Selling
Shareholder of any of their obligations under this Agreement, each Holder or
Selling Shareholder or the Company, in addition to being entitled to exercise
all rights granted by law, including recovery of damages, will be entitled to
specific performance of its rights under this Agreement. It is acknowledged and
agreed that monetary damages would not be adequate compensation for any loss
incurred by reason of a breach of any of the provisions of this Agreement and
hereby further agrees that, in the event of any action for specific performances
in respect of such breach, the parties shall waive the defense that a remedy at
law would be adequate.

Amendments and Waivers. The provisions of this Agreement, including the
provisions of this sentence, may not be amended, modified or supplemented, and
waivers or consents to departures from the provisions of this Agreement may not
be given, without the prior written consent of the Company and Holders
beneficially owning not less than fifty percent (50%) of the then outstanding
Registrable Shares; provided, however, that, for the purposes of this Agreement,
Registrable Shares that are owned, directly or indirectly, by either the Company
or an Affiliate of the Company shall not be deemed to be outstanding.
Notwithstanding the foregoing, a waiver or consent to depart from the provisions
of this Agreement with respect to a matter that relates exclusively to the
rights of a Selling Shareholder whose securities are being sold pursuant to a
Registration Statement and that does not directly or indirectly affect the
rights of any other Holder may be given by such Selling Shareholder; provided,
further, that the provisions of this sentence may not be amended, modified, or
supplemented except in accordance with the provisions of the immediately
preceding sentence.

Notices.  All notices and other communications provided for this Agreement shall
be made in writing by hand-delivery, next-day air courier, certified first-class
mail, return receipt requested, telex or telecopy;


                                       12


<PAGE>


         IF TO THE COMPANY, AS PROVIDED IN THE PURCHASE AGREEMENT,

         IF TO THE INITIAL PURCHASER, AS PROVIDED IN THE PURCHASE AGREEMENT,

         IF TO ANY HOLDER, TO THE ADDRESS OF SUCH HOLDER AS IT APPEARS IN THE
              SHARE REGISTER OF THE COMPANY,

         IF TO ANY SELLING SHAREHOLDER WHO IS NOT A RECORD HOLDER, TO THE MOST
              RECENT ADDRESS OF SUCH PERSON PROVIDED BY OR ON BEHALF OF SUCH
              PERSON TO THE COMPANY IN WRITING AS SUCH PERSON'S ADDRESS FOR
              RECEIPT OF NOTICES UNDER THIS AGREEMENT (INCLUDING ANY ADDRESS
              PROVIDED IN THE QUESTIONNAIRE REFERRED TO IN SECTION 5(A)(B) OF
              THIS AGREEMENT), OR IF NONE HAS BEEN SO PROVIDED THEN TO THE
              ADDRESS OF THE HOLDER OF RECORD OF SUCH SHARES AS IT APPEARS IN
              THE SHARE REGISTRAR OF THE COMPANY.

                          Except as otherwise provided in this Agreement, all
                          such communications shall be deemed to have been duly
                          given when (A) delivered by hand, if personally
                          delivered, (B) one (1) Business Day after being timely
                          delivered to a next-day air courier, (C) five (5)
                          Business Days after being deposited in the mail,
                          postage prepaid, if mailed, (D) when answered back, if
                          telexed or (E) when receipt is acknowledged by the
                          recipient's telecopier machine, if telecopied.

Successors and Assigns. This agreement shall inure to the benefit of and be
binding upon the successors and permitted assigns of each of the parties and
shall inure to the benefit of each Holder (and, in the case of Shares held of
record in street name or by a nominee of The Depository Trust Company, each
beneficial owner of Registrable Shares). Each such Holder and each such
beneficial owner shall be deemed a third party beneficiary of this Agreement.
The Company may not assign its rights or obligations under this Agreement
without the prior written consent of each Holder. Notwithstanding the foregoing,
no assignee of the Company shall have any of the rights granted under this
Agreement until such assignee shall acknowledge its rights and obligations under
this Agreement by a signed written agreement pursuant to which such assignee
accepts such rights and obligations.

Counterparts. This Agreement may be executed in any number of counterparts and
by the parties hereto in separate counterparts, each of which when so executed
shall be deemed to be an original and, all of which taken together shall
constitute one and the same Agreement.

Governing Law. This Agreement shall be governed by and construed in accordance
with the laws of the state of New York, as applied to contracts made and
performed within the State of New York without regard to principals of conflicts
of law.

Severability. If any term, provision, covenant or restriction of this Agreement
is held by a court of competent jurisdiction to be invalid, illegal, void or
unenforceable, the remainder of the terms, provisions, covenants and
restrictions set forth in this Agreement shall remain in full force and effect
and shall in no way be affected, impaired or invalidated, and the parties hereto
shall use their reasonable efforts to find and employ an alternative means to
achieve the same or substantially the same result as contemplated by such term,
provision, covenant or restriction. It is hereby stipulated and declared to be
the intention of the parties that they would have executed the remaining terms,
provisions, covenants and restrictions without including any such term,
provision, covenant or restriction that may be hereafter declared invalid,
illegal, void or unenforceable.

Headings. The headings in this Agreement are for convenience of reference only
and shall not limit or otherwise affect the provisions of this Agreement. All
references made in this Agreement to "Section" refer to such Section of this
Agreement, unless expressly stated otherwise.

Attorneys' Fees. In any action or proceeding brought to enforce any provision of
this Agreement, or where any provision of this Agreement is validly asserted as
a defense, the prevailing party, as determined by the court, shall be entitled
to recover its reasonable attorneys' fees in addition to any other available
remedy.

                            [Signature page follows]


                                       13


<PAGE>


         IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed as of the date first written above.



                                "COMPANY"

                                INNKEEPERS USA TRUST,
                                a Maryland real estate investment trust

                                By:  /s/ David Bulger
                                    ____________________________________
                                         David Bulger
                                         Chief Financial Officer



The foregoing Agreement
is hereby confirmed and accepted as of the
date first above written.

"INITIAL PURCHASER"

EVEREN SECURITIES, INC., an Illinois corporation

By:  /s/ John R. Nikolich
    __________________________________________
         John R. Nikolich
         Senior Vice President



                                       14




                                                                  EXHIBIT 12.1

                       STATEMENT OF COMPUTATION OF RATIOS
                                 (IN THOUSANDS)
                                   HISTORICAL

<TABLE>
<CAPTION>
                          Period from
                         September 30,
                        1994 (inception)                                                 Three months   Three months
                            through        Year Ended     Year Ended     Year Ended         ended          ended
                          December 31,     December 31,   December 31,   December 31,      March 31,     March 31,
                              1994            1995           1996           1997            1997           1998
                              ----            ----           ----           ----            ----           ----
<S><C>
EARNINGS:
  Net income                 $368            $3,467         $8,489        $22,783         $4,230          $3,357
  Minority interest,           52               397            531          1,879            234             292
    common
  Extraordinary loss                                                                                       2,760
  Fixed Charges               209             2,428          7,435         15,258          3,411           6,310
  Interest costs                                                             (267)           (41)            (64)
capitalized
                           ------            ------         ------         ------         ------          ------
                             $629            $6,292        $16,455        $39,653         $7,834         $12,655

FIXED CHARGES:
  Interest expense            $61            $1,989         $5,839         $9,255         $1,997          $4,805
  Amortization of loan        148               439            867          1,185            256             268
    origination fees
  Interest costs capitalized                                                  267             41              64
Preferred Unit                                                 729          4,551          1,117           1,173
  distributions
                           ------            ------         ------         ------         ------          ------
                             $209            $2,428         $7,435        $15,258         $3,411          $6,310

Ratio of earnings to         3.01              2.59           2.21           2.60           2.30            2.01
fixed charges(1)
</TABLE>

- --------------------
(1) Computed as earnings divided by fixed charges.




                                                                 EXHIBIT 23.1



                       CONSENT OF INDEPENDENT ACCOUNTANTS

        We consent to the incorporation by reference in the registration
statement of Innkeepers USA Trust on Form S-3 of our report dated February 20,
1998 on our audits of the consolidated financial statements of Innkeepers USA
Trust as of December 31, 1996 and 1997 and for the years ended December 31,
1995, 1996 and 1997, our report dated March 23, 1998 on our audit of the
financial statement schedule of Innkeepers USA Trust as of December 31, 1997,
and our report dated March 23, 1998 on our audits of the combined financial
statements of JF Hotel, Inc. as of December 31, 1996 and 1997 and for the years
ended December 31, 1995, 1996 and 1997 which reports are included, or
incorporated by reference, in Innkeepers USA Trust's 1997 Annual Report on Form
10-K incorporated by reference herein; and the incorporation by reference of our
report dated July 3, 1997 on our audits of the combined financial statements of
the Summerfield Acquisition Hotels as of January 3, 1997 and for the fiscal year
then ended which report is included in Innkeepers USA Trust's Form 8-K filed on
July 18, 1997 incorporated by reference herein. We also consent to the reference
to our firm under the caption "Experts."


                                                PricewaterhouseCoopers LLP


Dallas, Texas
July 7, 1998




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