<PAGE>   1
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                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                 FORM 10-K/A
                                 (AS AMENDED)

               /x/      JOINT ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF 
                        THE SECURITIES AND EXCHANGE  ACT OF 1934 [FEE REQUIRED]

               For the fiscal year ended    December 31, 1994

                                       OR

               / /      TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
                        SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]

               For the transition period from _________ to __________


<TABLE>
<S>                                                       <C>                                                     
            Commission File Number: 1-6828                            Commission File Number: 1-7959              

                   STARWOOD LODGING                                          STARWOOD LODGING
                         TRUST                                                 CORPORATION

(Exact name of registrant as specified in its charter)    (Exact name of registrant as specified in its charter)

                       Maryland                                                  Maryland
             (State or other jurisdiction                              (State or other jurisdiction
           of incorporation or organization)                         of incorporation or organization)

                      52-0901263                                                52-1193298
         (I.R.S. employer identification no.)                      (I.R.S. employer identification no.)
           11845 W. Olympic Blvd., Suite 550
             Los Angeles, California 90064                           11845 W. Olympic Blvd., Suite 560
            (Address of principal executive                            Los Angeles, California 90064
             offices, including zip code)                             (Address of principal executive
                                                                       offices, including zip code)
                    (310) 575-3900
            (Registrant's telephone number,                                   (310) 575-3900
                 including area code)                                 (Registrant's telephone number,
                                                                           including area code)

</TABLE>




<PAGE>   2



           Securities registered pursuant to Section 12(b) of the Act:

<TABLE>
<CAPTION>
                                                           Name of each exchange
                  Title of each class                       on which registered
                  -------------------                      -----------------------
<S>                                                        <S>
    Shares of Beneficial Interest, $0.01 par value,
      of Starwood Lodging Trust ("Trust Shares")
                      paired with                          New York Stock Exchange
       Shares of Common Stock, $0.01 par value,
of Starwood Lodging Corporation ("Corporation Shares")

        1986 Warrants to purchase Trust Shares
                      paired with                          American Stock Exchange
     1986 Warrants to purchase Corporation Shares
</TABLE>


        Securities registered pursuant to Section 12(g) of the Act: None

     Indicate by check mark whether the Registrants (1) have filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrants were required to file such reports), and (2) have been subject to
such filing requirements for the past 90 days. Yes   X   No      .
                                                   -----    ----- 

     Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of each Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K /X/.

     As of March 24, 1995, the aggregate market value of the Registrants' voting
stock held by non-affiliates(1) was $34,063,000.

     As of March 24, 1995, the Registrants had outstanding 12,132,948 Trust
Shares and 12,132,948 Corporation Shares.

---------------------- 
(1)For purposes of this Joint Annual Report only, includes all voting shares
other than those held by the Registrants' Trustees or Directors and executive
officers or by persons known to either Registrant to hold of record or
beneficially 5% or more of such Registrant's voting shares.


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<PAGE>   3
                                                        
<TABLE>
<CAPTION>
                                  TABLE OF CONTENTS

  Item
 Number
in Form
  10-K                                       PART I                                    Page
-------                                                                                ----
<S>      <C>                                                                            <C>
   1.    Business....................................................................    1
   2.    Properties..................................................................    8
   3.    Legal Proceedings...........................................................   25
   4.    Submission of Matters to a Vote of Security Holders.........................   26


                                            PART II

   5.    Market for Registrants' Common Equity and Related  Stockholder Matters......
                                                                                        28
   6.    Selected Financial Data.....................................................   30
   7.    Management's Discussion and Analysis of Financial Condition and Results of
         Operations..................................................................   31
   8.    Financial Statements and Supplementary Data.................................   39
   9.    Changes in and Disagreements with Accountants on Accounting and Financial
         Disclosure..................................................................   39


                                            PART III

  10.    Trustees, Directors and Executive Officers of the Registrants...............   39
  11.    Executive Compensation .....................................................   43
  12.    Security Ownership of Certain Beneficial Owners and Management..............   48
  13.    Certain Relationships and Related Transactions..............................   50


                                            PART IV

  14.    Exhibits, Financial Statements, Financial Statement Schedules and Reports on
         Form 8-K....................................................................   54
</TABLE>


<PAGE>   4

                                     PART I

ITEM 1.  BUSINESS.

         Starwood Lodging Trust, formerly Hotel Investors Trust (the "Trust"),
was organized in 1969 as a Maryland real estate investment trust, and has
invested in fee, ground leasehold and mortgage loan interests in hotel
properties located throughout the United States.

         In order for the Trust to qualify for favorable tax status as a real
estate investment trust ("REIT") under the Internal Revenue Code of 1986 (the
"Code"), the Trust has leased its properties to third party operators. In 1980,
Starwood Lodging Corporation, formerly Hotel Investors Corporation (the
"Corporation" and, together with the Trust, "Starwood Lodging"), was organized
as a Maryland corporation and has leased hotel properties from the Trust since
that date.

         Since 1980, the shares of beneficial interest of the Trust ("Trust
Shares") and the shares of common stock of the Corporation ("Corporation
Shares") have been "paired" on a one-for-one basis and may only be held or
transferred in units consisting of one Trust Share and one Corporation Share
("Paired Shares"). The Code has prohibited the "pairing" of shares between a
REIT and a management company since 1983. This rule does not apply to the Trust
because its Paired Share structure has existed since 1980.

         At December 31, 1994, the Trust owned equity interests in twenty-four
hotel properties, including two hotel/casinos. Eighteen of such properties were
owned in fee, five were held pursuant to long-term leases and one was owned
through a 5% general partnership interest in a joint venture. At such date,
twenty of the Trust's hotels (including the two hotel/casinos) were leased to
the Corporation or its subsidiaries, and five of those hotels were being managed
by third-party operators. For information as to such interests and properties,
see Item 2 of this Joint Annual Report.

                               THE REORGANIZATION

         On January 31, 1995 (the "Closing Date"), the Trust and the Corporation
consummated a previously announced reorganization (the "Reorganization") with
Starwood Capital Group, L.P. ("Starwood Capital") and certain affiliates of
Starwood Capital (the "Starwood Partners") effective January 1, 1995.

         The Reorganization involved a number of related transactions that
occurred simultaneously on the Closing Date. Such transactions included (i) the
contribution by the Trust to SLT Realty Limited Partnership (the "Realty
Partnership") of all of the properties and assets of the Trust, subject to
substantially all of the liabilities of the Trust (including the senior debt
(the "Senior Debt") of the Trust), in exchange for an approximate 28.3% interest
as a general partner in the Realty Partnership, (ii) the contribution by the
Starwood Partners to the Realty Partnership of approximately $12,600,000 in cash
and certain hotel properties and first mortgage notes, in exchange for limited
partnership units representing the remaining approximate 71.7% interest in the
Realty Partnership, (iii) the contribution by the Corporation and its
subsidiaries to SLC Operating Limited Partnership (the "Operating Partnership")
of all of their properties and 

                                       1
<PAGE>   5

operating assets (except for their gaming assets, which are to be contributed
upon approval by Nevada gaming authorities), subject to substantially all of
their liabilities, in exchange for an approximate 28.3% interest as a general
partner in the Operating Partnership, and (iv) the contribution by the Starwood
Partners to the Operating Partnership of approximately $1,400,000 in cash and
furnishings and equipment of the hotel properties, in exchange for limited
partnership units representing the remaining approximate 71.7% interest in the
Operating Partnership. In addition, on March 24, 1995 a Starwood Partner
exchanged $12,000,000 of Senior Debt for additional limited partnership units of
the Realty Partnership and the Operating Partnership.

         After giving effect to the Reorganization and the subsequent exchange
of Senior Debt, the Trust has an approximate 25.4% interest in the Realty
Partnership and the Corporation has an approximate 25.4% interest in the
Operating Partnership, and the Starwood Partners hold limited partnership
interests representing the remaining approximate 74.6% interest in each of the
Realty Partnership and the Operating Partnership. As of the date of this Joint
Annual Report, the structure of Starwood Lodging is as follows:

                               [GRAPHIC]

         The limited partnership units of the Realty Partnership and the
Operating Partnership held by the Starwood Partners are (subject to the
ownership limit provisions of the Trust and the Corporation) exchangeable by the
Starwood Partners, for, at the option of the Trust and the Corporation, either
cash, Paired Shares of the Trust and the Corporation representing up to
approximately 74.6% of the Paired Shares after such exchange, or a combination
of cash and such Paired Shares. The ownership limit provisions of the Trust and
the Corporation are designed to preserve the status of the Trust as a REIT for
tax purposes by providing that in general no shareholder may own, directly or
indirectly, more than 8.0% of the outstanding Paired Shares.

         Since the Reorganization, the Trust has conducted all of its business
and operations through the Realty Partnership. As of the closing of the
Reorganization, the Realty 


                                       2
<PAGE>   6

Partnership held fee interests, ground leaseholds and mortgage loan interests in
43 hotel properties containing over 8,500 rooms located in 19 states throughout 
the United States. The Trust controls the Realty Partnership as the sole general
partner of the Realty Partnership.

         After the Reorganization, the Corporation (together with its
wholly-owned subsidiaries) has conducted all of its business and operations
(other than its gaming operations) through the Operating Partnership. As of the
closing of the Reorganization, the Operating Partnership leased from the Realty
Partnership all but three of the hotel properties owned in fee or held pursuant
to long-term leases by the Realty Partnership. Upon receipt of Nevada gaming
regulatory approvals, the Corporation will control the Operating Partnership as
its managing general partner. Prior to the receipt of such approvals, the
Operating Partnership is being managed by a management committee, the members of
which are identical to the members of the Board of Directors of the Corporation
that will hold office upon receipt of Nevada gaming regulatory approvals. 
Regulatory approvals are expected to be received by the end of 1997.  See 
Item 10 of this Joint Annual Report.

         Prior to the receipt of Nevada gaming regulatory approvals, the gaming
operations (which consist of two hotel/casinos located in Las Vegas, Nevada) are
being operated through a wholly owned subsidiary of the Corporation. Upon
receipt of such approvals (or such time as such approvals are no longer
required) all of the assets and liabilities of such subsidiary (or, if those
assets have been disposed of, the net proceeds of such disposition) will be
transferred to a limited partnership owned 99% by the Operating Partnership, as
limited partner, and 1% by such subsidiary, as general partner.

                              1995 DEBT REFINANCING

         On March 24, 1995, the Realty Partnership and the Trust entered into an
Amended and Restated Credit Agreement (the "New Credit Agreement") pursuant to
which the Realty Partnership borrowed $131.75 million (the "Loan") which was
used primarily to refinance all outstanding Senior Debt (after taking into
account the exchange by a Starwood Partner of $12 million of Senior Debt for
units of the Realty Partnership and the Operating Partnership described above)
and approximately $27 million of first mortgage debt. The Loan matures on April
1, 1997 (subject to the Realty Partnership's option to extend such maturity for
12 months subject to a principal payment of $10 million and on certain
conditions) and bears interest at a rate based on LIBOR plus 3%.

         Prior to maturity there are no mandatory principal payments on the
Loan, except that (i) if the Realty Partnership sells or refinances a hotel
property or mortgage note (other than certain notes contributed by the Starwood
Partners aggregating $53 million ("the Harvey notes")), it must reduce the
principal of the Loan by at least 125% of the portion of the Loan allocated to
such property or note and (ii) the net proceeds of any public offering (or
private offerings to the extent the net proceeds thereof exceed $60 million) of
equity interests in the Trust, the Corporation, the Realty Partnership or the
Operating Partnership must be used to reduce the principal of the Loan until
such principal is equal to or less than 50% of the fair market value of the
assets which secure the Loan.

         The Loan is secured by liens on substantially all of the
assets of the Realty Partnership, other than the Harvey notes. Up to $58 million
of the obligations under the Loan 

                                       3
<PAGE>   7

was guaranteed by the Operating Partnership, in consideration for the
cancellation by the Realty Partnership of intercompany indebtedness. Such
guaranty is secured by first priority liens on substantially all of the assets
of the Operating Partnership. Each of the Trust and the Corporation, as general
partner, is secondarily liable for the obligations under the Loan of the Realty
Partnership and the Operating Partnership, respectively. Approximately $46.1
million of mortgage notes payable are senior to the Loan (see Note 7, "Mortgage
and Other Notes Payable").

         The New Credit Agreement contains covenants that are similar to, but in
general less restrictive than, those contained in the Prior Credit Agreement
described below, including (i) a requirement that the Realty Partnership and the
Operating Partnership maintain a combined net worth at least equal to (a) $40
million, plus (b) 75% of the net proceeds of equity contributed to the Realty
Partnership (unless used within six months to acquire hotel assets or that
constitute equity in hotel assets, each of which will be governed by clause (c)
below), plus (c) 50% of the net equity book value of hotel assets contributed to
or acquired by the Realty Partnership during the term of the Loan; (ii)
restrictions on the ability of the Realty Partnership to incur other
indebtedness; and (iii) a right of the Realty Partnership and the Operating
Partnership to pay distributions to its partners up to certain specific amounts
and a right of the Trust and the Corporation to pay distributions, to their
shareholders. See Item 5, "Distributions" of this Joint Annual Report. The
Realty Partnership also has the right to acquire certain additional hotels that
meet certain cash flow tests.

         The Realty Partnership may, prior to January 1, 1996, borrow up to an
additional $75 million to finance the acquisition of hotel properties and to
refinance debt that is senior to the Loan. Each such acquisition loan will be in
an amount equal to the lesser of (i) 60% of the purchase price (in the case of
an acquisition) and (ii) 70% of the property's value (as determined by the
lender), will be made on the same terms as the Loan and will be secured by a
lien on the related hotel property.

                              ACQUISITION STRATEGY

         Starwood Lodging intends to focus its acquisition strategy on full
service and upper-end and limited service hotels. The Trust and the Corporation
believe that hotels in those segments can be purchased at prices below
replacement cost and offer better yields than hotels in other segments, and thus
represent more stable long-term investments. Starwood Lodging will generally
seek investments in hotels where management believes that such hotels' profits
can be increased by the introduction of more professional and efficient
management techniques or the injection of capital to cure deferred maintenance.
Properties will be targeted throughout the United States, but Starwood Lodging
will generally focus on markets located near other properties owned and operated
by Starwood Lodging, markets with significant barriers to entry or markets with
stable demand generators such as universities, government agencies or large
companies.

        As of March 31, 1995, Starwood Lodging is evaluating numerous hotel
properties for acquisition, and has made offers on ten properties in the
aggregate amount of approximately $180 million.  In addition, Starwood Lodging
has entered into a definitive agreement to  purchase the 172-room Omni Hotel
located in Chapel Hill, North Carolina. Such transaction is expected to close
on or before April 10, 1995. See Item 2, "Pending Hotel Acquisition" of this
Joint Annual Report.


                                       4
<PAGE>   8

         The Trust and the Corporation intend that the Operating Partnership
lease and operate all hotels owned by the Realty Partnership. Accordingly, the
Operating Partnership will seek to manage those hotels which are currently owned
by the Realty Partnership and operated on behalf of the Operating Partnership by
third-party management companies. The Operating Partnership generally intends
that the management contracts with such third-party operators will be terminated
and that all of such properties will be managed by the Operating Partnership by
the end of 1995.

                            PRIOR DEBT RESTRUCTURING

         Pursuant to a Credit Agreement dated as of January 28, 1993 (the "Prior
Credit Agreement"), the Trust restructured approximately $128 million of Senior
Debt as a term loan and revolving credit facility. The Senior Debt was assumed
by the Realty Partnership as of the Closing Date. The Prior Credit Agreement
required that the debt restructuring take place in three closings, the first two
of which were completed in 1993. At the first two closings, among other things,
the Trust and the Corporation granted liens and security interests on
substantially all of the assets of the Trust and the Corporation and the Trust
and the Corporation entered into a warrant agreement (the "Warrant Agreement")
pursuant to which the Trust and the Corporation were to have issued ten-year
warrants (the "Lender Warrants") to purchase a number of Paired Shares equal to
9.9% of the then outstanding Paired Shares, at an exercise price of $.625 per
Paired Share.

         On February 28, 1994, the Prior Credit Agreement was amended to, among
other things, collaterally assign to the lenders under the Prior Credit
Agreement liens and security interests on substantially all of the intercompany
leases between the Trust and the Corporation, and the Warrant Agreement was
amended to provide for the issuance at such time of Lender Warrants for the
aggregate of 1,333,143 Paired Shares at an exercise price of $.625 per Paired
Share.

         On August 31, 1994, one-third of the Lender Warrants were canceled as a
result of the Trust's cumulative principal payments in excess of $13,000,000.
The Trust and the holders of the Senior Debt agreed to successive extensions of
the maturity of the Senior Debt and of the date for the third closing under the
Prior Credit Agreement to May 31, 1995. At the third closing, among other
things, the Trust and the Corporation were to have merged.

         In connection with the New Credit Agreement, the remaining Lender
Warrants may be canceled upon the payment to a Starwood Partner of a $786,000
cancellation fee.

                             TAX STATUS OF THE TRUST

         The Trust intends to elect to be taxed as a REIT, commencing with its
taxable year ending December 31, 1995. The Trust was taxed as a REIT beginning
in 1969 through and including its taxable year ended December 31, 1990. During
1994, the Trust discovered that it may not have qualified as a REIT in 1991
through 1994 due to its failure to comply with certain procedural requirements
of the Code. The Trust requested and received a letter from the Internal Revenue
Service providing that the Trust's election to be taxed as a REIT terminated
beginning with the Trust's taxable year ended December 31, 1991 and permitting
the Trust to re-elect to be 


                                       5
<PAGE>   9


taxed as a REIT commencing with its taxable year ending December 31, 1995. 
Because the Trust had net losses for tax purposes for its 1991 through 1994 
taxable years, the Trust does not owe any federal income tax for such years.

                                OTHER INFORMATION

         For information as to the sale of hotel assets by the Trust and the
Corporation in 1994, see Item 2 of this Joint Annual Report.

         Seasonality; Competition. The hotel industry is seasonal in nature.
Generally, hotel revenues are greater in the second and third quarters than in
the first and fourth quarters. This seasonality can be expected to cause
quarterly fluctuations in the revenues of the Trust and the Corporation.

         The hotel industry is highly competitive. The properties of the Trust
and the Corporation compete with other hotel properties in their geographic
markets. Many of the competitors of the Trust and the Corporation may have
substantially greater marketing and financial resources than Starwood Lodging.

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

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

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



                                       6
<PAGE>   10

         A tank leak test conducted at the Bourbon Street Hotel in early 1992
revealed no evidence of leakage. A release of petroleum from an underground
storage tank at the Bay Valley Hotel and Resort was reported to the appropriate
state agency in 1992. After the tank and surrounding soils were removed,
additional soils and groundwater testing was performed, which revealed
environmental contamination in a localized area. Environmental testing has been
performed to identify the vertical and horizontal extent of the contamination
released from the tank. The consultant has proposed to remedy the contamination
through installation of a groundwater pump and treatment system to capture and
treat impacted groundwater and excavation of about 390 cubic yards of impacted
soil. Amendments to the relevant environmental clean-up laws, which have
recently been introduced in the Michigan Legislature, may reduce the extent or
magnitude of the clean-up that may be required at the site. The consultant's
recommendations were made upon the basis of existing law, and did not take into
account the proposed legislative amendments. After the Realty Partnership and
the Operating Partnership assess the impact of any amendments that may be
enacted to the relevant statutes, the Trust and the Corporation will perform
whatever remediation is required by law. Any further remediation costs that are
incurred may be reimbursed by a Michigan environmental fund, although there can
be no assurance that the fund will have sufficient resources to pay all claims
made against it. If the Realty Partnership and the Operating Partnership do not
receive reimbursement for future remediation costs, the Realty Partnership will
bear those costs.

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

         Neither the Trust, the Corporation, the Realty Partnership nor the
Operating Partnership has been identified by the U.S. Environmental Protection
Agency or any similar state agency as a responsible or potentially responsible
party for, nor have they been the subject of any governmental proceeding with
respect to, any hazardous waste contamination. If the Trust, the Corporation,
the Realty Partnership or the Operating Partnership were to be identified as a
responsible party, they would in most circumstances be strictly liable, jointly
and severally with other responsible parties, for environmental investigation
and clean-up costs incurred by the government and, to a more limited extent, by
private persons.

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

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


                                       7
<PAGE>   11


         Regulation and Licensing. The ownership and operation of the casino
gaming facilities of the Corporation in Nevada are subject to extensive
licensing and regulatory control by the Nevada Gaming Commission, the Nevada
Sate Gaming Control Board and the Clark County Liquor and Gaming Licensing
Board. See Item 2, "Regulation and Licensing" of this Joint Annual Report.

         Employees. As of December 31, 1994, the Trust had four employees and
the Corporation had 1,881 employees.

         The Trust's executive offices are located at 11845 West Olympic
Boulevard, Suite 550, Los Angeles, California 90064 (telephone (310) 575-3900)
and the Corporation's executive offices are located at 11845 West Olympic
Boulevard, Suite 560, Los Angeles, California 90064 (telephone (310) 575-3900).

         Financial information with respect to the two segments of the
hospitality industry (hotels and gaming) in which the Corporation operates is
included in Note 11 of the Notes to Financial Statements included in Item 8 of
this Joint Annual Report.

ITEM 2.  PROPERTIES.

         At December 31, 1994, the Trust owned and the Corporation operated and
managed, a portfolio of hotel assets, including fee, ground leasehold and first
mortgage interests. At such date, all but three of the Trust's fee and ground
leasehold hotels were leased to the Corporation or its subsidiaries pursuant 
to leases between the Trust and the Corporation (the "Intercompany Leases").

         As described in Item 1 of this Joint Annual Report, upon the closing of
the Reorganization, substantially all of the properties and assets of the Trust
were contributed to the Realty Partnership and substantially all of the
properties and assets of the Corporation and its subsidiaries (except for their
gaming assets, which are to be contributed upon approval by Nevada gaming
authorities) were contributed to the Operating Partnership.

         Accordingly, since the Reorganization the Trust has conducted all of
its business and operations through the Realty Partnership and the Corporation
has conducted all of its business and operations (other than its gaming
operations) through the Operating Partnership. As of March 27, 1995, the Trust
had an approximate 25.4% interest in the Realty Partnership and the Corporation
had an approximate 25.4% interest in the Operating Partnership.

         Set forth below is information as to the assets and properties of the
Trust prior to the Reorganization which (along with certain assets and
properties described herein) were contributed to the Realty Partnership pursuant
to the Reorganization and as to the assets and properties of the Corporation
prior to the Reorganization which (along with certain assets and properties
contributed by the Starwood Partners) were contributed to the Operating
Partnership pursuant to the Reorganization.


                                       8
<PAGE>   12

                      THE TRUST AND THE REALTY PARTNERSHIP

         Equity Investments. As of December 31, 1994, the Trust had equity
investments in twenty-four properties (including two hotel/casinos) containing a
total of approximately 4,137 guest rooms. As of that date, the Trust owned fee
interests in eighteen hotels and two hotel/casinos, and held five hotels
pursuant to long-term ground leases. The Trust also had a 5% equity interest in,
and was the general partner of, a limited partnership that owns the Omaha
Marriott Hotel which contains approximately 303 guestrooms. Of the hotels in
which the Trust has an equity interest, 15 operate under one of the following
nationally recognized names: Holiday Inn(R), Days Inn(R), Best Western(R),
Vagabond Inn(R), Marriott(R), Embassy Suites(R), Radisson Inn(R) and Residence
Inn(R).

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

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

         The following table sets forth the 1994, 1993 and 1992 average 
occupancy and room rates, and certain other information concerning the hotels 
owned by the Trust as of December 31, 1994 (which were subsequently 
contributed to the Realty Partnership at the closing of the Reorganization), 
and the hotels contributed to the Realty Partnership by the Starwood Partners 
at the closing of the Reorganization:

                                       9
<PAGE>   13

<TABLE>
<CAPTION>


                                                      Year Constructed/
       Property                                       Year Acquired (1)              Property Description
       --------                                       -----------------              --------------------



<S>                                                         <C>             <C>
Properties owned by the Trust as of December 31, 1994:

       ARIZONA

       Embassy Suites                                       1981/1983       227 suites, restaurant, lounge and
         Phoenix, Arizona                                                   meeting facilities

       Plaza Hotel                                          1971/1983       149 guest rooms, restaurant, lounge and
         Tucson, Arizona (2)                                                meeting facilities

       CALIFORNIA

       Vagabond Inn                                         1974/1974       102 guest rooms and restaurant
         Rosemead, California (3)

       Vagabond Inn                                         1975/1975       108 guest rooms and restaurant
         Sacramento, California (3)

       Vagabond Inn                                         1973/1973       101 guest rooms and restaurant
         Woodland Hills, California (3)

       FLORIDA

       Radisson Hotel                                       1974/1986       195 guest rooms, restaurant, lounge and
         Gainesville, Florida (4)                                           meeting facilities

       GEORGIA

       Holiday Inn                                          1989/1989       151 guest rooms, restaurant, lounge and
         Albany, Georgia (5)                                                meeting facilities
</TABLE>

<TABLE>
<CAPTION>


                                                                              Years Ended December 31,
                                                ------------------------------------------------------------------------------------
       Property                                 1994     1993     1992     1994      1993     1992       1994      1993       1992
       --------                                 ----     ----     ----     ----      ----     ----       ----      ----       ----
                                                   Average Occupancy              Average Room                  Revenue per
                                                         Rate                          Rate                    Available Room
                                                ----------------------     ------------------------     --------------------------
<S>                                             <C>       <C>      <C>     <C>       <C>       <C>       <C>       <C>       <C>
Properties owned by the Trust as of 
  December 31, 1994:

       ARIZONA

       Embassy Suites                             76%     72%     68%      $80.23    $74.04    $70.62    $60.63    $53.30     $48.02



         Phoenix, Arizona

       Plaza Hotel                                77%     74%     64%      $46.12    $45.05    $47.22    $35.58    $33.34     $30.22
         Tucson, Arizona (2)

       CALIFORNIA

       Vagabond Inn                               39%     44%     52%      $37.47    $38.14    $37.06    $14.54    $16.78     $19.27
         Rosemead, California (3)

       Vagabond Inn                               63%     60%     67%      $55.89    $52.18    $51.48    $34.93    $31.31     $34.49
         Sacramento, California (3)

       Vagabond Inn                               69%     61%     69%      $46.72    $43.70    $42.15    $32.24    $26.66     $29.08
         Woodland Hills, California (3)

       FLORIDA

       Radisson Hotel                             59%     62%     55%      $59.89    $56.63    $57.07    $35.57    $35.11     $31.39
         Gainesville, Florida (4)

       GEORGIA

       Holiday Inn                                79%      74%     74%     $56.06    $56.96    $54.99    $44.23    $42.15     $40.69
         Albany, Georgia (5)
</TABLE>

                                       10
<PAGE>   14

<TABLE>
<CAPTION>

                                           Year Constructed/
        Property                           Year Acquired (1)              Property Description
        --------                           -----------------              --------------------


        <S>                                    <C>             <C>
        Best Western Riverfront Inn            1971/1986       142 guest rooms, restaurant, lounge and
          Savannah, Georgia (5)                                meeting facilities

        MICHIGAN

        Bay Valley Hotel & Resort              1973/1984       151 guest rooms, restaurant, lounge and
          Bay City, Michigan                                   meeting facilities; 18-hole golf course
                                                               and tennis club

        NEBRASKA

        Omaha Marriott Hotel                   1982/1982       303 guest rooms, restaurant, lounge and
          Omaha, Nebraska (6)                                  meeting facilities

        NEVADA

        Bourbon Street                         1975/1988       150 guest rooms, restaurant, lounge and
          Las Vegas, Nevada                                    casino

        King 8 Hotel and Gambling Hall         1974/1988       300 guest rooms, restaurant, lounge and
          Las Vegas, Nevada                                    casino

        NEW MEXICO

        Best Western Airport Inn               1980/1984       120 guest rooms and leased restaurant
         Albuquerque, New Mexico (7)                           adjacent to property

        Best Western Mesilla Valley Inn        1974/1982       166 guest rooms, restaurant, lounge and
          Las Cruces, New Mexico                               meeting facilities
</TABLE>

<TABLE>
<CAPTION>
                                                                              Years Ended December 31,
                                                  --------------------------------------------------------------------------------
        Property                                  1994    1993    1992     1994      1993     1992      1994      1993      1992
        --------                                  ----    ----    ----     ----      ----     ----      ----      ----      ----
                                                   Average Occupancy             Average Room                  Revenue per
                                                         Rate                        Rate                    Available Room
                                                  --------------------     --------------------------    --------------------------
        <S>                                        <C>     <C>     <C>     <C>       <C>       <C>       <C>       <C>       <C>
        Best Western Riverfront Inn                57%     55%     55%     $47.27    $46.21    $43.40    $26.92    $25.42    $23.87
          Savannah, Georgia (5)

        MICHIGAN

        Bay Valley Hotel & Resort                   64%     52%    54%     $62.22    $66.39    $65.32    $39.54    $34.52    $35.27
          Bay City, Michigan


        NEBRASKA

        Omaha Marriott Hotel                        76%     76%    71%     $87.21    $82.56    $82.57    $66.45    $62.75    $58.62
          Omaha, Nebraska (6)

        NEVADA

        Bourbon Street                              90%      92%   86%     $32.08    $30.65    $30.24    $28.90    $28.20    $26.01
          Las Vegas, Nevada

        King 8 Hotel and Gambling Hall              82%      83%   75%     $31.66    $27.71    $25.23    $25.83    $23.00    $18.92
          Las Vegas, Nevada

        NEW MEXICO

        Best Western Airport Inn                    86%      80%   76%     $54.45    $52.38    $50.90    $47.02    $41.90    $38.68
         Albuquerque, New Mexico (7)

        Best Western Mesilla Valley Inn             71%      71%   58%     $42.74    $41.67    $40.40    $30.42    $29.59    $23.43
          Las Cruces, New Mexico
</TABLE>
                                       11
<PAGE>   15

<TABLE>
<CAPTION>


                                               Year Constructed/
        Property                               Year Acquired (1)              Property Description
        --------                               -----------------              --------------------




        <S>                                        <C>             <C>
        OHIO

        Best Western North                         1974/1992       180 guest rooms, restaurant, lounge and
          Columbus, Ohio (5)                                       meeting facilities and sports club

        OREGON

        Days Inn City Center                       1962/1984       173 guest rooms, restaurant, lounge and
          Portland, Oregon                                         meeting facilities

        Riverside Inn                              1964/1984       137 guest rooms, restaurant, lounge and
          Portland, Oregon                                         meeting facilities

        TEXAS

        Park Central Hotel                         1972/1972       445 guest rooms, restaurant, lounge and
          Dallas, Texas (8)                                        meeting facilities

        Best Western Airport Inn                   1974/1985       175 guest rooms and leased restaurant
          El Paso, Texas                                           adjacent to property

        VIRGINIA

        The Residence Inn                          1984/1984       96 suites with full kitchens and
          Tysons Corner, Virginia                                  fireplaces
</TABLE>
<TABLE>
<CAPTION>
                                                                     Years Ended December 31,
                                        --------------------------------------------------------------------------------------
        Property                        1994     1993    1992     1994       1993        1992     1994        1993      1992
        --------                        ----     ----    ----     ----       ----        ----     ----        ----      ----
                                          Average Occupancy              Average Room                     Revenue per
                                                 Rate                        Rate                        Available Room
                                         --------------------     ----------------------------     ----------------------------
        <S>                              <C>     <C>     <C>      <C>       <C>         <C>        <C>        <C>        <C>
        OHIO

        Best Western North                70%     66%     72%     $42.34     $42.12     $41.61     $29.76     $27.80     $29.96
          Columbus, Ohio (5)

        OREGON

        Days Inn City Center              71%      63%    60%     $53.12     $57.50     $60.31     $37.51     $36.23     $36.19
          Portland, Oregon

        Riverside Inn                     78%      79%    79%     $64.57     $63.76     $62.16     $50.40     $50.37     $49.11
          Portland, Oregon

        TEXAS

        Park Central Hotel                42%      63%    59%     $59.97     $62.52     $62.29     $25.38     $39.39     $36.75
          Dallas, Texas (8)

        Best Western Airport Inn          80%      70%    74%     $34.76     $35.56     $34.67     $27.96     $24.89     $25.66
          El Paso, Texas

        VIRGINIA

        The Residence Inn                 83%      78%    84%     $99.47     $102.87    $97.51     $82.54     $80.24     $81.91
          Tysons Corner, Virginia
</TABLE>

                                       12
<PAGE>   16

<TABLE>
<CAPTION>


                                                          Year Constructed/
        Property                                          Year Acquired (1)              Property Description
        --------                                          -----------------              --------------------




        <S>                                                   <C>             <C>
        WASHINGTON

        Days Inn Town Center                                  1957/1984       90 guest rooms, restaurant and lounge
          Seattle, Washington (9)

        Meany Tower Hotel                                     1932/1984       155 guest rooms, restaurant, lounge and
          Seattle, Washington                                                 meeting facilities, including ballroom

        Sixth Avenue Inn                                      1959/1984       166 guest rooms, restaurant, lounge and
          Seattle, Washington (10)                                            meeting facilities

        Tyee Motor Inn                                        1961/1987       155 guest rooms, restaurant, lounge and
          Tumwater, Washington                                                meeting facilities

 Properties contributed to the Realty Partnership by the
 Starwood Partners at the closing of the Reorganization:

        CALIFORNIA

        Doubletree Hotel                                      1988/1995       209 guest rooms, restaurant, lounge and
          Rancho Bernardo, California                                         meeting facilities

        DISTRICT OF COLUMBIA

        Capitol Hill Suites                                   1955/1995       152 guest rooms
          Washington, D.C.

        KANSAS

        Harvey Wichita                                        1974/1995       259 guest rooms, restaurant, lounge and
          Wichita, Kansas                                                     meeting facilities
</TABLE>

<TABLE>
<CAPTION>

                                                      -----------------------------------------------------------------------------
        Property                                      1994    1993   1992   1994      1993       1992     1994      1993      1992
        --------                                      ----    ----   ----   ----      ----       ----     ----      ----      ----
                                                       Average Occupancy           Average Room                  Revenue per
                                                             Rate                      Rate                    Available Room
                                                      -------------------   --------------------------    --------------------------
        <S>                                           <C>     <C>    <C>    <C>       <C>       <C>       <C>       <C>       <C>
        WASHINGTON

        Days Inn Town Center                          79%     75%    71%    $60.99    $60.71    $60.81    $48.41    $45.53    $43.18
          Seattle, Washington (9)

        Meany Tower Hotel                             71%     62%    59%    $70.40    $76.29    $81.04    $50.09    $47.30    $47.81
          Seattle, Washington

        Sixth Avenue Inn                              75%     62%    57%    $69.93    $72.20    $72.85    $52.49    $44.76    $41.52
          Seattle, Washington (10)

        Tyee Motor Inn                                57%     62%    67%    $60.63    $56.28    $54.78    $34.79    $34.89    $36.70
          Tumwater, Washington

 Properties contributed to the Realty Partnership by the
 Starwood Partners at the closing of the Reorganization:

        CALIFORNIA

        Doubletree Hotel                              66%     61%    60%    $65.68    $63.62    $63.77    $43.09    $38.20    $38.26
          Rancho Bernardo, California

        DISTRICT OF COLUMBIA

        Capitol Hill Suites                           64%      63%    53%   $91.93    $89.60    $84.93    $58.93    $56.71    $45.01
          Washington, D.C.

        KANSAS

        Harvey Wichita                                58%      59%    54%   $50.62    $43.92    $57.10    $29.20    $25.70    $30.83
          Wichita, Kansas
</TABLE>

                                       13
<PAGE>   17

<TABLE>
<CAPTION>



                                       Year Constructed/
Property                               Year Acquired (1)              Property Description
--------                               -----------------              --------------------




<S>                                        <C>             <C>
KENTUCKY

French Quarter Suites                      1989/1995       155 guest rooms, restaurant, lounge,
  Lexington, Kentucky                                      meeting facilities, retail and office space
</TABLE>


<TABLE>
<CAPTION>

                                                                   Years Ended December 31,
                                      -------------------------------------------------------------------------------------

Property                              1994   1993     1992     1994      1993       1992       1994       1993       1992
--------                              ----   ----     ----     ----      ----       ----       ----       ----       ----
                                        Average Occupancy            Average Room                   Revenue per
                                             Rate                        Rate                      Available Room
                                      --------------------    ----------------------------    ------------------------------
<S>                                   <C>     <C>     <C>      <C>       <C>        <C>       <C>         <C>       <C>
KENTUCKY

French Quarter Suites                 69%     72%     51%     $84.40     $81.64     $77.07     $58.57     $57.98     $39.31
  Lexington, Kentucky
</TABLE>


                                       14
<PAGE>   18

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

 (1)     "Year constructed" represents the calendar year in which construction
         of the property was completed; "Year acquired" represents the calendar
         year in which the Trust (or a predecessor) made its initial investment
         in the property.

 (2)     Property is held subject to ground leases expiring in (assuming that
         renewal options are exercised) 2019.

 (3)     Property is leased to Imperial Hotel Corporation.

 (4)     Property is managed by Landcom Hospitality Management, Inc. See "The
         Corporation and the Operating Partnership" below.

 (5)     Property is managed by Davidson Management Company. See "The
         Corporation and the Operating Partnership" below.

 (6)     The Trust is the general partner of, and owns a 5% equity interest in,
         the limited partnership which owns the property.

 (7)     Property is held subject to a ground lease expiring in 2029.

 (8)     Property is held subject to a ground lease expiring in September 2020
         and was managed by Marriott Corporation. The Marriott management
         agreement and the Marriott franchise agreement expired in March 1994.
         The property is managed by Sage Mountain View, Inc. and is operated as
         an independent hotel (the Park Central Hotel).

 (9)     Property is subject to a ground lease expiring in October 2007, which
         is terminable by the ground lessor after September 1, 1999 upon six
         months' notice under certain circumstances.

(10)     Property is subject to a ground lease expiring in September 2008, but
         that is terminable by the ground lessor after September 1, 1999 upon
         six months' notice under certain circumstances.

                  For information with respect to the six mortgage notes payable
that as of December 31, 1994 were secured by seven of the Trust's hotels, see
Note 7 of the Notes to Financial Statements included in Item 8 of this Joint
Annual Report. As part of the Reorganization, the Realty Partnership assumed
certain other mortgage notes payable, the terms of which are summarized as
follows:

         A $39,013,000 note issued in connection with the acquisition of the
         Harvey mortgage notes receivable under the terms of a Loan Agreement
         with a third party dated October 15, 1993. The note is nonrecourse and
         matures on January 31, 2003 and bears interest on a monthly basis at
         variable rates based on the London Interbank Offer Rate ("LIBOR")
         Eurodollar rate plus 3%.

         A $2,122,000 construction loan funded in 1994 and used to renovate the
         Harvey Wichita Hotel. The note bears interest at 7.5%. Principal and
         interest is payable monthly and the notes matures in 2000.

         In addition, as part of the Reorganization, the Realty Partnership
         assumed other mortgage notes payable in the aggregate principal amount
         of $17,750,000, which notes were refinanced with the proceeds of the
         Loan pursuant to the New Credit Agreement.

         Mortgage and Other Loans.

         As of December 31, 1994, the Trust held nine promissory notes executed
by third-party purchasers of its hotels, all of which are secured by mortgages
(including deeds of trust) on ten hotels. Eight of the notes ($13,915,000 in
aggregate principal amount at December 31, 1994) are secured by first mortgages;
one note ($234,000 in principal amount as of December 31, 1994) is secured by a
second mortgage. The notes have fixed interest rates that currently range from
8.0% 

                                       15
<PAGE>   19


to 11.0% per annum, and two of the notes also provide for contingent interest 
based on a percentage of the gross revenues of the property securing such notes.
The maturity dates of the notes range from 1996 to 2017.

         For additional information with respect to certain of the third-party
promissory notes and the two promissory notes issued to the Trust by a
partnership affiliated with the Corporation in connection with the Milwaukee
Marriott Hotel, see Notes 4 and 5 of Notes to Financial Statements included in
Item 8 of this Joint Annual Report.

         In December 1987, in connection with the Corporation's acquisition of
the leasehold interest in the Trust's two Atlanta, Georgia area hotels (since
sold) from an affiliated partnership, John F. Rothman, former president and
chief executive officer of the Trust and general partner of the partnership,
assumed certain obligations of such partnership, which obligations are evidenced
by an unsecured promissory note to the Trust in the principal amount of
$800,000. Interest on the outstanding principal amount of this note accrues
interest at an annual rate of 10% and is payable annually; the entire principal
amount of the note is due in December 1999.

         All of the mortgage notes described above were contributed by the Trust
to the Realty Partnership in connection with the Reorganization.

         As of the effective date of the Reorganization, the Starwood Partners
contributed to the Realty Partnership three mortgage notes from affiliated
third-party borrowers collateralized by three full service hotels (aggregating
1,230 rooms) in the Dallas, Texas area. Those mortgage notes, together with two
other mortgage notes contributed by the Starwood Partners to the Realty
Partnership, had cost bases and outstanding principal balances at December 31,
1994 as follows:

<TABLE>
<CAPTION>

                                                    Outstanding
                                                     Principal
                                                      Balance                Cost Basis           Reference
                                                    -----------             -----------           ----------
<S>                                                 <C>                     <C>                       <C>
COLLATERAL:
Harvey Hotel Addison ....................           $10,403,000              $7,226,000               (a)
Harvey Hotel Bristol ....................            16,645,000              11,550,000               (a)
Harvey Hotel DFW ........................            25,892,000              17,967,000               (a)
                                                    -----------             -----------               
                                                    $52,940,000             $36,743,000
OTHER MORTGAGE NOTES:
Atlantic City Quality Inn ...............           $11,411,000              $4,365,000               (b)
Seacaucus, New Jersey Ramada ............            12,458,000               7,752,000               (b)
                                                    -----------             -----------               
                                                    $76,809,000             $48,860,000
                                                    ===========             ===========
</TABLE>

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

(a)      Represents a first mortgage note bearing interest at 8% (which was
         purchased at a discount which reflects a 16.1% effective rate) payable
         quarterly in arrears. The mortgage note has a 15-year amortization
         period and a balloon payment at maturity. The mortgage notes mature on
         December 31, 2002 and are cross collateralized.

                                       16
<PAGE>   20


(b)      The mortgage notes bear interest at various rates (which were purchased
         at a discount which reflected a 19.1% aggregate effective rate) and are
         payable monthly in arrears, except that for the months of November 1994
         through April 1995, debt service for the Atlantic City Quality Inn is
         to accrue and be payable from excess cash flow. Commencing May 1, 1995
         fixed payments of debt service is to be required to be resumed. The
         mortgages mature between 1996 and 2010.

                  THE CORPORATION AND THE OPERATING PARTNERSHIP

                  At December 31, 1994, fifteen of the twenty hotel properties
leased by the Trust to the Corporation were operated directly by the
Corporation, and the remaining five were managed by three independent hotel
companies. After the Reorganization, fifteen of the twenty-four hotel properties
leased by the Realty Partnership to the Operating Partnership are operated
directly by the Operating Partnership, and the remaining nine are managed by
seven independent hotel management companies. The Operating Partnership, the
general partner of the partnership that owns the Milwaukee Marriott, also
operates the Milwaukee Marriott.

                  The following table sets forth the 1994, 1993 and 1992
average occupancy and room rates, and certain other information concerning the
hotel owned by the Corporation (the Milwaukee Marriott Hotel) as of 
December 31, 1994.
<TABLE>
<CAPTION>
                          Year Constructed/
Property                    Year Acquired                     Property Description
--------                  -----------------                   --------------------
<S>                          <C>                      <C>
Milwaukee Marriott,          1972/1990                393 guest rooms, restaurant, lounge
   Milwaukee, WI                                      and meeting facilities
</TABLE>

<TABLE>
<CAPTION>

                                                                    Years Ended December 31,
                                         ------------------------------------------------------------------------------
Property                                 1994      1993     1992     1994     1993     1992     1994     1993     1992
--------                                 ----      ----     ----     ----     ----     ----     ----     ----     ----
                                            Average Occupancy              Average Room               Revenue per
                                                  Rate                         Rate                 Available Room
                                          ----------------------      ---------------------      ----------------------
<S>                                       <C>      <C>       <C>     <C>      <C>      <C>      <C>      <C>      <C>
Milwaukee Marriott,                       70%      55%       58%     $67.91   $71.99   $69.63   $47.54   $39.39   $40.39
  Milwaukee, WI
</TABLE>

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

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

                  For their services in managing the hotels, each third party
management company receives a management fee that equals a specified percentage
(generally 2% - 2-1/2%) of the gross revenues of the managed hotel, plus
additional incentive fees based upon the hotel's operating profits. Two
management agreements may be terminated upon 30 days notice; two management
agreements expire in December 1995; and the third expires in October 1996. The
agreements expiring in 1995 and 1996 may be canceled by the Operating
Partnership prior to expiration if, among other things, the managed hotel is
sold or fails to make a specified operating profit.

                  The four management agreements relating to the properties
contributed by the Starwood Partners will expire in February 1995, December
1998, April 1999 and January 2003. The management agreement expiring in 1998 and
1999 can be terminated upon sixty days notice.

                  Franchise Agreements. All but nine of the hotel properties are
currently operated pursuant to franchise or license agreements ("Franchise
Agreements"). The Franchise Agreements generally require the payment of a
monthly royalty fee based on gross sales and various other marketing fees
associated with certain marketing or advertising and centralized reservation
service funds, usually based on gross sales. Such fees may vary between
individual 


                                       17
<PAGE>   21

hotels within a franchise system based on the type of marks, restaurants or 
other aspects of the franchise system used.

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

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

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

Certain Property Sales and Other Transactions

                  During the year ended December 31, 1994, the Trust and the
Corporation sold their interests in the following five hotel assets:

                  Best Western South-Austin, Texas. In April 1994, the Best
Western South Hotel in Austin, Texas was sold pursuant to eminent domain
proceedings for $3,594,000 in cash.

                  Holiday Inn-Brunswick, Georgia and Sheraton Inn-New Port
Richey, Florida. In August 1994, the Holiday Inn located in Brunswick, Georgia,
and the Sheraton Inn located in New Port Richey, Florida were sold for
$4,306,000, consisting of cash proceeds of $1,236,000 and the balance by
delivery to the Trust of a $3,070,000 promissory note, secured by a first
mortgage on the hotels. The principal balance of the note bears interest at an
annual rate of 8% during the first twelve months and at a 9.25% annual rate
thereafter; principal and interest are payable monthly based upon a 25-year
amortization schedule, with all unpaid principal and interest due in 2001.

                  Holiday Inn-Jacksonville, Florida. In November 1994, the
Holiday Inn located in Jacksonville, Florida was sold for $3,200,000 consisting
of cash proceeds of $900,000 and the balance by delivery to the Trust of a
$2,300,000 promissory note, secured by a first mortgage on the hotel. The
principal balance of the note bears interest at an annual rate of 9%; principal
and 


                                       18
<PAGE>   22

interest are payable in equal monthly installments based upon a 30-year
amortization schedule, with all unpaid principal and interest due in 2001.

                  Ramada Inn-Fayetteville, North Carolina. In November 1994, the
Ramada Inn located in Fayetteville, North Carolina was sold for $1,000,000,
consisting of cash proceeds of $200,000 and the balance by delivery to the Trust
of a $800,000 promissory note, secured by a first mortgage on the hotel. The
principal balance of the note bears interest at an annual rate of 9%; principal
and interest are payable in equal monthly installments based upon a 12-year
amortization schedule, with all unpaid principal and interest due in 2006.

Mortgage Notes Payable Maturing During 1995

                  As of December 31, 1994, two mortgage notes payable secured by
three of the hotels owned by the Trust were scheduled to mature during 1995. The
amount outstanding under the notes was $5,930,000 at December 31, 1994 and the
net book value of the properties securing the two notes was $17,004,000 at
December 31, 1994. One of the notes, in the principal amount of $4,075,000 was
paid in full by the Trust in January 1995. Management of the Trust is currently
negotiating the refinancing of the remaining note.

Marriott Park Central Hotel

                  At December 31, 1993, the Marriott Park Central Hotel was
managed by Marriott Corporation. In March 1994, the Marriott's management
agreement and the Marriott franchise agreement expired. The property is now
managed by Sage Mountain View, Inc. and is now operated as an independent hotel
(the Park Central Hotel).

Hotel Acquisition

                  Subsequent to December 31, 1994 the Realty Partnership entered
into a purchase commitment for the Omni Hotel, a 172-room full service hotel
located in Chapel Hill, North Carolina for $10.5 million. Upon closing of the
purchase, the Realty Partnership will lease the property to the Operating
Partnership and the Operating Partnership will operate the hotel.

Regulation and Licensing

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

                  The gaming laws, regulations and supervisory procedures of
Nevada seek to (i) prevent unsavory or unsuitable persons from having any direct
or indirect involvement with gaming at any time or in any capacity; (ii)
establish and maintain responsible accounting practices and procedures; (iii)
maintain effective control over the financial practices of licensees, including
establishing minimum procedures for internal fiscal affairs and the safeguarding
of assets and 


                                       19
<PAGE>   23

revenues, providing reliable record keeping and making periodic reports to the 
Nevada Gaming Authorities; (iv) prevent cheating and fraudulent practices; and 
(v) provide a source of state and local revenues through taxation and licensing 
fees. Changes in these laws, regulations and procedures could have an adverse 
effect on the Corporation's gaming operations.

                  The Corporation is registered with the Nevada Commission as a
publicly traded corporation and has been found suitable as a holding company by
the Nevada Gaming Authorities to own all of the outstanding capital stock of
Hotel Investors Corporation of Nevada, Inc. ("HICN"). HICN which operates two
hotel/casinos, the King 8 Hotel, Gambling Hall & Truck Plaza (the "King 8") and
the Bourbon Street Hotel & Casino ("Bourbon Street") must be licensed by the
Nevada Gaming Authorities. The Corporation and HICN have obtained from the
Nevada Gaming Authorities the various registrations, approvals, permits and
licenses required in order to engage in gaming activities in Nevada. The Trust
was likewise found suitable by the Nevada Gaming Authorities to be the landlord
of the King 8 and Bourbon Street. No person may become a stockholder of, or
receive any percentage of profits from, HICN without first obtaining licenses
and approvals from the Nevada Gaming Authorities. Prior approval of the Nevada
Commission is required for the sale, assignment, transfer, pledge or other
disposition of any security issued by HICN.

                  The licenses and approvals held by HICN are not transferable
and must be renewed periodically upon the payment of appropriate taxes and
license fees. The licensing authorities have broad discretion with regard to the
renewal of the licenses. The issuing agency may at any time revoke, suspend,
condition, limit or restrict a license or approval to own stock in a corporate
licensee for any cause deemed reasonable by the issuing agency. Substantial
fines for each violation of gaming laws or regulations may be levied against
HICN, the Corporation and the individuals involved. A violation under any one of
the licenses held by HICN may be deemed a violation of one or more other
licenses or approvals held by HICN. If HICN's licenses are revoked or suspended
or are not renewed, the Nevada Commission may petition a Nevada district court
to appoint a supervisor to operate the affected property until it is sold. When
sold, the net proceeds would be paid to the Trust. The Trust could, however,
under certain circumstances, receive only the reasonable rental value of any
property earnings under the supervisor's management with any excess in earnings
over the reasonable rental value of the property being forfeited to the State of
Nevada. Suspension or revocation of the license of HICN, disapproval of the
Corporation to own the stock of HICN or court appointment of a supervisor over
operations of the King 8 or Bourbon Street would have a material adverse effect
upon the Trust and the Corporation.

                  Directors, officers and certain key employees of HICN must
file license applications with the Nevada Gaming Authorities. Certain officers,
directors and key employees of HICN are licensed by the Nevada Gaming
Authorities, and any required license applications of the remaining officers,
directors or key employees have been filed with the Nevada Board. An application
for licensing may be denied for any cause deemed reasonable by the issuing
agency. Changes in corporate management or executive positions must be reported
to the Nevada Gaming Authorities. In addition to its authority to deny an
application for a license, the Nevada Commission has jurisdiction to disapprove
a change in a management or executive position with a regulated corporation. If
the Nevada Gaming Authorities were to find a director, officer or key employee
unsuitable for relicensing or unsuitable to continue having a relationship with
HICN or 


                                       20
<PAGE>   24

the Corporation, the Corporation and HICN would have to sever all
relationships with that person. The Corporation and HICN would have similar
obligations with regard to any person who refused to file appropriate
applications. Determinations of suitability or of questions pertaining to
licensing are not subject to judicial review in Nevada. Each gaming employee
must obtain, and periodically renew, a work permit, which may be revoked upon
the occurrence of certain specified events.

                  HICN periodically must submit detailed financial and operating
reports to the Nevada Commission, which are subject to routine audit by the
Nevada Board. Substantially all loans, leases, sales of securities and similar
financing transactions entered into by HICN must be reported to or approved by
the Nevada Commission. The fiscal stability of HICN must be adequate to satisfy
gaming financial obligations such as state and local government taxes and fees,
and the payment of winning wagers to patrons. Failure to satisfy these gaming
financial obligations is grounds for the Nevada Gaming Authorities to limit,
condition, restrict, suspend or revoke the gaming licenses and approvals of HICN
and the registration and approvals of the Corporation, or to impose
administrative fines against HICN or the Corporation.

                  As a registered publicly traded holding company found suitable
as the sole stockholder of HICN, the Corporation is required periodically to
submit detailed financial and operating reports to the Nevada Commission and to
furnish any other information that the Nevada Commission or Nevada Board may
require. The Corporation's directors, officers and key employees who are
actively and directly engaged in the administration or supervision of gaming are
subject to licensing and findings of suitability by the Nevada Commission.
Certain of the Corporation's officers and directors have been licensed by the
Nevada Commission. The finding of suitability is comparable to licensing, and
both require submission of detailed personal background and personal financial
information followed by a thorough investigation, and payment by the applicant
of all investigative costs and charges. Any individual who is found to have a
material relationship to or material involvement with the Corporation also may
be required to be found suitable or be licensed and may be investigated. Key
employees, controlling persons or others who exercise significant influence upon
the management or affairs of the Corporation, or are actively engaged in the
administration or supervision of gaming activities, may be deemed to have this
type of a relationship or involvement.

                  Any beneficial holder of the Corporation's voting securities,
regardless of the number of shares owned, may be required to file an
application, be investigated, and have his suitability as a beneficial holder of
the Corporation's voting securities determined if the Nevada Commission has
reason to believe that such ownership would otherwise be inconsistent with the
declared policies of the state of Nevada. The applicant must pay all costs of
investigation incurred by the Nevada Gaming Authorities in conducting any such
investigation.

                  Any person who acquires more than 5% of any class of voting
securities of the Corporation must report the acquisition to the Nevada
Commission. Beneficial owners of more than 10% of any class of the Corporation's
voting securities must apply to be found suitable by the Nevada Commission
within thirty days after the Chairman of the Nevada Board mails the written
notice requiring such filing, and any beneficial owner of the Corporation's
voting securities, whether or not such person is a controlling stockholder, may
be required to be found suitable if the Nevada Commission has reason to believe
that such ownership would be inconsistent with the 


                                       21
<PAGE>   25

declared policy of the state of Nevada that licensed gaming be conducted 
honestly and competitively and that the gaming industry be free from criminal 
and corruptive elements.

                  An "institutional investor" (as defined by the Regulations of
the Nevada Commission) holding at least 10%, and in certain circumstances up to
15%, of the voting securities of the Corporation may apply for and hold a waiver
of the mandatory suitability determination requirement prescribed by the Nevada
Gaming Control Act. To qualify as an "institutional investor," a person or
entity must satisfy one of several alternative criteria under the federal
Securities Exchange Act of 1934, the Investment Company Act of 1940, or state
and federal pension and retirement laws, as well as acquire and hold the voting
securities for investment purposes in the ordinary course of business and not
for the purpose of effecting any change of control in or the management or
policies of the registered holding company or its gaming affiliates. Activities
which are not deemed to be inconsistent with holding voting securities for
investment purposes only include: (i) voting on all matters voted on by
stockholders; (ii) making financial and other inquiries of management of the
type normally made by securities analysts for informational purposes and not to
cause a change in its management, policies or operations; and (iii) such other
activities as the Nevada Commission may determine to be consistent with such
investment intent.

                  A change in investment intent of an institutional investor
must be reported to the Chairman of the Nevada Board within two business days of
such change of intent. The Chairman of the Nevada Board may require an
institutional investor to apply for a finding of suitability upon receipt of
notice of change in investment intent, or at any time deemed necessary to
protect the public interest. An aggrieved institutional investor may apply for
Nevada Commission review of the decision of the Chairman of the Nevada Board
ordering the filing of a suitability determination application. The Corporation
or HICN must promptly report to the Nevada Commission any information that
materially affects the institutional investor's eligibility to hold a waiver.

                  If the stockholder who must be found suitable is a
corporation, partnership or trust, that stockholder must submit detailed
business and financial information including a list of beneficial owners. In
addition, the Clark County Board has taken the position that it has the
authority to approve all persons owning or controlling more than two percent of
the stock of a gaming licensee or of any corporation controlling a gaming
licensee. The applicant is required to pay all costs of investigation.

                  Any stockholder found unsuitable by the Nevada Commission who
directly or indirectly holds any beneficial or ownership interest in the
Corporation's Common Stock beyond whatever period of time may be prescribed by
the Nevada Commission may be guilty of a criminal offense. Any person who fails
or refuses to apply for a finding of suitability or a license within 30 days
after being ordered to do so by the Nevada Commission or Chairman of the Nevada
Board may be found unsuitable. The same restrictions that apply to a
securityholder who is found unsuitable may be held to apply to a beneficial
owner of the Corporation's securities if the record owner, after request, fails
to identify the beneficial owner. The Corporation is subject to disciplinary
action if, after receiving notice that a person is unsuitable to be a
stockholder or to have any other relations with the Corporation or its gaming
subsidiaries, the Corporation (i) pays the unsuitable person any dividend or
interest upon any voting securities of the Corporation or makes any other
unpermitted payment or distribution of any kind whatsoever; (ii) recognizes the


                                       22
<PAGE>   26

exercise, directly or indirectly, of any voting rights in the Corporation's
securities by the unsuitable person; (iii) pays the unsuitable person any
remuneration in any form for services rendered or otherwise, except in certain
limited and specific circumstances; or (iv) fails to pursue all lawful efforts
to require the unsuitable person to divest himself of his voting securities,
including, if necessary, the immediate purchase by the Corporation of the voting
securities for cash at fair market value. In addition, Nevada law requires that
any holder or owner of a voting security who is found unsuitable by the Nevada
Commission immediately offer those securities to the Corporation for purchase,
which securities would be purchased by the Corporation for cash at fair market
value within 10 days from the date the securities are offered.

                  The Nevada Commission may, in its discretion, require the
holder of any debt security of a corporation registered under the Nevada Gaming
Control Act to file applications, be investigated and be found suitable to own
the debt security of a registered corporation. If the Nevada Commission
determines that a person is unsuitable to own such debt security, then pursuant
to the Regulations of the Nevada Commission, the registered corporation can be
sanctioned, including the loss of its approvals, if without the prior approval
of the Nevada Commission it (i) pays to the unsuitable person any dividend,
interest or other distribution whatsoever; (ii) recognizes any voting right of
such unsuitable person in connection with such securities; (iii) pays the
unsuitable person remuneration in any form; or (iv) makes any payment to the
unsuitable person by way of principal, redemption, conversion, exchange,
liquidation, or similar transaction.

                  The Corporation is required to maintain a current and
comprehensive stock ledger in the state of Nevada, which ledger may be examined
by the Nevada Gaming Authorities at all reasonable times, but without notice. If
any securities are held in trust, by an agent or by a nominee, the owner of
record of those securities may be required to disclose the identity of the
beneficial owner to the Nevada Gaming Authorities. A failure to make this
disclosure may be grounds for finding the owner of record unsuitable. The
Corporation must render maximum assistance to the Nevada Gaming Authorities in
determining the identity of the beneficial owner.

                  The Nevada Commission has the power at any time to require
that the Corporation's stock certificates bear a legend to the general effect
that the securities of the Corporation are subject to the Nevada Gaming Control
Act and the regulations of the Nevada Commission. However, to date, the Nevada
Commission has not imposed such a requirement on the Corporation. The Clark
County Board also claims jurisdiction to approve or disapprove holders of the
Corporation's securities. The Nevada Gaming Authorities, through the power to
regulate licensees and otherwise by Nevada law, have the power to impose
additional restrictions on the holders of the Corporation's securities at any
time.

                  The Regulations of the Nevada Commission provide that changes
in the control of the Corporation or HICN through a merger, consolidation,
acquisition of assets, management or consulting agreements or any form of
takeover cannot occur without the prior approval of the Nevada Commission.
Entities seeking to acquire control of the Corporation must satisfy the Nevada
Board and Nevada Commission in a variety of stringent standards prior to
assuming control of the Corporation. The Nevada Commission may also require
controlling stockholders, officers, directors and other persons having a
material relationship or involvement with the entity 


                                       23
<PAGE>   27

proposing to acquire control, to be investigated and licensed as part of the 
approval process relating to the transaction.

                  The Nevada Legislature has declared that some corporate
acquisitions opposed by management, repurchases of securities and corporate
defense tactics affecting corporate gaming licensees in Nevada, and publicly
traded corporations affiliated with those licensees may be injurious to stable
and productive corporate gaming operations. The Nevada Commission has
established a regulatory scheme to ameliorate the potential adverse effects of
these business practices upon Nevada's gaming industry and to advance Nevada's
policy to (i) assure the financial stability of corporate gaming operators and
their affiliates; (ii) preserve the beneficial aspects of conducting business in
the corporate form; and (iii) promote a neutral environment for the orderly
governance of corporate affairs. Approvals may be required from the Nevada
Commission before the Corporation may make exceptional repurchases of securities
above current market price (commonly referred to as "greenmail"), and before a
corporate acquisition opposed by management can be consummated. Nevada's gaming
regulations also require prior approval of the Nevada Commission in the event of
a Corporation plan of recapitalization proposed by the board of directors in
opposition to a tender offer made directly to shareholders for the purpose of
acquiring control of the Corporation.

                  Nevada law prohibits the Corporation from making a public
offering of its securities without the approval of the Nevada Commission if any
part of the proceeds of the offering is to be used to finance the construction,
acquisition or operation of gaming facilities in Nevada, or to retire or extend
obligations incurred for one or more such purposes. Approval of the public
offering will not constitute a finding by the Nevada Commission as to the
accuracy, adequacy or investment merit of the securities offered to the public.
Any representation to the contrary is unlawful.

                  The gaming regulatory requirements discussed above apply to
certain aspects of the Reorganization. The contribution by HICN of the Gaming
Assets (and the transfer of certain liabilities to be retained by HICN) to the
Operating Partnership will occur on receipt of certain licenses or approvals by
the Nevada Gaming Authorities. Likewise, the December 15, 1994, election of the
new Board of Directors of the Corporation will be effective upon receipt of
certain licenses or approvals by the Nevada Commission. In conjunction with
applying for and obtaining such licenses and approvals, the Corporation has
developed various policies and procedures subject to review, approval and
oversight by the Nevada Board. The purpose of these corporate policies and
procedures is to ensure compliance with the regulatory requirement that prior
approval of the Nevada Commission is obtained for any transaction that would
result in either Starwood Capital or Starwood Partners acquiring control of the
Corporation or its Nevada gaming operations. The Corporation expects that these
policies and procedures will be eliminated upon receipt of certain licenses and
approvals from the Nevada Commission. If the required licenses or approvals of
the Nevada Gaming Authorities are not received on or before December 31, 1995,
then on such date HICN has agreed to contribute to the Operating Partnership
cash equal to the fair value of the Gaming Assets on such date.

                  License fees and taxes, computed in various ways depending on
the type of gaming involved, are payable to the State of Nevada and to the
County of Clark where HICN's gaming operations are conducted. Depending upon the
particular fee or tax involved, these assessments 


                                       24
<PAGE>   28

are payable either monthly, quarterly, or annually and are based upon either 
(i) a percentage of the gross gaming revenues received by the casino operations;
(ii) the number of slot machines or other gaming devices operated by the casino;
or (iii) the number of table games operated by the casino. A casino 
entertainment tax is also paid by the licensees where entertainment is furnished
in connection with the selling of food or refreshments.

                  The sale of alcoholic beverages by HICN is subject to
licensing, control and regulation by the Clark County Board. Such liquor
licenses are revocable and are not transferable. The Clark County Board has full
power to limit, condition, suspend or revoke any liquor license, and any
disciplinary action of this nature or license revocation would have a material
adverse effect on HICN's gaming operations.

ITEM 3.  LEGAL PROCEEDINGS.

                  During the year ended December 31, 1994, the Trust and the
Corporation reached settlement agreements with respect to two purported class
action complaints and one complaint which was purportedly brought on behalf of
the Trust and the Corporation (collectively, the "Shareholder Actions"). The
Shareholder Actions were brought in 1991 and 1992 in each case in connection
with the Trust's purchase of its two hotel/casinos and the Ramada Inn in Indian
Wells, California.

                  The two purported class actions were filed in the United
States District Court for the Southern District of California in August 1991 and
February 1992 against the Trust, the Corporation and certain current and former
officers, Directors and Trustees. The complaint alleged fraud, violations of
federal and California securities laws, the federal Racketeer Influenced and
Corrupt Organizations Act and ERISA. The actions sought compensatory damages,
rescission and/or treble and exemplary damages plus interest, costs and
attorney's fees and statutory damages under ERISA. The third action was filed in
the Superior Court for the State of California for San Diego County in March
1992 against current and former officers, Directors and Trustees and alleged
breach of fiduciary duty, gross negligence and corporate waste. The action
sought compensatory damages, certain remuneration and costs.

                  The plaintiffs and defendants in the Shareholder Actions
entered into stipulations of settlement providing for the release of all claims
that were or might have been made in the Shareholder Actions and provided for a
$3,250,000 cash settlement fund which, after payment of fees and expenses of
plaintiffs' counsel, will be distributed to the certified plaintiff classes. The
Trust and the Corporation will pay $400,000 into the settlement fund, with the
balance of the settlement being paid by the insurance company that issued the
directors and officers policy applicable to the period to which the Shareholder
Actions relate and by two former officers and Trustees of the Trust. The Trust
and the Corporation have also agreed to pay the legal fees and other costs
incurred prior to October 12, 1993 by the defendants in the Shareholder Actions.
Holders of an aggregate of 1,199,000 Paired Shares opted out of the settlement.

         The stipulation requires that the Trust's Board of Trustees and the
Corporation's Board of Directors establish a joint transaction committee of
independent Trustees and Directors to make recommendations to those Boards with
respect to any transaction proposed in the future by management and having a
fair market value of $20 million or more.


                                       25
<PAGE>   29


         In connection with the settlement of the Shareholder Actions, Messrs.
Young and Rothman and certain of their affiliated partnerships terminated the
management agreements that existed between those partnerships and the
Corporation's subsidiary, Western Host, Inc. (the "Management Contracts"), and
Western Host has agreed not to dispute such action and has withdrawn as a
general partner of two additional affiliated partnerships. In satisfaction of
any damages that the Trust and the Corporation may incur as a result of the
termination of the Management Contracts, Messrs. Rothman and Young have provided
to the Trust and the Corporation an irrevocable letter of credit having a
one-year term in the amount of $800,000.

         Upon final court approval of the settlement of the Shareholder Actions,
the proceeds from the letter of credit would be paid to the Trust and the
Corporation, and the parties to the Management Contracts, Messrs. Rothman and
Young and the Trust and the Corporation will release all of their respective
claims related to the termination of the Management Contracts.

         Mr. Leonard Ross and his affiliates (collectively "Ross"), who as of
December 31, 1994 held approximately 9.8% of the outstanding Paired Shares of
the Trust and Corporation, opted out of the settlement of the Shareholder
Actions. Ross threatened to bring a separate action alleging similar causes of
action as those alleged in the Shareholder Actions as well as other alleged
causes of action. Ross has assigned to Starwood Capital all of his claims
against the Trust and Corporation. Starwood Capital has agreed to purchase all
of Ross's Paired Shares at Ross's election during a 60-day period beginning in
December 1995, at a price of $5.625 per Paired Share. Starwood Capital may also
elect to purchase Ross's Paired Shares at the same time and on the same terms.
Starwood Capital, as the assignee of Ross's claims against the Trust and the
Corporation, has agreed that the maximum amount Starwood Capital may recover
under such claims will not exceed an aggregate of $1.8 million and the Trust and
the Corporation have agreed to toll the statute of limitations respecting such
claims until January 31, 1996. The Trust and Corporation have also agreed that
under certain circumstances they may be obligated severally to indemnify
Starwood Capital with respect to Starwood Capital's obligations to Ross, up to a
maximum of $1.8 million, upon receipt of a full release from Starwood Capital of
all of the claims assigned by Ross.

ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.

                  On December 15, 1994, the Trust held a special meeting of
shareholders of the Trust (the "Trust Meeting") and the Corporation held a
special meeting of stockholders of the Corporation (the "Corporation Meeting")
to, among other things, approve the Reorganization and to elect new Boards of
the Trust and the Corporation.

                  At the Trust Meeting, shareholders of the Trust voted upon and
approved (i) the Reorganization, (ii) the creation of a classified Board of
Trustees, (iii) the elimination of the cumulative voting provisions of the
Declaration of Trust of the Trust, (iv) the election as Trustees of the Trust of
the following nominees: Mr. Madison F. Grose, Mr. Earle F. Jones, Mr. Jeffrey C.
Lapin, Mr. Jonathan Eilian and Mr. Barry S. Sternlicht and (v) the ratification
of Deloitte & Touche LLP as the independent public accountants of the Trust for
the Trust's 1994 fiscal year.



                                       26
<PAGE>   30

                  The following sets forth, with respect to each matter voted
upon at the Trust Meeting, the number of votes cast for, the number of votes
cast against, and the number of votes abstaining (or, with respect to the
election of Trustees, the number of votes withheld) with respect to the such
matter:

<TABLE>
<CAPTION>
                                            Votes                 Votes                                      Votes
                                             For                 Against           Abstentions             Withheld
                                          ----------            ---------          -----------             --------
<S>                                       <C>                   <C>                    <C>                  <C>  
Approval of
   Reorganization                          8,526,145               71,544               28,003                    0
Creation of Classified
   Board                                   7,851,616              236,667              531,505                    0
Elimination of
   Cumulative Voting                       6,744,845            1,321,667              553,076                    0
Election of Trustees:
   Madison F. Grose                       10,977,824                    0                    0              107,111
   Earle F. Jones                         10,978,374                    0                    0              106,561
   Jeffrey C. Lapin                       10,978,524                    0                    0              106,411
   Jonathan Eilian                        10,977,324                    0                    0              107,611
   Barry S. Sternlicht                    10,977,324                    0                    0              107,611
Ratification of
   Accountants                            10,928,974               67,619               36,862                    0
</TABLE>

                  There were no broker non-votes with respect to any such 
matter.

                  At the Corporation Meeting, stockholders of the Corporation
voted upon and approved (i) the Reorganization, (ii) the creation of a
classified Board of Directors, (iii) the removal of Directors only for cause,
(iv) the elimination of the cumulative voting provisions of the Articles of
Incorporation of the Corporation, (v) the election as Directors of the
Corporation of the following nominees: Mr. Bruce M. Ford, Mr. Steven Robert
Goldman and Mr. Barry S. Sternlicht (such Directors to take office upon receipt
of Gaming Approvals), and (vi) the ratification of Deloitte & Touche LLP as the
independent public accountants for the Corporation's 1994 fiscal year.

                  The following sets forth, with respect to each matter voted
upon at the Corporation Meeting, the number of votes cast for, the number of
votes cast against, and the number of votes abstaining (or, with respect to the
election of Directors, the number of votes withheld) with respect to such
matter:

                                       27
<PAGE>   31

<TABLE>
<CAPTION>

                                            Votes                Votes                                       Votes
                                             For                Against            Abstentions             Withheld
                                          ----------           ----------          -----------             --------
<S>                                       <C>                   <C>                    <C>                   <C>
Approval of
   Reorganization                          8,497,026               94,136               36,594                    0
Creation of Classified
   Board                                   7,835,418              239,775              543,606                    0
Removal of Directors
   Only for Cause                          8,126,923              411,531               82,345                    0
Elimination of
   Cumulative Voting                       6,731,734            1,331,753              555,248                    0
Election of Directors:
   Bruce M. Ford                          11,008,173                    0                    0               76,762
   Steve Robert Goldman                   11,008,173                    0                    0               76,762
   Barry S. Sternlicht                    11,006,973                    0                    0               77,962
Ratification of
   Accountants                            10,984,196               43,642               56,031                    0
</TABLE>

                  There were no broker non-votes with respect to any such
matter.

                                     PART II

ITEM 5.           MARKET FOR REGISTRANTS' COMMON EQUITY AND RELATED STOCKHOLDER 
                  MATTERS.

Market Information

                  The Paired Shares are traded principally on the New York Stock
Exchange (the "NYSE") under the symbol "HOT".

                  The following table sets forth, for the fiscal periods
indicated, the high and low sales prices per Paired Share on the NYSE Composite
Tape.

<TABLE>
<CAPTION>

1994                                                      High                      Low
----                                                      -----                   ------
<S>                                                       <C>                     <C>
First quarter......................................       $2.50                   $1.875
Second quarter.....................................       $3.00                   $1.625
Third quarter......................................       $3.375                  $2.875
Fourth quarter.....................................       $3.375                  $2.625

1993
----
First quarter......................................       $1.75                   $1.00
Second quarter.....................................       $2.50                   $1.25
Third quarter......................................       $3.125                  $1.625
Fourth quarter.....................................       $3.375                  $2.00
</TABLE>


                                       28
<PAGE>   32

Holders

                  As of March 24, 1995, there were approximately 2,089 holders
of record of Paired Shares.

Distributions

                  No distributions were made by the Trust during 1994 or 1993.
The Prior Credit Agreement prohibited the Trust from making distributions to its
shareholders. The Corporation has not paid any cash dividend since its
organization. Under the terms of the New Credit Agreement, the Realty
Partnership and the Operating Partnership are generally permitted to distribute
to their partners on an annual basis an amount equal to the greatest of (1) 30%
of the combined net income of the Realty Partnership and the Operating
Partnership; (2) for the Realty Partnership only, an amount such that the
Trust's proportionate share would be sufficient for the Trust to make
distributions to its shareholders sufficient to maintain the Trust's tax status
as a real estate investment trust; (3) 85% of the sum of (i) the combined
taxable income of the partnerships plus (ii) an amount equal to the aggregate of
all depreciation deducted in determining combined taxable income; or (4)
$3,000,000, unless as a result of such distribution an event of default under
the New Credit Agreement would occur. Amounts distributed to the Trust or the
Corporation pursuant to the foregoing are generally permitted to be distributed
to their shareholders.



                                       29
<PAGE>   33


ITEM 6            SELECTED FINANCIAL DATA.

                  The following data sets forth certain financial information
for the Trust, the Corporation, and the Trust and the Corporation on a combined
basis. This information is based on and should be read in conjunction with the
financial statements and the notes thereto appearing elsewhere in this Joint
Annual Report.

<TABLE>
<CAPTION>

 (in thousands, except per share amounts)

                                                                                             December 31,
                                                                  -----------------------------------------------------------------
                                                                     1994          1993          1992          1991          1990
                                                                  ---------     ---------     ---------     ---------     ---------
<S>                                                               <C>           <C>           <C>           <C>           <C>
Operating Data

Revenue:
  Trust ......................................................    $  21,671     $  20,342     $  26,784     $  29,550     $  32,866
  Corporation ................................................      110,962       114,828       116,172       110,361       112,555
  Combined (1) ...............................................      113,997       117,155       117,656       113,436       117,024
Net Income (Loss):
  Trust (2) ..................................................       (3,465)       (3,889)       (9,818)      (10,952)      (13,362)
  Corporation (2) ............................................       (1,198)       (3,143)       (9,925)      (11,132)      (14,224)
  Combined ...................................................       (4,663)       (7,032)      (19,743)      (22,084)      (27,586)
Net Income (Loss) Per Share:
  Trust ......................................................    $   (0.28)    $   (0.32)    $   (0.81)    $   (0.90)    $   (1.10)
  Corporation ................................................        (0.10)        (0.26)        (0.82)        (0.92)        (1.17)
                                                                  ---------     ---------     ---------     ---------     ---------
  Combined ...................................................    $   (0.38)    $   (0.58)    $   (1.63)    $   (1.82)    $   (2.27)
                                                                  =========     =========     =========     =========     =========

Balance Sheet Data

Total Assets:
  Trust ......................................................    $ 162,245     $ 232,845     $ 245,540     $ 246,498     $ 266,487
  Corporation ................................................       48,626        49,993        53,611        55,807        31,946
  Combined (1) ...............................................      183,955       195,352       210,945       221,917       240,998
Total Debt:
  Trust ......................................................      146,734       156,526       157,541       158,295       165,730
  Corporation ................................................       40,664       101,846       100,246        66,873        44,960
  Combined (1) ...............................................      160,482       170,886       170,297       171,271       166,591
Shareholders' Equity (Deficit):
  Trust ......................................................       10,450        72,205        76,371        86,188        97,087
  Corporation ................................................       (1,742)      (58,879)      (55,752)      (45,828)      (34,696)
  Combined ...................................................        8,708        13,326        20,351        40,083        62,104
Shares outstanding at end of period ..........................       12,133        12,133        12,133        12,133        12,133

Cash Flow and Dividend Data

Net cash provided by (used in) operating activities:
  Trust ......................................................    $   4,455     $   3,136     $   2,773     $  (8,812)    $   8,921
  Corporation ................................................        4,438         2,396         1,917         2,654        (2,659)
  Combined ...................................................        8,893         5,532         4,690        (6,158)        6,262
</TABLE>



                                       30
<PAGE>   34

(in thousands, except per share amounts)

<TABLE>
<CAPTION>

                                                                                              December 31,
                                                                   ----------------------------------------------------------------
                                                                     1994          1993          1992          1991          1990
                                                                   --------      --------      --------      --------      --------
<S>                                                                <C>           <C>           <C>           <C>           <C>    
Net cash provided by (used in) investing activities:
  Trust ......................................................     $  8,239      $  2,474      $   (161)     $ 12,889      $(17,621)
  Corporation ................................................          215        (4,426)         (942)          472        10,731
  Combined (1) ...............................................        4,489        (3,645)       (1,514)       12,159        (7,058)

Net cash provided by (used in) financing activities:
  Trust ......................................................      (13,357)       (7,307)         (850)       (7,507)        6,583
  Corporation ................................................       (4,577)       (1,138)         (816)         (834)         (309)
  Combined (1) ...............................................      (13,969)       (6,752)       (1,255)       (7,139)        6,442
Dividends to shareholders
 - Trust (3) .................................................     $      0      $      0      $      0      $      0      $  7,644
Dividends per share
- Trust (3) ..................................................     $   0.00      $   0.00      $   0.00      $   0.00      $   0.63
</TABLE>


(1)      Trust and Corporation amounts do not add to Combined amounts due to
         accounting elimination entries.

(2)      For the Trust, includes gains (losses) on sales of $432,000, ($53,000),
         ($791,000), and $390,000, for the years ended December 31, 1994, 1993,
         1992 and 1991, respectively, and provisions for investment losses of
         $759,000, $2,369,000, $3,419,000, $8,867,000, and $15,100,000 in the
         years ended December 31, 1994, 1993, 1992, 1991, and 1990,
         respectively. For the Corporation, includes gains on sales of $24,000,
         $74,000, $4,000 and $1,208,000 for the years ended December 31, 1994,
         1993, 1992, and 1991, respectively, and provisions for investment
         losses of $713,000 and $3,047,000 in the years ended December 31, 1991
         and 1990, respectively.

(3)      Presented only for the Trust, as the Corporation did not pay dividends
         for the periods presented.

ITEM 7.           MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL 
                  CONDITION AND RESULTS OF OPERATIONS.

         As discussed in Item 1 of this Joint Annual Report under the caption
"The Reorganization", the Trust and the Corporation consummated the
Reorganization on the Closing Date effective as of January 1, 1995. Since the
Reorganization, the Trust has conducted all of its business and operations
through the Realty Partnership and the Corporation has conducted all of its
business and operations (other than its gaming operations) through the Operating
Partnership. The Trust controls the Realty Partnership as its sole general
partner. The Corporation controls the Operating Partnership as its managing
general partner, although prior to the receipt of gaming approvals, a management
committee of the Operating Partnership will manage the Operating Partnership.

         As discussed in Item 1 of this Joint Annual Report under the caption
"Debt Restructuring", on January 28, 1993, the Trust entered into the Prior
Credit Agreement which restructured its previously unsecured notes payable to
the holders of the Senior Debt.

         As discussed in Item 1 of this Joint Annual Report under the caption
"1995 Debt Refinancing", on March 24, 1995 the Realty Partnership entered into
the New Credit Agreement and borrowed $131.75 million which was used to
refinance the Senior Debt and approximately $27 million of first mortgage debt.



                                       31
<PAGE>   35

Results of Operations for the Years Ended December 31, 1994 and 1993

                  The Trust. Rents from Corporation totaled $16,906,000 and
$16,481,000 for the years ended December 31, 1994 and 1993, respectively. The
increase was due to higher hotel revenues for the hotels leased by the
Corporation from the Trust (which resulted in higher percentage rents) offset by
a decrease in rental income of $802,000 resulting from the sale of hotels in
Tucker, Georgia (June 1993), St. Louis, Missouri (December 1993), Austin, Texas
(April 1994), New Port Richey, Florida (August 1994), Brunswick, Georgia (August
1994), Fayetteville, North Carolina (November 1994) and Jacksonville, Florida
(November 1994).

                  Interest from the Corporation increased to $1,730,000 from
$1,534,000 for the years ended December 31, 1994 and 1993, respectively. The
increase in interest income was a result of the higher amounts outstanding under
the Milwaukee notes, which increased from $15,186,000 at December 31, 1993 to
$16,916,000 at December 31, 1994. (For information pertaining to such notes see
Notes 4 and 5 of Notes to Financial Statements.) For additional information with
respect to Rents and Interest from the Corporation in future periods, see
"Liquidity and Capital Resources" below.

                  Interest from mortgage and other notes receivable increased by
$224,000 for the year ended December 31, 1994 as compared to 1993. The increase
resulted from the higher balances outstanding from the additional notes received
upon sales of the hotel properties discussed above and the receipt of the final
payment which was due from Northview Corporation, the interest on such note
having been previously deferred.

         The Trust and the Corporation periodically estimate the value of their
hotel assets and compare these values to the net book values of the hotel
assets. For hotel assets not held for sale, the undiscounted future cash flows
of the assets (generally over a five-year period) on a hotel-by-hotel basis, are
compared to the net book value of the assets; and if the undiscounted future
cash flows are less than the net book value of the assets, the excess of the net
book values over the estimated fair values is charged to current earnings. When
it is the opinion of management that the fair value of a hotel that has been
identified for sale is less than the net book value of the hotel, a reserve for
losses is established. Fair value is determined based upon the discounted cash
flow of the properties at rates (generally ranging from 11.0% to 14.5%) deemed
reasonable for the type of property and prevailing market conditions, and, if
appropriate, then current net proceeds of sale from pending offers. In
determining whether to accept an offer for the sale of a property, management
considers the fairness of the offer in comparison to the value of the property,
the terms of the offer, and whether the offer is all cash or includes seller
financing. Gains on sales of hotel assets for the year ended December 31, 1994
totaling $432,000 reflected the sales of hotels discussed above and $208,000
related to the in substance foreclosure and subsequent all cash sale of the
underlying property collateralizing the Trust's mortgage note receivable on the
Ramada Inn in Merrimack, New Hampshire. For additional information regarding the
terms of such sales of hotels see "Certain Property Sales and Related
Transactions" included in Items 1 and 2 of this Joint Annual Report.

                  Interest expense totaled $16,265,000 and $14,020,000 for the
years ended December 31, 1994 and 1993, respectively, an increase of $2,245,000.
The increase was 



                                       32
<PAGE>   36

primarily due to an increase in the average interest rate under the Prior Credit
Agreement, such rate varying with the prime rate charged by one of the Senior 
Lenders.

                  The sales of the properties discussed above and an increase in
the provision for investment losses are the primary reasons for the decline in
depreciation and amortization expense of $425,000 between 1994 and 1993.

                  Administrative and operating expenses totaled $1,583,000 and
$1,948,000 for the years ended December 31, 1994 and 1993, respectively, a
decrease of $365,000. The decrease was primarily the result of lower insurance
expense and professional fees unrelated to the debt restructuring.

                  During 1994 a provision for investment losses (a non-cash
charge to operations) totaling $759,000 was recorded. The provision included
$439,000 which was recorded as a result of the acceptance of offers to sell the
Jacksonville and Fayetteville properties, which had previously been identified
for sale at amounts lower than the then current net book values. The provision
also included $320,000 which was established based upon an analysis of the net
realizable value of the underlying property collateralizing the Trust's mortgage
note receivable on the Ramada Inn in Merrimack, New Hampshire.

                  See Part I, Item 3, Legal Proceedings, of this Joint Annual
Report for a description of an agreement between Leonard M. Ross and his
affiliates ("Ross") and Starwood Capital with respect to certain claims of Ross
purchased by Starwood Capital and an agreement by Starwood Capital in the future
to purchase the Paired Shares of the Trust and Corporation owned by Ross at a
price of $5.625 per Paired Share. Starwood Capital may also elect to purchase
such Paired Shares at the same time and on the same terms. During 1994, the
Trust and the Corporation recorded a charge to shareholder litigation expense of
$1,324,000 and $1,324,000, respectively, the estimated fair market value of the
agreement, as determined by an investment banker using an option pricing model.

                  No distributions were made by the Trust for the years ended
December 31, 1994 or 1993. For information with respect to restrictions on
distributions imposed by the Prior Credit Agreement and the New Credit Agreement
see "Distributions - The Trust" included in Item 5 of this Joint Annual Report.

                  The Trust's net loss totaled $(3,465,000), or $(0.28) per
share, and $(3,889,000), or $(0.32) per share, for the years ended December 31,
1994 and 1993, respectively.

         The Corporation. Hotel revenues totaled $82,669,000 and $86,903,000 for
the years ended December 31, 1994 and 1993, respectively, representing a
decrease of $4,234,000. The hotel sales described under the caption "The Trust"
above resulted in decreased revenue of $5,342,000. In March 1994, the franchise
agreement and management agreement with Marriott Corporation for the Dallas
property were terminated. The property is now being managed for the Corporation
by Sage Hospitality, and is being operated as the Dallas Park Central Hotel.
Revenues at the Dallas property decreased by $3,776,000. The decrease from
property sales and the Dallas property were offset by increased revenues of
$4,884,000 at the properties which continued to be leased from the Trust by the
Corporation, including an increase of $1,516,000 at 


                                       33
<PAGE>   37

the Milwaukee Marriott, which was renovated during 1993. The following table 
summarizes average occupancy and average room rates for properties which were 
operated by the Corporation under lease from the Trust at December 31, 1994:

<TABLE>
<CAPTION>
                                              Year Ended December 31,
                                       -------------------------------------
Including Dallas Park Central:          1994                           1993
------------------------------         ------                         ------
<S>                                    <C>                            <C>
Occupancy Rate                          68.03%                         65.32%
Average Room Rate                      $59.85                         $60.30

Excluding Dallas Park Central:
------------------------------
Occupancy Rate                          71.76%                         65.75%
Average Room Rate                      $59.84                         $59.88
</TABLE>

Management of the Corporation believes that the increases in the average
occupancy rate resulted primarily from more favorable economic conditions which
have created increased business and pleasure travel throughout the United States
and improved operational systems.

                  Gaming revenues totaled $27,981,000 and $27,505,000 for the
years ended December 31, 1994 and 1993, respectively.

                  For information regarding the carrying value of properties
held for sale, see the Trust above. Gain on sales of hotel assets totaled
$24,000 and $74,000 for the years ended December 31, 1994 and 1993,
respectively, reflecting the property sales described above.

                  Hotel expenses totaled $60,829,000 and $68,132,000, or 73.6%
and 78.4% of hotel revenues, for the years ended December 31, 1994 and 1993,
respectively. The decreases in hotel expenses as a percentage of hotel revenue
are primarily due to the lower cost of operating the Dallas property (see
discussion of hotel revenues above) where operating expenses have historically
been higher than at other hotel properties, the improved operating margin
resulting from the renovation of the Milwaukee Marriott discussed above and the
effect of the sale of the properties having higher operating costs as a
percentage of revenues than properties that continue to be operated by the
Corporation.

                  Gaming expenses totaled $24,454,000 and $24,055,000, or 87.4%
and 87.5% of gaming revenues, for the years ended December 31, 1994 and 1993,
respectively.

                  For information with respect to rent and interest to the Trust
during the years ended December 31, 1994 and 1993, see "The Trust - Results of
Operations for the Years Ended December 31, 1994 and 1993" above and "Liquidity
and Capital Resources" below.

                  Administrative and operating expenses decreased by $161,000,
or 6%, for the year ended December 31, 1994 as compared to 1993. The decrease
was primarily the result of a reduction in the level of corporate staff.

                  The Corporation's net loss totaled $(1,198,000), or $(0.10)
per share, in 1994, as compared to $(3,143,000), or $(0.26) per share, for 1993.



                                       34
<PAGE>   38

Results of Operations for the Years Ended December 31, 1993 and 1992

                  The Trust. Rents from Corporation totaled $16,481,000 and
$21,177,000 for the years ended December 31, 1993 and 1992, respectively.
Approximately $1,106,000 of the decrease in rents resulted from the sale of
hotels in Irving, Texas (March 1992), Merrimack, New Hampshire (July 1992),
Spartanburg, South Carolina (September 1992), Smyrna, Georgia (January 1993),
Tucker, Georgia (June 1993), and St. Louis, Missouri (December 1993). The
remaining decrease was primarily due to the amendment of eighteen of the leases
with the Corporation effective January 1, 1993, which reduced the fixed and
percentage rents payable by the Corporation. For additional information
regarding the lease amendments, see "Equity Investments" included in Part I,
Item 2 of this Joint Annual Report.

                  Interest from the Corporation decreased to $1,534,000 from
$4,123,000 for the years ended December 31, 1993 and 1992, respectively. The
decrease in interest income was a result of the January 1, 1993 restructuring of
intercompany borrowings and advances made to the Corporation, with the exception
of the Milwaukee notes, into non-interest bearing demand notes for calendar
years 1993 and 1994, with interest prime plus 2% payable monthly thereafter.

                  For additional information with respect to Interest from the
Corporation in future periods, see "Liquidity and Capital Resources" below.

                  Interest from mortgage and other notes receivable increased by
$187,000 for the year ended December 31, 1993 as compared to 1992. The increase
resulted from the additional interest income related to the mortgage notes
delivered to the Trust in connection with the sales of the hotel properties
located in Irving, Texas, Merrimack, New Hampshire, Spartanburg, South Carolina,
and Tucker, Georgia, having original principal balances of $1,650,000,
$1,440,000, $775,000, and $1,985,000, respectively.

                  As described above, effective January 28, 1993, the Trust
restructured its debt. Management concluded that this debt restructuring
represented a "troubled debt restructuring" as defined under generally accepted
accounting principles, and accordingly, upon execution of the definitive
agreement, accrued all known current or future identifiable debt restructuring
costs as of December 31, 1992. No additional loan restructuring costs were
incurred during the year ended December 31, 1993.

                  Interest expense totaled $14,020,000 and $12,959,000 for the
years ended December 31, 1993 and 1992, respectively, an increase of $1,061,000.
The increase was primarily due to an increase in the average interest rate and
an increase in the borrowings outstanding under the Term Loan and Revolving Line
of Credit.

                  The sales of the properties discussed above and an increase in
the provision for investment losses are the primary reasons for the decline in
depreciation and amortization expense of $1,164,000 between 1993 and 1992.


                                       35
<PAGE>   39

                  Administrative and operating expenses totaled $1,948,000 and
$2,350,000 for the years ended December 31, 1993 and 1992, respectively, a
decrease of $402,000. The decrease was primarily the result of lower legal and
professional fees unrelated to the debt restructuring.

                  During 1993 a provision for investment losses (a non-cash
charge to operations) totaling $2,369,000 was recorded primarily as a result of
the acceptance of all cash offers to sell hotels previously identified for sale
at amounts lower than the then current net book values, (which cash was used to
meet the next principal payment due under the terms of the Credit Agreement) and
the continuing deterioration of hotel values in the Southeast.

                  No distributions were made by the Trust for the years ended
December 31, 1993 or 1992. For information with respect to restrictions on
distributions imposed by the Prior Credit Agreement see "Distributions - The
Trust" included in Part I, Item 5 of this Joint Annual Report.

                  The Trust's net loss totaled $(3,889,000), or $(0.32) per
share, and $(9,818,000), or $(.081) per share, for the years ended December 31,
1993 and 1992, respectively.

                  The Corporation. Hotel revenues totaled $86,903,000 and
$88,812,000 for the years ended December 31, 1993 and 1992, respectively,
representing a decrease of $1,909,000. The hotel sales described under the
caption "The Trust" above resulted in decreased revenue of $2,373,000, which was
partially offset by increased revenues of $835,000 resulting from increased
average occupancy and average room rates for properties which continue to be
operated by the Corporation and leased from the Trust.

                  The following table summarizes average occupancy and average
room rates for properties which were operated by the Corporation under lease
from the Trust at December 31, 1993 and 1992:

<TABLE>
<CAPTION>
                                          Years Ended December 31,
                                --------------------------------------------
                                 1993                                  1992
                                ------                                ------
<S>                             <C>                                   <C>
Occupancy Rate                      63%                                   59%
Average Room Rate               $56.59                                $53.18
</TABLE>

                  Management of the Corporation believes that the improved
national economic trends experienced during 1993 resulted in increased business
and pleasure travel and related increases in average occupancy rates and average
room rates.

                  Gaming revenues totaled $27,505,000 and $26,150,000 for the
years ended December 31, 1993 and 1992, respectively. Management believes the
increased revenue of $1,355,000 at the two gaming facilities is a result of
increased customer travel to the Las Vegas area, and in particular, increased
customer traffic due to the close proximity of the King 8 Hotel and Casino to
several large hotel/casinos completed during 1993.

                  Management fees and other income decreased by $737,000 to
$222,000 for the year ended December 31, 1993 as compared to 1992. The decreases
were primarily a result of the subcontracting of the management obligations of
Western Host with respect to seven hotels 


                                       36
<PAGE>   40

not owned by the Trust, to Westland Hotel Corporation. For additional 
information pertaining to the subcontracts, see Note 10 of the Notes to 
Financial Statements and Item 13 of this Joint Annual Report.

                  For information regarding the carrying value of properties
held for sale, see the Trust above. Gain on sales of hotel assets totaled
$74,000 and $4,000 for the years ended December 31, 1993 and 1992, respectively,
reflecting the property sales described above.

                  Hotel expenses totaled $68,132,000 and $68,620,000, or 78% and
77% of hotel revenues, for the years ended December 31, 1993 and 1992,
respectively. The increase in hotel expenses as a percentage of hotel revenues
is principally attributable to the payment of management fees to third party
operators under the 11 management contracts entered into in December 1992 and
increased revenues and expenses at the Dallas Marriott Park Central where
operating expenses are typically higher as a percentage of revenues than at
other hotel properties operated by or for the Corporation.

                  Gaming expenses totaled $24,055,000 and $23,699,000, or 87%
and 91% of gaming revenues, for the years ended December 31, 1993 and 1992,
respectively. Increased gaming revenues, coupled with improved casino win
percentages, resulted in the decreases in gaming expenses as a percentage of
gaming revenues.

                  For information with respect to rent and interest to the Trust
during the years ended December 31, 1993 and 1992, see "The Trust - Results of
Operations for the Years Ended December 31, 1993 and 1992" above and "Liquidity
and Capital Resources" below.

                  Administrative and operating expenses decreased by $1,046,000,
or 27%, for the year ended December 31, 1993 as compared to 1992. The decrease
is primarily the result of a reduction in the level of corporate staff.

                  Shareholder litigation expenses include an accrual of $219,000
at December 31, 1993 in connection with the settlement of the Shareholder
Actions (see "Legal Proceedings" included in Part I, Item 3 of this Joint Annual
Report).

                  The Corporation's net loss totaled $(3,143,000), or $(0.26)
per share, in 1993, as compared to $(9,925,000), or $(0.82) per share, for 1992.

Liquidity and Capital Resources

                  The Trust - Prior to the Reorganization, the primary sources
of liquidity for the Trust were cash generated from operations (i.e., its rents)
and net proceeds from the sale of hotels. The primary demands on the Trust's
capital resources were debt service payments, the funding of capital
improvements to the Trust's properties, the making of additional loans and
advances to the Corporation and the Trust's general and administrative expenses.
Since the Reorganization, the Trust has conducted all of its business and
operations through the Realty Partnership and its only source of liquidity will
be cash distributions from the Realty Partnership.


                                       37
<PAGE>   41

         Prior to December 31, 1994, it was necessary for the Trust to sell
properties in order to comply with the principal payment requirements of the
Prior Credit Agreement (see Note 3, "Hotel Sales and Reserves for Losses" on
pages F-19 and F-20). As discussed in Item 1 of this Joint Annual Report under
the caption "1995 Debt Refinancing" on March 24, 1995 the Realty Partnership
entered into the New Credit Agreement and borrowed $131.75 million. The proceeds
were used to refinance the Senior Debt and approximately $27 million of first
mortgage debt. The Loan matures on April 1, 1997 and under certain conditions
may be extended for an additional twelve months. The loan bears interest at a
rate based on LIBOR plus 3%.

         In December 1994, the Trust canceled $58,335,000 of the notes
receivable which were payable to the Trust by the Corporation and its
subsidiaries. As part of the Reorganization, effective January 1, 1995, the
Trust contributed the remaining notes to the Realty Partnership and the payment
obligation was assumed by the Operating Partnership. Effective January 1, 1995,
notes in the amount of $10,000,000, (excluding the MHLP notes, see Note 5 of
Notes to Financial Statements) are due on demand and bear interest at prime plus
2% with interest payable monthly.

         As of January 1, 1995, the aggregate principal payments due during 1995
on the outstanding mortgage notes payable of the Realty Partnership amounted to
$34,249,000, including four mortgage notes in the amount of $23,679,000 which
mature during 1995. On January 31, 1995, upon closing of the Reorganization, a
mortgage note in the amount of $4,075,000 which was due in 1995 was paid in
full. On March 24, 1995, upon closing of the New Credit Agreement, mortgage
notes in the amount of $17,750,000 which were due in 1995 were paid in full.
Management of the Trust is in the process of negotiating an extension on the
remaining mortgage note that matures during 1995 which had an outstanding
principal balance of $1,854,000 as of December 31, 1994.

         The Realty Partnership intends to make during 1995, improvements that
are necessary to maintain the properties in good condition, that are required by
franchisors or applicable health and safety and other laws or to improve the
competitive position of certain properties. Management believes that the
necessary funds, expected to be provided primarily from cash flows from
operating activities, are available and that the cost of such improvements 
to existing properties will amount to approximately $6,483,000 during 1995.

         Management believes that there will be sufficient cash available from
operations to meet the obligations of the Realty Partnership in the twelve
months following December 31, 1994.

         The Corporation. Prior to the Reorganization, the primary source of
liquidity for the Corporation was cash generated from operations, i.e., from
sales of rooms, food and beverages at the hotels and hotel/casinos the
Corporation leased from the Trust and gaming revenues at the two Nevada
properties. The primary demands on the Corporation's capital resources were the
payment of rents and interest due to the Trust and the Corporation's general and
administrative expenses. Since the Reorganization, the Corporation has conducted
all of its business and operations, other than the gaming operations, through
the Operating Partnership and its only source of liquidity will be cash
distributions from the Operating Partnership.

         For information regarding the cancellation of notes payable by the
Corporation to the Trust in December 1994, see the Trust above.



                                       38
<PAGE>   42

         Management believes that there will be sufficient cash available from
operations to meet the obligations of the Operating Partnership in the twelve
months following December 31, 1994.

         Management believes that its hotels are adequately insured. For
information with respect to potential hazardous waste contamination and the
presence of asbestos at certain of the Realty Partnership's hotels and the
possible impact thereof on the Trust's, the Realty Partnership's, the
Corporation's and the Operating Partnership's financial position, see "Other
Information - Certain Environmental Matters" included in Item 1 of this Joint
Annual Report.

ITEM 8.            FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

                  The financial statements and supplementary data required by
this Item are included in Item 14 of this Joint Annual Report.

ITEM 9.           CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING 
                  AND FINANCIAL DISCLOSURE.

                  None.

                                    PART III

ITEM 10.          TRUSTEES, DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANTS.

Trustees and Executive Officers of the Trust

         The following table sets forth, for each of the current members of the
Trust's Board of Trustees as the date of this Joint Annual Report, the class of
Trustees to which such Trustee has been elected, the name and age of such
Trustee, the principal occupation or employment of such Trustee during the past
five years and the principal business of such Trustee's employer, other
directorships held by such Trustee and the year in which such Trustee first
became a Trustee of the Trust.


                                       39
<PAGE>   43

                       Trustees Whose Terms Expire in 1995

Madison F. Grose (41)........       Trustee since December 1994. Executive Vice 
                                    President and General Counsel of Starwood 
                                    Capital (and its predecessor entity) since 
                                    July 1992. From November 1983 through June 
                                    1992, Partner of the law firm of Pircher, 
                                    Nichols & Meeks.

Earle F. Jones (68)..........       Director since 1985 and Chairman of the 
                                    Board of Directors of the Corporation since
                                    February 1989. Co-Chairman since 1988 of MMI
                                    Hotel Group, a hotel company. President from
                                    1967 to 1968 of the International
                                    Association of Holiday Inns and served two
                                    terms as a director. Trustee and Chairman of
                                    Communications Improvement Trust, whose
                                    beneficiaries are public broadcasting and
                                    Tougaloo College, Member of the Board of
                                    Trustees for Millsaps College and the
                                    Catholic Foundation and Co-Chairman of the
                                    Mississippi Olympic Committee.

                       Trustees Whose Terms Expire in 1996

Jeffrey C. Lapin (38)........       Trustee since September 1992. President and 
                                    Chief Operating Officer of the Trust since
                                    December 1994. President and Chief Executive
                                    Officer of the Trust from May 1991 to
                                    December 1994. Prior to that time, Vice
                                    President (from January 1988) and Secretary
                                    (from September 1986) of the Trust. Prior to
                                    1986 Mr. Lapin was a real estate attorney at
                                    Mitchell, Silberberg & Knupp in Los Angeles.

Jonathan Eilian (27).........       Trustee since December 1994. Senior Vice 
                                    President of Starwood Capital specializing
                                    in hotel acquisitions and multiple asset
                                    pool bids, since October 1991.



                                       40
<PAGE>   44

                       Trustee Whose Term Expires in 1997

Barry S. Sternlicht (34).....       Trustee, Chairman of the Board and Chief 
                                    Executive Officer of the Trust and Director
                                    of the Corporation since December 1994.
                                    President and CEO of Starwood Capital (and
                                    its predecessor entity) since September
                                    1991. Prior to that time, Vice President and
                                    then Senior Vice President (from 1989 to
                                    1991) of JMB Realty Corporation, a real
                                    estate investment firm. Currently, a Trustee
                                    of each of Equity Residential Properties
                                    Trust, a multi-family real estate investment
                                    trust, and Angeles Participating Mortgage
                                    Trust, a real estate investment trust.

         The following table includes certain information with respect to each
of the Trust's current executive officers other than Messrs. Sternlicht and
Lapin:

<TABLE>
<CAPTION>

                   Name                            Age                    Position(s) with the Trust
                   ----                            ---                    --------------------------
<S>                                                 <C>        <C>
Michael W. Mooney .......................           48         Vice President and Chief Financial Officer
Sherwin L. Samuels ......................           59         Secretary and General Counsel
</TABLE>

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

         Sherwin L. Samuels. Mr. Samuels has been an officer and General Counsel
since January 1987 and was a Trustee from April 1987 to December 1994. Since
September 1992, he has been a Partner (through a professional corporation) of
the law firm of Sidley & Austin. Prior to that time, he was a Partner (through a
professional corporation) of the law firm of Mitchell, Silberberg & Knupp.

         The executive officers of the Trust serve at the pleasure of the Board
of Trustees, subject in the case of Messrs. Lapin and Mooney to the provisions
of their respective employment agreements with the Trust. (See "Employment
Agreements with Executive Officers" included in Item 11 of this Joint Annual
Report.) There is no family relationship among any of the Trustees or executive
officers of the Trust.

Directors and Executive Officers of the Corporation

         The current Board of Directors of the Corporation consists of Mr. Earle
F. Jones, Mr. Bruce M. Ford, and Mr. Graeme W. Henderson. At the special meeting
of stockholders of the Corporation held on December 15, 1994, the stockholders
elected Messrs. Sternlicht, Ford 


                                       41
<PAGE>   45

and Goldman as directors of the Corporation, such directors to take office upon 
the receipt of necessary regulatory approvals from the Nevada Gaming Authorities
("Gaming Approval").

         Pending receipt of Gaming Approval, the current Directors of the
Corporation will continue as such and the Operating Partnership will be managed
by a management committee consisting of Messrs. Sternlicht, Ford and Goldman.
While awaiting Gaming Approval, the Corporation's existing management and Board
of Directors will be responsible for the operation and control of the gaming
assets of the Corporation, and the management committee which is comprised of
the newly elected directors will be prohibited from any influence or control of
the gaming assets.

         The following table sets forth, for each of the current members of the
Corporation's Board of Directors (other than Mr. Jones) as of the date of this
Joint Annual Report, the name and age of such Director, the principal occupation
or employment of such Director during the past five years and the principal
business of such Director's employer, other directorships held by such Director
and the year in which such Director first became a Director of the Corporation.

<TABLE>
<CAPTION>
            Name and Age               Principal Occupation and Business Experience
            ------------               --------------------------------------------
<S>                                    <C>                
Bruce M. Ford (54)..............       Director since 1983. President and 
                                       Managing Partner of F.K.B. Management
                                       Corporation, a restaurant management
                                       company, since January 1988. President
                                       of Ford Management Corporation, a
                                       hotel/motel management and development
                                       company, since June 1988. Prior to that
                                       time, Mr. Ford was Senior Vice President
                                       of Operations of Ramada Inns.

Graeme W. Henderson (61) .......       Director of the Corporation since March 
                                       1990. Chairman of the Trust from July
                                       1989 to December 1994 and Trustee of the
                                       Trust from September 1986 to December
                                       1994. Independent financial consultant
                                       since January 1990. Prior to January
                                       1990, President of Henderson Consulting,
                                       Inc., a private financial consulting
                                       firm. President of Capstan, Inc.
                                       (Formerly Seymour, Inc.), a manufacturer
                                       of machine tool controls, since 1982.
                                       Director of Capital Southwest
                                       Corporation.

</TABLE>

         The following table sets forth, for each of the current members of the
management committee who will become the Board of Directors of the Corporation
upon receipt of Gaming Approval (other than Mr. Sternlicht whose term will
expire in 1997 and Mr. Ford whose term will expire in 1995) the name and age of
such Director, the principal occupation or employment of such Director during
the past five years and the principal business of such Director's employer,
other directorships held by such Director and the year in which such Director
first became a Director of the Corporation.



                                       42
<PAGE>   46

                       Director Whose Term Expires in 1996

Steven Robert Goldman (33) ..       Director and Senior Vice President of the 
                                    Corporation since December 1994. Vice
                                    President of Starwood Capital, specializing
                                    in hotel acquisitions and hotel asset
                                    management, since August 1993. From 1990 to
                                    1993, Senior Development Manager of Disney
                                    Development Company, the real estate
                                    investment, development and management
                                    division of The Walt Disney Company. From
                                    1986 to 1990, Director of Development of the
                                    Hyatt Development Corporation.

         The following table includes certain information with respect to each
of the Corporation's current executive officers other than Mr. Goldman:

<TABLE>
<CAPTION>
                   Name                            Age            Position(s) with the Corporation
                   ----                            ---            --------------------------------
<S>                                                 <C>        <C>
Kevin E. Mallory ..........................         35         Executive Vice President
Kenneth J. Biehl ..........................         40         Vice President and Controller
</TABLE>

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

         Kenneth J. Biehl. Mr. Biehl has been Vice President since December 1994
and Controller since April 1994. From January 1992 to April 1994 he was Senior
Accountant with Kenneth Leventhal & Co., a public accounting firm. Prior to that
time, he was Treasurer and Chief Financial Officer of Electronic Clearing House,
Inc., a credit card services company.

         The executive officers of the Corporation serve at the pleasure of the
Board of Directors, subject in the case of Mr. Mallory to the provisions of his
employment agreement with the Corporation. (See "Employment Agreements with
Executive Officers" included in Item 11 of this Joint Annual Report.) There is
no family relationship among any of the Directors or executive officers of the
Corporation.

ITEM 11. EXECUTIVE COMPENSATION.

Summary of Cash and Certain Other Compensation

                  The Trust. The following table provides certain summary
information concerning the compensation paid for the fiscal years ended December
31, 1994, 1993 and 1992 to the Trust's President and Chief Executive Officer and
each other executive officer of the Trust whose 



                                       43
<PAGE>   47
total compensation for 1994 exceeded $100,000 for services rendered in all 
capacities to the Trust.

<TABLE>
<CAPTION>
                                     SUMMARY COMPENSATION TABLE
                                                                            Long Term               All Other
                                          Annual Compensation             Compensation           Compensation($)
                                     --------------------------------     -------------          ---------------         
                                                                            Securities
Name and                                                                    Underlying
Principal                                                                    Options/
Position                             Year     Salary($)     Bonus($)         SARs (#)
---------------------                ----     ---------     ---------     -------------             
<S>                                  <C>        <C>            <C>             <C>                   <C>
Jeffrey C. Lapin                     1994       190,000        75,000          12,000(1)
  President and Chief                1993       170,834        20,000
  Executive Officer                  1992       150,792                        50,000(1)             23,585(2)

Michael W. Mooney                    1994       150,000        20,000           9,000(1)
  Vice President and                 1993       140,416        11,667
  Chief Financial                    1992        61,026                        25,000(1)
  Officer
</TABLE>


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

(1)      For information with respect to these options, see "Option Exercises 
         and Holdings" below.

(2)      Amount shown reflects cash paid for unused vacation.

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

<TABLE>
<CAPTION>

                           SUMMARY COMPENSATION TABLE
                           --------------------------
                                                                              Long Term
                                          Annual Compensation               Compensation 
                                     ------------------------------         ------------
                                                                             Securities
Name and                                                                     Underlying
Principal                                                                     Options/
Position                             Year     Salary($)    Bonus($)           SARs (#)
---------------------                ----     ---------    --------          -----------
<S>                                  <C>        <C>          <C>               <C>
Kevin E. Mallory                     1994       150,000      37,500             9,000(1)
  Executive Vice                     1993       140,416      11,667
  President                          1992        63,718                        25,000(1)
</TABLE>

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

(1)      For information with respect to these options, see "Option Exercises 
         and Holdings" below. 


                                       44
<PAGE>   48

Option Grants

                  The following table shows, as to the executive officers of the
Trust and the executive officer of the Corporation named in the Summary
Compensation Tables above, information concerning the option granted to that
officer during the year ended December 31, 1994.

<TABLE>
<CAPTION>

                                            OPTION/SAR GRANTS IN LAST FISCAL YEAR
                                                      INDIVIDUAL GRANTS
-------------------------------------------------------------------------------------------------------------------------
                       Number of      % of Total
                      Securities        Options/
                      Underlying         SARs
                       Options/       Granted to                                            Potential Realizable Value at
                         SARs          Employees        Exercise                               Assumed Annual Rates of
                       Granted         in Fiscal          Price        Expiration           Stock Price Appreciation for
Name                     (#)              Year           ($/Sh)           Date                       Option Term
----------            ----------      ----------        --------    ----------------        -----------------------------
                                                                                             5% ($)               10% ($)
                                                                                            -------               -------
<S>                    <C>                <C>           <C>         <C>                      <C>                  <C>    
Jeffrey C. Lapin       12,000(1)          12.1          $2.75(2)    January 31, 2000         42,120               53,150
Michael W. Mooney      9,000(1)           9.1           $2.75(2)    January 31, 2000         31,590               39,860
Kevin E. Mallory       9,000(1)           9.1           $2.75(2)    January 31, 2000         31,590               39,860
-----------------------------
</TABLE>

(1)   Options became exercisable as to one-third of the amount granted on
      January 31, 1995, and will become exercisable as to an additional
      one-third of the amount granted on January 31, 1996 and as to the
      remaining amount granted on January 31, 1997.

(2)   The $2.75 per Paired Share exercise price is equal to the fair market
      value of a Paired Share on the day the option was granted.

Option Exercises and Holdings

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

<TABLE>
<CAPTION>

                                    AGGREGATED OPTION/SAR EXERCISES IN 1994
                                      AND DECEMBER 31, 1994 OPTION VALUES
-----------------------------------------------------------------------------------------------------------
                                     Number of Shares Underlying
                                             Unexercised                  Value of Unexercised In-the-
                                       Options/SARs at Fiscal                    Money Options/SARs
                                            Year-End (#)                    at Fiscal Year-End ($) (1)
                                  -------------------------------------------------------------------------
Name                              Exercisable        Unexercisable        Exercisable         Unexercisable
----                              -----------        -------------        -----------         -------------
<S>                                  <C>                <C>                 <C>                   <C>
Jeffrey C. Lapin                     80,000             12,000              109,500               2,280
Michael W. Mooney                    25,000              9,000              54,750                1,710
Kevin E. Mallory                     25,000              9,000              54,750                1,710
</TABLE>


                                       45
<PAGE>   49

-----------------
(1)      Value is defined as the market price of the Paired Shares at December 
         31,  1994 less the exercise price of the option.  The average of the 
         high and low market prices of the Paired Shares at December 31, 1994 
         was $2.94.

Compensation of Trustees/Directors

                  Each Trustee or Director who is not also an officer of the
Trust or the Corporation receives annual Trustee's or Director's fees of $12,000
and is reimbursed for any out-of-pocket expenses incurred in attending meetings
of the Board of Trustees or the Board of Directors. The Chairman of each Board
receives an additional fee of $2,500 per year. In addition, each non-officer
Trustee or Director receives a fee $750 for each meeting in which he
participates (or, in the case of telephonic meetings, $500) and a fee of $500
for each committee meeting in which he participates ($1,000 per meeting for
committee chairman).

Share Purchase Agreements

                  Prior to December 1989, the Trust and the Corporation
maintained share purchase plans pursuant to which Trustees, Directors, officers
and employees of the Trust or the Corporation were granted rights to purchase
Paired Shares from the Trust and the Corporation at prices based upon the then
fair market value of the Paired Shares. A purchaser of Paired Shares under a
share purchase plan made a cash down payment equal to 10% of the purchase price
and executed a promissory note in favor of the Trust or the Corporation for the
balance. Certificates evidencing Paired Shares purchased under a share purchase
plan were pledged to the Trust or the Corporation as collateral to secure
payment of the promissory note. Prior to the satisfaction of the obligations
represented by the note, the purchaser was entitled to vote the Paired Shares
held in pledge, but not to transfer the purchaser's interest in those shares.

                  During 1994, the only share purchase agreements remaining in
effect were those between the Trust and each of Mr. Henderson, a former trustee
of the Trust and director of the Corporation, and Mr. Samuels, and between the
Corporation and each of Messrs. Jones and Ford. During 1994, the share purchase
agreements with Messrs. Henderson, Samuels and Ford were terminated and the
non-recourse indebtedness thereunder was canceled (an aggregate of $56,250 with
respect to Mr. Henderson, $82,391 with respect to Mr. Samuels, and $108,784 with
respect to Mr. Ford). In addition, the Paired Shares pledged in respect of such
indebtedness were either released from such pledge, to the extent that such
Paired Shares had been paid for (an aggregate of 1,341 Paired Shares for which
$20,625 was paid with respect to Mr. Henderson, 2,141 Paired Shares for which
$32,922 was paid with respect to Mr. Samuels, and 2,793 Paired Shares for which
$45,279 was paid with respect to Mr. Ford) or were forfeited by the individual,
to the extent such Paired Shares had not been paid for.

Employment Agreements with Executive Officers

                  On January 31, 1995, the Trust entered into a 24-month
employment agreement with Mr. Lapin for his services to the Trust as its
President and Chief Operating Officer. The employment agreement provides for an
annual salary of $200,000 in 1995 and $225,000 in 1996, annual bonuses to be
determined by the Board of Trustees (not less than $75,000 per year), the 



                                       46
<PAGE>   50

grant under the option plans of the Trust and the Corporation of options to
purchase 250,000 Paired Shares which are exercisable at $2.75 per Paired Share
(fair market value on the date of grant) and which vest at a rate no longer than
the most rapid rate of vesting of options granted to any other executive during
the term of the employment agreement. The employment agreement provides that Mr.
Lapin may terminate his employment for "Good Reason", as defined in the
employment agreement and including an assignment of duties which are in any
significant respect inconsistent with his position, a substantial alteration in
his responsibilities, a breach of the agreement by the Trust, removal from
office without cause (as defined), relocation of the Trust's principal executive
offices, a change in the composition of 51% of the Trustees, a decision by the
Board that the Trust shall merge, sell or dispose of all or substantially all of
its assets, dissolve or liquidate, or the failure of Mr. Lapin to be a member of
the Board of Trustees, other than for cause (as defined). If Mr. Lapin so
terminates his employment, he will be entitled to receive a lump sum payment
equal to the base salary and bonuses that would have been payable had he
continued to be employed for the remainder of the term of the agreement, and all
fringe benefits to which he would have been entitled through the remainder of
the term of the agreement (other than stock options or stock loans not granted
prior to the date of termination).

         In July 1992, the Trust entered into a 12-month agreement with Mr.
Mooney providing for Mr. Mooney to render services to the Trust as its Chief
Financial Officer. In December 1993, the term of the employment agreement with
Mr. Mooney was extended until June 1995. The employment agreement with Mr.
Mooney provides that he will receive an annual salary of $150,000 and such
annual bonus, if any, as the Trust's Board of Trustees may determine, and will
be eligible to participate in all employee benefit plans and fringe benefits, if
any, that the Trust makes available to its other executive officers. Mr.
Mooney's employment pursuant to the employment agreement may be terminated by
the Trust at any time; provided, however, that if his employment is terminated
without cause (as defined), Mr. Mooney will be entitled to receive the lesser of
his salary for the then remaining term of the employment agreement or $75,000.

                  In July 1992, the Corporation entered into a 12-month
employment agreement with Mr. Mallory providing for Mr. Mallory to render
services to the Corporation as a senior executive officer. In December 1993, the
term of the employment agreement with Mr. Mallory was extended until June 1995.
The employment agreement with Mr. Mallory provides that he will receive an
annual salary of $150,000 and such annual bonus, if any, as the Corporation's
Board of Directors may determine, and will be eligible to participate in all
employee benefit plans and fringe benefits, if any, that the Corporation makes
available to its other executive officers. Mr. Mallory's employment pursuant to
the employment agreement may be terminated by the Corporation at any time;
provided, however, that if his employment is terminated without cause (as
defined), Mr. Mallory will be entitled to receive the lesser of his salary for
the then remaining term of the employment agreement or $75,000.

                             COMPENSATION COMMITTEE
                      INTERLOCKS AND INSIDER PARTICIPATION

                  During fiscal year 1994, the Board of Directors of the
Corporation and the Board of Trustees of the Trust made decisions with respect
to executive compensation of the executive officers of the Trust and the
Corporation, respectively. Mr. Lapin, who is an executive officer of the Trust
and is on the Board of Trustees of the Trust, participated in decisions related
to the 


                                       47
<PAGE>   51

compensation of Mr. Mooney; and Mr. Samuels, who is an officer of the Trust and 
was a Trustee of the Trust, and Mr. Henderson, who is a director of the 
Corporation and was a Trustee of the Trust, participated in decisions related to
the compensation of Messrs. Lapin and Mooney.

ITEM 12.          SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
                  AND MANAGEMENT.

                  Certain Beneficial Owners.  To the knowledge of the Trust and 
the Corporation, no person owns beneficially 5% or more of the Paired Shares, 
except as follows:
                                                                             
<TABLE>
<CAPTION>
              Name and Address                    Amount             Percent of
             of Beneficial Owner             Beneficially Owned       Class (1)
             -------------------             ------------------      ----------
<S>                                            <C>                       <C>
U.S. Bancorp                                   996,000 (2)               8.2%
111 S.W. Fifth Avenue
Portland, OR  97204

Leonard M. Ross                                991,400 (3)               8.2%
1011-1/2 North Beverly Drive
Beverly Hills, CA  90210

Starwood Capital Group, L.P. and             1,055,039 (4)               8.0%
  affiliated entities
Three Pickwick Plaza, Suite 250
Greenwich, CT  06830

Edward J. Okay and                             750,000 (5)               6.2%
Dorothy P. Okay, as joint tenants
111 Quayside Drive
Jupiter, FL  33477
</TABLE>

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

 (1)     Based on the number of Paired Shares outstanding on March 27, 1995.

 (2)     Based on information contained in Schedule 13G dated February 10, 1995,
         the securities are held by Qualivest Capital Management, Inc. (a wholly
         owned subsidiary of U.S. Bancorp) and the Trust Group of the United
         States Bank of Oregon in the amount of 479,700 and 516,300 shares,
         respectively. U.S. Bancorp has sole dispositive power with respect to
         925,500 shares and voting power with respect to all of these shares.

 (3)     Based on information contained in Amendment No. 10 to Schedule 13D
         dated February 22, 1991. Mr. Ross has sole voting and dispositive power
         with respect to all of these shares; however, 909,800 of these shares
         are pledged to the Pacific Bank, along with other securities, as
         collateral for a previously unsecured loan. See Part I, Item 3, Legal
         Proceedings, for a description of an agreement between Ross and
         Starwood Capital pursuant to which Starwood Capital has agreed to
         purchase Ross' Paired Shares at Ross' election during a 60-day period
         beginning in December 1995, at a price of $5.625 per Paired Share.
         Starwood Capital may also elect to purchase Ross' Paired Shares at the
         same time on the same terms.

 (4)     Based on information contained in a Schedule 13D dated January 31, 1995
         filed by Starwood Capital, Barry S. Sternlicht and the following
         Starwood Partners: Starwood Opportunity Fund II, L.P.("SOFI II"),
         Firebird Consolidated Partners, L.P., Woodstar Partners, I, L.P.,
         Starwood-Huntington Partners, L.P., Starwood/Wichita Investors, L.P.,
         Starwood-Nomura Hotel Investors, L. P., Starwood-Apollo Hotel 


                                       48
<PAGE>   52

         Partners IX, L.P., Starwood Apollo Hotel Partners VIII, L.P. and Berl
         Holdings, L.P. Such Schedule 13D reports that SOFI II owns 299,600
         Paired Shares and that SOFI II and Mr. Sternlicht have the power to
         vote and dispose of such shares and that the Starwood Partners hold
         units in the Realty Partnership and the Operating Partnership which
         are, subject to the 8.0% Paired Share ownership limit, exchangeable for
         an aggregate of 35,661,254 Paired Shares (approximately 74.6% of the
         outstanding Paired Shares after such exchange). Such units were
         acquired in the Reorganization described in Part I, Item 1 of this
         Joint Annual Report. Such Schedule 13D reports that because of the 8.0%
         ownership limit, the Starwood Partners cannot beneficially own more
         than 8.0% of the outstanding Paired Shares. The amount beneficially
         owned and the percent of class assumes that Starwood Partners exchange
         units for Paired Shares to the maximum extent permitted within the
         ownership limit provision.

(5)      Based on information contained in Schedule 13D dated January 4, 1995.
         Edward J. Okay has sole voting power and shares dispositive power with
         Dorothy P. Okay with respect to all of these shares.

                  Trustees and Officers of the Trust. The following table sets
forth the beneficial ownership of the Paired Shares as of March 27, 1995 by each
Trustee and each executive officer of the Trust named in the Summary Cash
Compensation Table included in Item 11 hereof who owns Paired Shares and by all
Trustees and executive officers of the Trust as a group. Except as otherwise
provided below, each beneficial owner has sole voting and investment power with
respect to all shares beneficially owned.

<TABLE>
<CAPTION>
                                                                 Amount
                           Name of                             Beneficially                    Percent of
                      Beneficial Owner                            Owned                         Class (1)
                      ----------------                         ------------                    ----------
<S>                                                            <C>                                 <C>
Jeffrey C. Lapin                                                  85,750 (3)                       (2)
Michael W. Mooney                                                 25,000 (4)                       (2)
Sherwin L. Samuels                                                93,461 (5)                       (2)
Earle F. Jones                                                     6,500 (6)                       (2)
Barry M. Sternlicht                                            1,055,039 (7)                       8.0%
All Trustees and officers as a group                           1,215,750 (8)                       9.6%
</TABLE>

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

(1)      Based on the number of paired shares outstanding on March 27, 1995,
         including the exchange of units for Paired Shares as discussed in note
         (7) below.

(2)      Less than 1%.

(3)      Includes 80,000 shares subject to presently exercisable options and
         5,000 shares owned in a pension plan of which Mr. Lapin is sole trustee
         and beneficiary.

(4)      Includes 25,000 shares subject to presently exercisable options.

(5)      Includes 14,320 shares held in a segregated account for the benefit of
         Mr. Samuels by a pension plan trust and 56,000 shares subject to
         presently exercisable options and 1,000 shares issuable upon exercise
         of paired warrants issued by the Trust and the Corporation. Does not
         include 359 shares owned by Mr. Samuels's son (of which shares Mr.
         Samuels disclaims beneficial ownership).

(6)      Includes 500 shares issuable upon exercise of paired warrants issued by
         the Trust and the Corporation.

(7)      Mr. Sternlicht and SOFI II have the power to vote and dispose of
         299,600 Paired Shares held by SOFI II. The remaining shares reported
         above are issuable upon exchange of units of the Realty Partnership and
         the Operating Partnership. Because of the 8.0% Paired Share ownership
         limit, the shares reported above do not include the remainder of the
         35,661,254 Paired Shares (approximately 74.6% of the outstanding Paired
         Shares) issuable upon exchange of all of the units issued to the
         Starwood Partners in the aggregate. Such units were acquired in the
         Reorganization described in Part I, Item 1 of this Joint Annual Report.
         See Notes (3) and (4) under "Certain Beneficial Owners" above.

(8)      Includes 161,000 shares that may be acquired upon the exercise of
         presently exercisable options 1,500 shares issuable upon exercise of
         paired warrants issued by the Trust and the Corporation and 755,439


                                       49
<PAGE>   53

         shares issuable upon exchange of units of the Realty Partnership and
         the Operating Partnership (see note (7) above). Does not include shares
         owned by Mr. Samuels' son (see note (5) above).

                  Directors and Officers of the Corporation. The following table
sets forth the beneficial ownership of paired shares as of March 27, 1994 by
each Director and each executive officer of the Corporation named in the Summary
Cash Compensation Table included in Item 11 hereof who owns paired shares and by
all Directors and executive officers of the Corporation as a group. Except as
otherwise provided below, each beneficial owner has sole voting and investment
power with respect to all shares beneficially owned.

<TABLE>
<CAPTION>
                            Name of                           Number of Shares
                       Beneficial Owner                      Beneficially Owned                  Percent of
                       ----------------                      ------------------            
                                                                                                  Class (1)
                                                                                                 ----------
 <S>                                                            <C>                                <C>    
 Kevin E. Mallory                                                  25,650 (3)                       (2)
 Bruce M. Ford                                                      4,414 (4)                       (2)
 Earle F. Jones                                                     6,500 (5)                       (2)
 Graeme W. Henderson                                               47,841 (6)                       (2)
 Barry M. Sternlicht                                            1,055,039 (7)                       8.0%
 All Directors and officers as a group                          1,139,444 (8)                      8.6%(2)

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

(1)      Based on the number of shares outstanding on March 27, 1994, including
         the exchange of units as described in note (7) below.

(2)      Less than 1%.

(3)      Includes 25,000 shares subject to presently exercisable options.

(4)      Includes 2,422 shares issuable upon exercise of paired warrants issued
         by the Trust and the Corporation, 172 of which are owned by Mr. Ford's
         wife.

(5)      Includes 500 shares issuable upon exercise of paired warrants issued by
         the Trust and the Corporation.

(6)      Includes 300 shares owned in a Keogh Plan and 16,000 shares issuable
         upon exercise of paired warrants issued by the Trust and the
         Corporation.

(7)      Mr. Sternlicht and SOFI II have the power to vote and dispose of
         299,600 Paired Shares held by SOFI II. The remaining shares reported
         above are issuable upon exchange of units of the Realty Partnership and
         the Operating Partnership. Because of the 8.0% Paired Share ownership
         limit, the shares reported above do not include the remainder of the
         35,661,254 Paired Shares (approximately 74.6% of the outstanding Paired
         Shares) issuable upon exchange of all of the units issued to the
         Starwood Partners in the aggregate. Such units were acquired in the
         Reorganization described in Part I, Item 1 of this Joint Annual Report.
         See Notes (3) and (4) under "Certain Beneficial Owners" above.

(8)      Includes 25,000 shares that may be acquired upon the exercise of
         presently exercisable options, 2,422 shares issuable upon exercise of
         paired warrants issued by the Trust and the Corporation and 755,439
         shares issuable upon exchange of units of the Realty Partnership and
         the Operating Partnership (see note (7) above).

</TABLE>

ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

Management Obligations of Western Host

                  General. Prior to December 31, 1992, Western Host, Inc., a
wholly owned subsidiary of the Corporation, managed six hotels owned by limited
partnerships of which Messrs. John F. Rothman and Ronald A. Young are general
partners, one hotel owned by a general 



                                       50
<PAGE>   54

partnership whose sole partners are Messrs. Young and Rothman, and one hotel
owned by a partnership of which Western Host is the sole general partner and
whose limited partners are affiliates of Messrs. Young and Rothman. Mr. Rothman
was a Trustee of the Trust and a Director of the Corporation, and the Trust's
President and Chief Executive Officer, from September 1986 until March 1990; Mr.
Young was the Corporation's President and Chief Executive Officer, from December
1986 through December 1992, a Director of the Corporation from December 1986
until February 1994 and a Trustee of the Trust from June 1988 until February
1994.

                  For its services as manager of these eight hotels described
above (the "Western Host Hotels"), Western Host in each case received a
management fee that generally was based upon the gross revenues, cash flows
and/or operating profits of the hotel or the partnership that owned that
property. For supervisory services rendered by Western Host in connection with
any refurbishment or remodeling program or any construction of additional hotel
guest rooms or other facilities at a Western Host Hotel, Western Host received a
supervisory fee equal to 5% of the direct cost of those refurbishments,
remodeling or construction. Western Host also acted as the purchasing agent with
respect to certain furniture, fixtures and equipment and certain operating
supplies required by a Western Host Hotel. To the extent these services were
rendered other than in connection with a refurbishment, remodeling and/or
construction program for which Western Host was entitled to a supervisory fee,
Western Host was entitled to charge a fee ranging from 5% to 10% of the actual
cost of the items purchased as the estimated cost incurred by Western Host in
providing those services.

                  In lieu of the partnerships that owned the Western Host Hotels
(the "Western Host Partnerships") employing full-time bookkeepers at the
partnership's respective properties, Western Host provided bookkeeping services
and received a bookkeeping service fee. The fee was computed by adding together
all direct labor costs incurred by Western Host in providing those services to
all hotels that Western Host manages and allocating to each Western Host Hotel a
pro rata portion of those costs, based on the number of rooms in that hotel as
compared with the number of rooms in all hotels managed by Western Host.

                  Since January 1, 1993, Western Host's day-to-day management
obligations with respect to the Western Host Hotels have been performed on
Western Host's behalf by Westland Hotel Corporation ("Westland"), a company
owned by Mr. Young and of which he is president and chief executive officer.

                  Management Fees Paid to Western Host; Certain Borrowings.
Western Host is one of the general partners, together with Messrs. Young and
Rothman, of Western Host Pasadena Partners (which owns a hotel in Pasadena,
California) and Western Host San Francisco Partners (which owns a hotel in San
Francisco, California). Western Host was the sole general partner of Western
Host Santa Maria Partners, which prior to July 1993 owned a hotel in Santa
Maria, California.

                  Pursuant to the applicable partnership agreement, Western Host
was entitled to receive for its management services (i) with respect to the
Pasadena property, a minimum management fee equal to 5% of the hotel's gross
receipts, plus an incentive management fee equal to 30% of the hotel's cash
flow, subordinated to an annual preferred return to limited partners of 



                                       51
<PAGE>   55

that partnership, and (ii) with respect to the San Francisco property, a
management fee equal to all distributions made to limited partners of Western
Host San Francisco Partners in excess of a specified preferred annual return on
investment to those limited partners. As a general partner of these Western Host
Partnerships, Western Host is contingently liable for the liabilities and
obligations of each partnership and its hotel.

         Western Host was responsible, pursuant to management agreements, for
the management of one hotel located in Stockton, California owned by a general
partnership of which Messrs. Young and Rothman are the general partners and four
hotels owned by limited Partnerships of which Messrs Young and Rothman are the
general partners. These partnerships are Western Host Bakersfield Partners
(which owns a hotel in Bakersfield, California), Western Host Fresno Partners
(which owns a hotel in Fresno, California), Western Host Monterey Partners
(which owns a hotel in Monterey, California), and Western Host Properties (which
owns a hotel in Modesto, California).

                  For its services as manager of the property in Stockton,
Western Host was entitled to a management fee equal to 4% of the hotel's gross
receipts; for its services as manager of the properties in Bakersfield, Fresno,
Monterey, and Modesto, Western Host is entitled to a minimum management fee
equal to 4% of the hotel's revenues, plus an incentive management fee based on
the profits and cash flows of each hotel.

                  For the year ended December 31, 1993, all of the management
fees and other compensation payable to Western Host by the Western Host
Partnerships was collected by Westland on Western Host's behalf. For Westland's
services in managing the day-to-day operations of the Western Host Hotels,
Westland is entitled to retain from the amounts paid by the Western Host
partnerships a submanagement fee equal to 3% of each Western Host Hotel's
operating revenues.

                  For the year ended December 31, 1993, management fees and
other compensation paid or payable to Western Host by the Western Host
Partnerships and/or Westland after payment of Westland's submanagement fee
totaled $308,000. At December 31, 1993, $242,000 of such compensation remained
outstanding and had not been received. In connection with the settlement of
litigation, $120,000 was paid in full settlement of the $242,000 amount.

                  As of December 31, 1993, the Western Host Partnerships and/or
Westland owed to Western Host and the Corporation, costs of refurbishments and
amounts advanced for the expenses of the managed Western Host hotels totaling
$100,000, which was included in Inventories, prepaid expenses and other assets
at December 31, 1993.

                  Restrictions on Competition; Term of Management Arrangements.
The management agreements for the hotels located in Modesto and Monterey provide
that Western Host may not own or manage another hotel within a 25-mile radius of
each hotel. Similar provisions (with a five-mile radius) are contained in the
management agreements for the hotels in Fresno and Bakersfield and in the
partnership agreement pursuant to which Western Host manages the Pasadena
property.


                                       52
<PAGE>   56

                  Each of Western Host's management agreements with a Western
Host Partnership (other than the management agreement for the Stockton hotel)
originally provided for the right of that partnership to terminate the agreement
at any time on 60 days' prior notice. The management agreement for the hotel in
Stockton states that such agreement is month-to-month and may be terminated by
either Western Host or Messrs. Rothman and Young at any time.

                  Western Host had the right and obligation to manage the hotels
owned by each of Western Host San Francisco Partners and Western Host Pasadena
Partners as long as Western Host remains a general partner of that Partnership.
However, the partnership agreement for Western Host San Francisco Partners
provides that certain transfers of voting securities of Western Host will
terminate Western Host's right to manage the hotel owned by that partnership and
to receive future management fees unless, either prior or subsequent to the
transfer, a majority-in-interest of the limited partners of the partnership
consent to the transfer. Although the Corporation's December 1986 acquisition of
Western Host may have constituted such a transfer, the consent of the limited
partners of Western Host San Francisco Partners with respect to that transfer
was not solicited.

                  Each of the management agreements between Western Host and
Westland could be canceled by Western Host at any time upon 30 days' notice.

                  In connection with the settlement of shareholder litigation
(see Item 3 - "Legal Proceeding"), Messrs. Rothman and Young caused each of the
Western Host Partnerships (other than Western Host Santa Maria Partners) to
terminate Western Host's management obligations with respect to that
partnership's hotel, indemnified the Corporation and Western Host against all
claims that might be made against Western Host in connection with its status as
a general partner of Western Host Santa Maria Partners, Western Host Pasadena
Partners and Western Host San Francisco Partners or in connection with any fact
or circumstance occurring since January 1, 1993 with respect to any of the
Western Host Hotels, and delivered to the Corporation an irrevocable letter of
credit in the amount of $800,000. If final settlement of the shareholder
litigation is achieved within one year from the date the letter of credit was
delivered to the Corporation, Western Host will agree to accept the termination
of its management obligations with respect to the Western Host Hotels and will
be entitled to draw on the letter of credit. If final settlement of the
shareholder litigation is not consummated within the one-year period the letter
of credit would be returned to Messrs. Rothman and Young, and the Corporation
and Western Host would be free to pursue all claims, if any, they might have
against Messrs Rothman and Young and the Western Host Partnerships in connection
with the termination of Western Host's management obligations. In addition,
$120,000 of the management fees and all costs and amounts advanced to the
partnerships which were payable to Western Host were paid in full settlement of
such amounts due at December 31, 1993.

Other Relationships

                  Sherwin L. Samuels, the General Counsel and Secretary of the
Trust, is a partner through a professional corporation of the law firm of Sidley
& Austin. Sidley & Austin provides legal services to the Trust, the Corporation
and Western Host.


                                       53
<PAGE>   57
                  As part of the consideration to Starwood Capital in
connection with the Reorganization, the Partnerships agreed to pay an amount to
Starwood Capital only if the Trust and the Corporation consummated a public
offering of Paired Shares prior to June 30, 1996, which offering results in the
receipt by the Trust and the Corporation of gross proceeds of not less than
$150 million. In connection with the Offering consummated on July 6, 1995,
Starwood Lodging paid to Starwood Capital approximately $3.7 million. Such
payment was made from proceeds of the Offering and was treated as a public
offering cost.
                  On March 24, 1995, the Realty Partnership and the Trust 
entered into an Amended and Restated Credit Agreement (the "New Credit 
Agreement") pursuant to which the Realty Partnership borrowed approximately 
$132 million (the "Loan") which was used primarily to refinance all 
outstanding Senior Debt (after the exchange by a Starwood Partner of 
$12 million of Senior Debt for units of the Realty Partnership and the 
Operating Partnership and approximately $27 million of first mortgage debt). 
In connection with the refinancing, the Realty Partnership paid $514,000 to 
one of the Senior Lenders and a portion of the lender warrants issued in 
connection with the prior Credit Agreement (the "Lender Warrants") were 
canceled. In connection with the New Credit Agreement, the remaining Lender 
Warrants could be canceled upon the payment to a Starwood Partner of a 
$786,000 cancellation fee. Effective March 31, 1995 the Realty Partnership 
issued an unsecured note payable to the Starwood Partner in the amount of 
$786,000 and the remaining Lender Warrants were canceled. The transactions 
relating to the cancellation of Lender Warrants were recorded as a reduction 
to paid-in capital. 
                  For information with respect to the Share Purchase 
Agreements of Messrs. Henderson, Samuels, Jones and Ford see "Share
Purchase Agreements" contained in Item 11 of this Joint Annual Report.

                  For information with respect to the employment agreements of
Messrs. Lapin, Mooney and Mallory see "Employment Agreements with Executive
Officers" contained in Item 11 of this Joint Annual Report.

                                     PART IV

ITEM 14.          EXHIBITS, FINANCIAL STATEMENTS, FINANCIAL STATEMENT 
                  SCHEDULES AND REPORTS ON FORM 8-K.

                  (a)  Documents filed.

Financial Statements and Financial Statement Schedules

                  The financial statements and financial statements schedules
listed in the Index to Financial Statements and Financial Statements Schedules
following the signature pages hereof are filed as part of this Joint Annual
Report.

<TABLE>
<CAPTION>

                  Exhibits
                  --------
Exhibit No.                         Description of Exhibit
-----------                         ----------------------
<S>               <C>
    2.1           Formation Agreement dated as of November 11, 1994 among the
                  Trust, the Corporation, Starwood Capital and the Starwood
                  Partners (incorporated by reference to Exhibit 2 to the
                  Trust's and the Corporation's Joint Current Report on Form 8-K
                  dated November 16, 1994).(1)

    3.1           Amended and Restated Declaration of Trust of the Trust dated
                  June 6, 1988, as amended (incorporated by reference to Exhibit
                  3A to the Trust's and the Corporation's Joint Current Report
                  on Form 8-K dated January 31, 1995)

    3.2           Amendment and Restatement of Articles of Incorporation of the
                  Corporation (incorporated by reference to Exhibit 3B to the
                  Trust's and the Corporation's Joint Current Report on Form 8-K
                  dated January 31, 1995)

    3.3           Trustees' Regulations of the Trust, as amended.

    3.4           By-laws of the Corporation, as amended.

</TABLE>

(1)    The Securities and Exchange Commission file numbers of all filings made
       pursuant to the Securities Act of 1934, as amended, and referenced 
       herein are: 1-6828 (Starwood Lodging Trust) and 1-7959 (Starwood Lodging 
       Corporation).

                                       54
<PAGE>   58

<TABLE>
<CAPTION>

Exhibit No.                         Description of Exhibit
-----------                         ----------------------
<S>               <C>

  4.1             Pairing Agreement dated June 25, 1986, between the Trust and
                  the Corporation, as amended.

  4.2             Form of Warrant Agreement dated as of September 16, 1986,
                  between the Trust and City National Bank ("CNB") (incorporated
                  by reference to Exhibit 4.3 to the Trust's and the
                  Corporation's Registration Statement on Form S-4 (the "S-4
                  Registration Statement") filed with the Securities and
                  Exchange Commission (the "SEC") on August 1, 1986
                  (Registration No. 33-7694)).

  4.3             Form of Warrant Agreement dated as of September 16, 1986,
                  between the Corporation and CNB (incorporated by reference to
                  Exhibit 4.3A to the S-4 Registration Statement).

  4.4             Form of Warrant Agreement dated as of January 28, 1993, among
                  the Trust and the Corporation, on the one hand, and John
                  Hancock Mutual Life Insurance Company, John Hancock Variable
                  Life Insurance Company, Connecticut Mutual Life Insurance
                  Company, The First National Bank of Boston and Wells Fargo
                  Bank, N.A. (collectively the "Lenders"), on the other hand
                  (Exhibit N to the Credit Agreement listed as Exhibit 10.23
                  below) (incorporated by reference to Exhibit 10.33 to the
                  Trust's and the Corporation's Joint Annual Report on Form 10-K
                  for the year ended December 31, 1992 (the "1992 Form 10-K")).

  4.5             First Amendment to Warrant Agreement dated as of February 28,
                  1994, among the Trust, the Corporation and the Lenders
                  (incorporated by reference to Exhibit 4.5 to the Trust's 
                  and the Corporation's Joint Annual Report on Form 10-K for 
                  the year ended December 31, 1993 (the "1993 Form 10-K")).

  10.1            Incentive and Non-Qualified Share Option Plan (1986) of the
                  Trust (incorporated by reference to Exhibit 10.8 to the Trust
                  and the Corporation's Joint Annual Report on Form 10-K for the
                  year ended August 31, 1986 (the "1986 Form 10-K")).(2)

  10.2            Corporation Stock Non-Qualified Stock Option Plan (1986) of
                  the Trust (incorporated by reference to Exhibit 10.9 to the
                  1986 Form 10-K).(2)

  10.3            Stock Option Plan (1986) of the Corporation (incorporated by
                  reference to Exhibit 10.10 to the 1986 Form 10-K).(2)

  10.4            Trust Shares Option Plan (1986) of the Corporation
                  (incorporated by reference to Exhibit 10.11 to the 1986 Form
                  10-K).(2)
</TABLE>

-----------------------
(2)    Management contract or compensatory plan or arrangement required to be 
       filed as an exhibit hereto pursuant to Item 14(c) of Form 10-K.


                                       55
<PAGE>   59

<TABLE>
<CAPTION>

Exhibit No.                         Description of Exhibit
-----------                         ----------------------
<S>               <C>

  10.5            Form of Share Purchase and Pledge Agreement and related
                  Promissory Note entered into pursuant to the Share Purchase
                  Plan (1987) of the Trust, together with forms of Amendments
                  Nos. 1 and 2 thereto (incorporated by reference to Exhibit
                  10.10 to the Trust's and the Corporation's Joint Annual Report
                  on Form 10-K for the year ended December 31, 1990 (the "1990
                  Form 10-K")).(2)

  10.6            Form(s) of Amendment No. 3 to Share Purchase and Pledge
                  Agreement(s) and related Promissory Note(s) entered into
                  pursuant to the Share Purchase Plan (1987) of the Trust
                  (incorporated by reference to Exhibit 10.11 to the Trust's and
                  the Corporation's Joint Annual Report on Form 10-K for the
                  year ended December 31, 1991 (the "1991 Form 10-K")).(2)

  10.7            Form of Share Purchase and Pledge Agreement and related
                  Promissory Note entered into pursuant to the Share Purchase
                  Plan (1987) of the Corporation, together with forms of
                  Amendments Nos. 1 and 2 thereto (incorporated by reference to
                  Exhibit 10.11 to the 1990 Form 10-K.)(2)

  10.8            Form of Amendment No. 3 to Share Purchase and Pledge
                  Agreement(s) and related Promissory Note(s) entered into
                  pursuant to the Share Purchase Plan (1987) of the Corporation
                  (incorporated by reference to Exhibit 10.13 to the 1991 Form
                  10-K).(2)

  10.9            Amendment No. 1 to Share Purchase Agreement and Note dated as
                  of March 25, 1992, between the Corporation and Bruce M. Ford
                  (incorporated by reference to the Exhibit 10.5 to the 1991
                  Form 10-K).(2)

  10.10           Form of Indemnification Agreement dated as of February 3,
                  1992, between the Trust and each of Messrs. Ronald A. Young,
                  John D. Morrissey, Graeme W. Henderson, Sherwin L. Samuels and
                  Jeffrey C. Lapin (incorporated by reference to Exhibit 10.29
                  to the 1991 Form 10-K).(2)

  10.11           Form of Indemnification Agreement dated as of February 3,
                  1992, between the Corporation and each of Messrs. Ronald A.
                  Young, Graeme W. Henderson, Bruce M. Ford, Earle M. Jones and
                  William H. Ling (incorporated by reference to Exhibit 10.30 to
                  the 1991 Form 10-K).(2)

  10.12           Executive Employment Agreement dated as of January 31, 1995,
                  between the Trust and Jeffrey C. Lapin.(2)

  10.13           Executive Employment Agreement dated as of July 19, 1992,
                  between the Trust and Michael W. Mooney (incorporated by
                  reference to Exhibit 10.4 to the Trust's and the Corporation's
                  Joint Current Report on Form 8-K dated September 25, 1992 (the
                  "September 1992 Form 8-K")).(2)
</TABLE>


                                       56
<PAGE>   60
<TABLE>
<CAPTION>

Exhibit No.                         Description of Exhibit
-----------                         ----------------------
<S>               <C>

  10.14           First Amendment to executive Employment Agreement dated as of
                  March 18, 1993, between the Trust and Michael W. Mooney
                  (incorporated by reference to Exhibit 10.16 to the 1993 Form
                  10-K).(2)

  10.15           Amendment No. 2 to Executive Employment Agreement dated as of
                  December 15, 1993, between the Trust and Michael W. Mooney
                  (incorporated by reference to Exhibit 10.17 to the 1993 Form
                  10-K).(2)

  10.16           Executive Employment Agreement dated as of July 19, 1992,
                  between the Corporation and Kevin E. Mallory (incorporated by
                  reference to Exhibit 10.5 to the September 1992 Form 8-K).(2)

  10.17           First Amendment to executive Employment Agreement dated as of
                  March 18, 1993, between the Trust and Kevin E. Mallory
                  (incorporated by reference to Exhibit 10.19 to the 1993 Form
                  10-K).(2)

  10.18           Amendment No. 2 to Executive Employment Agreement dated as of
                  December 15, 1993, between the Trust and Kevin E. Mallory
                  (incorporated by reference to Exhibit 10.20 to the 1993 Form
                  10-K).(2)

  10.19           Form of Amended and Restated Lease Agreement entered into as
                  of January 1, 1993, between the Trust as Lessor and the
                  Corporation (or a subsidiary) as Lessee (incorporated by
                  reference to Exhibit 10.19 to the 1992 Form 10-K).

  10.20           Exchange Rights Agreement dated as of January 1, 1995 among
                  the Trust, the Corporation, the Realty Partnership, the
                  Operating Partnership and the Starwood Partners (incorporated
                  by reference to Exhibit 2B to the Trust's and the
                  Corporation's Joint Current Report on Form 8-K dated January
                  31, 1995).

  10.21           Registration Rights Agreement dated as of January 1, 1995
                  among the Trust, the Corporation and Starwood Capital
                  (incorporated by reference to Exhibit 2C to the Trust's and
                  the Corporation's Joint Current Report on Form 8-K dated
                  January 31, 1995).

  10.22           Limited Partnership Agreement for the Realty Partnership among
                  the Trust and the Starwood Partners dated as of December 15,
                  1994 (incorporated by reference to Exhibit 2D to the Trust's
                  and the Corporation's Joint Current Report on Form 8-K dated
                  January 31, 1995).

  10.23           Limited Partnership Agreement for the Operating Partnership
                  among the Corporation and the Starwood Partners dated as of
                  December 15, 1994 (incorporated by reference to Exhibit 2E to
                  the Trust's and the Corporation's Joint Current Report on Form
                  8-K dated January 31, 1995).
</TABLE>


                                       57
<PAGE>   61

<TABLE>
<CAPTION>

Exhibit No.                         Description of Exhibit
-----------                         ----------------------
<S>               <C>

  10.24           Amended and Restated Credit Agreement dated as of March 24,
                  1995 among the Trust and the Realty Partnership on the one
                  hand, and Bankers Trust Company as successor Collateral Agent
                  to Wells Fargo Bank, National Association and Merrill Lynch
                  Mortgage Capital, Inc., as assignee of John Hancock Mutual
                  Life Insurance Company, John Hancock Variable Life Insurance
                  Company, Connecticut Mutual Life Insurance Company, The First
                  National Bank of Boston and Wells Fargo Bank, National
                  Association.

  21.             Subsidiaries of the Corporation.

                  Hotel Investors of Arizona, Inc.
                  Hotel Investors of Nebraska, Inc.
                  Hotel Investors of Michigan, Inc.
                  Hotel Investors of Missouri, Inc.
                  Hotel Investors Corporation of Nevada
                  Hotel Investors of Virginia, Inc.
                  Columbus Operators, Inc.
                  Lyntex Properties, Inc.
                  Western Host, Inc.

  23.             Consent of Independent Accountants.

  27.             Financial Data Schedule.

                  (b)  Reports on Form 8-K.

                  During the fourth quarter of 1994, the Trust and the
                  Corporation filed a Joint Current Report on Form 8-K dated
                  November 16, 1994 reporting the completion of definitive
                  agreements providing for the Reorganization.
</TABLE>


                                       58
<PAGE>   62
                                    SIGNATURE

         Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Report to be signed on
its behalf by the undersigned, thereunto duly authorized.

                                         STARWOOD LODGING TRUST
                                         (Registrant)

Date: March 28, 1995                     By:  /s/ Jeffrey C. Lapin
                                              ----------------------
                                              Jeffrey C. Lapin, President

         Pursuant to the requirements of the Securities Exchange Act of 1934,
this Report has been signed below by the following persons on behalf of the
Registrant in the capacities and on the dates indicated.

<TABLE>
<CAPTION>

   Signature                          Title                       Date
   ---------                          -----                       ----
<S>                              <C>                              <C>
/s/ Jeffrey C. Lapin             President, Chief                 March 28, 1995
----------------------------     Operating Officer
                                 and Trustee
                                 (Principal Executive Officer)
                                                              
   Jeffrey C. Lapin             
/s/ Michael W. Mooney            Vice President and               March 28, 1995
----------------------------     Chief Financial Officer
                                 (Principal Financial
                                 and Accounting Officer)
                                                        
   Michael W. Mooney             
/s/ Jonathan Eilian              Trustee                          March 28, 1995
----------------------------
   Jonathan Eilian

/s/ Madison F. Grose             Trustee                          March 28, 1995
----------------------------                                                                                          
   Madison F. Grose

/s/ Earle F. Jones               Trustee                          March 28, 1995
----------------------------                                                                                            
   Earle F. Jones

/s/ Barry S. Sternlicht          Trustee                          March 28, 1995
----------------------------                                                                                        
   Barry S. Sternlicht
</TABLE>



                                       59
<PAGE>   63
                                    SIGNATURE

         Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Report to be signed on
its behalf by the undersigned, thereunto duly authorized.

                                  STARWOOD LODGING CORPORATION
                                  (Registrant)

Date: March 28, 1995               By:  /s/ Kevin E. Mallory
                                      ----------------------
                                      Kevin E. Mallory, Executive Vice President

         Pursuant to the requirements of the Securities Exchange Act of 1934,
this Report has been signed below by the following persons on behalf of the
Registrant in the capacities and on the dates indicated.

<TABLE>
<CAPTION>

   Signature                             Title                        Date
   ---------                             -----                        ----
<S>                              <C>                           <C>
 /s/ Kevin E. Mallory            Executive Vice President         March 28, 1995
----------------------------     (Principal Executive Officer)
                                                              
   Kevin E. Mallory              
/s/ Kenneth J. Biehl             Vice President                   March 28, 1995
----------------------------     (Principal Accounting Officer)
                                                                                                                 
   Kenneth J. Biehl              
/s/Earle F. Jones                Director                         March 28, 1995
----------------------------
   Earle F. Jones

 /s/ Bruce M. Ford               Director                         March 28, 1995
----------------------------                                                                                    
   Bruce M. Ford

 /s/Graeme W. Henderson          Director                         March 28, 1995
----------------------------
   Graeme W. Henderson
</TABLE>



                                       60
<PAGE>   64
                                      
                             STARWOOD LODGING TRUST
                          STARWOOD LODGING CORPORATION

         INDEX TO FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES

                        AS OF DECEMBER 31, 1994 AND 1993
               AND FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED
                                DECEMBER 31, 1994

<TABLE>
<S>                                                                                                            <C>
INDEPENDENT AUDITORS' REPORT  ................................................................................  F-1

STARWOOD LODGING TRUST AND STARWOOD LODGING CORPORATION:

         Combined Balance Sheets  ............................................................................  F-2
         Combined Statements of Operations  ..................................................................  F-3
         Combined Statements of Cash Flows  ..................................................................  F-4
         Combined Statements of Shareholders' Equity  ........................................................  F-5

STARWOOD LODGING TRUST:

         Balance Sheets  .....................................................................................  F-6
         Statements of Operations  ...........................................................................  F-7
         Statements of Cash Flows  ...........................................................................  F-8
         Statements of Shareholders' Equity  .................................................................  F-9

STARWOOD LODGING CORPORATION:

         Balance Sheets  ....................................................................................  F-10
         Statements of Operations  ..........................................................................  F-11
         Statements of Cash Flows  ..........................................................................  F-12
         Statements of Shareholders' Deficit  ...............................................................  F-13

NOTES TO FINANCIAL STATEMENTS  ..............................................................................  F-14

SCHEDULES:

         Schedule III- Real Estate and Accumulated Depreciation  ............................................  F-35
         Schedule -IV Mortgage Loans on Real Estate  ........................................................  F-39
</TABLE>



<PAGE>   65

INDEPENDENT AUDITORS' REPORT

To the Boards of Trustees and Directors and Shareholders of 
 Starwood Lodging Trust and Starwood Lodging Corporation:

We have audited the accompanying separate and combined financial statements of
Starwood Lodging Trust (a Maryland real estate investment trust) (the "Trust")
and Starwood Lodging Corporation (a Maryland corporation) and its subsidiaries
(the "Corporation"), collectively the "Companies", as of December 31, 1994 and
1993, and for each of the three years in the period ended December 31, 1994,
listed in the foregoing index to financial statements and financial statement
schedules. Our audits also included the financial statement schedules listed in
the foregoing index to financial statements and financial statement schedules.
These financial statements and financial statement schedules are the
responsibility of the Trust's, the Corporation's and the Companies' managements.
Our responsibility is to express an opinion on these financial statements and
financial statement schedules based on our audits.

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

In our opinion, such separate and combined financial statements present fairly,
in all material respects, the financial position of the Companies and the
financial position of the Trust and the Corporation at December 31, 1994 and
1993, and the respective results of their operations and their cash flows for
each of the three years in the period ended December 31, 1994 in conformity with
generally accepted accounting principles. Also, in our opinion, such financial
statement schedules, when considered in relation to the basic financial
statements taken as a whole, present fairly in all material respects the
information set forth therein.

DELOITTE & TOUCHE LLP

Los Angeles, California
March 24, 1995

                                      F-1
<PAGE>   66



STARWOOD LODGING TRUST AND STARWOOD LODGING CORPORATION
COMBINED BALANCE SHEETS

<TABLE>
<CAPTION>
                                                                         December 31,            December 31,
                                                                            1994                    1993
                                                                         -------------          -------------
ASSETS

<S>                                                                      <C>                    <C>
Hotel assets held for sale - net ...............................         $   8,585,000          $  16,631,000
Hotel assets - net .............................................           142,600,000            150,618,000
                                                                         -------------          -------------
                                                                           151,185,000            167,249,000
Mortgage notes receivable - net ................................            14,049,000             11,642,000
Investment in joint venture hotel properties ...................               262,000                281,000
                                                                         -------------          -------------
      Total real estate investments ............................           165,496,000            179,172,000
Cash and cash equivalents ......................................             5,065,000              5,652,000
Accounts receivable ............................................             4,040,000              4,360,000
Notes receivable - net .........................................             1,627,000              1,717,000
Inventories, prepaid expenses and other assets .................             7,727,000              4,451,000
                                                                         -------------          -------------
                                                                         $ 183,955,000          $ 195,352,000
                                                                         =============          =============
LIABILITIES AND SHAREHOLDERS' EQUITY

LIABILITIES
Secured notes payable and revolving line of credit..............         $ 113,896,000          $ 128,802,000
Mortgage and other notes payable ...............................            46,586,000             42,084,000
Accounts payable and other liabilities .........................            14,765,000             11,140,000
                                                                         -------------          -------------
                                                                           175,247,000            182,026,000
                                                                         -------------          -------------
Commitments and contingencies

SHAREHOLDERS' EQUITY
Trust shares of beneficial interest,
    $1.00 par value; authorized
    30,000,000 shares; outstanding
    12,132,948 shares ..........................................            12,133,000             12,133,000
Corporation common stock, $0.10 par
    value; authorized 30,000,000 shares;
    outstanding 12,132,948 shares ..............................             1,213,000              1,213,000
Additional paid-in capital .....................................           210,251,000            210,497,000
Share purchase notes ...........................................                                     (291,000)
Accumulated deficit ............................................          (214,889,000)          (210,226,000)
                                                                         -------------          -------------
                                                                             8,708,000             13,326,000
                                                                         -------------          -------------
                                                                         $ 183,955,000          $ 195,352,000
                                                                         =============          =============
</TABLE>

See accompanying notes to financial statements.


                                      F-2
<PAGE>   67



STARWOOD LODGING TRUST AND STARWOOD LODGING CORPORATION
COMBINED STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>

                                                                                           Years Ended December 31,
                                                                         ------------------------------------------------------
                                                                              1994                 1993                1992
                                                                         ------------         ------------         ------------
<S>                                                                      <C>                  <C>                  <C>
REVENUE
Hotel .........................................................          $ 82,668,000         $ 86,903,000         $ 88,812,000
Gaming ........................................................            27,981,000           27,505,000           26,150,000
Interest from mortgage and other notes ........................             1,554,000            1,412,000            1,348,000
Management fees and other income ..............................               411,000              475,000            1,186,000
Rents from leased hotel properties
   and income from joint ventures .............................               927,000              839,000              947,000
Gain (loss) on sales of hotel assets ..........................               456,000               21,000             (787,000)
                                                                         ------------         ------------         ------------
                                                                          113,997,000          117,155,000          117,656,000
                                                                         ------------         ------------         ------------

EXPENSES
Hotel operations ..............................................            60,829,000           68,132,000           68,620,000
Gaming operations .............................................            24,454,000           24,055,000           23,699,000
Interest ......................................................            17,606,000           15,187,000           14,208,000
Depreciation and amortization .................................             8,161,000            9,232,000           10,196,000
Administrative and operating ..................................             4,203,000            4,729,000            6,177,000
Loan restructuring costs ......................................                                                      10,892,000
Shareholder litigation ........................................             2,648,000              483,000              188,000
Provision for losses ..........................................               759,000            2,369,000            3,419,000
                                                                         ------------         ------------         ------------
                                                                          118,660,000          124,187,000          137,399,000
                                                                         ------------         ------------         ------------
                                        NET LOSS ..............          $ (4,663,000)        $ (7,032,000)        $(19,743,000)
                                                                         ============         ============         ============

                       NET LOSS PER PAIRED SHARE ..............          $      (0.38)        $      (0.58)        $      (1.63)
</TABLE>


See accompanying notes to financial statements.


                                      F-3
<PAGE>   68


STARWOOD LODGING TRUST AND STARWOOD LODGING CORPORATION
COMBINED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
 
                                                                                            Years Ended December 31,
                                                                           -------------------------------------------------------
                                                                               1994                 1993                  1992
                                                                           ------------          -----------          ------------

<S>                                                                        <C>                   <C>                  <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss .........................................................         $ (4,663,000)         $(7,032,000)         $(19,743,000)
Adjustments to reconcile net loss to net cash
  provided by (used in) operating activities:
  Depreciation and amortization ..................................            8,161,000            9,232,000            10,196,000
  Deferred interest ..............................................            3,610,000            3,287,000
  (Gain) loss on sales of hotel assets ...........................             (456,000)             (21,000)              787,000
  Provision for investment losses ................................              759,000            2,369,000             3,419,000
Changes in assets and liabilities:
  Accounts receivable, inventories
    and prepaid expenses .........................................              (86,000)           2,118,000                14,000
  Accounts payable and other liabilities .........................            1,568,000           (4,421,000)           10,017,000
                                                                           ------------          -----------          ------------
       Net cash provided by (used in)
       operating activities ......................................            8,893,000            5,532,000             4,690,000
                                                                           ------------          -----------          ------------

CASH FLOWS FROM INVESTING ACTIVITIES
Additions to hotel assets ........................................           (2,941,000)          (6,577,000)           (2,990,000)
Net proceeds from sales of assets ................................           12,536,000            6,130,000               488,000
Increase in notes receivable .....................................           (6,270,000)          (1,985,000)
Principal received on notes receivable ...........................            2,451,000              409,000             1,006,000
Reorganization costs .............................................           (1,287,000)
Other intangible assets ..........................................                                   (47,000)              (18,000)
Acquisition of minority interest/hotels ..........................                                (1,575,000)
                                                                           ------------          -----------          ------------
       Net cash provided by (used in)
       investing activities ......................................            4,489,000           (3,645,000)           (1,514,000)
                                                                           ------------          -----------          ------------

CASH FLOWS FROM FINANCING ACTIVITIES
Principal payments on mortgage and
  other notes payable ............................................           (1,498,000)          (1,666,000)           (1,146,000)
Borrowings under mortgage and other notes ........................            6,000,000              632,000
Principal payments on secured notes payable and
  revolving line of credit .......................................          (18,516,000)          (5,695,000)
Payments to minority shareholders ................................                                   (28,000)             (111,000)
Principal received on share purchase notes .......................               45,000                5,000                 2,000
                                                                           ------------          -----------          ------------
       Net cash provided by (used in) financing
       activities ................................................          (13,969,000)          (6,752,000)           (1,255,000)
                                                                           ------------          -----------          ------------

 INCREASE (DECREASE) IN CASH
  AND CASH EQUIVALENTS ...........................................             (587,000)          (4,865,000)            1,921,000
 CASH AND CASH EQUIVALENTS
  AT BEGINNING OF YEAR ...........................................            5,652,000           10,517,000             8,596,000
                                                                           ------------          -----------          ------------
 CASH AND CASH EQUIVALENTS
  AT END OF YEAR .................................................         $  5,065,000          $ 5,652,000          $ 10,517,000
                                                                           ============          ===========          ============
</TABLE>


See accompanying notes to financial statements.


                                      F-4
<PAGE>   69

 STARWOOD LODGING TRUST AND STARWOOD LODGING CORPORATION
 COMBINED STATEMENTS OF SHAREHOLDERS' EQUITY

<TABLE>
<CAPTION>
                                        Trust Shares
                                             of        Corporation     Additional       Share                           Total
                                         Beneficial       Common       Paid - in      Purchase     Accumulated      Shareholders'
                                          Interest        Stock         Capital         Notes        Deficit            Equity
                                        -----------    ----------    ------------    ---------    -------------    --------------
<S>                                     <C>            <C>           <C>             <C>          <C>              <C>
Balance January 1, 1992 .............   $12,133,000    $1,213,000    $210,673,000    $(485,000)   $(183,451,000)   $ 40,083,000
    Principal payments and reductions
       of share purchase notes ......                                                   11,000                           11,000
    Net loss ........................                                                               (19,743,000)    (19,743,000)
                                        -----------    ----------    ------------    ---------    -------------    ------------
Balance December 31, 1992 ...........    12,133,000     1,213,000     210,673,000     (474,000)    (203,194,000)     20,351,000
    Principal payments and reductions
      of share purchase notes .......                                    (176,000)     183,000                            7,000
    Net loss ........................                                                                (7,032,000)     (7,032,000)
                                        -----------    ----------    ------------    ---------    -------------    ------------
Balance December 31, 1993 ...........    12,133,000     1,213,000     210,497,000     (291,000)    (210,226,000)     13,326,000
    Principal payments and reductions
       of share purchase notes ......                                    (246,000)     291,000                           45,000
    Net loss ........................                                                                (4,663,000)     (4,663,000)
                                        -----------    ----------    ------------    ---------    -------------    ------------
Balance December 31, 1994 ...........   $12,133,000    $1,213,000    $210,251,000    $       0    $(214,889,000)   $  8,708,000
                                        ===========    ==========    ============    =========    =============    ============
</TABLE>



See accompanying notes to financial statements.

                                      F-5
<PAGE>   70

STARWOOD LODGING TRUST
BALANCE SHEETS

<TABLE>
<CAPTION>
                                              December 31,    December 31,
                                                  1994            1993
                                              -------------   -------------
<S>                                           <C>             <C> 
ASSETS

Hotel assets held for sale - net ...........  $   8,281,000   $  15,699,000
Hotel assets - net .........................    108,428,000     114,219,000
                                              -------------   -------------
                                                116,709,000     129,918,000

Mortgage notes receivable - net ............     14,049,000      11,642,000
Investment in joint venture hotel properties        240,000         276,000
                                              -------------   -------------
      Total real estate investments ........    130,998,000     141,836,000
Cash and cash equivalents ..................        255,000         918,000
Accounts receivable ........................        698,000       1,011,000
Notes receivable - Corporation .............     26,916,000      87,486,000
Notes receivable - net .....................      1,004,000       1,025,000
Prepaid expenses and other assets ..........      2,374,000         569,000
                                              -------------   -------------
                                              $ 162,245,000   $ 232,845,000
                                              =============   =============

LIABILITIES AND SHAREHOLDERS' EQUITY

LIABILITIES
Secured notes payable and revolving line of   
credit .....................................  $ 113,896,000   $ 128,802,000
Mortgage and other notes payable ...........     32,838,000      27,724,000
Accounts payable and other liabilities .....      5,061,000       4,114,000
                                              -------------   -------------
                                                151,795,000     160,640,000
                                              -------------   -------------

 Commitments and contingencies

SHAREHOLDERS' EQUITY
Trust shares of beneficial interest,
   $1.00 par value; authorized
   30,000,000 shares; outstanding
   12,132,948 shares .......................     12,133,000      12,133,000
Additional paid-in capital .................    146,059,000     204,640,000
Share purchase notes .......................                       (291,000)
Accumulated deficit ........................   (147,742,000)   (144,277,000)
                                              -------------   -------------
                                                 10,450,000      72,205,000
                                              -------------   -------------
                                              $ 162,245,000   $ 232,845,000
                                              =============   =============
</TABLE>


See accompanying notes to financial statements.


                                      F-6
<PAGE>   71

STARWOOD LODGING TRUST
STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
                                                           Years Ended December 31,
                                                 ---------------------------------------
                                                     1994          1993           1992
                                                 -----------   -----------   -----------
<S>                                              <C>           <C>           <C>
REVENUE

Rents from Corporation ........................  $16,906,000   $16,481,000   $21,177,000
Interest from Corporation .....................    1,730,000     1,534,000     4,123,000
Interest from mortgage and other notes ........    1,512,000     1,288,000     1,101,000
Rents from other leased hotel properties
   and income from joint ventures .............      927,000       839,000       947,000
Other income ..................................      164,000       253,000       227,000
Gain (loss) on sales of hotel assets ..........      432,000       (53,000)     (791,000)
                                                 -----------   -----------   -----------
                                                  21,671,000    20,342,000    26,784,000
                                                 -----------   -----------   -----------

EXPENSES

Interest ......................................   16,265,000    14,020,000    12,959,000
Depreciation and amortization .................    5,205,000     5,630,000     6,794,000
Administrative and operating ..................    1,583,000     1,948,000     2,350,000
Shareholder litigation ........................    1,324,000       264,000       188,000
Loan restructuring costs ......................                               10,892,000
Provision for losses ..........................      759,000     2,369,000     3,419,000
                                                 -----------   -----------   -----------
                                                  25,136,000    24,231,000    36,602,000
                                                 -----------   -----------   -----------
                                       NET LOSS  $(3,465,000)  $(3,889,000)  $(9,818,000)
                                                 ===========   ===========   ===========

                             NET LOSS PER SHARE  $     (0.28)  $     (0.32)  $     (0.81)
</TABLE>

See accompanying notes to financial statements.


                                      F-7
<PAGE>   72

STARWOOD LODGING TRUST
STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
                                                             Years Ended December 31,
                                                   -----------------------------------------
                                                        1994          1993            1992
                                                   ------------   -----------    -----------
<S>                                                <C>            <C>            <C>
CASH FLOWS FROM OPERATING ACTIVITIES

Net loss ........................................  $ (3,465,000)  $(3,889,000)   $(9,818,000)
Adjustments to reconcile net loss to net cash
  provided by (used in) operating activities:
  Depreciation and amortization .................     5,205,000     5,630,000      6,794,000
  Deferred interest .............................     3,610,000     2,243,000
  (Gain)/loss on sales of hotel assets ..........      (432,000)       53,000        791,000
  Provision for losses ..........................       759,000     2,369,000      3,419,000
Changes in operating assets and liabilities:
  Rent and interest receivable - Corporation ....    (1,730,000)   (1,519,000)    (8,238,000)
  Accounts receivable and prepaid expenses ......       (54,000)    1,037,000        115,000
  Accounts payable and other liabilities ........       562,000    (2,788,000)     9,710,000
                                                   ------------   -----------    -----------
       Net cash provided by (used in)
       operating activities .....................     4,455,000     3,136,000      2,773,000
                                                   ------------   -----------    -----------

CASH FLOWS FROM INVESTING ACTIVITIES

Additions to hotel assets .......................    (2,270,000)   (1,372,000)    (1,700,000)
Net proceeds from sales of assets ...............    11,719,000     5,360,000        189,000
Increase in mortgage notes receivable ...........    (6,270,000)   (1,985,000)
Principal received on mortgage
  and other notes receivable ....................     2,382,000       353,000        957,000
Reorganization costs ............................    (1,287,000)
Other intangible assets .........................                                    (18,000)
Net changes in notes receivable - Corporation ...     3,965,000     1,693,000        411,000
Acquisition of minority interest ................                  (1,575,000)
       Net cash provided by (used in)
       investing activities .....................     8,239,000     2,474,000       (161,000)
                                                   ------------   -----------    -----------

CASH FLOWS FROM FINANCING ACTIVITIES
Principal payments on mortgage and
  other notes payable ...........................      (886,000)   (1,594,000)      (754,000)
Principal payments on secured notes payable and
  revolving line of credit ......................   (18,516,000)   (5,695,000)
Borrowings under mortgage and other notes payable     6,000,000
Payments to minority shareholders ...............                     (18,000)       (97,000)
Principal received on share purchase notes ......        45,000                        1,000
                                                   ------------   -----------    -----------
       Net cash provided by (used in)
       financing activities .....................   (13,357,000)   (7,307,000)      (850,000)
                                                   ------------   -----------    -----------

INCREASE (DECREASE) IN CASH
  AND CASH EQUIVALENTS ..........................      (663,000)   (1,697,000)     1,762,000
CASH AND CASH EQUIVALENTS
  AT BEGINNING OF YEAR ..........................       918,000     2,615,000        853,000
                                                   ------------   -----------    -----------
CASH AND CASH EQUIVALENTS
  AT END OF YEAR ................................  $    255,000   $   918,000    $ 2,615,000
                                                   ============   ===========    ===========
</TABLE>

See accompanying notes to financial statements.


                                      F-8
<PAGE>   73


 STARWOOD LODGING TRUST
 STATEMENTS OF SHAREHOLDERS' EQUITY

<TABLE>
<CAPTION>
                                                     Shares of      Additional        Share                            Total
                                                     Beneficial     Paid - in        Purchase      Accumulated     Shareholders'
                                                      Interest       Capital          Notes          Deficit           Equity
                                                    -----------    ------------     ---------     -------------     ------------
<S>                                                 <C>            <C>              <C>           <C>               <C>
Balance January 1, 1992 ........................    $12,133,000    $204,816,000     $(191,000)    $(130,570,000)    $86,188,000
   Principal payments and reductions
       of share purchase notes .................                                        1,000                             1,000
 Net loss ......................................                                                     (9,818,000)     (9,818,000)
                                                    -----------    ------------     ---------     -------------     -----------

Balance December 31, 1992 ......................     12,133,000     204,816,000      (190,000)     (140,388,000)     76,371,000
   Principal payments, reductions and
      transfer of share purchase notes
      from the Corporation-net .................                       (176,000)     (101,000)                         (277,000)
 Net loss ......................................                                                     (3,889,000)     (3,889,000)
                                                    -----------    ------------     ---------     -------------     -----------

Balance December 31, 1993 ......................     12,133,000     204,640,000      (291,000)     (144,277,000)     72,205,000
   Forgiveness of intercompany debt ............                    (58,335,000)                                    (58,335,000)
   Principal payments and reductions
      of share purchase notes...................                       (246,000)      291,000                            45,000
 Net loss ......................................                                                     (3,465,000)     (3,465,000)
                                                    -----------    ------------     ---------     -------------     -----------


Balance December 31, 1994 ......................    $12,133,000    $146,059,000     $       0     $(147,742,000)    $10,450,000
                                                    ===========    ============     =========     =============     ===========
</TABLE>

See accompanying notes to financial statements.


                                      F-9
<PAGE>   74

STARWOOD LODGING CORPORATION
BALANCE SHEETS

<TABLE>
<CAPTION>
                                                  December 31,     December 31,
                                                      1994             1993
                                                  ------------     ------------
<S>                                               <C>              <C>
ASSETS

Hotel assets held for sale - net ...............  $    304,000     $    932,000
Hotel assets - net .............................    34,172,000       36,399,000
                                                  ------------     ------------
                                                    34,476,000       37,331,000
Investment in joint venture hotel properties ...        22,000            5,000
                                                  ------------     ------------
      Total real estate investments ............    34,498,000       37,336,000
Cash and cash equivalents ......................     4,810,000        4,734,000
Accounts receivable ............................     3,342,000        3,349,000
Notes receivable ...............................       623,000          692,000
Inventories, prepaid expenses and other assets .     5,353,000        3,882,000
                                                  ------------     ------------
                                                  $ 48,626,000     $ 49,993,000
                                                  ============     ============

LIABILITIES AND SHAREHOLDERS' DEFICIT

LIABILITIES

Mortgage and other notes payable ...............  $ 13,748,000     $ 14,360,000
Notes payable - Trust ..........................    26,916,000       87,486,000
Accounts payable and other liabilities .........     9,704,000        7,026,000
                                                  ------------     ------------
                                                    50,368,000      108,872,000
                                                  ------------     ------------

Commitments and contingencies

SHAREHOLDERS' DEFICIT
Corporation common stock, $0.10 par
  value; authorized 30,000,000 shares;
  outstanding 12,132,948 shares ................     1,213,000        1,213,000
Additional paid-in capital .....................    64,192,000        5,857,000
Accumulated deficit ............................   (67,147,000)     (65,949,000)
                                                  ------------     ------------
                                                    (1,742,000)     (58,879,000)
                                                  ------------     ------------
                                                  $ 48,626,000     $ 49,993,000
                                                  ============     ============
</TABLE>

See accompanying notes to financial statements.


                                      F-10
<PAGE>   75

STARWOOD LODGING CORPORATION
STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
                                                             Years Ended December 31,
                                                  ------------------------------------------
                                                       1994           1993           1992
                                                  ------------   ------------   ------------
<S>                                               <C>            <C>            <C>
REVENUE

Hotel ..........................................  $ 82,668,000   $ 86,903,000   $ 88,812,000
Gaming .........................................    27,981,000     27,505,000     26,150,000
Interest from notes receivable .................        42,000        124,000        247,000
Management fees and other income ...............       247,000        222,000        959,000
Gain (loss) on sales of hotel assets ...........        24,000         74,000          4,000
                                                  ------------   ------------   ------------
                                                   110,962,000    114,828,000    116,172,000
                                                  ------------   ------------   ------------

EXPENSES

Hotel operations ...............................    60,829,000     68,132,000     68,620,000
Gaming operations ..............................    24,454,000     24,055,000     23,699,000
Rent - Trust ...................................    16,906,000     16,481,000     21,177,000
Interest - Trust ...............................     1,730,000      1,534,000      4,123,000
Interest - other ...............................     1,341,000      1,167,000      1,249,000
Depreciation and amortization ..................     2,956,000      3,602,000      3,402,000
Administrative and operating ...................     2,620,000      2,781,000      3,827,000
Shareholder litigation .........................     1,324,000        219,000
                                                  ------------   ------------   ------------
                                                   112,160,000    117,971,000    126,097,000
                                                  ------------   ------------   ------------
                                        NET LOSS  $ (1,198,000)  $ (3,143,000)  $ (9,925,000)
                                                  ============   ============   ============

                              NET LOSS PER SHARE  $      (0.10)  $      (0.26)  $      (0.82)
</TABLE>

See accompanying notes to financial statements.


                                      F-11
<PAGE>   76

STARWOOD LODGING CORPORATION
STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
                                                          Years Ended December 31,
                                               ---------------------------------------
                                                   1994          1993           1992
                                               -----------   -----------   -----------
CASH FLOWS FROM OPERATING ACTIVITIES
<S>                                            <C>           <C>           <C>            
Net loss ....................................  $(1,198,000)  $(3,143,000)  $(9,925,000)
Adjustments to reconcile net loss to net cash
  provided by (used in) operating activities:
  Depreciation and amortization .............    2,956,000     3,602,000     3,402,000
  Deferred interest .........................                  1,044,000
  Gain on sales of hotel assets .............      (24,000)      (74,000)       (4,000)
Changes in operating assets and liabilities:

  Accounts receivable, inventories
    and prepaid expenses ....................      (32,000)    1,081,000      (101,000)
  Rent and  interest payable - Trust ........    1,730,000     1,519,000     8,238,000
  Accounts payable and other liabilities ....    1,006,000    (1,633,000)      307,000
                                               -----------   -----------   -----------
      Net cash provided by (used in)
        operating activities ................    4,438,000     2,396,000     1,917,000
                                               -----------   -----------   -----------

CASH FLOWS FROM INVESTING ACTIVITIES

Additions to hotel assets ...................     (671,000)   (5,205,000)   (1,290,000)
Net proceeds from sales of hotel assets .....      817,000       770,000       299,000
Increase in other assets ....................                    (47,000)
Principal received on notes receivable ......       69,000        56,000        49,000
                                               -----------   -----------   -----------
      Net cash provided by (used in)
        investing activities ................      215,000    (4,426,000)     (942,000)
                                               -----------   -----------   -----------

CASH FLOWS FROM FINANCING ACTIVITIES

Net change in notes payable - Trust .........   (3,965,000)   (1,693,000)     (411,000)
Principal payments on mortgage and
  other notes payable .......................     (612,000)      (72,000)     (392,000)
Borrowings under mortgage and other notes ...                    632,000
Payments to minority shareholders ...........                    (10,000)      (14,000)
Principal received on share purchase notes ..                      5,000         1,000
                                               -----------   -----------   -----------
      Net cash provided by (used in)
        financing activities ................   (4,577,000)   (1,138,000)     (816,000)
                                               -----------   -----------   -----------


INCREASE (DECREASE) IN CASH
  AND CASH EQUIVALENTS ......................       76,000    (3,168,000)      159,000
CASH AND CASH EQUIVALENTS
  AT BEGINNING OF YEAR ......................    4,734,000     7,902,000     7,743,000
                                               -----------   -----------   -----------
CASH AND CASH EQUIVALENTS
  AT END OF YEAR ............................  $ 4,810,000   $ 4,734,000   $ 7,902,000
                                               ===========   ===========   ===========
</TABLE>

See accompanying notes to financial statements.


                                      F-12
<PAGE>   77

STARWOOD LODGING CORPORATION
STATEMENTS OF SHAREHOLDERS' DEFICIT

<TABLE>
<CAPTION>
                                                                  Additional      Share                          Total
                                                      Common      Paid - in     Purchase      Accumulated    Shareholders'
                                                      Stock        Capital        Notes         Deficit         Deficit
                                                    ----------   -----------    --------     ------------    -------------
<S>                                                 <C>          <C>            <C>          <C>             <C>
Balance January 1, 1992                             $1,213,000   $ 5,857,000    $(17,000)    $(52,881,000)   $(45,828,000)
   Principal payments and reductions
      of share purchase notes ..................                                   1,000                            1,000
   Net loss ....................................                                               (9,925,000)     (9,925,000)
                                                    ----------   -----------    --------     ------------    ------------

Balance December 31, 1992 ......................     1,213,000     5,857,000     (16,000)     (62,806,000)    (55,752,000)
   Principal payments, reductions and
     transfer of share purchase notes
     to the Trust ..............................                                  16,000                           16,000
   Net loss ....................................                                               (3,143,000)     (3,143,000)
                                                    ----------   -----------    --------     ------------    ------------

Balance December 31, 1993 ......................     1,213,000     5,857,000           0      (65,949,000)    (58,879,000)
   Forgiveness of intercompany debt ............                  58,335,000                                   58,335,000
   Net loss ....................................                                               (1,198,000)     (1,198,000)
                                                    ----------   -----------    --------     ------------    ------------

Balance December 31, 1994 ......................    $1,213,000   $64,192,000    $      0     $(67,147,000)   $ (1,742,000)
                                                    ==========   ===========    ========     ============    ============
</TABLE>

See accompanying notes to financial statements.



                                      F-13
<PAGE>   78
                                     

                             STARWOOD LODGING TRUST
                        AND STARWOOD LODGING CORPORATION

                          NOTES TO FINANCIAL STATEMENTS

1. Organization and Summary of Significant Accounting Policies.

General

         The accompanying financial statements include the accounts of Starwood
Lodging Trust (the "Trust"), formerly Hotel Investors Trust, and Starwood
Lodging Corporation and its subsidiaries (the "Corporation"), formerly Hotel
Investors Corporation. The Trust was formed as a real estate investment trust
("REIT") under the Internal Revenue Code in 1969. In 1980, the Trust formed the
Corporation and made a distribution to the Trust's shareholders of one share of
common stock of the Corporation for each share of beneficial interest of the
Trust. The shares of the Trust and the shares of the Corporation are paired on a
one-for-one basis, and can only be transferred in units ("Paired Shares")
consisting of the same number of shares of the Trust and of the Corporation.

         The combined financial statements include the accounts of the Trust and
the Corporation (the "Companies"). All material intercompany balances and
transactions have been eliminated in the combined and separate consolidated
financial statements. The intercompany balances and transactions which have been
eliminated in arriving at the combined balance sheets and combined statements of
operations include the elimination of notes receivable from the Corporation
recorded on the Trust's balance sheets, and the related notes payable to the
Trust recorded on the Corporation's balance sheets. Rent and interest income
recorded on the Trust's statements of operations are eliminated against the
related rent and interest expense on the Corporation's statements of operations.

         The Companies own and operate hotels located throughout the United
States and two hotel/casinos in Las Vegas, Nevada. The hotels range in size from
90 to 445 rooms and offer services to both business and transient travelers.

Hotel assets

         Hotel assets are stated at the lower of cost or the amounts described
below and are depreciated using straight-line and declining-balance methods over
estimated useful lives of five to forty years for buildings and improvements and
three to twelve years for furniture, fixtures and equipment. Amounts allocated
to leasehold interests are amortized using the straight-line method over lease
terms of ten to forty years.

         The Trust and the Corporation estimate the fair values of each of their
hotel assets on a quarterly basis. For hotel assets not held for sale, the
expected undiscounted future cash flows of the assets (generally over a
five-year period), on a hotel-by-hotel basis, are compared to the net book
values of the assets. If the expected undiscounted future cash flows are less
than the net book value of the assets, the excess of the net book value over the
estimated fair value is charged to current earnings. When it is the opinion of
management that the fair value of a hotel which has been identified for sale is
less than the net book value of the hotel, a reserve for losses is established.
Fair value is determined based upon discounted cash flows of the properties at
rates (11.0% to 14.5%) deemed reasonable for the type of property and prevailing
market conditions, appraisals and, if appropriate, current estimated net sales
proceeds from pending offers. A gain or loss is recorded to the extent the
amounts ultimately received differ from the adjusted book values of the hotel
assets. Gains on sales of hotel assets are recognized at the time the hotel
assets are sold provided there is reasonable assurance of the collectability of
the sales price and any future activities to be performed by the Companies
relating to the hotel assets sold are insignificant. Losses on sales of hotel
assets are recognized at the time the hotel assets are sold.



                                      F-14
<PAGE>   79


A summary of hotel assets at December 31, 1994 and 1993 is as follows 
(in thousands):

<TABLE>
<CAPTION>
                                   Trust               Corporation
                          ---------------------   -------------------
                             1994         1993      1994       1993
                             ----         ----      ----       ----
<S>                       <C>         <C>         <C>        <C>
Land and leasehold
interests in land ......  $  41,184   $  47,204   $ 13,796   $ 15,378

Buildings and
improvements ...........    122,300     148,460     22,315     22,545

Furniture, fixtures and
equipment ..............     25,124      28,506     15,630     16,867

Accumulated depreciation
and amortization .......    (48,699)    (51,487)   (16,877)   (14,828)
Reserve for losses .....    (23,200)    (42,765)      (388)    (2,631)
                          ---------   ---------   --------   --------
    Hotel assets - net .  $ 116,709   $ 129,918   $ 34,476   $ 37,331
                          =========   =========   ========   ========
</TABLE>


Mortgage notes receivable

         If a loan becomes delinquent or upon the occurrence of other events it
becomes known that the collectability of a specific loan is uncertain, interest
income is no longer accrued and an allowance for loss is established based upon
an analysis of the net realizable value of the underlying property
collateralizing the loan.

Provision for losses

Provision for losses for the years ended December 31, 1994, 1993 and 1992 are as
follows:

<TABLE>
<CAPTION>

              Trust                             1994                1993                1992
--------------------------                   ---------          -----------         -----------
<S>                                          <C>                <C>                 <C>
Hotel assets                                 $ 439,000          $ 2,369,000         $ 3,196,000
Mortgage notes receivable                      320,000                                  223,000
                                             ---------          -----------         -----------
                                             $ 759,000          $ 2,369,000         $ 3,419,000
                                             =========          ===========         ===========
</TABLE>

Statements of cash flows

         Cash and cash equivalents are defined as cash on hand and in banks plus
all short-term investments with a maturity, at the date of purchase, of three
months or less.

         Interest paid in cash by the Trust in the years ended December 31,
1994, 1993, and 1992 was $12,736,000, $13,205,000 and $12,992,000, respectively.

         Interest paid in cash by the Corporation in the years ended December
31, 1994, 1993, and 1992 was $1,342,000, $140,000 and $1,536,000, respectively.

         The Corporation deferred interest of $1,730,000, $1,519,000 and
$1,667,000 on its intercompany debt with the Trust in the years ended December
31, 1994, 1993, and 1992 respectively.

         In December 1993, the Corporation transferred $278,000 of share
purchase loans to the Trust and reduced notes payable - Trust.

         During 1993, $4,032,000 of accrued loan restructuring costs (included
in accounts payable and other liabilities at December 31, 1992) was added to the
loan balance of the secured notes payable and revolving line of credit.


                                      F-15
<PAGE>   80

         During 1994, outstanding share purchase notes of $246,000 were canceled
and charged to additional paid-in capital. Paired Shares which secured the
portion of the principal canceled on the original notes were returned to the
Companies.

         In December 1994, the Trust forgave $58,335,000 of notes payable to the
Trust by the Corporation and its subsidiaries. Because of the common ownership
of the Trust and the Corporation, the Trust charged the amount of debt forgiven
and the Corporation credited such amount to additional paid-in capital of the
Trust and Corporation, respectively.

Inventories

         Inventories are stated at the lower of cost or market with cost
determined on a first-in, first-out basis.

Organization Costs

         Organization costs related to the formation of each of the Partnerships
in the amount of $1,672,000 for the Trust and $1,672,000 for the Corporation are
included in inventories, prepaid expenses and other assets and will be amortized
over a five-year period beginning in January 1995. (See Note 12.)

Gaming revenue

         Gaming revenue relates to the two hotel/casinos and includes the net
win from gaming activities, as well as room, food, beverage and other revenues,
net of promotional allowances.

Fair value of financial instruments

         The following disclosure of estimated fair value was determined by
available market information and appropriate valuation methodologies. However,
considerable judgment is necessary to interpret market data and develop the
related estimates of fair value. Accordingly, the estimates presented herein are
not necessarily indicative of the amounts that could be realized upon
disposition of the financial instruments. The use of different market
assumptions and/or estimation methodologies may have a material effect on the
estimated fair value amounts.

         Cash and cash equivalents, accounts receivable and accounts payable and
other liabilities are carried at amounts which reasonably approximate their fair
value.

         Fixed rate mortgage notes receivable of $14,049,000 for the Trust at
December 31, 1994 have a fair value of $13,488,000 as estimated based upon debt
with similar terms and maturities. The carrying value of fixed rate mortgage
notes receivable at December 31, 1993 approximated their fair value as their
interest rates approximated rates available for similar transactions at that
date.

         The carrying value of the secured notes payable and revolving line of
credit approximate fair value as the related interest rates are variable.

         Fixed rate notes payable with carrying values of $32,838,000 and
$13,748,000 for the Trust and Corporation, respectively, at December 31, 1994
have a fair value of $34,442,000 and $11,648,000 as estimated based on debt with
similar terms and maturities. Fixed rate notes payable with carrying values of
$27,724,000 and $14,360,000 for the Trust and Corporation, respectively, at
December 31, 1993 had a fair value of $28,507,000 and $13,110,000 as estimated
based on debt with similar terms and maturities

Income taxes

         The Trust and the Corporation adopted Statement of Financial Accounting
Standards (SFAS) No. 109, "Accounting for Income Taxes", effective January 1,
1993. This Statement supersedes Accounting Principles 


                                      F-16
<PAGE>   81

Board Opinion No. 11 which the Trust and the Corporation had previously applied.
The adoption of SFAS No. 109 did not have a material effect on the financial 
statements of the Trust or the Corporation.

         The Trust was taxed as a REIT beginning in 1969 through and including
its taxable year ended December 31, 1990. During 1994, the Trust discovered that
it may not have qualified as a REIT in 1991 through 1994 due to its failure to
comply with certain procedural requirements of the Internal Revenue Code. The
Trust requested and received a letter from the Internal Revenue Service
providing that the Trust's election to be taxed as a REIT terminated beginning
with the Trust's taxable year ended December 31, 1991 and permitting the Trust
to re-elect to be taxed as a REIT commencing with its taxable year ending
December 31, 1995. The Trust intends to elect to be taxed as a REIT, commencing
with its taxable year ending December 31, 1995. Because the Trust had net losses
for income tax purposes in 1991 through 1994, the Trust does not owe any federal
income tax for such years.

         Components of deferred income taxes as of December 31, 1994 and 1993
are as follows:

<TABLE>
<CAPTION>
                                                       1994                          1993
                                            ---------------------------   ---------------------------
                                                Trust       Corporation       Trust       Corporation
                                            ------------   ------------   ------------   ------------
<S>                                         <C>            <C>            <C>            <C>
Deferred income tax assets:
   Operating loss carryforwards ..........  $ 28,910,000                  $ 10,018,000   $ 19,740,000
   Losses from investments in partnerships                 $  2,133,000                     1,659,000
   Property and equipment ................     3,041,000                     6,586,000      1,224,000
   Other .................................       476,000        492,000                       162,000
                                            ------------   ------------   ------------   ------------
   Total deferred income tax assets ......    32,427,000      2,625,000     16,604,000     22,785,000
                                            ------------   ------------   ------------   ------------                
   Valuation allowance ...................   (32,427,000)    (2,625,000)   (16,604,000)   (22,785,000)
                                            ------------   ------------   ------------   ------------
    Net deferred income tax                 $         --   $         --   $         --   $         --
                                            ============   ============   ============   ============
</TABLE>
                                             

         Deferred income taxes reflect the net tax effects of temporary
differences between the carrying amount of assets and liabilities for financial
reporting purposes and income tax purposes and operating loss and tax credit
carryforwards. A valuation allowance is recorded if, based on the weight of
available evidence, it is more likely than not that some portion or all of the
deferred income tax asset will not be realized.

         As of December 31, 1994, the Trust had net operating loss carryforwards
for federal income tax purposes of approximately $82,600,000 which expire in
various years beginning in 2006 through 2009.

Loan restructuring costs

         Management of the Trust concluded that the debt restructuring discussed
in Note 2 represented a "troubled debt restructuring" as defined under generally
accepted accounting principles, and accordingly, all restructuring costs have
been expensed as incurred. The Trust expensed loan restructuring costs of
$10,892,000 in the year ended December 31, 1992. In 1993, upon execution of the
definitive debt restructuring agreement, $700,000 was paid by the Trust to the
certain institutional lenders and $4,032,000 was added to the loan balance under
the terms of a credit agreement for restructuring costs due the institutional
lenders for legal and other experts. Previously accrued restructuring costs of
$778,000 and $3,152,000 were paid during the years ended December 31, 1994 and
1993, respectively. At December 31, 1994, $1,895,000 of accrued loan structuring
costs are included in accounts payable and other liabilities.

Net loss per share

         Net loss per share is based on the weighted average number of common
and common equivalent shares outstanding during the year which is on a Paired
Share basis for purposes of the combined financial statements. Outstanding
options and warrants are included as common equivalent shares using the treasury
stock method when the effect is dilutive. The weighted average number of shares
and Paired Shares used in determining net loss per share and per Paired Share
was 12,132,948 for the years ended December 31, 1994, 1993 and 1992.



                                      F-17
<PAGE>   82

Reclassifications

         Certain reclassifications have been made to the 1993 and 1992 financial
statements to conform with the 1994 financial statement presentation.

2.       Senior Notes Payable and Revolving Line of Credit and Debt 
         Restructuring.

         As of March 31, 1991, the Trust was in default under the Trust's line
of credit and the senior note agreements due to the Trust's failure to comply
with certain financial covenants and to collect certain rents from the
Corporation. As a result of such defaults, upon the April 30, 1991 expiration of
the revolving line of credit provided by the Trust's line of credit, the
five-year secured term loan originally contemplated by the Trust's line of
credit was not made available to the Trust, and the entire amount of borrowings
then outstanding under the Trust's line of credit was deemed due and payable.

Debt Restructuring - Effective January 28, 1993, the Trust executed a definitive
credit agreement (as subsequently amended, the "Credit Agreement") that
restructured the Trust's then outstanding borrowings from two banks (the
"Banks") and three insurance companies (together with the Banks, the
"Institutional Lenders") as a $12,500,000 revolving line of credit with one of
the Banks (the "Revolving Line of Credit") and a $115,723,000 term loan (the
"Term Loan", and together with the Revolving Line of Credit, the "Senior Debt").

         The terms of the Credit Agreement required that the debt restructuring
take place in three phases, the first two of which were completed in 1993. At
the first closing (the "First Closing"), effective January 28, 1993, the
Institutional Lenders were granted or assigned for security direct and indirect
liens on and security interests in substantially all of the assets of the Trust
and the Corporation (other than the assets held by United States Equity &
Mortgage Trust, the Trust's 95%-owned subsidiary ("U.S. Equity")).

         At the First Closing, the Trust and the Corporation also entered into a
warrant agreement (as amended, the "Warrant Agreement") that originally provided
that the Trust and the Corporation (or, if the merger of the Trust and the
Corporation described below (the "Merger") occurs, the surviving company) would
issue to the Institutional Lenders at the Third Closing (as defined below)
10-year warrants (the "Warrants") to purchase that number of shares equal to
9.9% (or if the Merger has occurred; 15%) of the Paired Shares then outstanding
at an exercise price of $.625 per share.

         The second closing under the Credit Agreement (the "Second Closing")
was held on March 29, 1993 at which time the Trust acquired all of the assets of
U.S. Equity for $1,575,000 eliminating the minority interest of $676,000 and
increasing hotel assets by $899,000. At the Second Closing, the Institutional
Lenders were granted liens on and security interests in the five hotels and
substantially all of the other assets formerly owned by U.S. Equity and acquired
by the Trust.

         At an interim closing held on February 28, 1994 (the "Interim
Closing"), the Credit Agreement was amended to, among other things, collaterally
assign to the Institutional Lenders security interests in and liens on
substantially all of the intercompany leases and the monies received by the
Corporation in connection with the operation of those hotels, and the Warrant
Agreement was amended to provide for the immediate issuance to the Institutional
Lenders of Warrants for an aggregate of 1,333,143 Paired Shares at the exercise
price originally provided for in the Warrant Agreement. On August 31, 1994,
one-third of the Warrants were canceled as a result of the Trust's cumulative
principal payments in excess of $13,000,000.

         Interest on the principal amounts outstanding under the Credit
Agreement notes was originally at a stated rate of prime plus 2%. However,
because the Merger had not occurred on or prior to the 300th day after the First
Closing, the stated interest rate was increased to prime plus 3% from November
24, 1993 until the Merger takes place. The Trust has the option to pay interest
at a lesser rate, if applicable, of 8.0% per annum from September 1, 1994
through August 31, 1997, and 9.0% per annum from September 1, 1997 through April
30, 1998, with the difference between the interest accrued and the interest paid
being added monthly to the principal amount of the 



                                      F-18
<PAGE>   83

Restructured Debt. The related weighted average interest rate on borrowings 
outstanding as of December 31, 1994 and 1993 was 11.5% and 9%, respectively.

         The Credit Agreement requires the Companies to maintain a specified
minimum adjusted net worth and a specified minimum ratio of cash to cash
interest plus capital expenditures, as defined. At December 31, 1994 the Trust
was in compliance with these covenants. In addition, the Credit Agreement
contains covenants that restrict, among other things, the Trust's ability to
acquire or dispose of assets, to make investments and to incur additional
indebtedness, and that prohibit the payment of distributions to shareholders.

         In addition to imposing operating restrictions and reporting
requirements, the Credit Agreement establishes daily operating cash thresholds,
as defined. If these thresholds are exceeded by the Trust and the Corporation,
the excess amounts must be applied to reduce the borrowings then outstanding
under the Revolving Line of Credit, but amounts so applied are available for
future borrowings.

         Subsequent to the Reorganization, (see Note 12) all amounts outstanding
under the Credit Agreement were repaid with the proceeds from the New Credit
Agreement.

3.       Hotel Sales and Reserve for Losses.

         During the year ended December 31, 1992, the Trust and the Corporation
sold their interests in three hotel assets, the Days Inn Texas Stadium, Irving,
Texas, the Best Western Merrimack Inn, Merrimack, New Hampshire and the Days
Inn, Spartanburg, South Carolina. The Irving property was sold in March 1992 for
$1,950,000, consisting of $172,000 in net cash proceeds and a $1,650,000
promissory note secured by the hotel. The Merrimack property was sold for
$1,800,000, consisting of $259,000 in net cash proceeds and a $1,440,000
promissory note secured by the hotel. The Spartanburg property was sold for
$875,000, consisting of $57,000 in net cash proceeds and a $775,000 promissory
note secured by the hotel. The Irving note bears interest at 9% per annum with
accrued interest and principal due monthly based on a 30-year amortization
schedule, with all unpaid principal and interest due in March 1997. The
Merrimack note, which was canceled in December 1994 (see Note 4), bore interest
at 9% per annum with accrued interest and principal due monthly based on a
30-year amortization schedule, with all unpaid principal and interest due in
July 1997. The Spartanburg note, which was paid off in May 1994, bore interest
at 9% per annum with interest and principal due monthly based on a 30-year
amortization schedule, with all unpaid principal and interest due in September
1998.

         During 1992, the Trust recognized a loss of $791,000 and the
Corporation recognized a gain of $4,000 on sales of hotel assets, including a
$91,000 discount recorded by the Trust resulting from the early payoff in 1992
of the mortgage note receivable relating to the Brunswick, Georgia property sold
in 1991. In 1992, the Trust recorded a provision for investment losses of
$3,196,000 which reflected the deterioration of hotel values located in the
Southeast, and the acceptance of offers for the sale of hotels at amounts lower
than net book value.

         During the year ended December 31, 1993, the Companies sold their
interests in four hotel assets, the Best Western located in Smyrna, Georgia, the
Vantage Hotel located in Tucker, Georgia, the Best Western Motor Hotel in Santa
Maria, California, and the Ramada Inn-Westport in St. Louis, Missouri. The
Smyrna property was sold for an all cash price of $1,600,000. The Tucker
property was sold for $2,485,000, consisting of approximately $500,000 in cash
and a $1,985,000 promissory note secured by the hotel. The Tucker note bears
interest at 9% per annum with accrued interest and principal due monthly based
upon a 25-year amortization schedule, with all unpaid principal and interest due
in June 1998. The Santa Maria property was sold for an all cash price of
$140,000. The St. Louis property was sold for an all cash price of $2,500,000.

         For the year ended December 31, 1993, the Trust recognized a loss of
$53,000 and the Corporation recognized a gain of $74,000 on sales of hotel
assets. In 1993, the Trust recorded a provision for investment losses of
$2,369,000 primarily as a result of the acceptance of offers for the sale of
hotels at amounts lower than net book value.

         During the year ended December 31, 1994, the Companies sold their
interests in five hotel assets, the Best Western South located in Austin, Texas,
the Sheraton Hotel located in New Port Richey, Florida, the Holiday Inn 



                                      F-19
<PAGE>   84

in Brunswick, Georgia, the Holiday Inn in Jacksonville, Florida and the Ramada
Inn in Fayetteville, North Carolina. The Austin property was sold pursuant to
eminent domain proceedings for the purpose of highway construction to an agency
of the State of Texas for an all cash price of $3,594,000. The New Port Richey
and Brunswick properties were sold together for $4,306,000, consisting of
approximately $1,236,000 in cash and a $3,070,000 promissory note secured by the
hotels. The New Port Richey/Brunswick note bears interest at 8% per annum for
the first twelve months and 9.25% thereafter, with accrued interest and
principal due monthly based upon a 25-year amortization schedule, with all
unpaid principal and interest due in August 2001. The Jacksonville property was
sold for $3,200,000, consisting of approximately $900,000 in cash and a
$2,300,000 promissory note secured by the hotel. The Jacksonville note bears
interest at 9% per annum with accrued interest and principal due monthly based
upon a 30-year amortization schedule, with all unpaid principal and interest due
in December 2001. The Fayetteville property was sold for $1,000,000, consisting
of approximately $200,000 in cash and a $800,000 promissory note secured by the
hotel. The Fayetteville note bears interest at 9% per annum with accrued
interest and principal due monthly based upon a 12-year amortization schedule,
with all unpaid principal and interest due in December 2006. In connection with
the Reorganization (see Note 12), the Holiday Inn located in Albany, Georgia was
sold to Starwood Capital Group, L.P. for an all cash purchase price of
$6,000,000. The transaction was accounted for as a financing and Starwood
Capital Group, L.P. subsequently contributed the property to the Partnerships.
No gain or loss was recorded on the sale.

         For the year ended December 31, 1994, the Trust recognized a gain of
$224,000 and the Corporation recognized a gain of $24,000 on sales of hotel
assets, including a $55,000 discount recorded by the Trust resulting from the
early payoff in 1994 of the mortgage note receivable related to the Spartanburg,
South Carolina property sold in 1992. In 1994, the Trust recorded a provision
for investment losses of $439,000 primarily as a result of the acceptance of
offers for the sale of hotels at amounts lower than net book value.

4.       Mortgage Notes Receivable.

Columbus Best Western North

         In January 1992, in settlement of various disputes between the Trust,
the Corporation as the general partner of Columbus Hotel Limited Partnership and
its limited partners, and in lieu of foreclosure by the Trust on a $6,127,000
mortgage, ownership of the Columbus Best Western North was transferred to the
Trust. The fair value of the hotel assets received by the Trust upon
cancellation of its note approximated the net carrying value of the mortgage
note receivable at December 31, 1991.

Best Western Merrimack Inn

         In 1992, the Trust sold the Best Western Merrimack Inn in Merrimack,
New Hampshire to Orient Investment Limited. In connection with such sale, Orient
executed and delivered to the Trust a promissory note (the "Orient Note") in an
original principal amount of $1,440,000, secured by a first mortgage on the
property. The outstanding principal balance of the Orient Note was due August
1997, and bore interest at 9%.

         During 1994, Orient defaulted on the Orient Note and the Trust
accelerated the indebtedness evidenced by the Orient Note. In September 1994,
the Trust initiated foreclosure proceedings and recorded a provision for
investment losses of $320,000, resulting in a net book value of $983,000. The
property was subsequently sold to a third party in December 1994 for net
proceeds of $1,191,000 and the Trust recorded a gain on sale of $208,000.

Other

         At December 31, 1991, the Trust held a $223,000 note secured by a
second mortgage on a shopping center which was foreclosed upon by the first
mortgage holder during the year ended December 31, 1992, resulting in the
cancellation of the Trust's second mortgage and the recording of a provision for
investment losses.

         At December 31, 1994, in addition to the MHLP notes discussed in Note
5, the Trust held nine promissory notes secured by mortgages. Eight notes
($13,915,000 in aggregate principal amount at December 31, 1994), representing
nine hotels, are secured by first mortgages, and one note ($234,000 in aggregate
principal amount at December 31, 1994), is secured by a second mortgage. The
notes have fixed interest rates ranging from 8% to 11% 


                                      F-20
<PAGE>   85

per annum, and two of the notes (representing three properties) provide for
contingent interest based on a percentage of gross revenues of the properties
securing such notes. The maturity dates of the notes range from 1996 to 2017.
Aggregate principal payments under the mortgage notes receivable due within one
year of December 31, 1994 are $256,000. As of December 31, 1994 and 1993, the
reserve for investment losses for the mortgage notes receivable amounted to
$100,000 and $140,000, respectively.

5.       Milwaukee Marriott Hotel.

         In December 1985, the Trust sold its interest in the Milwaukee Marriott
Hotel to Milwaukee Brookfield Limited Partnership ("Brookfield"). In connection
with the sale, the Trust received a second mortgage note from Brookfield.

         In July 1991, ownership and operation of the Milwaukee Marriott was
reorganized and ownership of the hotel was transferred from Brookfield to
Moorland Hotel Limited Partnership, ("MHLP"), a limited partnership in which the
Corporation has a 51% interest and is the sole general partner and Brookfield is
the sole limited partner. The operations of MHLP are consolidated into the
Corporation's financial statements from the date of reorganization and,
accordingly, the Trust has recorded the note receivable from MHLP as a note
receivable from the Corporation. The Corporation and MHLP entered into an
agreement for the Corporation to manage the property.

         In addition, MHLP entered into an assignment and forbearance agreement
with Marriott Corporation ("Marriott"), the franchisor. This agreement, among
other things, required MHLP to renovate the hotel to Marriott standards. The
renovation was completed in January 1994.

         During 1992, MHLP, Aetna Life Insurance Company ("Aetna"), the holder
of the first mortgage on the Milwaukee Marriott (the "Aetna Note"), Marriott,
the Trust, the Corporation, and Brookfield and various partners of Brookfield
reached agreements arranging financing for the renovation of the Milwaukee
Marriott and restructuring of debt for MHLP.

         Effective December 1, 1992, Aetna agreed to defer for the period
December 1, 1992 through November 30, 1993, the monthly principal and interest
payments on its first mortgage note, which accrues interest at 11.25% per annum,
with the deferred interest added to principal monthly. Beginning December 1,
1993, the loan amortizes in equal monthly installments over a period of 17 years
at 10% interest per annum until January 1, 1996, at which time all unpaid
interest and principal are due, including appreciation interest ("Appreciation
Interest") . Appreciation Interest is defined as 50% of the aggregate principal
reduction in the Aetna mortgage from December 1, 1993 until the loan is due in
full as provided in the agreement. The amount of the Aetna Note outstanding
totaled $9,899,000 and $10,017,000 at December 31, 1994 and 1993, respectively.

         Marriott agreed to loan MHLP $750,000 secured by a second deed of trust
on the hotel for the purchase of equipment from a Marriott subsidiary. The
second mortgage note bore interest at 9% per annum, payable monthly beginning
May 31, 1993 through April 30, 1994, at which time fixed monthly payments of
principal and interest of approximately $49,000 became due until December 31,
1994, at which time all unpaid interest and principal were due. In 1994,
Marriott agreed to extend the note bearing interest at 10% per annum beginning
January 1, 1995 at which time fixed monthly payments of principal and interest
of approximately $31,000 become due until June 30, 1995, at which time all
unpaid interest and principal are due.

         The Trust agreed to loan MHLP $1,000,000 to be used to complete the
renovation of the Milwaukee Marriott. The loan is secured by a third deed of
trust on the hotel and bears interest at 10.5% per annum, payable monthly. Under
certain circumstances as defined in the agreement, interest is deferred and
added to the principal of the note monthly. The third mortgage note outstanding
totaled $1,225,000 and $1,102,000 as of December 31, 1994 and 1993,
respectively. The Trust may declare due and payable the principal balance and
any unpaid accrued interest thereon at any time through the maturity date of the
note of January 1, 1996.

         The second mortgage note held by the Trust of $11,000,000 was modified
as of December 31, 1992 by adding deferred and previously unpaid interest of
$1,667,000 to principal due under the note and converting the 



                                      F-21
<PAGE>   86

note to a fourth mortgage note. Further, $1,607,000 and $1,417,000 of interest
at 10.5% per annum for the years ended December 31, 1994 and 1993, respectively,
was deferred monthly and added to principal due under the loan. The fourth
mortgage note outstanding totaled $15,691,000 and $14,084,000 as of December 31,
1994 and 1993. Interest is payable monthly unless deferred under the provisions
of the loan agreement until January 1, 1996, at which time all remaining unpaid
interest and principal are due.

         The Corporation agreed to defer and convert to a note up to $250,000 of
management fees due under its management agreement with MHLP for a period of up
to twelve months commencing with base management fees due after January 1, 1993.
The deferred fees bear interest at 9% per annum, which were added to the
principal balance of the note through December 1, 1993. Thereafter, the note is
due in twelve equal monthly installments of principal and interest commencing on
January 1, 1994 at 12% interest per annum. All unpaid interest and principal was
due and paid December 1, 1994.

         The $600,000 original loan made by GSI Acquisition Company, L.P., a
limited partner of Brookfield, ("GSI"), was modified as of December 31, 1992, by
converting deferred and previously unpaid interest of approximately $86,000 to
principal. For the years ending December 31, 1994 and 1993 interest at 10.5% per
annum was deferred monthly and added to the principal balance, which balance
totals $849,000 and $762,000 at December 31, 1994 and 1993, respectively.
Thereafter, interest is payable monthly unless deferred under the provisions of
the agreement until January 1, 1996, at which time all remaining unpaid interest
and principal are due.

         The Trust evaluates the collectability of the notes receivable secured
by the Milwaukee Marriott Hotel at the end of each quarter. Factors considered
by the Trust in performing the evaluations included the discounted estimated
future cash flow (at 11.0%) over a five-year period. The Corporation evaluates
the recoverability of the net book value of the property at the end of each
quarter. Factors considered by the Corporation in performing the evaluation
included the undiscounted estimated future cash flow of the property over a
five-year period. Based upon the evaluations no provision for losses was
required.

6.       Real Estate Investments and Intercompany Transactions.

         At December 31, 1994, the Trust owned equity interests in twenty-four
hotels, including two hotel/casinos. Of that number, eighteen properties were
owned in fee, five were held pursuant to long-term leases and one was owned
through a 5% general partnership interest in a joint venture that owns the Omaha
Marriott Hotel.

         Twenty-one of the Trust's hotels (including the two hotel/casinos) are
leased to the Corporation or its subsidiaries. Three hotels have been leased to
and are operated by Imperial Hotel Corporation, formerly Vagabond Inns, Inc. The
Omaha Marriott Hotel has been leased to an affiliate of the Corporation, and is
managed by Marriott pursuant to a long-term management agreement. As of December
31, 1994, five of the hotels leased by the Corporation from the Trust are being
managed by third-party operators. The third-party management agreements are
generally for three-year terms expiring in 1995, subject to certain cancellation
provisions. Base management fees range from 2% to 2-1/2% of gross revenues with
incentive management fees based upon hotel profitability.

         The leases are generally long-term and generally provide for annual
base, or minimum rents, plus contingent, or percentage rents based on the gross
revenues of the properties and are accounted for as operating leases. The leases
are "triple-net" in that the lessee is generally responsible for paying all
operating expenses of the properties, including maintenance, insurance and real
property taxes. The lessee is also generally responsible for any payments
required pursuant to underlying ground leases. Most leases provide for
cancellation by the Trust in the event that the Trust does not earn a specified
rent, or by the lessee (including the Corporation) in the event the lessee does
not earn a specified net operating profit.

         As of December 31, 1994 and 1993, the Corporation was indebted to the
Trust for an aggregate of $26,916,000 and $87,486,000, respectively, (including
the MHLP mortgage notes of $16,916,000 and $15,186,000 as of December 31, 1994
and December 31, 1993, respectively - see Note 5). The debt to the Trust bore
interest at 


                                      F-22
<PAGE>   87

various rates ranging from 6.5% to 12% at December 31, 1992. Effective January
1, 1993, the Trust and Corporation modified the leases between the Trust and the
Corporation to, among other things, adjust the rents payable by the Corporation,
and restructured the Corporation's existing borrowings from the Trust to include
all outstanding borrowings plus accrued but unpaid rent of $448,000 and interest
as of December 31, 1992. The borrowings, were non-interest bearing for the years
ended December 31, 1994 and 1993.

         In December 1994, the Trust forgave $58,335,000 of notes receivable
payable to the Trust by the Corporation and its subsidiaries. Effective January
1, 1995 the remaining notes, which are due on demand, bear interest at prime
plus 2% with interest payable monthly.

         Rents accrued by the Trust from leased hotel properties are summarized
as follows (in thousands):

<TABLE>
<CAPTION>
                                                      Years Ended December 31,
                                                   ----------------------------
                                                      1994      1993      1992
                                                   --------  --------  --------
<S>                                                <C>       <C>       <C>
Corporation:
   Minimum                                         $ 14,373  $ 14,184  $ 18,136
   Contingent                                         2,533     2,297     3,041
                                                   --------  --------  --------
                                                     16,906    16,481    21,177
                                                   --------  --------  --------
Other:
   Minimum                                              437       437       437
   Contingent                                           490       402       510
                                                   --------  --------  --------
                                                        927       839       947
                                                   --------  --------  --------
   Total                                            $17,833   $17,320   $22,124
                                                   ========  ========  ========
</TABLE>

         Minimum future rents at December 31, 1994 due under non-cancelable
operating leases for the years ending December 31 are as follows (in thousands):

<TABLE>
<CAPTION>
                      1995         1996         1997         1998         1999        Thereafter
                    --------     --------     --------     --------      --------      ----------
<S>                 <C>          <C>          <C>          <C>           <C>           <C>        
Corporation .....   $ 12,982     $ 10,342     $ 10,342     $ 10,342      $ 10,342      $ 27,385
Other ...........        437          437          437          426           178           105
                    --------     --------     --------     --------      --------      ----------
Total ...........   $ 13,419     $ 10,779     $ 10,779     $ 10,768      $ 10,520      $ 27,490
                    ========     ========     ========     ========      ========      ==========

</TABLE>

         The Corporation is committed under its leases with the Trust to pay the
rents payable with respect to seven ground leases which expire in 1997 through
2029, including renewal options. The leases generally provide for a minimum rent
plus a percentage of gross revenues of the properties in excess of the minimum
rent. Future minimum lease payments under the leases are approximately $319,000
per year through 1999, and $6,960,000 thereafter. The Trust is the primary
obligor under the leases; however, the Corporation as lessee/operator of the
hotels makes payments under these leases directly to the lessors. Rent expense
incurred by the Corporation as a lessee/operator under these leases was
$879,000, $854,000 and $787,000, in the years ended December 31, 1994, 1993 and
1992, respectively.

         In addition, the Trust is committed under an office lease. Future
minimum lease payments under the office lease are $85,000 in 1995.


                                      F-23
<PAGE>   88


7.       Mortgage and Other Notes Payable.

         At December 31, 1994, the Trust had outstanding six mortgage notes
payable which are secured by seven of the Trust's hotels, with a net book value
at December 31, 1994 of $55,027,000. At December 31, 1994 and 1993, the Trust
had the following outstanding debt obligations:

<TABLE>
<CAPTION>
                                                           December 31,       December 31,
                                                               1994               1993
                                                           ------------       ------------
<S>                                                        <C>                <C>
Mortgage Notes:
11.75% first mortgage note, due in 2015, callable
     by lender in 1995, 2000, 2005, or 2010                $  6,349,000       $  6,417,000
12.875% first mortgage note, due in 1997                      9,173,000          9,478,000
12.625% first mortgage note, due in 1995                      4,075,000          4,195,000
9.25% first mortgage note, due in 1995                        1,854,000          2,010,000
10.25% first mortgage note, due in 2001                       5,148,000          5,447,000
9.0% first mortgage note, due in 1997                           139,000            177,000
                                                           ------------       ------------
Total mortgage notes payable                                 26,738,000         27,724,000
Advance from Starwood Capital Group, L.P.                     6,000,000
Other                                                           100,000
                                                           ------------       ------------
Total mortgage and other notes payable                     $ 32,838,000       $ 27,724,000
                                                           ============       ============
</TABLE>

         As described in Note 3, in August 1994 Starwood Capital Group, L.P.
acquired the Trust's Albany, Georgia property for $6,000,000. Interest expense
($313,000 in 1994) related to the advance is the greater of the net cash flow of
the property or 10% until such time as the property is contributed to the
Partnerships (see Note 12).

         Aggregate principal payments, excluding the advance from Starwood
Capital Group, L.P. due for the years ending December 31 are $14,499,000 in
1995, $2,290,000 in 1996, $5,994,000 in 1997, $447,000 in 1998, $493,000 in
1999, and $3,115,000 thereafter.

         At December 31, 1994 and 1993, the Corporation had the following
outstanding debt obligations:

<TABLE>
<CAPTION>
                                                         December 31,     December 31,
                                                             1994             1993
                                                         ------------     ------------
<S>                                                       <C>              <C>
Secured by Milwaukee Marriott Hotel:

10.0% first mortgage note, due 1996                       $ 9,899,000      $10,017,000
9.0% second mortgage note, due 1995                           358,000          754,000
10.5% fifth mortgage note, interest only, due 1996            849,000          762,000
12.0% sixth mortgage note, interest only (to the extent
of available cash flow), due 1996                           2,000,000        2,000,000
9-10% notes payable, due 1995-1996                            164,000          297,000
                                                          -----------      -----------
                                                           13,270,000       13,830,000

Other:
9.75% first mortgage note, due 1997                           403,000          438,000
Obligations under capital leases                               75,000           92,000
                                                          -----------      -----------
Total mortgage and other notes payable                    $13,748,000      $14,360,000
                                                          ===========      ===========
</TABLE>

         At December 31, 1994, the Milwaukee Marriott Hotel had a net book value
of $22,951,000.



                                      F-24
<PAGE>   89

         Minimum lease and principal payments on the Corporation's indebtedness
for the years ending December 31 are due as follows:

<TABLE>
<CAPTION>
                                       Minimum Future       Principal Payments
                 Year                  Lease Payments       Due Under Notes
                 ----                  --------------       ------------------
<S>                                       <C>                  <C>
                 1995                     $ 47,000             $   792,000
                 1996                       21,000              12,557,000
                 1997                        6,000                 324,000
                 1998                        9,000
                                          --------             -----------
                 Total                      83,000             $13,673,000
   Amount representing interest              8,000             ===========
                                          --------
   Future minimum lease payments          $ 75,000
                                          ========
</TABLE>

         At December 31, 1994 and 1993 the Corporation had $175,000 and
$1,222,000, respectively, in assets (less $117,000, and $828,000, respectively,
in accumulated amortization) recorded under capital leases. Such amounts are
included in furniture, fixtures and equipment.

8.       Shareholders' Equity.

Warrants to purchase Paired Shares

         At December 31, 1994, there were outstanding 1,659,974 warrants to
purchase Paired Shares at an exercise price of $16.95 per Paired Share through
September 1996. Additional warrants were issued to the Institutional Lenders
under the terms of the Credit Agreement (See Note 2).

Share option plans

         The Trust and the Corporation each have Incentive and Non-Qualified
Share Option Plans which provide for the purchase of up to an aggregate of
700,000 Paired Shares by Trustees, Directors, officers and employees pursuant to
option grants. During the year ended December 31, 1994, the Trust and the
Corporation granted options to purchase 99,000 Paired Shares at an excise price
of $2.75 per Paired Share. During the year ended December 31, 1993, the Trust
and the Corporation granted options to purchase 20,000 Paired Shares at an
exercise price of $2.625 per Paired Share. During the year ended December 31,
1992, the Trust and Corporation granted options to purchase 100,000 Paired
Shares at an exercise price of $.75 per Paired Share. Such options, which are
granted at fair market value on the date of grant, vest over three years. No
options have been exercised as of December 31, 1994.

         At December 31, 1994, outstanding options granted under all plans of
the Trust and Corporation (including options granted to officers and directors
of a company previously acquired by the Trust) aggregated 308,500 Paired Shares.
At December 31, 1994, options for 203,667 Paired Shares are fully vested with
exercise prices ranging from $.75 to $22.68 per Paired Share.

Share purchase plans

         Prior to December 1989, the Trust and the Corporation each had a Share
Purchase Plan, whereby an aggregate of 200,000 Paired Shares were available to
be purchased by Trustees, Directors, officers and employees at their fair market
value on the date of sale with monies borrowed from the Trust or Corporation.

         In December 1989, the Trust's Board of Trustees and the Corporation's
Board of Directors voted to terminate the Share Purchase Plans for purposes of
prospective eligibility, and to irrevocably waive the right of the Trust and the
Corporation to accelerate the payment of a note executed by a participating
Trustee or Director upon termination of such participant's relationship with the
Companies.




                                      F-25
<PAGE>   90

         In January 1991, the Companies entered into agreements with certain
Trustees and Directors who had agreements outstanding pursuant to the Share
Purchase Plans to which each such Board member agreed to stand for re-election
as a Trustee or Director at the next annual shareholders' meeting if requested
to do so by their respective Boards, or if the Boards did not so request, to
act, for a period of up to two years and at mutually agreed upon times and
places, as an advisor to the Trust or the Corporation on matters within such
Board member's experience and expertise, and the Trust or the Corporation agreed
that any outstanding promissory note executed by such Board member in partial
payment for Paired Shares purchased under the Share Purchase Plans would be
amended to cause such promissory note to be without recourse to the maker.

         In March 1992, certain of the aforementioned notes were restructured to
bear an annual interest rate of 8% as of February 2, 1992, with such notes to be
payable interest only from February 2, 1992 until February 15, 1995, at which
time the principal and interest accrued would become payable in equal monthly
installments over a ten-year period.

         The share purchase agreement between a former officer and director and
the Corporation was terminated in connection with his December 31, 1992
resignation as an officer of the Corporation, and the 10,000 Paired Shares
acquired pursuant to that agreement were assigned by him to the Corporation. The
share purchase note in the amount of $112,500, was written off at December 31,
1993. The share purchase notes of other former officers, directors and employees
aggregating $63,500 were also written off at December 31, 1993.

         During 1994, the remaining outstanding share purchase notes of $246,000
were canceled.

Preferred shares

         The Corporation has 10,000,000 authorized preferred shares, $1.00 par
value, none of which are issued or outstanding.

9.       Commitments and Contingencies.

Litigation

         In late 1991 and early 1992 three complaints were filed against the
Trust and the Corporation and certain other related persons (the "Shareholder
Actions"). As amended, two of the complaints allege that the Trust and the
Corporation, a Director and officer of the Corporation and a former
officer/Trustee of the Trust violated the Racketeer Influenced and Corrupt
Organizations Act ("RICO") and Federal and California securities laws and acted
fraudulently in connection with the Trust's and the Corporation's public
disclosures with respect to the Trust's purchase of its two hotel/casinos and
the Ramada Inn in Indian Wells, California. Both of these complaints sought
class action certification. The third complaint was filed purportedly on behalf
of the Trust and the Corporation and alleged that certain former and present
Trustees and Directors breached their fiduciary duties in connection with the
purchase of the Ramada Inn in Indian Wells and the two hotel/casinos.

         On July 20, 1994, the United States District Court for the Southern
District of California entered a Final Judgment of Dismissal With Prejudice
("Final Judgment") of the two purported class actions filed in that Court.

         Pursuant to the Final Judgment, the District Court, among other things,
approved the settlement set forth in stipulations of settlement ("Stipulation")
entered into among the plaintiffs and defendants in the Shareholder Actions, as
well as the insurance company that issued the Companies' directors and officers
policy applicable to the period to which Shareholder Actions relate.

         Under the Final Judgment, all claims that were or might have been made
in the Shareholder Actions are deemed released as of the Effective Date (as
defined in the Stipulation), and a $3,250,000 cash settlement fund was to be
established which, after the deduction of fees and costs to plaintiffs'
counsel, will be distributed to qualified members of the certified plaintiff
classes according to an allocation formula that includes a calculation based on
certain shares that opted out of the settlement. Of the settlement fund,
$2,500,000 will be paid by the insurance company, $400,000 (which amount was
accrued as of December 31, 1993) was paid in May 1994 by the Companies, and
$350,000 will be paid by former officers of the 


                                      F-26
<PAGE>   91

Companies. 

         Upon completion of the claims administration process, any funds
remaining, up to a limit of $325,000, shall be returned to the parties who
contributed to the settlement fund on a pro rata basis. The parties
contributing to the settlement fund have previously established a separate
$45,000 fund to be used for purposes of notifying the classes and otherwise
administering the settlement. Legal fees and other costs incurred by the
defendants in the Shareholder Actions prior to October 12, 1993 have been paid
by the Companies; subsequent defense costs will be paid by the insurance
company. Holders of approximately 1,199,000 Paired Shares opted out of the
settlement. All amounts relating to the Shareholder Actions paid or expected to
be paid have been accrued and expensed as of December 31, 1994. 


         The Stipulation also requires that the Trust's Board of Trustees and
the Corporation's Board of Directors establish a joint transaction committee of
independent Trustees and Directors to make recommendations to those Boards with
respect to any transaction proposed in the future by management and having a
fair market value of $20 million or more.

         In connection with the settlement of the Shareholder Actions, Messrs.
Young and Rothman and certain of their affiliated partnerships have terminated
the management agreements that existed between those partnerships and the
Corporation's subsidiary, Western Host, Inc. (the "Management Contracts"), and
Western Host, Inc. ("Western Host) has agreed to forbear from disputing such
action and has withdrawn as a general partner of two additional affiliated
partnerships. In satisfaction of any damages that the Companies may incur as a
result of the termination of the Management Contracts, Messrs. Rothman and Young
have provided to the Companies an irrevocable letter of credit in the amount of
$800,000 which has a one-year term.

         Upon final Court approval of the Shareholder Actions, proceeds from the
letter of credit would be paid to the Companies, and the parties to the
Management Contracts, former officers of the Companies and the Companies, will
release all of their respective claims related to the termination of the
Management Contracts.

Ross Settlement Agreement

         Subsequent to the settlement of the Shareholder Actions described
above, Leonard M. Ross and his affiliates ("Ross"), who hold 1,190,400 Paired
Shares and had opted out of the settlement, had threatened litigation against
the Trust and the Corporation.

         In October 1994, Starwood Capital Group, L.P. ("Starwood Capital")
entered into an agreement with Ross to settle the threatened litigation in which
Starwood Capital agreed to purchase Ross' paired shares, at Ross' election, in a
60-day period beginning on the earlier of the first anniversary of the closing
of the Reorganization or December 15, 1995 at a price of $5.625. Starwood
Capital also has the right to elect to purchase such paired shares at the same
time and on the same terms. The Trust and Corporation have also agreed that
under certain circumstances they may be obligated severally to indemnify
Starwood Capital with respect to Starwood Capital's obligations to Ross, up to a
maximum of $1.8 million, upon receipt of a full release from Starwood Capital of
all of the claims assigned by Ross.

         The estimated fair value of the put/call provisions of the Ross
settlement agreement at the time of the agreement was approximately $2,648,000
and was charged against the earnings of the Trust and Corporation in 1994.

Environmental matters

         In connection with the Debt Restructuring (see Note 2), the Trust
obtained in the latter part of 1991 preliminary or "Phase I" environmental site
assessments with respect to the Trust's hotel properties and the Milwaukee
Marriott Hotel.

         The potential for environmental impairment was assessed as moderate to
high only at the Embassy Suites Hotel in Phoenix, Arizona. According to the
assessment of that property, petroleum hydrocarbons are present in the land
beneath this hotel; however, the Trust could not determine without further
investigation the extent of the potential contamination or whether this
contamination resulted from the underground storage tanks placed on the property
by the property's former owner or from similar tanks located on land adjacent to
the property, which tanks 


                                      F-27
<PAGE>   92

are known to have suffered leakage. A magnetic survey conducted on the property
did not detect the continuing existence of the underground storage tanks on the
Companies' property, and the environmental consultant did not recommend that any
further action be taken. Phoenix municipal authorities have indicated an
awareness of possible ground water contamination in the area, but to date have
taken no action.

         A tank leak test conducted at the Bourbon Street Hotel in early 1992
revealed no evidence of leakage. A release of petroleum from an underground
storage tank at the Bay Valley Hotel and Resort was reported to the appropriate
state agency in 1992. After the tank and surrounding soils were removed,
additional soils and groundwater testing was performed, which revealed
environmental contamination in a localized area. The environmental testing has
been performed to identify the extent of the contamination released from the
tank. The consultant has proposed to remedy the contamination through
installation of a groundwater pump and treatment system to capture and treat
impacted groundwater and excavation of impacted soil. Amendments to the relevant
environmental clean-ups laws, which have recently been introduced in the
Michigan Legislature, may reduce the extent or magnitude of the clean-up that
may be required at the site. The consultant's recommendations were made upon the
basis of existing law, and did not take into account the proposed legislative
amendments. After the Trust and the Corporation assess the impact of any
amendments that may be enacted to the relevant statutes, the Trust and the
Corporation will perform whatever remediation is required by law. Any further
remediation costs that are incurred may be reimbursed by a Michigan
environmental fund, although there can be no assurance that the fund will have
sufficient resources to pay all claims made against it. If the Trust and the
Corporation do not receive reimbursement for future remediation costs, the
Realty Partnership will bear those costs.

         Neither the Trust nor the Corporation has been identified by the U.S.
Environmental Protection Agency or any similar state agency as a responsible or
potentially responsible party for, nor have the Companies been the subject of
any governmental proceeding with respect to, any hazardous waste contamination.
If the Companies were to be identified as a responsible party, the Trust and the
Corporation in most circumstances would be strictly liable, jointly and
severally with other responsible parties, for environmental investigation and
clean-up costs incurred by the government and, to a more limited extent by
private persons. Managements of the Trust and the Corporation expect that the
cost of any required remediation would be the responsibility of the Trust.

         Based upon environmental reports, the Trust believes that a substantial
number of its hotel properties incorporate potentially asbestos-containing
materials. Under applicable current Federal, state and local laws, asbestos need
not be removed from or encapsulated in a hotel unless and until the hotel is
renovated or remodeled. The removal of asbestos from portions of the Milwaukee
Marriott Hotel required in connection with the renovation of that property has
been completed.

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

Performance bonds and restricted cash

         The Corporation is required to post performance bonds or cash
collateral as security for certain obligations. At December 31, 1994 and 1993,
the Corporation had posted performance bonds totaling approximately $747,000 and
$738,000, respectively, to cover such obligations; however, no amounts had been
drawn against such bonds.

         At December 31, 1994, inventories, prepaid expenses and other assets
include $246,000 and $1,606,000 for the Trust and the Corporation, respectively,
which were restricted as to use. At December 31, 1993, inventories, prepaid
expenses and other assets include $145,000 and $2,006,000 for the Trust and the
Corporation, respectively, which were restricted as to use. Other than the
performance bonds, the restricted cash of the Corporation primarily is the cash
of MHLP (see Note 5).


                                      F-28
<PAGE>   93


10.      Related Party Transactions.

         The Corporation, through its subsidiary Western Host, Inc. ("Western
Host") managed seven properties owned by partnerships of which Ronald A. Young,
former President and Chief Executive Officer and Director of the Corporation, is
a general partner (the "Western Host Partnerships"). The Corporation accrued
management fees and administrative services fees pursuant to such management
agreements of approximately $863,000 during the year ended December 31, 1992.

Termination agreement and management subcontracts - Effective December 29, 1992,
Mr. Young and the Corporation entered into a termination agreement whereby Mr.
Young tendered his resignation as President and Chief Executive Officer. Under
the terms of the agreement, Mr. Young received payment of accrued vacation pay
in the amount of $54,000 and assigned to the Corporation the ownership of the
10,000 Paired Shares which secured the non-recourse promissory note in the
amount of $121,000, including interest, which was issued in connection with the
1987 Share Purchase Plan (See Note 8). In addition, Western Host agreed to
subcontract its duties under the management contracts for six of the Western
Host Partnerships to Westland Hotel Corporation, a hotel management company
formed by Mr. Young. In connection with the settlement of the Shareholder
Actions (see Note 9), the management contracts were terminated.

         As of December 31, 1993, the Western Host Partnerships and/or Westland
owed Western Host and/or the Corporation $100,000 representing amounts advanced
for the expenses of the managed Western Host hotels which was paid in 1994.

         At December 31, 1994, the Trust holds an $800,000 unsecured note
receivable from John Rothman, the former President and Chief Executive Officer
of the Trust. The principal amount of the note receivable is due in 1999 and
bears interest due annually at 10%.

         The Companies incurred legal fees from law firms in which a Trustee and
officer of the Trust was or currently is a partner during the years ended
December 31, 1994, 1993 and 1992 totaling $940,000, $235,000, and $955,000,
respectively.


                                      F-29
<PAGE>   94

11.      Industry Segment Information.

         The Corporation operates in two segments of the hospitality industry,
hotel and gaming. The hotel segment consists of room, food and beverage and
other revenues recognized in connection with the operation of hotels owned by
the Corporation or under lease from the Trust, and income from management
contracts. The gaming segment consists of net win from casino operations, as
well as room, food and beverage and other revenues recognized in connection with
the operation of the two hotel/casinos under lease from the Trust. The following
information summarizes revenue and operating results by industry segment:

<TABLE>
<CAPTION>
                                                                                         Years Ended December 31,
                                                                     ------------------------------------------------------------
                                                                         1994                     1993                    1992
                                                                     ------------            ------------            ------------
<S>                                                                  <C>                     <C>                     <C>
HOTEL:
Revenue:
   Room ..................................................           $ 56,387,000            $ 58,917,000            $ 60,068,000
   Food and beverage .....................................             21,603,000              23,337,000              23,975,000
   Other .................................................              4,678,000               4,649,000               4,769,000
                                                                     ------------            ------------            ------------
   Hotel revenue .........................................             82,668,000              86,903,000              88,812,000
   Management fees .......................................                247,000                  90,000                 952,000
                                                                     ------------            ------------            ------------

   Total revenue .........................................             82,915,000              86,993,000              89,764,000
                                                                     ------------            ------------            ------------

Expenses:

   Rooms .................................................             25,177,000              27,633,000              29,094,000
   Food and beverage .....................................             16,364,000              15,116,000              15,256,000
   Other (including undistributed
       operating expenses and fixed
       charges) ..........................................             19,288,000              25,383,000              24,270,000
   Rent to Trust .........................................             14,506,000              14,081,000              17,612,000
   Depreciation and amortization .........................              2,072,000               3,060,000               3,086,000
   Allocated Corporate overhead ..........................              1,001,000                 950,000               1,600,000
                                                                     ------------            ------------            ------------
   Total expenses ........................................             78,408,000              86,223,000              90,918,000
                                                                     ------------            ------------            ------------
Operating income (loss) ..................................           $  4,507,000            $    770,000            $ (1,154,000)
                                                                     ============            ============            ============

GAMING:
Revenue:

   Casino ................................................           $ 15,137,000            $ 14,861,000            $ 14,461,000
   Room ..................................................              4,516,000               4,305,000               3,709,000
   Food and beverage .....................................              5,166,000               5,226,000               5,396,000
   Other .................................................              5,506,000               5,370,000               4,930,000
   Less promotional allowances ...........................             (2,344,000)             (2,257,000)             (2,346,000)
                                                                     ------------            ------------            ------------
   Gaming revenues .......................................             27,981,000              27,505,000              26,150,000
                                                                     ------------            ------------            ------------

Expenses:

   Casino ................................................              6,308,000               6,019,000               5,852,000
   Rooms .................................................              2,156,000               2,042,000               1,894,000
   Food and beverage .....................................              4,514,000               4,564,000               4,888,000
   Other (including undistributed
       operating expenses and fixed
       charges) ..........................................             11,476,000              11,430,000              11,065,000
                                                                     ------------            ------------            ------------
   Expenses of gaming operations .........................             24,454,000              24,055,000              23,699,000
   Rent to Trust .........................................              2,400,000               2,400,000               3,565,000
   Depreciation and amortization .........................                382,000                 477,000                 262,000
                                                                     ------------            ------------            ------------
   Total expenses ........................................             27,236,000              26,932,000              27,526,000
                                                                     ------------            ------------            ------------
Operating income (loss) ..................................           $    745,000            $    573,000            $ (1,376,000)
                                                                     ============            ============            ============
</TABLE>



                                      F-30
<PAGE>   95


A reconciliation of the combined segment operating income (loss) to the net loss
of the Corporation is as follows:

<TABLE>
<CAPTION>
                                                     Years Ended December 31,
                                           ------------------------------------------
                                               1994           1993            1992
                                           ------------    -----------    -----------
<S>                                        <C>             <C>            <C>
Combined operating income
  (loss) ...............................   $ 5,252,000     $ 1,343,000    $(2,530,000)
Interest and other income ..............        66,000         330,000        258,000
Interest expense .......................    (3,071,000)     (2,701,000)    (5,372,000)
Corporate expenses .....................    (3,445,000)     (2,115,000)    (2,281,000)
                                           ------------    ------------   ------------
     Net income (loss) .................   $(1,198,000)    $(3,143,000)   $(9,925,000)
                                           ===========     ===========    ===========
</TABLE>

Additional financial data by industry segment for the Corporation is as follows:

<TABLE>
<CAPTION>
                                                                                             December 31,
                                                                     -------------------------------------------------------------
                                                                         1994                    1993                      1992
                                                                     -------------------------------------------------------------
<S>                                                                  <C>                      <C>                      <C>
IDENTIFIABLE ASSETS:
     Hotel ............................................              $40,357,000              $41,712,000              $43,620,000
     Gaming ...........................................                3,710,000                3,743,000                4,059,000
     Corporate and other ..............................                4,559,000                4,538,000                5,932,000
                                                                     -----------              -----------              -----------
     Total ............................................              $48,626,000              $49,993,000              $53,611,000
                                                                     ===========              ===========              ===========

CAPITAL EXPENDITURES:

     Hotel ............................................              $   421,000              $ 4,859,000              $ 1,160,000
     Gaming ...........................................                  221,000                  220,000                  123,000
     Corporate and other ..............................                   29,000                  126,000                    7,000
                                                                     -----------              -----------              -----------
     Total ............................................              $   671,000              $ 5,205,000              $ 1,290,000
                                                                     ===========              ===========              ===========

DEPRECIATION AND
   AMORTIZATION:
     Hotel ............................................              $ 2,072,000              $ 3,060,000              $ 3,086,000
     Gaming ...........................................                  389,000                  477,000                  262,000
     Corporate and other ..............................                  495,000                   65,000                   54,000
                                                                     -----------              -----------              -----------
     Total ............................................              $ 2,956,000              $ 3,602,000              $ 3,402,000
                                                                     ===========              ===========              ===========
</TABLE>


The Trust is an owner/lessor of real property and does not "operate" in
different segments, and is therefore not subject to disclosure by segment. The
Trust's net investment (initial cost less accumulated depreciation and provision
for loss) in the two Las Vegas hotel/casinos was $21,306,000, and $22,798,000
December 31, 1994 and 1993, respectively.

12.      Reorganization and Debt Refinancing.

         Reorganization

         Effective January 1, 1995 (the "Closing Date"), the Trust and the
Corporation consummated the previously announced reorganization (the
"Reorganization") with Starwood Capital Group, L.P. ("Starwood Capital") and
certain affiliates of Starwood Capital (the "Starwood Partners").

         The Reorganization involved a number of related transactions that
occurred simultaneously on the Closing Date. Such transactions included (i) the
contribution by the Trust to SLT Realty Limited Partnership (the "Realty
Partnership") of all of the properties and assets of the Trust including
substantially all of the liabilities of the Trust (including the Senior Debt of
the Trust ), in exchange for an approximate 28.3% interest as a general partner
in the Realty Partnership, (ii) the contribution by the Starwood Partners to the
Realty Partnership of approximately $12,600,000 in cash and certain hotel
properties and first mortgage notes, in exchange for limited partnership 



                                      F-31
<PAGE>   96

units representing the remaining approximate 71.7% interest in the Realty
Partnership, (iii) the contribution by the Corporation and its subsidiaries to
SLC Operating Limited Partnership (the "Operating Partnership") of all of their
properties and operating assets (except for their gaming assets, which are to be
contributed upon approval by Nevada gaming authorities), subject to
substantially all of their liabilities, in exchange for an approximate 28.3%
interest as a general partner in the Operating Partnership, and (iv) the
contribution by the Starwood Partners to the Operating Partnership of
approximately $1,400,000 in cash and furnishings and equipment of the hotel
properties, in exchange for limited partnership units representing the remaining
approximate 71.7% interest in the Operating Partnership.

         Each partner in the Partnerships (including the Trust and the
Corporation) will account for its respective investment in the Realty
Partnership and the Operating Partnership under the equity method of accounting,
in accordance with generally accepted accounting principles. For accounting
purposes, neither the Trust nor Starwood Capital unilaterally control the Realty
Partnership and neither the Corporation nor Starwood Capital unilaterally
control the Operating Partnership.

         The following unaudited pro forma separate and combined condensed
financial information is presented as if the Reorganization in which the Trust
and Corporation contributed substantially all of their assets (subject to
substantially all of their liabilities) in exchange for 28.3% general
partnership interests in the Realty Partnership and the Operating Partnership
(the "Partnerships") and the Starwood Partners contributed cash and other
assets, subject to certain liabilities, in exchange for 71.7% limited
partnership interests in the Partnerships had occurred on December 31, 1994 for
balance sheet information and on January 1, 1994 for income statement
information.

<TABLE>
<CAPTION>
                                                                                                 December 31, 1994
                                                                                                   (in thousands)

                                                                                  --------------------------------------------------
STARWOOD LODGING                                                                   Trust             Corporation            Combined
                                                                                  --------           -----------            --------
<S>                                                                               <C>                 <C>                   <C>
Investment in Partnership ............................................            $ 10,450            $  (1,742)            $  8,708
Income from investment in Partnership ................................                 824                 (742)                  82
Net income per share .................................................            $   0.07            $   (0.06)            $   0.01

SLT REALTY AND SLC OPERATING PARTNERSHIPS                                          Realty             Operating             Combined
                                                                                  --------           -----------            --------
Hotel assets, net ....................................................            $147,080            $  38,177             $185,258
Total real estate investments ........................................             210,299               38,199              248,428
Total assets .........................................................             254,044               55,502              282,630
Total debt ...........................................................             200,298               40,664              214,046
Partners' capital ....................................................              49,166                4,206               53,372

Revenues .............................................................            $ 33,189            $ 127,421             $138,708
Expenses .............................................................              30,273              130,044              138,415
Net income (loss) ....................................................               2,916               (2,623)                 293
</TABLE>

In addition on March 24, 1995, a Starwood Partner exchanged $12 million of 
Senior Debt for additional limited partnership units of the Realty Partnership 
and the Operating Partnership.

         After giving effect to the Reorganization and such subsequent exchange
of Senior Debt, the Trust has an approximate 25.4% interest in the Realty
Partnership and the Corporation has an approximate 25.4% interest in the
Operating Partnership, and the Starwood Partners hold limited partnership
interests representing the remaining approximate 74.6% interest in each of the
Realty Partnership and the Operating Partnership.

Debt Refinancing

         On March 24, 1995, the Realty Partnership and the Trust entered into an
Amended and Restated Credit Agreement (the "New Credit Agreement") pursuant to
which the Realty Partnership borrowed approximately $132 million (the "Loan")
which was used primarily to refinance all outstanding Senior Debt (after the
exchange by a Starwood Partner of $12 million of Senior Debt for units of the
Realty Partnership and the 



                                      F-32
<PAGE>   97

Operating Partnership described above) and approximately $27 million of first
mortgage debt. The Loan matures on April 1, 1997 (subject to the Realty
Partnership's option to extend such maturity for 12 months subject to a
principal payment of $10 million and on certain other conditions) and bears
interest at a rate based on LIBOR plus 3%. In connection with the New Credit
Agreement, the Warrants issued in connection with the prior Credit Agreement may
be canceled upon the payment to a Starwood Partner of a $786,000 cancellation
fee.

         Prior to maturity there are no mandatory principal payments on the
loan, except that (i) if the Realty Partnership sells or refinances a hotel
property or mortgage note (other than certain notes contributed by the Starwood
Partners aggregating approximately $53 million (the "Harvey Notes")), it must
reduce the principal of the Loan by at least 125% of the portion of the Loan
allocated to such property or note and (ii) the net proceeds of any public
offering (or private offerings to the extent the net proceeds thereof exceed $60
million) of equity interests in the Trust, the Corporation, the Realty
Partnership or the Operating Partnership must be used to reduce the principal of
the Loan until such principal is equal to or less than 50% of the fair market
value of the assets which secure the Loan.

         The Loan is secured by first priority liens on substantially all of the
assets of the Realty Partnership, other than the Harvey Notes. Up to $58 million
of the obligations under the Loan is guaranteed by the Operating Partnership,
which guaranty is secured by first priority liens on substantially all of the
assets of the Operating Partnership. Each of the Trust and the Corporation, as
general partner, is secondarily liable for the obligations under the Loan of the
Realty Partnership and the Operating Partnership, respectively.

         The New Credit Agreement contains covenants that are similar to, but in
general less restrictive than, those contained in the prior Credit Agreement,
including (i) a requirement that the Realty Partnership and the Operating
Partnership maintain a minimum combined net worth as defined ($40 million at
March 24, 1995) The New Credit Agreement also restricts the ability of the
Realty Partnership to incur other indebtedness.

         The Realty Partnership may, prior to January 1, 1996, borrow up to an
additional $75 million to finance the acquisition of hotel properties and to
refinance debt that is senior to the Loan. Each such acquisition loan will be in
an amount equal to the lesser of (i) 60% of the purchase price (in the case of
an acquisition) and (ii) 70% of the property's value (as determined by the
lender), will be made on the same terms as the Loan and will be secured by a
first priority lien on the related hotel property.



                                      F-33
<PAGE>   98

<TABLE>
<CAPTION>

13. Selected Quarterly Financial Information (Unaudited)

                                      Combined                         Trust                          Corporation
                            ----------------------------     ---------------------------      --------------------------
                                1994              1993           1994             1993             1994            1993
                            -----------      -----------     ----------       ----------      -----------    -----------
<S>                         <C>              <C>             <C>              <C>             <C>            <C>
First Quarter
------------------------
   Revenue . . . . . . .    $28,338,000      $27,831,000     $5,243,000       $5,082,000      $27,823,000    $27,253,000
   Net income (loss) . .       (335,000)      (1,366,000)      (154,000)        (208,000)        (181,000)    (1,158,000)
   Net income (loss)
     per share . . . . .          (0.03)           (0.11)         (0.01)           (0.02)           (0.01)         (0.10)

Second Quarter
------------------------
   Revenue . . . . . . .    $29,994,000      $30,310,000     $5,953,000       $5,477,000      $28,610,000    $29,421,000
   Net income (loss) . .        933,000         (204,000)       288,000           41,000          645,000       (245,000)
   Net income (loss)
     per share . . . . .           0.08            (0.02)          0.02             0.00             0.05          (0.02)

Third Quarter
------------------------
   Revenue . . . . . . .    $29,666,000      $30,530,000     $5,737,000       $5,198,000      $28,809,000    $29,998,000
   Net income (loss) . .     (2,715,000)(1)   (1,268,000)    (2,313,000)(1)   (1,412,000)        (402,000)       144,000
   Net income (loss)
     per share . . . . .          (0.22)           (0.10)         (0.19)           (0.12)           (0.03)          0.01

Fourth Quarter
------------------------
   Revenue . . . . . . .    $25,999,000      $28,484,000     $4,738,000       $4,585,000      $25,720,000    $28,156,000
   Net loss  . . . . . .     (2,546,000)      (4,194,000)    (1,286,000)      (2,310,000)      (1,260,000)    (1,884,000)
   Net loss  . . . . . .
     per share . . . . .          (0.21)           (0.35)         (0.11)           (0.19)           (0.10)         (0.16)
</TABLE>


(1)   During the quarter ended September 30, 1994, the Trust recorded a
      provision for investment losses of $759,000 and the Trust and the
      Corporation each recorded a provision of $1,324,000 for expenses related
      to the settlement of shareholder litigation (see Note 9).

(2)   During the quarter ended September 30, 1993, the Trust recorded a
      provision for investment losses of $1,167,000. During the quarter ended
      December 31, 1993, the Trust recorded a provision for investment losses of
      $1,202,000 and the Trust and the Corporation each recorded a provision of
      $219,000 for expenses expected to be incurred upon settlement of
      shareholder litigation. (See Note 9.)


                                      F-34
<PAGE>   99

SCHEDULE III
REAL ESTATE AND ACCUMULATED DEPRECIATION
DECEMBER 31, 1994                       

<TABLE>
<CAPTION>

                                                                                         Costs              Gross amount
                                                                                      Subsequent to        at which carried
                                                           Initial Cost to Company     Acquisition        at close of period
                                                           -------------------------  -------------   ---------------------------
STARWOOD LODGING TRUST                                                                                (1)            (1)
                                                                        Building and  Building and                   Building and
Description                               Encumbrances       Land       Improvements  Improvements       Land        Improvements
------------------------------------      ------------     ----------   ------------  -------------   -----------    ------------
<S>                                       <C>              <C>          <C>           <C>             <C>            <C>
  HOTEL ASSETS:
Embassy Suites - Phoenix, AZ              $9,173,000       $2,889,000   $ 11,658,000  $   564,000      $2,889,000    $ 12,223,000
Plaza Hotel - Tucson, AZ                            (2)       898,000      3,809,000       66,000         898,000       3,875,000
Vagabond Inn - Rosemead, CA                                   700,000      2,100,000                      700,000       2,100,000
Vagabond Inn - Sacramento, CA                                 700,000      3,200,000                      700,000       3,200,000
Vagabond Inn - Woodland Hills, CA                           1,200,000      3,200,000                    1,200,000       3,200,000
Hilton Inn - Gainesville, FL                                1,002,000      3,759,000    1,582,000       1,002,000       5,341,000
Holiday Inn - Albany, GA                   6,000,000          796,000      4,980,000      123,000         796,000       5,103,000
Best Western Riverfront Inn -                                 431,000      3,745,000      200,000         431,000       3,946,000
   Savannah, GA
Bay Valley Hotel - Bay City, MI            4,075,000        2,501,000      5,472,000    1,193,000       2,501,000       6,666,000
Bourbon Street Hotel and Casino -
   Las Vegas, NV                                            8,435,000      8,668,000    5,446,000       8,435,000      14,172,000
King 8 Hotel and Casino - Las                139,000        5,396,000     13,579,000    1,938,000       5,396,000      15,532,000
   Vegas, NV
Best Western Airport Inn -
   Albuquerque, NM                                  (3)       285,000      4,880,000       12,000         285,000       4,892,000
Best Western Mesilla Valley Inn -
   Las Cruces, NM                                           1,150,000      3,295,000       28,000         860,000       3,320,000
Columbus Best Western - Columbus, OH                          854,000      2,300,000       27,000         854,000       2,327,000
Portland Inn - Portland, OR                1,854,000        1,900,000      3,768,000      239,000       2,020,000       4,008,000
Riverside Inn - Portland, OR                                1,300,000      3,375,000      235,000       1,420,000       3,610,000
Marriott Park Central - Dallas, TX         5,148,000(3)     3,814,000      8,018,000      591,000       3,815,000       8,608,000
Best Western Airport Inn -
   El Paso, TX                                              1,400,000      3,409,000       85,000       1,400,000       3,494,000
Residence Inn - Tysons Corner, VA          6,349,000        1,418,000      4,119,000      455,000       1,418,000       4,574,000
Days Inn Town Center - Seattle, WA                            250,000      1,483,000       18,000         250,000       1,500,000
Meany Tower Hotel - Seattle, WA                     (3)     1,700,000      6,270,000      207,000       1,820,000       6,477,000
Sixth Avenue Inn - Seattle, WA                              1,150,000      1,570,000       31,000       1,150,000       1,601,000
Tyee Motor Inn - Tumwater, WA                       (3)     1,008,000      1,562,000      969,000         944,000       2,531,000
                                         -----------      -----------   ------------  -----------     -----------    ------------
                                         $32,738,000      $41,177,000   $108,219,000  $14,009,000     $41,184,000    $122,300,000
                                         -----------      -----------   ------------  -----------     -----------
                                                                                      Land                             41,184,000
                                                                                      Furniture and Equipment          25,124,000
                                                                                                                     ------------
                                                                                      Totel hotels and land
                                                                                        under lease                  $188,608,000(5)
                                                                                                                     ============

</TABLE>

<TABLE>
<CAPTION>

                                                  (4)

                                              Accumulated
                                              Depreciation &      Year of       Date
Description                                   Amortization     Construction   Acquired      Life
------------------------------------          ------------     ------------   --------      ----
<S>                                           <C>              <C>           <C>             <C>
  HOTEL ASSETS:
Embassy Suites - Phoenix, AZ                  $ 3,690,000          1981       12/13/83       35
Plaza Hotel - Tucson, AZ                        1,147,000          1971        9/16/86       35
Vagabond Inn - Rosemead, CA                       524,000          1974        9/16/86       35
Vagabond Inn - Sacramento, CA                     754,000          1975        9/16/86       35
Vagabond Inn - Woodland Hills, CA                 754,000          1973        9/16/86       35
Hilton Inn - Gainesville, FL                    1,157,000          1974       11/24/86       35
Holiday Inn - Albany, GA                          848,000          1989         6/9/89       35
Best Western Riverfront Inn -                   1,815,000          1971       12/11/86       35
   Savannah, GA
Bay Valley Hotel - Bay City, MI                 2,001,000          1973        5/10/84       35
Bourbon Street Hotel and Casino -
   Las Vegas, NV                               13,918,000       1964/1975      2/01/88       35
King 8 Hotel and Casino - Las                   8,225,000       1974/1979       2/1/88       35
   Vegas, NV
Best Western Airport Inn -
   Albuquerque, NM                              1,212,000          1980        9/16/86       35
Best Western Mesilla Valley Inn -
   Las Cruces, NM                                 827,000          1974        9/16/86       35
Columbus Best Western - Columbus, OH              197,000          1971        1/24/92       35
Portland Inn - Portland, OR                       898,000          1962        9/16/86       35
Riverside Inn - Portland, OR                      807,000          1964        9/16/86       35
Marriott Park Central - Dallas, TX              4,435,000          1972        9/09/88       35
Best Western Airport Inn -
   El Paso, TX                                    815,000          1974        9/16/86       35
Residence Inn - Tysons Corner, VA               1,326,000          1984        7/01/84       35
Days Inn Town Center - Seattle, WA              1,305,000          1957        9/16/86       13
Meany Tower Hotel - Seattle, WA                 1,489,000          1932        9/16/86       35
Sixth Avenue Inn - Seattle, WA                  1,797,000          1959        9/16/86       13
Tyee Motor Inn - Tumwater, WA                     528,000          1961        2/17/87       35
                                              -----------
                                              $50,469,000
    Land                                          
    Furniture and Equipment                    21,429,000
                                              -----------
    Total hotels and land under lease         $71,899,000
                                              ===========

</TABLE>


(1) As of December 31, 1994, real estate and furniture and equipment
    have a cost of $189,367,000 for federal tax income purposes.

(2) Land cost includes costs allocated to leasehold interest in land
    of $548,000 at the Tucson property.

(3) Land costs represents costs allocated to leasehold interest in land.

(4) Includes reserve for losses discussed in Notes 1 and 3 of Notes to the
    Financial Statements.

(5) Substantially all properties are encumbered by the Secured Notes Payable and
    Revolving Line of Credit.


                                   (Continued)

                                      F-35
<PAGE>   100


SCHEDULE III (Continued)

REAL ESTATE AND ACCUMULATED DEPRECIATION

A reconciliation of the Trust's investment in real estate, furniture and
fixtures and related accumulated depreciation is as follows:

<TABLE>
<CAPTION>
                                                              Year Ended December 31,
                                                   1994                 1993                 1992
                                             ------------          ------------         ------------
<S>                                          <C>                   <C>                  <C>
REAL ESTATE AND FURNITURE
   AND FIXTURES:
Balance at beginning of period               $224,170,000          $246,356,000         $258,902,000
Additions during period:
   Acquisitions
   Improvements                                 2,270,000             1,372,000            9,384,000
U.S. Equity Step-up in Basis                                            899,000
Reclass of construction
   in progress                                                                              (113,000)
Deductions during period:
   Sales of properties                        (37,832,000)          (24,457,000)         (21,817,000)
                                             ------------          ------------         ------------
Balance at end of Period                      188,608,000           224,170,000          246,356,000
                                             ============          ============         ============

ACCUMULATED DEPRECIATION:
Balance at beginning of period                $94,252,000          $105,338,000         $108,134,000
Additions - depreciation expense                5,205,000             5,630,000            6,753,000
Deductions - sales of properties              (27,997,000)          (19,085,000)         (12,746,000)
Provision for investment losses:
   St. Louis, MO                                                        858,000 (1)(3)
   Dallas, TX                                                           459,000 (3)
   Jacksonville, FL                               389,000 (3)           272,000 (3)        1,050,000 (2)(3)
   Savannah, GA                                                         300,000 (3)          760,000 (2)(3)
   New Port Richey, FL                                                  200,000 (1)(3)
   Brunswick, GA                                                        150,000 (1)(3)       440,000 (2)(3)
   Fayetteville, NC                                50,000 (3)           100,000 (1)(3)
   Cumberland, GA                                                                            697,000 (2)(3)
   Northlake, GA                                                                             250,000 (2)(3)
   Rosemead, CA                                                          30,000 (3)
                                             ------------          ------------         ------------
                                                  439,000             2,369,000            3,197,000
                                             ------------          ------------         ------------
Balance at end of period                      $71,899,000           $94,252,000         $105,338,000
                                             ============          ============         ============
</TABLE>


(1)   Provision for loss was recorded primarily as a result of all cash offers
      to sell hotels, previously identified for sale, at amounts lower than
      their current net book values.

(2)   Provision for loss was recorded as a result of the deterioration of hotels
      in the Southeast and the acceptance of offers for the sale of hotels at
      amounts less than net book value.

(3)   Provision for loss was recorded as a result of the difference between the
      net book value of properties which had been identified for sale and their
      estimated fair values.

                                   (Continued)

                                      F-36
<PAGE>   101

SCHEDULE III (Continued)
REAL ESTATE AND ACCUMULATED DEPRECIATION

<TABLE>
<CAPTION>


DECEMBER 31, 1994                                                                           Costs              Gross amount
                                                                                        Subsequent to        at which carried
                                                             Initial Cost to Company     Acquisition        at close of period
                                                             -------------------------  -------------   ---------------------------
HOTEL INVESTORS CORPORATION                                                                                 (1)             (1)
                                                (3)                       Building and  Building and                   Building and
Description                                 Encumbrances       Land       Improvements  Improvements       Land        Improvements
------------------------------------        ------------     -----------  ------------  -------------   -----------    ------------
<S>                                         <C>              <C>          <C>           <C>             <C>           <C>
  HOTEL ASSETS:
Embassy Suites - Phoenix, AZ                                                                $45,000                    $    45,000
Plaza Hotel - Tucson, AZ                                     $   595,000                                $   978,000
Hilton Inn - Gainesville, FL                                                                 39,000                         39,000
Holiday Inn - Albany, GA                                                                     64,000                         64,000
Bay Valley Hotel - Bay City, MI                                                             179,000                        179,000
Best Western North - Columbus, OH                                                            61,000           4,000         62,000
Best Western Airport Inn -
   Albuquerque, NM                                               325,000                                    372,000
Best Western Mesilla Valley Inn -
   Las Cruces, NM                                                                                           252,000
Portland Inn - Portland, OR                                    2,185,000                     78,000       2,185,000         78,000
Riverside Inn - Portland, OR                                   2,123,000        87,000       26,000       2,124,000        113,000
Best Western Airport Inn -
   El Paso, TX                                                                               18,000                         18,000
Residence Inn - Tysons Corner, VA                                                            33,000                         33,000
Days Inn Town Center - Seattle, WA                               429,000         4,000      204,000         429,000        208,000
Meany Tower Hotel - Seattle, WA                                3,437,000       302,000       66,000       3,437,000        368,000
Sixth Avenue Inn - Seattle, WA                                 1,515,000        24,000      118,000       1,515,000        142,000
Best Western Inn - Savannah, GA                                                              47,000                         47,000
Marriott Hotel - Milwaukee, WI              $13,106,000        2,500,000    17,422,000    3,499,000       2,500,000     20,920,000
                                            -----------      -----------   -----------   ----------     -----------    -----------
                                            $13,106,000      $13,109,000   $17,839,000   $4,477,000     $13,796,000    $22,316,000
                                            -----------      -----------   -----------   ----------     -----------    
                                                                                         Land                           13,796,000
                                                                                         Furniture and Equipment        15,630,000
                                                                                                                        ----------
                                                                                         Total hotels and land under
                                                                                           lease                       $51,742,000
                                                                                                                       =========== 

</TABLE>

<TABLE>
<CAPTION>

                                               (2)

HOTEL INVESTORS CORPORATION               Accumulated
                                          Depreciation &      Year of       Date
Description                               Amortization     Construction   Acquired      Life
------------------------------------      ------------     ------------   --------      ----
<S>                                         <C>                <C>        <C>            <C>
  HOTEL ASSETS:
Embassy Suites - Phoenix, AZ                    $7,000         1981       12/13/83       35
Plaza Hotel - Tucson, AZ                       182,000         1971        9/16/86       35
Hilton Inn - Gainesville, FL                    11,000         1974       11/24/86       35
Holiday Inn - Albany, GA                         6,000         1989         6/9/89       35
Bay Valley Hotel - Bay City, MI                 25,000         1973        5/10/84       35
Best Western North - Columbus, OH                3,000
Best Western Airport Inn -
   Albuquerque, NM                              80,000         1980        9/16/86       35
Best Western Mesilla Valley Inn -
   Las Cruces, NM                               25,000         1974        9/16/86       35
Portland Inn - Portland, OR                    480,000         1962        9/16/86       35
Riverside Inn - Portland, OR                   507,000         1964        9/16/86       35
Best Western Airport Inn -
   El Paso, TX                                   3,000         1974        9/16/86       35
Residence Inn - Tysons Corner, VA                7,000         1984        7/01/84       35
Days Inn Town Center - Seattle, WA             257,000         1957        9/16/86       13
Meany Tower Hotel - Seattle, WA                869,000         1932        9/16/86       35
Sixth Avenue Inn - Seattle, WA                 779,000         1959        9/16/86       13
Best Western Inn - Savannah, GA                  2,000         1961        2/17/87       35
Marriott Hotel - Milwaukee, WI               1,964,000
                                            ----------
                                           $ 5,207,000
Land                                        
Furniture and Equipment                     12,058,000
                                           -----------
Total hotels and land under lease          $17,265,000
                                           ===========
</TABLE>


(1) As of December 31, 1994, real estate and furniture and equipment
    have a cost of $51,339,000 for federal tax income purposes.

(2) Includes reserve for losses discussed in Notes 1 and 3 of
    Notes to Financial Statements.

(3) Amount excludes $1,225,000 third trust deed note payable to the Trust
    and $15,691,000 fourth trust deed note payable.  See Note 5 of Notes to
    Financial Statements.


                                   (Continued)

                                      F-37
<PAGE>   102


SCHEDULE III (Continued)
REAL ESTATE AND ACCUMULATED DEPRECIATION

A reconciliation of the Corporation's investment in real estate, furniture and
fixtures and related accumulated depreciation is as follows:

<TABLE>
<CAPTION>

                                                    Year Ended December 31,
                                            1994            1993             1992
                                        ------------    ------------     ------------
<S>                                     <C>             <C>              <C>
REAL ESTATE AND FURNITURE
   AND FIXTURES:

Balance at beginning of year .........  $ 54,790,000    $ 51,972,000     $ 51,199,000

Additions during period:
   Improvements ......................       671,000       5,205,000        1,290,000
   Acquisitions
Deductions: Reclass ..................                       388,000
   Sales of properties ...............    (3,720,000)     (2,775,000)        (517,000)
                                        ------------    ------------     ------------
Balance at end of year ...............  $ 51,741,000    $ 54,790,000     $ 51,972,000
                                        ============    ============     ============

ACCUMULATED DEPRECIATION:

Balance at beginning of year .........  $ 17,459,000    $ 15,413,000     $ 12,377,000

Additions -
   Depreciation expense ..............     2,956,000       3,602,000        3,373,000
Deductions -
   Sales of properties ...............    (3,149,000)     (1,842,000)        (337,000)
Reclass ..............................                       286,000
                                        ------------    ------------     ------------
Balance at end of year ...............  $ 17,266,000    $ 17,459,000     $ 15,413,000
                                        ============    ============     ============

</TABLE>

                                   (Concluded)

                                      F-38
<PAGE>   103

SCHEDULE IV
MORTGAGE LOANS ON REAL ESTATE
DECEMBER 31, 1994

<TABLE>
<CAPTION>
                                                                                                                 Principal amount
                                                                                      Face       Carrying        of loans subject
                                       Interest    Final   Periodic                Amount of     Amount of        to delinquent
Description                              Rate    Maturity   Payment   Prior Liens  Mortgages    Mortgages (1)  principal or interest
-------------------------------------  --------  --------  ----------------------  -----------  -------------  ---------------------
<S>                                     <C>        <C>      <C>      <C>  <C>      <C>          <C>
STARWOOD LODGING TRUST

First Mortgages:
Vagabond Inns - Stockton and 
  Modesto, CA                           10.00%     1996              (2)  no       $ 1,995,000  $ 1,780,000
Ramada Inn - Jefferson City, MO         11.00%     1997              (3)  no         4,500,000    1,774,000
Days Inn - Albany, GA                   10.00%     1996     $12,554  (5)  no         1,050,000      745,000
Days Inn - Irving, TX                   9.00%      1997      13,276  (8)  no         1,650,000    1,509,000
Vantage Hotel - Tucker, GA              9.00%      1998       9,000  (9)  no         1,985,000    1,952,000
Sheraton - New Port Richey, FL and
  Holiday Inn - Brunswick, GA           8%         2001              (6)  no         3,070,000    3,060,000

Holiday Inn - Jacksonville, FL          9%         2001              (7)  no         2,300,000    2,299,000
Ramada Inn - Fayetteville, NC           9%         2006             (10)  no           800,000      796,000

Second Mortgages:
Viscount Hotel - Dallas, TX             8.75%      2017       1,982  (4)  yes          264,000      234,000
Allowance for loan losses                                                                          (100,000)
                                                                                   -----------  -----------    ---------------------
                                                                                   $17,614,000  $14,049,000
                                                                                   ===========  ===========    =====================
</TABLE>

(1)   As of December 31, 1994, the aggregate cost (before allowance for loan
      losses) for federal income tax purposes is not significantly different
      from that used for book purposes.

(2)   The notes provide for monthly payments of interest plus additional annual
      payments based on a percentage of the hotels' sales, a portion of which is
      applied to principal.

(3)   Principal and interest due monthly based on a 30-year amortization
      schedule with unpaid principal of $1,750,000 due in January 1997.

(4)   Plus contingent interest of 4% of room sales of the hotel. 

(5)   Principal and interest due monthly based on a 10-year amortization
      schedule with unpaid principal of $591,000 due in November 1996.

(6)   Principal and interest due monthly based on a 25-year amortization
      schedule with unpaid principal of $2,490,000 due in August 2001.

(7)   Principal and interest due monthly based on a 30-year amortization
      schedule with unpaid principal of $2,156,000 due in December 2001.

(8)   Principal and interest due monthly based on a 30-year amortization
      schedule with unpaid principal of $1,450,000 due in March 1997.

(9)   Principal and interest due monthly based on a 25-year amortization
      schedule with unpaid principal of $1,857,000 due in June 1998.

(10)  Principal and interest due monthly based on a 12-year amortization
      schedule with unpaid principal of $9,000 due in December 2006.

                                   (Continued)

                                      F-39
<PAGE>   104

SCHEDULE IV (Continued)
RECONCILIATION OF MORTGAGE LOANS

<TABLE>
<CAPTION>
                                                 Year                 Year                 Year
                                                Ended                Ended                Ended
                                             December 31,         December 31,         December 31,
                                                 1994                 1993                 1992
                                             ------------         ------------         ------------
<S>                                           <C>                  <C>                  <C>
Balance at beginning of year                  $11,642,000          $10,010,000          $10,669,000

Additions -
   New Mortgage Loans                           6,270,000            1,985,000            3,865,000

Deductions -
   Principal repayments                        (2,382,000)            (353,000)            (957,000)
   Amortization of discount
   Allowance for loan loss                       (320,000)                                 (223,000)
   Discount for pre-payment (2)                   (55,000) (3)                              (90,000) (2)
   Cancellation of Note (1)                                                              (3,254,000)
   Proceeds from foreclosure sale (4)          (1,106,000)
                                              -----------          -----------          -----------
Balance at end of year                        $14,049,000          $11,642,000          $10,010,000
                                              ===========          ===========          ===========
</TABLE>



(1)   In January 1992, in lieu of foreclosure, the Trust canceled its note and
      released its mortgage on the Columbus Best Western North.

(2)   In 1992, the Trust discounted the Note on the Brunswick, Georgia property
      as consideration for the early pay-off of the note.

(3)   In 1994, the Trust discounted the note on the Spartanburg, South Carolina
      property as consideration for the early payoff of the note.

(4)   In 1994, the Trust foreclosed on the Merrimack, New Hampshire property.

                                   (Concluded)


                                      F-40
<PAGE>   105
<TABLE>
<CAPTION>

                                        EXHIBIT INDEX

Exhibit No.                         Description of Exhibit
-----------                         ----------------------
<S>               <C>
    2.1           Formation Agreement dated as of November 11, 1994 among the
                  Trust, the Corporation, Starwood Capital and the Starwood
                  Partners (incorporated by reference to Exhibit 2 to the
                  Trust's and the Corporation's Joint Current Report on Form 8-K
                  dated November 16, 1994).(1)

    3.1           Amended and Restated Declaration of Trust of the Trust dated
                  June 6, 1988, as amended (incorporated by reference to Exhibit
                  3A to the Trust's and the Corporation's Joint Current Report
                  on Form 8-K dated January 31, 1995)

    3.2           Amendment and Restatement of Articles of Incorporation of the
                  Corporation (incorporated by reference to Exhibit 3B to the
                  Trust's and the Corporation's Joint Current Report on Form 8-K
                  dated January 31, 1995)

    3.3           Trustees' Regulations of the Trust, as amended.

    3.4           By-laws of the Corporation, as amended.

(1)    The Securities and Exchange Commission file numbers of all filings made
       pursuant to the Securities Act of 1934, as amended, and referenced 
       herein are: 1-6828 (Starwood Lodging Trust) and 1-7959 (Starwood Lodging 
       Corporation).
</TABLE>
        
<PAGE>   106

<TABLE>
<CAPTION>

Exhibit No.                         Description of Exhibit
-----------                         ----------------------
<S>               <C>

  4.1             Pairing Agreement dated June 25, 1986, between the Trust and
                  the Corporation, as amended.

  4.2             Form of Warrant Agreement dated as of September 16, 1986,
                  between the Trust and City National Bank ("CNB") (incorporated
                  by reference to Exhibit 4.3 to the Trust's and the
                  Corporation's Registration Statement on Form S-4 (the "S-4
                  Registration Statement") filed with the Securities and
                  Exchange Commission (the "SEC") on August 1, 1986
                  (Registration No. 33-7694)).

  4.3             Form of Warrant Agreement dated as of September 16, 1986,
                  between the Corporation and CNB (incorporated by reference to
                  Exhibit 4.3A to the S-4 Registration Statement).

  4.4             Form of Warrant Agreement dated as of January 28, 1993, among
                  the Trust and the Corporation, on the one hand, and John
                  Hancock Mutual Life Insurance Company, John Hancock Variable
                  Life Insurance Company, Connecticut Mutual Life Insurance
                  Company, The First National Bank of Boston and Wells Fargo
                  Bank, N.A. (collectively the "Lenders"), on the other hand
                  (Exhibit N to the Credit Agreement listed as Exhibit 10.23
                  below) (incorporated by reference to Exhibit 10.33 to the
                  Trust's and the Corporation's Joint Annual Report on Form 10-K
                  for the year ended December 31, 1992 (the "1992 Form 10-K")).

  4.5             First Amendment to Warrant Agreement dated as of February 28,
                  1994, among the Trust, the Corporation and the Lenders.

  10.1            Incentive and Non-Qualified Share Option Plan (1986) of the
                  Trust (incorporated by reference to Exhibit 10.8 to the Trust
                  and the Corporation's Joint Annual Report on Form 10-K for the
                  year ended August 31, 1986 (the "1986 Form 10-K")).(2)

  10.2            Corporation Stock Non-Qualified Stock Option Plan (1986) of
                  the Trust (incorporated by reference to Exhibit 10.9 to the
                  1986 Form 10-K).(2)

  10.3            Stock Option Plan (1986) of the Corporation (incorporated by
                  reference to Exhibit 10.10 to the 1986 Form 10-K).(2)

  10.4            Trust Shares Option Plan (1986) of the Corporation
                  (incorporated by reference to Exhibit 10.11 to the 1986 Form
                  10-K).(2)
</TABLE>

-----------------------
(2)    Management contract or compensatory plan or arrangement required to be 
       filed as an exhibit hereto pursuant to Item 14(c) of Form 10-K.


 
<PAGE>   107

<TABLE>
<CAPTION>

Exhibit No.                         Description of Exhibit
-----------                         ----------------------
<S>               <C>

  10.5            Form of Share Purchase and Pledge Agreement and related
                  Promissory Note entered into pursuant to the Share Purchase
                  Plan (1987) of the Trust, together with forms of Amendments
                  Nos. 1 and 2 thereto (incorporated by reference to Exhibit
                  10.10 to the Trust's and the Corporation's Joint Annual Report
                  on Form 10-K for the year ended December 31, 1990 (the "1990
                  Form 10-K")).(2)

  10.6            Form(s) of Amendment No. 3 to Share Purchase and Pledge
                  Agreement(s) and related Promissory Note(s) entered into
                  pursuant to the Share Purchase Plan (1987) of the Trust
                  (incorporated by reference to Exhibit 10.11 to the Trust's and
                  the Corporation's Joint Annual Report on Form 10-K for the
                  year ended December 31, 1991 (the "1991 Form 10-K")).(2)

  10.7            Form of Share Purchase and Pledge Agreement and related
                  Promissory Note entered into pursuant to the Share Purchase
                  Plan (1987) of the Corporation, together with forms of
                  Amendments Nos. 1 and 2 thereto (incorporated by reference to
                  Exhibit 10.11 to the 1990 Form 10-K.)(2)

  10.8            Form of Amendment No. 3 to Share Purchase and Pledge
                  Agreement(s) and related Promissory Note(s) entered into
                  pursuant to the Share Purchase Plan (1987) of the Corporation
                  (incorporated by reference to Exhibit 10.13 to the 1991 Form
                  10-K).(2)

  10.9            Amendment No. 1 to Share Purchase Agreement and Note dated as
                  of March 25, 1992, between the Corporation and Bruce M. Ford
                  (incorporated by reference to the Exhibit 10.5 to the 1991
                  Form 10-K).(2)

  10.10           Form of Indemnification Agreement dated as of February 3,
                  1992, between the Trust and each of Messrs. Ronald A. Young,
                  John D. Morrissey, Graeme W. Henderson, Sherwin L. Samuels and
                  Jeffrey C. Lapin (incorporated by reference to Exhibit 10.29
                  to the 1991 Form 10-K).(2)

  10.11           Form of Indemnification Agreement dated as of February 3,
                  1992, between the Corporation and each of Messrs. Ronald A.
                  Young, Graeme W. Henderson, Bruce M. Ford, Earle M. Jones and
                  William H. Ling (incorporated by reference to Exhibit 10.30 to
                  the 1991 Form 10-K).(2)

  10.12           Executive Employment Agreement dated as of January 31, 1995,
                  between the Trust and Jeffrey C. Lapin.(2)

  10.13           Executive Employment Agreement dated as of July 19, 1992,
                  between the Trust and Michael W. Mooney (incorporated by
                  reference to Exhibit 10.4 to the Trust's and the Corporation's
                  Joint Current Report on Form 8-K dated September 25, 1992 (the
                  "September 1992 Form 8-K")).(2)
</TABLE>


                                 
<PAGE>   108
<TABLE>
<CAPTION>

Exhibit No.                         Description of Exhibit
-----------                         ----------------------
<S>               <C>

  10.14           First Amendment to executive Employment Agreement dated as of
                  March 18, 1993, between the Trust and Michael W. Mooney
                  (incorporated by reference to Exhibit 10.16 to the 1993 Form
                  10-K).(2)

  10.15           Amendment No. 2 to Executive Employment Agreement dated as of
                  December 15, 1993, between the Trust and Michael W. Mooney
                  (incorporated by reference to Exhibit 10.17 to the 1993 Form
                  10-K).(2)

  10.16           Executive Employment Agreement dated as of July 19, 1992,
                  between the Corporation and Kevin E. Mallory (incorporated by
                  reference to Exhibit 10.5 to the September 1992 Form 8-K).(2)

  10.17           First Amendment to executive Employment Agreement dated as of
                  March 18, 1993, between the Trust and Kevin E. Mallory
                  (incorporated by reference to Exhibit 10.19 to the 1993 Form
                  10-K).(2)

  10.18           Amendment No. 2 to Executive Employment Agreement dated as of
                  December 15, 1993, between the Trust and Kevin E. Mallory
                  (incorporated by reference to Exhibit 10.20 to the 1993 Form
                  10-K).(2)

  10.19           Form of Amended and Restated Lease Agreement entered into as
                  of January 1, 1993, between the Trust as Lessor and the
                  Corporation (or a subsidiary) as Lessee (incorporated by
                  reference to Exhibit 10.19 to the 1992 Form 10-K).

  10.20           Exchange Rights Agreement dated as of January 1, 1995 among
                  the Trust, the Corporation, the Realty Partnership, the
                  Operating Partnership and the Starwood Partners (incorporated
                  by reference to Exhibit 2B to the Trust's and the
                  Corporation's Joint Current Report on Form 8-K dated January
                  31, 1995).

  10.21           Registration Rights Agreement dated as of January 1, 1995
                  among the Trust, the Corporation and Starwood Capital
                  (incorporated by reference to Exhibit 2C to the Trust's and
                  the Corporation's Joint Current Report on Form 8-K dated
                  January 31, 1995).

  10.22           Limited Partnership Agreement for the Realty Partnership among
                  the Trust and the Starwood Partners dated as of December 15,
                  1994 (incorporated by reference to Exhibit 2D to the Trust's
                  and the Corporation's Joint Current Report on Form 8-K dated
                  January 31, 1995).

  10.23           Limited Partnership Agreement for the Operating Partnership
                  among the Corporation and the Starwood Partners dated as of
                  December 15, 1994 (incorporated by reference to Exhibit 2E to
                  the Trust's and the Corporation's Joint Current Report on Form
                  8-K dated January 31, 1995).
</TABLE>


        
<PAGE>   109

<TABLE>
<CAPTION>

Exhibit No.                         Description of Exhibit
-----------                         ----------------------
<S>               <C>

  10.24           Amended and Restated Credit Agreement dated as of March 24,
                  1995 among the Trust and the Realty Partnership on the one
                  hand, and Bankers Trust Company as successor Collateral Agent
                  to Wells Fargo Bank, National Association and Merrill Lynch
                  Mortgage Capital, Inc., as assignee of John Hancock Mutual
                  Life Insurance Company, John Hancock Variable Life Insurance
                  Company, Connecticut Mutual Life Insurance Company, The First
                  National Bank of Boston and Wells Fargo Bank, National
                  Association.

  21.             Subsidiaries of the Corporation.

                  Hotel Investors of Arizona, Inc.
                  Hotel Investors of Nebraska, Inc.
                  Hotel Investors of Michigan, Inc.
                  Hotel Investors of Missouri, Inc.
                  Hotel Investors Corporation of Nevada
                  Hotel Investors of Virginia, Inc.
                  Columbus Operators, Inc.
                  Lyntex Properties, Inc.
                  Western Host, Inc.

  23.             Consent of Independent Accountants.

  27.             Financial Data Schedule.
</TABLE>