<PAGE>   1
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549
                                    FORM 10-Q

           [x]      Quarterly report pursuant to Section 13 or 15(d) of the
                    Securities Exchange Act of 1934

                    For the quarterly period ended   June 30, 1997

                                       OR

           [ ]      Transition report pursuant to Section 13 or 15(d) of the
                    Securities Exchange Act of 1934

                    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.)
          2231 East Camelback Road, Suite 410                     2231 East Camelback Road, Suite 400
                   Phoenix, AZ 85016                                       Phoenix, AZ 85016
            (Address of principal executive                         (Address of principal executive
             offices, including zip code)                            offices, including zip code)
                    (602) 852-3900                                          (602) 852-3900
            (Registrant's telephone number,                         (Registrant's telephone number,
                 including area code)                                    including area code)
</TABLE>


                  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 the number of shares outstanding of each of the
        issuer's classes of common stock, as of the latest practicable date.

                  45,557,144 Shares of Beneficial Interest, par value $0.01 per
        share, of Starwood Lodging Trust paired with 45,557,144 Shares of Common
        Stock, par value $0.01 per share, of Starwood Lodging Corporation,
        outstanding as of July 29, 1997.
<PAGE>   2
STARWOOD LODGING TRUST AND STARWOOD LODGING CORPORATION


PART I - FINANCIAL INFORMATION

ITEM 1.  FINANCIAL STATEMENTS

         The following financial statements of Starwood Lodging Trust and
Starwood Lodging Corporation are provided pursuant to the requirements of this
item.

                          INDEX TO FINANCIAL STATEMENTS

Starwood Lodging Trust and Starwood Lodging Corporation:

Combined Consolidated Balance Sheets - As of June 30, 1997 and December 31, 1996

Combined Consolidated Statements of Operations - For the three and six months
         ended June 30, 1997 and 1996

Combined Consolidated Statements of Cash Flows - For the six months ended June
         30, 1997 and 1996

Starwood Lodging Trust:

     Consolidated Balance Sheets - As of June 30, 1997 and December 31, 1996

     Consolidated Statements of Operations - For the three and six months ended
         June 30, 1997 and 1996

     Consolidated Statements of Cash Flows - For the six months ended June 30,
         1997 and 1996

Starwood Lodging Corporation:

     Consolidated Balance Sheets - As of June 30, 1997 and December 31, 1996

     Consolidated Statements of Operations - For the three and six months ended
         June 30, 1997 and 1996

     Consolidated Statements of Cash Flows - For the six months ended June 30,
         1997 and 1996

Notes to Financial Statements




                                       2
<PAGE>   3
             STARWOOD LODGING TRUST AND STARWOOD LODGING CORPORATION
                 UNAUDITED COMBINED CONSOLIDATED BALANCE SHEETS
                                 (IN THOUSANDS)



<TABLE>
<CAPTION>
                                                                         June 30,         December 31,
                                                                           1997               1996
                                                                       -----------        -----------
<S>                                                                    <C>                <C>
                             ASSETS

Hotel assets held for sale - net ...............................       $    21,637        $    21,644
Hotel assets - net .............................................         1,624,340          1,100,030
                                                                       -----------        -----------
                                                                         1,645,977          1,121,674
Mortgage notes receivable - net ................................            80,053             90,741
Investments ....................................................               440                948
                                                                       -----------        -----------
   Total real estate investments ...............................         1,726,470          1,213,363
Cash and cash equivalents ......................................            42,039             25,426
Accounts, interest and rent receivable .........................            61,270             43,278
Notes receivable - net .........................................             2,744              2,930
Inventories, prepaid expenses and other assets .................            42,368             27,743
                                                                       -----------        -----------
                                                                       $ 1,874,891        $ 1,312,740
                                                                       ===========        ===========

              LIABILITIES AND SHAREHOLDERS' EQUITY

LIABILITIES
Collateralized notes payable and revolving lines of credit .....       $   568,037        $   422,334
Mortgage and other notes payable ...............................           139,356             57,232
Accounts payable and other liabilities .........................            64,887             57,296
Distributions payable ..........................................            22,745             19,258
                                                                       -----------        -----------
                                                                           795,025            556,120
                                                                       -----------        -----------

Commitments and contingencies

MINORITY INTEREST ..............................................           262,958            163,959
                                                                       -----------        -----------

SHAREHOLDERS' EQUITY
Trust shares of beneficial interest at June 30, 1997 and
   December 31, 1996; $.01 par value; authorized 100,000,000
   shares; outstanding 45,555,188 and 40,078,000 at June 30,
   1997 and December 31, 1996, respectively ....................               456                401
Corporation common stock at June 30, 1997 and
   December 31, 1996; $.01 par value; authorized 100,000,000
   shares; outstanding 45,555,188 and 40,078,000 at June 30,
   1997 and December 31, 1996, respectively ....................               456                401
Additional paid-in capital .....................................         1,091,757            827,760
Distributions in excess of earnings ............................          (275,761)          (235,901)
                                                                       -----------        -----------
                                                                           816,908            592,661
                                                                       -----------        -----------
                                                                       $ 1,874,891        $ 1,312,740
                                                                       ===========        ===========
</TABLE>


                 See accompanying notes to financial statements.




                                       3
<PAGE>   4
             STARWOOD LODGING TRUST AND STARWOOD LODGING CORPORATION
            UNAUDITED COMBINED CONSOLIDATED STATEMENTS OF OPERATIONS
                    (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)



<TABLE>
<CAPTION>
                                                                    Three months ended June 30,
                                                                    ---------------------------
                                                                        1997            1996
                                                                     ---------        --------
<S>                                                                 <C>               <C>
REVENUE
Rooms ............................................................       $ 142,258        $ 52,002
Food and beverage ................................................          57,356          13,821
Other ............................................................          15,004           6,844
                                                                         ---------        --------
  Total hotel revenue ............................................         214,618          72,667
Gaming ...........................................................           3,807           6,914
Interest from mortgage and other notes ...........................           3,127           2,236
Rents from leased hotel properties and income from
  investments ....................................................             243             282
Management fees and other income .................................           1,858             913
Gain (loss) on sales of real estate investments ..................            (504)           (347)
                                                                         ---------        --------
                                                                           223,149          82,665
                                                                         ---------        --------
EXPENSES
Rooms ............................................................          33,630          12,874
Food and beverage ................................................          41,799          10,673
Other ............................................................          67,323          25,032
                                                                         ---------        --------
  Total hotel expenses ...........................................         142,752          48,579
Gaming ...........................................................           4,159           6,357
Interest .........................................................          12,820           5,549
Depreciation and amortization ....................................          29,827           6,130
Administrative and general .......................................           7,733           2,992
                                                                         ---------        --------
                                                                           197,291          69,607
                                                                         ---------        --------
Income before minority interest ..................................          25,858          13,058
Minority interest ................................................           7,723           4,537
                                                                         ---------        --------

Income before extraordinary item .................................          18,135           8,521

Extraordinary item due to early extinguishment of debt (net of
  $413,000 minority interest) ....................................              --           1,077
                                                                         ---------        --------

          NET INCOME .............................................       $  18,135        $  9,598
                                                                         =========        ========

EARNINGS PER PAIRED SHARE
Income before extraordinary item .................................       $    0.38        $   0.36
Extraordinary item ...............................................              --            0.05
                                                                         ---------        --------

          NET INCOME PER PAIRED SHARE ............................       $    0.38        $   0.41
                                                                         =========        ========

Weighted Average Number of Paired Shares .........................          47,764          23,335
                                                                         =========        ========
</TABLE>


                 See accompanying notes to financial statements.




                                       4
<PAGE>   5
             STARWOOD LODGING TRUST AND STARWOOD LODGING CORPORATION
            UNAUDITED COMBINED CONSOLIDATED STATEMENTS OF OPERATIONS
                    (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)



<TABLE>
<CAPTION>
                                                                 Six months ended June 30,
                                                                 -------------------------
                                                                    1997           1996
                                                                 ----------     ----------
<S>                                                               <C>           <C>
REVENUE
Rooms..........................................................   $249,231      $ 89,128
Food and beverage..............................................    100,894        23,648
Other..........................................................     26,670        10,193
                                                                  --------      --------
  Total hotel revenue..........................................    376,795       122,969
Gaming.........................................................      7,727        13,743
Interest from mortgage and other notes.........................      7,213         4,761
Rents from leased hotel properties and income from
  investments..................................................        441           465
Management fees and other income...............................      4,196         1,653
Gain (loss) on sales of real estate investments................       (504)         (347)
                                                                  --------      --------
                                                                   395,868       143,244
                                                                  --------      --------
EXPENSES
Rooms..........................................................     60,619        22,027
Food and beverage..............................................     75,481        18,512
Other..........................................................    124,374        43,622
                                                                  --------      --------
  Total hotel expenses.........................................    260,474        84,161
Gaming.........................................................      8,248        12,192
Interest.......................................................     23,311         8,772
Depreciation and amortization..................................     54,387        13,790
Administrative and general.....................................     13,548         5,365
                                                                  --------      --------
                                                                   359,968       124,280
                                                                  --------      --------
Income before minority interest................................     35,900        18,964
Minority interest..............................................      9,891         6,353
                                                                  --------      --------

Income before extraordinary item...............................     26,009        12,611

Extraordinary item due to early extinguishment of debt (net of
 $413,000 minority interest)...................................         --         1,077
                                                                  --------      --------
          NET INCOME...........................................   $ 26,009      $ 13,688
                                                                  ========      ========

EARNINGS PER PAIRED SHARE
Income before extraordinary item...............................   $   0.56      $   0.57
Extraordinary item.............................................         --          0.05
                                                                  --------      --------
          NET INCOME PER PAIRED SHARE..........................   $   0.56      $   0.62
                                                                  ========      ========

Weighted Average Number of Paired Shares.......................     46,063        22,016
                                                                  ========      ========
</TABLE>


                 See accompanying notes to financial statements.


                                        5
<PAGE>   6
             STARWOOD LODGING TRUST AND STARWOOD LODGING CORPORATION
            UNAUDITED COMBINED CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (IN THOUSANDS)


<TABLE>
<CAPTION>
                                                                     Six months ended June 30,
                                                                     -------------------------
                                                                        1997           1996
                                                                     ----------     ----------

<S>                                                                   <C>           <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss)..................................................   $  26,009     $  13,688
Adjustments to reconcile net income (loss) to net cash provided by
  operating activities:
  Minority interest................................................       9,891         6,353
  Extraordinary items due to early extinguishment of debt..........          --        (1,077)
  Depreciation and amortization....................................      54,387        13,790
  Accretion of discount............................................      (2,890)       (1,560)
  Warrants and paired shares issued as compensation................       1,786            --
  (Gain) loss on sales of real estate investments..................         504           347
Changes in operating assets and liabilities:
  Increase in accounts receivable, inventories, prepaid expenses
    and other assets...............................................     (24,555)      (24,394)
  Increase (decrease) in accounts payable and other liabilities....      (2,172)       11,868
                                                                      ---------     ---------
            Net cash provided by operating activities..............      62,960        19,015
                                                                      ---------     ---------

CASH FLOWS FROM INVESTING ACTIVITIES
Acquisition of hotel properties....................................    (282,662)     (223,469)
Improvements and additions to hotel assets.........................     (63,608)           --
Purchase of investments............................................        (432)         (509)
Sales of investments...............................................         940           955
Net proceeds from sales of hotel assets............................       7,261         3,684
Purchase of mortgage and other notes receivable....................          --       (20,113)
Principal received on mortgage and other notes receivable..........      13,754         2,570
                                                                      ---------     ---------
            Net cash used in investing activities..................    (324,747)     (236,882)
                                                                      ---------     ---------

CASH FLOWS FROM FINANCING ACTIVITIES
Borrowings under collateralized notes payable and revolving lines
  of credit........................................................     180,682       111,062
Borrowings under mortgage and other notes payable..................      98,000           468
Payments on collateralized notes payable and revolving lines of
  credit...........................................................     (35,000)           --
Principal payments on mortgage and other notes payable.............     (26,126)       (4,611)
Net proceeds from equity offerings.................................     129,667        62,363
Contributed capital and adjustments................................        (450)       77,799
Stock repurchase...................................................     (25,724)           --
Distributions paid.................................................     (42,649)      (19,529)
                                                                      ---------     ---------
            Net cash provided by financing activities..............     278,400       227,552
                                                                      ---------     ---------


INCREASE IN CASH  AND CASH EQUIVALENTS.............................      16,613         9,685
CASH AND CASH EQUIVALENTS  AT THE BEGINNING OF
 THE PERIOD........................................................      25,426         9,332
                                                                      ---------     ---------
CASH AND CASH EQUIVALENTS AT THE END OF THE
 PERIOD............................................................   $  42,039     $  19,017
                                                                      =========     =========
</TABLE>

                 See accompanying notes to financial statements.


                                        6
<PAGE>   7
                             STARWOOD LODGING TRUST
                      UNAUDITED CONSOLIDATED BALANCE SHEETS
                                 (IN THOUSANDS)


<TABLE>
<CAPTION>
                                                                                 June 30,          December 31,
                                                                                   1997               1996
                                                                                -----------        -----------
<S>                                                                             <C>                <C>
                                     ASSETS

Hotel assets held for sale - net.............................................   $   19,851         $   12,615
Hotel assets - net...........................................................    1,511,145            988,309
                                                                                ----------         ----------
                                                                                 1,530,996          1,000,924
Mortgage notes receivable - net..............................................       80,053             90,741
Mortgage notes receivable - Corporation......................................       89,930             88,077
Investments..................................................................          440                948
                                                                                ----------         ----------
      Total real estate investments..........................................    1,701,419          1,180,690
Cash and cash equivalents....................................................        4,324              3,810
Rent and interest receivable.................................................       12,805             12,617
Notes receivable - net.......................................................        1,980              2,237
Notes receivable - Corporation...............................................       50,310             17,741
Prepaid expenses and other assets............................................       12,889             16,271
                                                                                ==========         ==========
                                                                                $1,783,727         $1,233,366
                                                                                ==========         ==========

                      LIABILITIES AND SHAREHOLDERS' EQUITY

LIABILITIES
Collateralized notes payable and revolving lines of credit...................   $  568,037         $  422,334
Mortgage and other notes payable.............................................      137,913             55,269
Accounts payable and other liabilities.......................................       21,760              9,200
Distributions payable........................................................       22,646             19,258
                                                                                ----------         ----------
                                                                                   750,356            506,061
                                                                                ----------         ----------

Commitments and contingencies

MINORITY INTEREST............................................................      251,977            158,005
                                                                                ----------         ----------

SHAREHOLDERS' EQUITY
Trust shares of beneficial interest at June 30, 1997 and 
   December 31, 1996; $.01 par value; authorized 100,000,000 
   shares; outstanding 45,555,188 and 40,078,000 at June 30,
   1997 and December 31, 1996, respectively..................................          456                401
Additional paid-in capital...................................................      977,212            729,276
Distributions in excess of earnings..........................................     (196,274)          (160,377)
                                                                                ----------         ----------
                                                                                   781,394            569,300
                                                                                ==========         ==========
                                                                                $1,783,727         $1,233,366
                                                                                ==========         ==========
</TABLE>

                 See accompanying notes to financial statements.


                                        7
<PAGE>   8
                             STARWOOD LODGING TRUST
                 UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
                    (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)



<TABLE>
<CAPTION>
                                                             Three months ended June 30,
                                                               -----------------------
                                                                 1997           1996
                                                               --------       --------
<S>                                                            <C>            <C>
REVENUE
Rents from Corporation......................................   $ 54,566       $ 14,250
Interest from Corporation...................................      2,748          1,915
Interest from mortgage and other notes......................      3,127          2,192
Rents from other leased hotel properties and income from
   joint ventures...........................................        243            282
Other income................................................        229            667
Gain (loss) on sales of real estate investments.............         --           (347)
                                                               --------       --------
                                                                 60,913         18,959
                                                               --------       --------

EXPENSES
Interest....................................................     12,801          5,417
Depreciation and amortization...............................     22,567          3,830
Administrative and general..................................      2,904          1,542
                                                               --------       --------
                                                                 38,272         10,789
                                                               --------       --------
Income before minority interest.............................     22,641          8,170
Minority interest...........................................      5,797          2,570
                                                               --------       --------
          NET INCOME........................................   $ 16,844       $  5,600
                                                               ========       ========

          NET INCOME PER SHARE..............................   $   0.35       $   0.24
                                                               ========       ========

Weighted Average Number of Shares...........................     47,764         23,335
                                                               ========       ========
</TABLE>

                 See accompanying notes to financial statements.


                                        8
<PAGE>   9
                             STARWOOD LODGING TRUST
                 UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
                    (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)



<TABLE>
<CAPTION>
                                                              Six months ended June 30,
                                                               -----------------------
                                                                 1997           1996
                                                               --------       --------
<S>                                                            <C>            <C>
REVENUE
Rents from Corporation.....................................    $ 95,505       $ 27,770
Interest from Corporation..................................       5,290          4,103
Interest from mortgage and other notes.....................       7,213          4,696
Rents from other leased hotel properties and income from
   joint ventures..........................................         441            465
Other income...............................................       1,551          1,073
Gain (loss) on sales of real estate investments............          --           (347)
                                                               --------       --------
                                                                110,000         37,760
                                                               --------       --------

EXPENSES
Interest...................................................      23,260          8,585
Depreciation and amortization..............................      42,801          7,216
Administrative and general.................................       5,117          2,730
                                                               --------       --------
                                                                 71,178         18,531
                                                               --------       --------
Income before minority interest............................      38,822         19,229
Minority interest..........................................       9,760          6,487
                                                               --------       --------
          NET INCOME.......................................    $ 29,062       $ 12,742
                                                               ========       ========

          NET INCOME PER SHARE.............................    $   0.63       $   0.58
                                                               ========       ========

Weighted Average Number of Shares..........................      46,063         22,016
                                                               ========       ========
</TABLE>

                 See accompanying notes to financial statements.


                                        9
<PAGE>   10
                             STARWOOD LODGING TRUST
                 UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (IN THOUSANDS)


<TABLE>
<CAPTION>
                                                                       Six months ended June 30,
                                                                       --------------------------
                                                                         1997             1996
                                                                       ---------        ---------
<S>                                                                    <C>              <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income...........................................................  $  29,062        $  12,742
Adjustments to reconcile net income to net cash provided by
  operating activities:
  Minority interest..................................................      9,760            6,487
  Depreciation and amortization......................................     42,801            7,216
  Accretion of discount..............................................     (2,890)          (1,560)
  Deferred interest - Corporation....................................     (2,024)           1,607
  Warrants and paired shares issued as compensation..................        551               --
  (Gain) loss on sales of real estate investments....................         --              347
Changes in operating assets and liabilities:
  Increase in rent and interest receivable, prepaid expenses and
      other assets...................................................      1,151          (14,966)
  Increase (decrease) in accounts payable and other liabilities......      2,797            2,202
                                                                       ---------        ---------
            Net cash provided by operating activities................     81,208           14,075
                                                                       ---------        ---------

CASH FLOWS FROM INVESTING ACTIVITIES
Acquisition of hotel properties......................................   (282,662)        (199,473)
Improvements and additions to hotel assets...........................    (54,683)              --
Purchase of investments..............................................       (432)              --
Sales of investments.................................................        940              955
Net proceeds from sales of hotel assets..............................         --            3,684
Purchase of mortgage and other notes receivable......................         --          (20,113)
Principal received on mortgage and other notes receivable............     13,564            2,555
Net change in notes receivable - Corporation.........................    (32,398)         (21,878)
                                                                       ---------        ---------
            Net cash used in investing activities....................   (355,671)        (234,270)
                                                                       ---------        ---------

CASH FLOWS FROM FINANCING ACTIVITIES
Borrowings under collateralized notes payable and revolving
  lines of credit....................................................    180,682          111,062
Borrowings under mortgage and other notes payable....................     98,000               --
Payments on collateralized notes payable and revolving lines
  of credit..........................................................    (35,000)              --
Principal payments on mortgage and other notes payable...............    (25,606)          (1,587)
Net proceeds from equity offerings...................................    123,215           59,244
Contributed capital and adjustments..................................        512           77,900
Stock repurchase.....................................................    (24,438)              --
Distributions paid...................................................    (42,388)         (19,529)
                                                                       ---------        ---------
            Net cash provided by financing activities................    274,977          227,090
                                                                       ---------        ---------

INCREASE IN CASH AND CASH EQUIVALENTS................................        514            6,895
CASH AND CASH EQUIVALENTS AT THE BEGINNING
  OF THE PERIOD......................................................      3,810              710
                                                                       ---------        ---------
CASH AND CASH EQUIVALENTS AT THE END OF THE
 PERIOD..............................................................  $   4,324        $   7,605
                                                                       =========        =========
</TABLE>

                 See accompanying notes to financial statements.


                                       10
<PAGE>   11
                          STARWOOD LODGING CORPORATION
                      UNAUDITED CONSOLIDATED BALANCE SHEETS
                                 (IN THOUSANDS)


<TABLE>
<CAPTION>
                                                                    June 30,       December 31,
                                                                     1997             1996
                                                                   ---------        ---------
<S>                                                                <C>              <C>
                             ASSETS

Hotel assets held for sale - net..............................      $  1,786         $  9,029
Hotel assets - net............................................       113,195          111,721
                                                                    --------         --------
      Total real estate investments...........................       114,981          120,750
Cash and cash equivalents.....................................        37,715           21,616
Accounts receivable...........................................        48,465           30,661
Notes receivable..............................................           764              693
Inventories, prepaid expenses and other assets................        29,479           11,472
                                                                    --------         --------
                                                                    $231,404         $185,192
                                                                    ========         ========

               LIABILITIES AND SHAREHOLDERS' EQUITY

LIABILITIES
Mortgage and other notes payable..............................      $  1,443         $  1,963
Mortgage notes payable - Trust................................        89,930           88,077
Notes payable - Trust.........................................        50,310           17,741
Accounts payable and other liabilities........................        43,127           48,096
Distributions payable.........................................            99               --
                                                                    --------         --------
                                                                     184,909          155,877
                                                                    --------         --------

Commitments and contingencies

MINORITY INTEREST.............................................        10,981            5,954
                                                                    --------         --------

SHAREHOLDERS' EQUITY
Corporation common stock at June 30, 1997 and
   December 31, 1996; $.01 par value; authorized 100,000,000
   shares; outstanding 45,555,188 and 40,078,000 at June 30,
   1997 and December 31, 1996, respectively...................           456              401
Additional paid-in capital....................................       114,545           98,484
Accumulated deficit...........................................       (79,487)         (75,524)
                                                                    --------         --------
                                                                      35,514           23,361
                                                                    --------         --------
                                                                    $231,404         $185,192
                                                                    ========         ========
</TABLE>

                 See accompanying notes to financial statements.


                                       11
<PAGE>   12
                          STARWOOD LODGING CORPORATION
                 UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
                    (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)



<TABLE>
<CAPTION>
                                                                     Three months ended June 30,
                                                                     --------------------------
                                                                       1997             1996
                                                                     ---------        ---------
<S>                                                                  <C>              <C>
REVENUE
Rooms...........................................................     $142,258        $ 52,002
Food and beverage...............................................       57,356          13,821
Other...........................................................       15,004           6,844
                                                                     --------        --------
  Total hotel revenue...........................................      214,618          72,667
Gaming..........................................................        3,807           6,914
Interest from notes receivable..................................           --              44
Management fees and other income................................        1,629             246
Gain (loss) on sales of hotel assets............................         (504)             --
                                                                     --------        --------
                                                                      219,550          79,871
                                                                     --------        --------

EXPENSES
Rooms...........................................................       33,630          12,874
Food and beverage...............................................       41,799          10,673
Other...........................................................       67,323          25,032
                                                                     --------        --------
  Total hotel expenses..........................................      142,752          48,579
Gaming..........................................................        4,159           6,357
Rent - Trust....................................................       54,566          14,250
Interest - Trust................................................        2,748           1,915
Interest - other................................................           19             132
Depreciation and amortization...................................        7,260           2,300
Administrative and general......................................        4,829           1,450
                                                                     --------        --------
                                                                      216,333          74,983
                                                                     --------        --------
Income before minority interest.................................        3,217           4,888
Minority interest...............................................        1,926           1,967
                                                                     --------        --------

Income before extraordinary item................................        1,291           2,921
Extraordinary item due to early extinguishment of debt (net of
  $413,000 minority interest)...................................           --           1,077
                                                                     --------        --------

          NET INCOME............................................     $  1,291        $  3,998
                                                                     ========        ========

EARNINGS PER SHARE
Income before extraordinary item................................     $   0.03        $   0.12
Extraordinary item..............................................           --            0.05
                                                                     --------        --------

          NET INCOME PER SHARE..................................     $   0.03        $   0.17
                                                                     ========        ========

Weighted Average Number of Shares...............................       47,764          23,335
                                                                     ========        ========
</TABLE>

                 See accompanying notes to financial statements.


                                       12
<PAGE>   13
                          STARWOOD LODGING CORPORATION
                 UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
                    (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)



<TABLE>
<CAPTION>
                                                                     Six months ended June 30,
                                                                     --------------------------
                                                                       1997             1996
                                                                     ---------        ---------
<S>                                                                  <C>              <C>
REVENUE
Rooms...........................................................     $249,231        $ 89,128
Food and beverage...............................................      100,894          23,648
Other...........................................................       26,670          10,193
                                                                     --------        --------
  Total hotel revenue...........................................      376,795         122,969
Gaming..........................................................        7,727          13,743
Interest from notes receivable..................................           --              65
Management fees and other income................................        2,645             580
Gain (loss) on sales of hotel assets............................         (504)             --
                                                                     --------        --------
                                                                      386,663         137,357
                                                                     --------        --------

EXPENSES
Rooms...........................................................       60,619          22,027
Food and beverage...............................................       75,481          18,512
Other...........................................................      124,374          43,622
                                                                     --------        --------
  Total hotel expenses..........................................      260,474          84,161
Gaming..........................................................        8,248          12,192
Rent - Trust....................................................       95,505          27,770
Interest - Trust................................................        5,290           4,103
Interest - other................................................           51             187
Depreciation and amortization...................................       11,586           6,574
Administrative and general......................................        8,431           2,635
                                                                     --------        --------
                                                                      389,585         137,622
                                                                     --------        --------

Loss before minority interest...................................       (2,922)           (265)
Minority interest...............................................          131            (134)
                                                                     --------        --------

Loss before extraordinary item..................................       (3,053)           (131)
Extraordinary item due to early extinguishment of debt (net of
  $413,000 minority interest)...................................           --           1,077
                                                                     --------        --------

          NET INCOME (LOSS).....................................     $ (3,053)       $    946
                                                                     ========        ========

EARNINGS (LOSS) PER SHARE
Loss before extraordinary item..................................     $  (0.07)       $  (0.01)
Extraordinary item                                                         --            0.05
                                                                     --------        --------

          NET INCOME (LOSS) PER SHARE...........................     $  (0.07)       $   0.04
                                                                     ========        ========

Weighted Average Number of Shares...............................       46,063          22,016
                                                                     ========        ========
</TABLE>

                 See accompanying notes to financial statements.


                                       13
<PAGE>   14
                          STARWOOD LODGING CORPORATION
                 UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (IN THOUSANDS)

<TABLE>
<CAPTION>
                                                                        Six months ended June 30,
                                                                        -------------------------
                                                                           1997            1996
                                                                           ----            ----
<S>                                                                     <C>              <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss ...........................................................    $ (3,053)       $    946
Adjustments to reconcile net loss to net cash provided by
  operating activities:
  Minority interest ................................................         131            (134)
  Extraordinary items due to early extinguishment of debt ..........          --          (1,077)
  Depreciation and amortization ....................................      11,586           6,574
  Deferred interest - Trust ........................................       2,024          (1,607)
  Paired shares issued as compensation .............................       1,235              --
  (Gain) loss on sale ..............................................         504              --
Changes in operating assets and liabilities:
  Increase in accounts receivable, inventories, prepaid expenses
    and other assets ...............................................     (25,706)         (9,428)
  Increase (decrease) in accounts payable and other liabilities ....      (4,969)          9,666
                                                                         -------          ------
            Net cash provided by (used in) operating activities ....     (18,248)          4,940
                                                                         -------          ------

CASH FLOWS FROM INVESTING ACTIVITIES
Acquisition of hotel properties ....................................          --         (23,996)
Improvements and additions to hotel assets .........................      (8,925)             --
Purchase of investments ............................................          --            (509)
Net proceeds from sales of hotel and gaming assets .................       7,261              --
Principal received on notes receivable .............................         190              15
                                                                         -------          ------
            Net cash used in investing activities ..................      (1,474)        (24,490)
                                                                         -------          ------

CASH FLOWS FROM FINANCING ACTIVITIES
Borrowings under mortgage and other notes payable ..................          --             468
Principal payments on mortgage and other notes payable .............        (520)         (3,024)
Net proceeds from equity offerings .................................       6,452           3,119
Contributed capital and adjustments ................................        (962)           (101)
Stock repurchase ...................................................      (1,286)             --
Distributions paid .................................................        (261)             --
Net change in notes payable - Trust ................................      32,398          21,878
                                                                         -------          ------
      Net cash provided by financing activities ....................      35,821          22,340
                                                                         -------          ------


INCREASE IN CASH AND CASH EQUIVALENTS ..............................      16,099           2,790
CASH AND CASH EQUIVALENTS AT THE BEGINNING
  OF THE PERIOD ....................................................      21,616           8,622
                                                                         -------          ------
CASH AND CASH EQUIVALENTS AT THE END OF THE
  PERIOD ...........................................................     $37,715        $ 11,412
                                                                         =======         =======
</TABLE>



                See accompanying notes to financial statements.

                                       14
<PAGE>   15
                           STARWOOD LODGING TRUST AND
                          STARWOOD LODGING CORPORATION
                          NOTES TO FINANCIAL STATEMENTS

NOTE 1.  INTERIM FINANCIAL STATEMENTS

         The accompanying unaudited financial statements have been prepared in
accordance with generally accepted accounting principles for interim financial
information and with the instructions to Form 10-Q which mandate adherence to
Rule 10-01 of Regulation S-X. Accordingly, these statements do not include all
of the information and footnotes required by generally accepted accounting
principles for complete financial statements. In the opinion of management of
Starwood Lodging Trust (the "Trust") and Starwood Lodging Corporation (the
"Corporation"), all adjustments necessary for a fair presentation, consisting
only of normal recurring accruals, have been included. The financial statements
presented herein have been prepared in accordance with the accounting policies
described in the Registrants' Joint Annual Report on Form 10-K for the year
ended December 31, 1996 and should be read in conjunction therewith.

NOTE 2.  BASIS OF PRESENTATION

         The Trust and the Corporation (together, the "Company") have unilateral
control of SLT Realty Limited Partnership ("Realty") and SLC Operating Limited
Partnership ("Operating"), respectively, and therefore, the historical financial
statements of Realty and Operating are consolidated with those of the Trust and
the Corporation, respectively. Unless the context otherwise requires, all
references herein to the "Company" refer to the Trust and the Corporation, and
all references to the "Trust" and to the "Corporation" include the Trust and the
Corporation and those entities respectively owned or controlled by the Trust or
the Corporation, including Realty and Operating. Information with respect to the
shares of beneficial interest of the Trust which are paired with shares of
common stock of the Corporation (the "Paired Shares"), has been adjusted to
reflect a three-for-two stock split effective January 27, 1997. The total number
of units outstanding in each of Realty and Operating was 58,394,358 at June 30,
1997.

         For the three and six months ended June 30, 1996, the Company accounted
for its 58.2% investment in the joint venture that owns the Boston Park Plaza
under the equity method of accounting. Beginning with the Company's Joint Annual
Report on Form 10-K for the year ended December 31, 1996, the Company has
consolidated the results from the Boston Park Plaza and, accordingly, has
recorded a minority interest relating to the 41.8% third party minority interest
in such joint venture. In addition, the Company has restated its results for the
three and six months ended June 30, 1996 to reflect the consolidation of this
investment.

NOTE 3.  1997 ACQUISITIONS

         On January 8, 1997, the Company completed the purchase of the 220-room
Deerfield Beach Hilton Hotel, located in Deerfield Beach, Florida, for
approximately $11.5 million in cash.

         On January 17, 1997, the Company completed the purchase of the 263-room
Radisson Hotel Denver South, located in Denver, Colorado, for approximately
$21.75 million in cash.


                                       15
<PAGE>   16
         On February 14, 1997, the Company acquired HEI Hotels, LLC ("HEI"), a
Westport, Connecticut-based hotel operating company, which manages 19 hotels,
and ten hotel properties (the "HEI Owned Hotels") that HEI owned in a joint
venture with PRISA II, an institutional real estate investment fund managed by
Prudential Real Estate Investors. Realty and Operating issued to PRISA II and
the owners of HEI, limited partnership interests in Realty and Operating which
are exchangeable for approximately 6.548 million Paired Shares of the Trust and
Corporation (valued for purposes of the transaction at approximately $215
million), and paid $112 million in cash and notes in connection with the
transaction.

         The HEI Owned Hotels consist of ten hotel assets (all of which are
managed by the Company) with 3,040 hotel rooms, located in Long Beach,
California; Norfolk, Virginia; Baltimore, Maryland; Edison, New Jersey;
Arlington, Virginia; Charleston, South Carolina; King of Prussia, Pennsylvania;
Santa Rosa, California; Novi, Michigan; and Atlanta, Georgia. The nine
additional hotels managed by HEI (the "HEI Managed Hotels"), which contain a
total of 2,297 rooms, are located in Houston, Texas; Ontario, California; Grand
Junction, Colorado; Danbury, Connecticut; Princeton, New Jersey; Smithtown, New
York; Wilmington, Delaware; Bethesda, Maryland and Virginia Beach, Virginia.

         On February 21, 1997, the Company completed the purchase of the
578-room Days Inn in Chicago, Illinois for approximately $48 million in cash.

         On March 11, 1997, the Company completed the purchase of the 120-suite
Hermitage Suites Hotel in Nashville, Tennessee for approximately $15.8 million,
comprised of limited partnership interests in Realty and Operating exchangeable
for 233,106 Paired Shares of the Trust and the Corporation (valued for the
purposes of this transaction at $9.4 million) and $6.4 million in cash.

         On March 12, 1997, the Company completed the purchase of the 100-room
Hotel De La Poste in New Orleans, Louisiana for approximately $16.0 million in
cash.

         On April 3, 1997, the Company completed the purchase of the 264-suite
Marriott Suites hotel in San Diego, California for approximately $32.5 million
in cash.

         On April 4, 1997, the Company completed the purchase of the 129-room
Tremont Hotel in Chicago, Illinois for approximately $14.4 million cash.

         On May 7, 1997, the Company completed the purchase of the 172-room
Raphael Hotel in Chicago, Illinois for approximately $17.8 million in cash.

         On June 12, 1997, the Company completed a transaction resulting in
operating and ownership control of the 480-room Stamford Sheraton Hotel in
Stamford, Connecticut. The Company had acquired, in October 1996, first mortgage
and other notes secured by the hotel for $10.3 million. The total cost of the
acquisition, including the purchase of the mortgage notes, was approximately
$14.6 million.


                                       16
<PAGE>   17
NOTE 4. TAX EXEMPT BONDS

         On February 20, 1997, the Company guaranteed bonds issued by The
Philadelphia Authority for Industrial Development in the principal amount of
$39.5 million due October, 2013 (the "Tax Exempt Bonds"). The Tax Exempt Bonds
bear interest at a rate of 6.5% with no principal amortization, were issued at a
discount to yield 6.7% and are secured by two hotels of the Company located at
the Philadelphia International Airport. Net proceeds from the Tax Exempt Bonds
of approximately $37.6 million were used to partially fund the acquisition of
the 578-room Days Inn in Chicago, Illinois.

NOTE 5. EQUITY

         On March 26, 1997, the Company completed a public offering of 3,000,000
Paired Shares (the "March 1997 Offering"). Net proceeds from the March 1997
Offering of approximately $130.0 million were used, in part, to fund the
acquisition of the 264-suite Marriott Suites hotel in San Diego, California and
the 129-room Tremont Hotel and the 172-room Raphael Hotel, both located in
Chicago, Illinois.

         In April 1997, the Company repurchased 703,500 paired shares with a par
value of $0.01 per paired share for an aggregate cost of approximately $25.7
million.

NOTE 6.  HOTEL ASSETS HELD FOR SALE

         At June 30, 1997, the Company's portfolio included five hotel
properties which were held for sale. The five properties include the 151-room
Bay Valley Resort in Bay City, Michigan, the 155-room Tyee Hotel in Olympia,
Washington, the 166-room Best Western in Las Cruces, New Mexico, the 175-room
Best Western Airport in El Paso, Texas and the 142-room Best Western in
Savannah, Georgia. On April 15, 1997, the Company sold the Radisson Marque Hotel
in Winston-Salem, North Carolina for approximately $7.6 million in cash.

NOTE 7.  INTEREST RATE HEDGING AGREEMENTS

         The Company enters into interest rate protection agreements as a means
of managing interest rate exposure on anticipated transactions. The agreements
are with major financial institutions which are expected to fully perform under
the terms of the agreements thereby mitigating the credit risk from the
transactions. The differential to be paid or received under these agreements is
accrued consistent with the terms of the agreements and market interest rates
and is recognized, using the effective interest method, in interest expense over
the remaining term of the related debt.

         In order for the amount paid or received to be deferred under such
agreements, and therefore be treated as a hedge, the Company must determine that
it is probable that the future issuance of debt anticipated by the contract will
occur. In order to assess whether this criteria has been met, the Company
reviews their current projections to determine if the issuance of such debt is
still in line with the Company's plans and whether the Company has the ability
to issue such debt.


                                       17
<PAGE>   18
         If the Company were not to issue the anticipated debt, the Company
would still pay or receive the amount determined at settlement and would treat
such amount as a loss or gain, accordingly and include it in continuing
operations. Further, if prior to settlement, the Company were to determine that
an interest rate protection agreement no longer qualified to be treated as a
hedge, the Company would record a gain or loss at each reporting date based upon
a calculation of what the settlement would have been had it been settled at such
reporting date.

         On May 27, 1997, the Company entered into an interest rate protection
agreement, which had the effect of fixing the base rate of interest at 6.773%
for debt that the Company intends to issue in October 1997 with an aggregate
notional principal amount of $100 million and a term to maturity of five years.
The actual interest rate will be determined by reference to this base rate.

NOTE 8.  COMBINED PRO FORMA FINANCIAL INFORMATION

         Due to the impact of the 19 hotels acquired by the Company in the six
months ending June 30, 1997, the following combined pro forma statements of
operations are presented to supplement the historical statements of operations.
These combined pro forma statements reflect the acquisition of the HEI Owned
Hotels as if they occurred on January 1, 1996:

<TABLE>
<CAPTION>
                                                       Three months ended               Six months ended
                                                             June 30                        June 30
                                                   -------------------------        --------------------
                                                   1997            1996             1997            1996
                                                   -------------------------        --------------------
                                                      Combined (in thousands, except per share amounts)
<S>                                               <C>             <C>             <C>             <C>

Revenues .................................        $223,149        $108,641        $407,941        $191,481
Net income ...............................        $ 18,223        $ 15,023        $ 27,564        $ 21,900
Net income per share .....................        $   0.38        $   0.64        $   0.60        $   0.99
</TABLE>



NOTE 9.  SUBSEQUENT EVENTS

         On July 10, 1997, the Company acquired the 385-room Radisson Plaza
Hotel at Town Center in Southfield, Michigan for approximately $40 million.

         On August 5, 1997 the Company announced that it has entered into an
agreement to acquire a portfolio of three full-service, luxury properties
located in Mexico. The portfolio includes the 229-room Westin Regina Resort in
Los Cabos, Mexico, the 385-room Westina Regina Resort in Cancun, Mexico, and the
280-room Westin Regina Resort in Puerto Vallarta, Mexico. The Company expects to
purchase the portfolio from Bancomer, S.A., a subsidiary of Grupo Financiero
Bancomer, for approximately $133 million.

         On August 8, 1997 the Company announced that it has entered into an
agreement to acquire 15 full-service hotels, with 4,252 rooms for approximately
$470 million. The properties are predominantly located in the northeastern
United States with a large concentration of the properties located in suburban
Boston. The Company expects to purchase the properties from Flatley Co./Tara
Hotels, a privately held company.
 
NOTE 10.  IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS

         In February 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No.128, Earnings Per Share (SFAS
128) which specifies the computation, presentation, and disclosure requirements
for earnings per share. SFAS 128 replaces the presentation of primary and fully
diluted EPS pursuant to Accounting Principles Board Opinion No. 15 Earnings Per
Share (APB 15) with the presentation of basic and diluted EPS. Basic EPS'
excludes dilution and is computed by dividing net income available to common
stockholders by the weighted average number of shares outstanding for the
period. Diluted EPS reflects the potential dilution that could occur if
securities or other contracts to issue common stock were exercised or converted
into common stock. The Company is required to adopt SFAS 128 with its December
31, 1997 financial statements and restate all prior period EPS information. The
Company will continue to account for EPS under APB 15 until that time.

         A summary of the Company's basic EPS and diluted EPS for the three and
six months ended June 30, 1997 and 1996 follows:


                                       18
<PAGE>   19
<TABLE>
<CAPTION>
                                            Three months ended June 30, 1997      Three months ended June 30, 1996
                                          ---------------------------------------------------------------------------
BASIC EARNINGS PER SHARE                     Trust     Corporation  Combined       Trust     Corporation  Combined
                                          ---------------------------------------------------------------------------
<S>                                       <C>           <C>          <C>           <C>       <C>          <C>
  Income before extraordinary item......    $ 0.37        $ 0.03        $ 0.40      $0.24        $ 0.12     $ 0.36

  Extraordinary item....................         -             -             -          -          0.05       0.05
                                          ============ =========== ============ ============ =========== ============
  Net income per share..................
                                            $ 0.37        $ 0.03        $ 0.40      $ 0.24       $ 0.17     $ 0.41
                                          ============ =========== ============ ============ =========== ============

DILUTED EARNINGS PER SHARE
  Income before extraordinary item......    $ 0.35        $ 0.03        $ 0.38      $ 0.24       $ 0.12     $ 0.36
  Extraordinary item....................         -             -             -           -         0.05       0.05
                                          ============ =========== ============ ============ =========== ============
  Net income per share..................    $ 0.35        $ 0.03        $ 0.38      $ 0.24       $ 0.17     $ 0.41
                                          ============ =========== ============ ============ =========== ============

                                             Six months ended June 30, 1997        Six months ended June 30, 1996
                                          ---------------------------------------------------------------------------
BASIC EARNINGS PER SHARE                     Trust     Corporation  Combined       Trust     Corporation  Combined
                                          ---------------------------------------------------------------------------
  Income before extraordinary item......     $ 0.66       $(0.07)        $ 0.59     $ 0.58       $(0.01)     $ 0.57
  Extraordinary item....................          -            -              -          -         0.05        0.05
                                          ============ =========== ============ ============ =========== ============
  Net income per share..................     $ 0.66       $(0.07)        $ 0.59     $ 0.58       $ 0.04      $ 0.62
                                          ============ =========== ============ ============ =========== ============

DILUTED EARNINGS PER SHARE
  Income before extraordinary item......     $ 0.63       $(0.07)        $ 0.56     $ 0.58       $(0.01)      $ 0.57
  Extraordinary item....................          -            -              -          -         0.05         0.05
                                          ============ =========== ============ ============ =========== ============
  Net income per share..................     $ 0.63       $(0.07)        $ 0.56     $ 0.58       $ 0.04       $ 0.62
                                          ============ =========== ============ ============ =========== ============
</TABLE>


         In February 1997, the Securities and Exchange Commission issued
Financial Reporting Release No. 48, Disclosure of Accounting Policies for
Derivative Financial Instruments and Derivative Commodity Instruments and
Disclosure of Quantitative and Qualitative Information about Market Risk
Inherent in Derivative Financial Instruments, Other Financial Instruments, and
Derivative Commodity Instruments, (FRR 48). FFR 48 requires clarification and
expansion of existing disclosures for derivative financial instruments, other
financial instruments and derivative commodity instruments, as defined therein.
The amendments require enhanced disclosure with respect to these derivative
instruments in the footnotes to the financial statements. These disclosures are
required in filings that include financial statements for periods ending after
June 15, 1997, and accordingly have been included herein in the footnotes to the
Company's financial statements for the quarter ended June 30, 1997.

         Additionally, the amendments expand existing disclosure requirements to
include quantitative and qualitative discussions with respect to market risk
inherent in market risk sensitive instruments. These amendments are designed to
provide additional information about market risk sensitive instruments which
investors can use to better understand and evaluate market risk exposures of
registrants, including the Company. These disclosures, subject to certain market
capitalization requirements, as defined, are effective for filings that include
annual financial statements for years ending after June 15, 1998.

         In June 1997, the FASB issued Statement of Financial Accounting
Standards No. 130, Reporting Comprehensive Income (SFAS 130), which establishes
standards for reporting and display of comprehensive income and its components.
This statement requires a separate statement to report the components of
comprehensive income for each period reported. The provisions of this statement
are effective for fiscal years beginning after December 15, 1997. Management
believes that they currently do not have items that would require presentation
in a separate statement of comprehensive income.

                                       19
<PAGE>   20
         In June 1997, the FASB also issued Statement of Financial Accounting
Standards No. 131, Disclosures about Segments of an Enterprise and Related
Information, (SFAS 131), which establishes standards for the way that public
business enterprises report information about operating segments in annual
financial statements and require that those enterprises report selected
information about operating segments in interim financial reports issued to
shareholders. This statement is effective for financial statements for periods
beginning after December 15, 1997. Management believes this statement may
require expanded disclosure in the Company's financial statements.

                                       20
<PAGE>   21
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
        OF OPERATIONS

         The following Management's Discussion and Analysis should be read in
conjunction with the Management's Discussion and Analysis included in the
Company's Joint Annual Report on Form 10-K for the year ended December 31, 1996.

HISTORICAL RESULTS OF OPERATIONS FOR THE THREE AND SIX MONTHS ENDED JUNE 30,
1997 AND 1996

THE TRUST

         Rents from the Corporation, which are based largely on hotel revenues,
increased $40.3 million and $67.7 million for the three and six months ended
June 30, 1997, respectively as compared to the corresponding periods of 1996.
The increase was primarily the result of rents earned by the Trust on 41 hotels
containing approximately 13,200 rooms (the "Acquired Hotels") acquired by the
Trust since June 30, 1996. The investment in the Acquired Hotels (the 177-room
Days Inn in Philadelphia, Pennsylvania and 251-suite Doubletree Guest Suites at
the Philadelphia airport in Philadelphia, Pennsylvania acquired in July 1996; a
portfolio of 8 hotels owned by an institution (the "Institutional Portfolio"), a
portfolio of 9 hotels owned by Hotels of Distinction Ventures, Inc. (the "HOD
Portfolio") (excluding the 293-room Radisson Marque in Winston-Salem, North
Carolina which was acquired by the Corporation), and the 294-room Marriott
Forrestal Village in Princeton, New Jersey acquired in August 1996; the 121-room
Doral Tuscany and the 199-room Doral Court in New York, New York acquired in
September 1996; the 257-room Westwood Marquis in Los Angeles, California
acquired in December 1996; the 220-room Deerfield Beach Hilton in Deerfield
Beach, Florida and 263-room Radisson Denver South in Denver, Colorado acquired
in January 1997; the HEI Owned Hotels and the 578-room Days Inn Chicago acquired
in February 1997; the 120-suite Hermitage Suites in Nashville, Tennessee and the
100-room Hotel De La Poste in New Orleans, Louisiana acquired in March 1997; the
264-suite Marriott Suites hotel in San Diego, California and the 129-room
Tremont Hotel in Chicago, Illinois acquired in April 1997; the 172-room Raphael
Hotel in Chicago, Illinois acquired in May 1997; and the 480-room Stamford
Sheraton Hotel in Stamford, Connecticut acquired in June 1997), accounted for
increased rents of $38.1 million and $63.9 million for the three and six months
ended June 30, 1997, respectively as compared to the corresponding periods in
1996. Rents earned on hotels acquired during the six months ended June 30, 1996,
and thereby owned for a partial period in 1996 and a full period in 1997 (the
442-room Clarion Hotel located at the San Francisco Airport, the 308-suite
Doubletree Guest Suites in Irving, Texas, the 254-suite Doubletree Guest Suites
in Ft. Lauderdale, Florida, and the 260-room Westin in Tampa, Florida acquired
in April 1996), increased by $2.2 million and $3.4 million for the three and six
months ended June 30, 1997, respectively as compared to the same periods in
1996. In addition, rents earned by the Trust from continuously owned properties
leased to the Corporation increased by approximately $400,000 for the six months
ended June 30, 1997, as compared to the corresponding period in 1996.

         Interest from the Corporation increased by approximately $833,000 and
$1.2 million for the three and six months ended June 30, 1997, respectively as
compared to the corresponding periods of 1996. The increase in interest income
was primarily a result of interest paid on the


                                       21
<PAGE>   22
first mortgage of the Midland Hotel in Chicago, Illinois which was acquired by
the Corporation in March 1996.

         Interest from mortgage and other notes amounted to $3.1 million and
$7.2 million for the three and six months ended June 30, 1997, respectively as
compared to $2.2 million and $4.7 million for the corresponding periods in 1996.
The increase resulted from the purchase during the third quarter of 1996 of debt
obligations in part secured by the 305-room Holiday Inn in Milpitas, California
and a first mortgage note secured by the King 8 Hotel, Gambling Hall and Truck
Plaza located in Las Vegas, Nevada which was sold in the fourth quarter of 1996.
The increase was offset in part by principal amortization.

         Other income for the six months ended June 30, 1997 includes a $1.2
million gain (net of related expenses) realized in connection with the sale of
securities.

         Interest expense increased by approximately $7.4 million and $14.7
million for the three and six months ended June 30, 1997, respectively as
compared to the corresponding periods of 1996. The increase was due to
borrowings under two loan facilities and a term loan (the "Lehman Facilities")
with Lehman Brothers, Inc. and certain of its affiliates ("Lehman Brothers"),
and a loan facility with Goldman Sachs (the "Goldman Facility" and together with
the Lehman Facilities, the "Credit Facilities"); a mortgage secured by the Doral
Court and Doral Tuscany in New York, with the Sumitomo Trust and Banking Co.,
Ltd. ("Sumitomo") (the "Doral Mortgage"); a mortgage secured by the Boston Park
Plaza with the Life Insurance Company of Georgia ("Georgia Life") (the "BPP
Mortgage"); a short term loan with The Prudential Insurance Company of America
on behalf of Prudential Property Investment Separate Account II ("Prudential")
(the "Prudential Loan"); and the Tax Exempt Bonds, used to acquire the above
mentioned properties offset by the net proceeds from two public offerings in
1996 and the March 1997 Offering.

         Depreciation and amortization expense increased by approximately $18.7
million and $35.6 million during the three and six months ended June 30, 1997,
respectively as compared to the corresponding periods of 1996, principally due
to the acquisition of the Acquired Hotels.

         Administrative and general expenses for the three months ended June 30,
1997 increased by approximately $1.4 million to $2.9 million, as compared to
$1.5 million for the corresponding period of 1996. Administrative and general
expenses for the six months ended June 30, 1997 increased by approximately $2.4
million to $5.1 million as compared to $2.7 million for the corresponding period
in 1996. The increases resulted predominantly from expenses incurred as a result
of the awards granted under the Trust's Long-Term Incentive Plan and the
increase in payroll costs commensurate with the Company's growth.

         Minority interest represents primarily the interest of the limited
partners in Realty for the three and six months ended June 30, 1997. Minority
interest also represents the interests of third parties in consolidated joint
ventures, including approximately $796,000 and $904,000 for three and six months
ending June 30, 1997, respectively relating to the 41.8% minority interest of a
third-party in the joint venture that owns the Boston Park Plaza hotel and
approximately $67,000 and $149,000 for the three and six months ending June 30,
1997, respectively relating to the 6.5% minority interest of a third-party in
the joint venture that owns the Westwood Marquis.


                                       22
<PAGE>   23
THE CORPORATION

         Hotel revenues increased by approximately $142.0 million and $253.8
million for the three and six months ended June 30, 1997, respectively as
compared to the corresponding periods of 1996. The leasing and assumption of
management of the Acquired Hotels and the addition of the 293-room Radisson
Marque hotel in Winston-Salem, North Carolina resulted in increases in hotel
revenues of approximately $132.4 million and $227.7 million for the three and
six months ended June 30, 1997, respectively. Furthermore, the leasing,
assumption of management, and addition of hotels during the six months ended
June 30, 1996 (the 442-room Clarion Hotel located at the San Francisco Airport,
the 308-suite Doubletree Guest Suites in Irving, Texas, the 254-suite Doubletree
Guest Suites in Ft. Lauderdale, Florida, the 260-room Westin in Tampa, Florida
and the 257-room Midland Hotel in Chicago, Illinois) resulted in increases in
hotel revenues of approximately $3.0 million and $17.1 million for the three and
six months ended June 30, 1997, respectively as compared to the same periods in
1996. The remaining increase of $6.6 million and $9.0 million for the three and
six months ended June 30, 1997, respectively is attributable to other
continuously owned properties.

         Hotel gross margin for the three months ended June 30, 1997 was $71.9
million, or 33.5% of hotel revenues, as compared to $24.1 million, or 33.2% of
hotel revenues, for the same period of 1996. Hotel gross margin for the six
months ended June 30, 1997 was $116.3 million, or 30.9% of hotel revenues, as
compared to $38.8 million, or 31.6% of hotel revenues, for the same period of
1996. The decrease in gross margin percentage for the six months ended June 30,
1997 was primarily due to the increase in the food and beverage revenue
component of total hotel revenue (26.8% and 19.2% for the six months ended June
30, 1997 and 1996, respectively) resulting from the Company's continued
investment in full-service hotels offset, in part, by increases in room revenue
per available room ("REVPAR") and the termination of third-party management
agreements.

         Gaming revenues for the three months ended June 30, 1997 as compared to
the corresponding period in 1996, decreased by approximately $3.1 million to
$3.8 million. Gaming revenues for the six months ended June 30, 1997, as
compared to the corresponding period in 1996, decreased by approximately $6.0
million to $7.7 million. Gaming gross margin for the three months ended June 30,
1997 was a loss of $352,000, as compared to a profit of $557,000 for the
corresponding period in 1996. Gaming gross margin for the six months ended June
30, 1997 was a loss of $521,000, as compared to a profit of $1.6 million for the
corresponding period in 1996.

         The decrease in gaming revenues and the decline in gaming gross margin
predominately resulted from the sale of the Bourbon Street Hotel and Casino in
September 1996. The real property of the King 8 was also sold in 1996 for
approximately $18.8 million. The sale of the personal property of the King 8 for
$3 million is scheduled to close following the receipt by the purchaser or his
designee of required gaming licenses and approval. A subsidiary of the
Corporation leases the real property from the purchaser and has agreed to
continue to operate the hotel and casino while the purchaser obtains required
gaming licenses and approvals.

         Management fees and other income for the three months ended June 30,
1997 includes approximately $314,000 of management fee income from the joint
venture that owns the Boston Park Plaza hotel and approximately $891,000 of
management fee income from the HEI Managed


                                       23
<PAGE>   24
Hotels. Management fees and other income for the six months ended June 30, 1997
includes approximately $471,000 of management fee income from the joint venture
that owns the Boston Park Plaza hotel and approximately $1.2 million of
management fee income from the HEI Managed Hotels.

         Administrative and general expenses for the three months ended June 30,
1997 increased to $4.8 million or 2.2% of revenues, as compared to $1.5 million
or 1.8% of revenues for the corresponding period of 1996. Administrative and
general expenses for the six months ended June 30, 1997 increased to $8.4
million or 2.2% of revenues, as compared to $2.6 million or 1.9% of revenues for
the corresponding period in 1996. The increase was primarily a result of
increases in payroll costs commensurate with the Company's growth, the
assumption of management of hotels previously operated by third-parties, and
expenses incurred as a result of awards granted under the Corporation's
Long-Term Incentive Plan.

         Depreciation and amortization expense increased by approximately $5.0
million for each of the three and six months ended June 30, 1997 as compared to
the corresponding periods of 1996.

         Minority interest represents primarily the interest of the limited
partners in Operating. Minority interest also represents the interests of third
parties in consolidated joint ventures including approximately $1.4 million and
$952,000 for the three and six months ended June 30, 1997, respectively relating
to the 41.8% minority interest of a third-party in the joint venture that owns
the Boston Park Plaza hotel.

         For information with respect to rent and interest paid to the Trust
during the three and six months ended June 30, 1997 and 1996, see, "The Trust"
immediately above.


EXTERNAL GROWTH

         During the six months ended June 30, 1997 the Company acquired equity
interests in 19 hotels containing more than 5,300 rooms at a combined cost
exceeding $500 million, as follows: the 220-room Deerfield Beach Hilton in
Deerfield Beach, Florida (January 1997); the 263-room Radisson Denver South in
Denver, Colorado (January 1997); the HEI Owned Hotels consisting of 3,040 rooms
(February 1997); the 578-room Days Inn in Chicago, Illinois (February 1997); the
120-suite Hermitage Suites Hotel in Nashville, Tennessee (March 1997); the
100-room Hotel De La Poste in New Orleans, Louisiana (March 1997); the 264-suite
Marriott Suites hotel in San Diego, California (April 1997); the 129-room
Tremont Hotel in Chicago, Illinois (April 1997); the 172-room Raphael Hotel in
Chicago, Illinois (May 1997); and the 480-room Sheraton in Stamford, Connecticut
(June 1997).

INTERNAL GROWTH

         On a same-store-sales basis, including the results of all hotels
acquired prior to June 30, 1997 for the period from their respective dates of
acquisition if acquired in 1997 as compared to the same period in 1996 and
excluding hotels held for sale and hotels under substantial renovation during
the second quarter (the Doral Inn in New York, New York, the Doubletree Guest
Suites in Philadelphia, Pennsylvania (to be reflagged Westin), and the Westin in
Tampa,


                                       24
<PAGE>   25
Florida), REVPAR for the three months ended June 30, 1997 increased 10.0% from
$66.82 to $73.52 over the same period in 1996. The increase in REVPAR resulted
from an increase in average daily rate ("ADR") of 9.4%, from $90.89 to $99.46,
while the occupancy rate increased by less than one percentage point to 73.9%.

         On a same-store-sales basis, including the results of all hotels
acquired prior to June 30, 1997, for the period from their respective dates of
acquisition if acquired in 1997 as compared to the same period in 1996 and
excluding hotels held for sale and hotels under substantial renovation during
the second quarter (the Doral Inn in New York, New York, the Doubletree Guest
Suites at the Philadelphia airport in Philadelphia, Pennsylvania, and the Westin
in Tampa, Florida), REVPAR for the six months ended June 30, 1997, increased
7.7% from $65.85 to $70.93 over the same period in 1996. The increase in REVPAR
resulted from an increase in ADR of 9.4%, from $91.73 to $100.33, while the
occupancy rate decreased slightly from 71.8% to 70.7%.

         The overall REVPAR increase for the three and six months ended June 30,
1997 was largely attributable to the strong increase in REVPAR at the Company's
upscale hotels. These hotels experienced an increase in REVPAR of 9.7% and 8.1%
for the three and six months ended June 30, 1997, respectively as compared to
the corresponding periods of 1996. ADR for the Company's upscale hotels
increased 9.2% and 8.8% for the three and six months ended June 30, 1997,
respectively as compared to the corresponding periods in 1996 while occupancy
rates increased by less than one basis point for the three months ended June 30,
1997 and decreased by less than one basis point for the six months ended June
30, 1997.



                                       25
<PAGE>   26
           The following tables summarize average occupancy, ADR and REVPAR on a
year-over-year basis for the Company's 86 owned and operated (including Company
owned but third-party managed hotels, third party owned but Company managed
hotels, and including hotels acquired during 1997 for the period beginning with
their respective dates of acquisition and ending at the end of each period),
non-gaming hotels for the three and six months ended June 30, 1997 and 1996:


<TABLE>
<CAPTION>
                                            THREE MONTHS ENDED JUNE 30
                                            --------------------------
66 Upscale Hotels                                1997          1996
                                            --------------------------
<S>                                         <C>              <C>
Occupancy Rate..................                 75.4%          75.0%
ADR.............................               $103.04         $94.38
REVPAR..........................               $ 77.72         $70.82
REVPAR % change.................                  9.7%
</TABLE>

<TABLE>
<CAPTION>
                                            THREE MONTHS ENDED JUNE 30
                                            --------------------------
20 Midscale/Economy  Hotels                      1997          1996
                                            --------------------------
<S>                                         <C>              <C>
Occupancy Rate..................                 62.7%          68.0%
ADR.............................                $76.95         $68.75
REVPAR..........................                $48.27         $46.74
REVPAR % change.................                  3.3%
</TABLE>

<TABLE>
<CAPTION>
                                            THREE MONTHS ENDED JUNE 30
                                            --------------------------
78 Non-Gaming Hotels(1)                         1997           1996
                                            --------------------------
<S>                                         <C>              <C>
Occupancy Rate..................                 73.9%          73.5%
ADR.............................                $99.46         $90.89
REVPAR..........................                $73.52         $66.82
REVPAR % change.................                 10.0%
</TABLE>

<TABLE>
<CAPTION>
                                             SIX MONTHS ENDED JUNE 30
                                             ------------------------
66 Upscale Hotels                               1997           1996
                                             ------------------------
<S>                                         <C>              <C>
Occupancy Rate..................                 72.4%          72.9%
ADR.............................               $104.10         $95.66
REVPAR..........................               $ 75.38         $69.72
REVPAR % change.................                  8.1%
</TABLE>

<TABLE>
<CAPTION>
                                             SIX MONTHS ENDED JUNE 30
                                             ------------------------
20 Midscale/Economy  Hotels                     1997           1996
                                             ------------------------
<S>                                         <C>              <C>
Occupancy Rate..................                 59.3%          66.3%
ADR.............................                $74.23         $65.97
REVPAR..........................                $44.04         $43.75
REVPAR % change.................                  0.7%
</TABLE>

<TABLE>
<CAPTION>
                                             SIX MONTHS ENDED JUNE 30
                                             ------------------------
78 Non-Gaming Hotels(1)                         1997           1996
                                             ------------------------
<S>                                         <C>              <C>
Occupancy Rate..................                 70.7%          71.8%
ADR.............................               $100.33         $91.73
REVPAR..........................               $ 70.93         $65.85
REVPAR % change.................                  7.7%
</TABLE>


(1) Excluding five hotels held for sale and three hotels under substantial
    renovation during the quarter.

         Management believes that increases in REVPAR resulted primarily from
increases in demand due to continued favorable economic conditions which have
resulted in increased


                                       26
<PAGE>   27
business and leisure travel throughout the United States, while the supply of
hotel rooms has not increased as rapidly, particularly in major urban locations.
Revenue increases for the quarter were greatest at hotels located in the major
urban markets of New York, Philadelphia, San Francisco, San Diego, and Chicago.
REVPAR was positively impacted by the Easter holiday which fell during the first
quarter of 1997 and during the second quarter of 1996.

         Management believes that there are several important factors that have
contributed to the improved profitability of hotel properties, including
increased ADR and effective cost management. Because a substantial portion of
the hotels' operating costs and expenses are generally fixed, the Company
derives substantial operating leverage from increases in revenue. However, the
Company's continued investment in full-service properties has led to a larger
component of food and beverage revenue when compared to the same period last
year. Consequently, gross margins for the six months ended June 30, 1997
declined to 30.9% from 31.6% in the corresponding period in 1996.

         During the six months ended June 30, 1997, consistent with its business
objective to capture the economic benefits otherwise retained by third-party
operators, the Corporation assumed management of the 19 hotels acquired during
the period. Management believes that the assumption of direct control over the
operations of these hotels will allow the Corporation to effectively use the
experience of management to improve operations. In addition, during the six
months ended June 30, 1997 the Corporation assumed management of the HEI Managed
Hotels.

         During the three months ended June 30, 1997, the Company completed the
renovation of the Edmond Meany Tower in Seattle, Washington. Renovations have
begun and are scheduled to be completed in 1997 and 1998 for the Sheraton Colony
Square in Atlanta, Georgia, the Clarion Hotel at the San Francisco Airport,
Westin in Tampa, Florida, the Doubletree Guest Suites at the Philadelphia
airport in Philadelphia, Pennsylvania, the Westwood Marquis in Los Angeles,
California, and the Doral Inn, the Doral Tuscany and the Doral Court in New
York. In addition, the Boston Park Plaza's renovation is currently scheduled to
begin in November 1997 during a seasonally weak period.

SEASONALITY AND DIVERSIFICATION

         Demand is affected by normally recurring seasonal patterns. Generally
the Company's portfolio of hotels as a whole has performed better in the second
and third quarters due to decreased travel in the winter months. Acquisitions
and renovations have affected this seasonality, however the second quarter
continues to represent a better performing period. Additional acquisitions and
renovations may further affect the seasonality of the Company's current
portfolio. The Company has continued to implement a business strategy of
franchise and geographic diversification.


                                       27
<PAGE>   28
                    COMBINED LIQUIDITY AND CAPITAL RESOURCES

CASH FLOW PROVIDED BY OPERATING ACTIVITIES

         The principal source of cash used to fund the Company's operating
expenses, interest expense, recurring capital expenditures and distribution
payments by the Trust is cash flow provided by operating activities. The Company
anticipates that cash flow provided by operating activities will provide the
necessary funds on a short and long term basis to meet operating cash
requirements including all distributions to shareholders by the Trust. During
the second quarter of 1997, the Trust paid a distribution of $0.39 per share
declared in the first quarter of 1997. During the third quarter of 1997, the
Trust paid a distribution of $0.39 per share declared in the second quarter of
1997.

CASH FLOWS FROM INVESTING AND FINANCING ACTIVITIES

         The Company intends to finance the acquisition of additional hotel
properties, major hotel renovations and capital improvements and provide for
general corporate purposes through the Credit Facilities, through additional
lines of credit and, when market conditions warrant, through the issuance of
additional equity or debt securities.

         During the quarter, the maturity date of a $94 million non-recourse
secured term loan (the "Term Loan"), which was originally due April 26, 1997,
was extended to October 26, 1997, on the same terms and conditions and with a
right to further extend at the Company's option to April 1998.

         Also during the quarter, the maturity date of the Prudential Loan,
which was originally due May 30, 1997, was extended to July 14, 1997.

         On June 12, 1997, the Company completed a transaction resulting in
operating and ownership control of the 480-room Stamford Sheraton Hotel in
Stamford, Connecticut. In connection with this transaction, the Company entered
into a $10.25 million mortgage agreement with Lehman Brothers (the "Stamford
Note"). The Stamford Note is secured by the Stamford Sheraton, bears interest
at LIBOR plus 225 basis points and matures on January 31, 2000.


                                       28
<PAGE>   29
                   The following is a summary of the Credit Facilities, the
Doral Mortgage, the BPP Mortgage, the Prudential Loan, and the Tax Exempt Bonds
as of June 30, 1997:

<TABLE>
<CAPTION>
                                                                       AMOUNT
                                                                   OUTSTANDING AT
  FACILITY/LENDER        EXPIRATION DATE     AMOUNT OF FACILITY        6/30/97         INTEREST RATE AT 6/30/97
  ---------------        ---------------     ------------------        -------         ------------------------
<S>                      <C>                  <C>                   <C>                <C>
Mortgage Facility/       October 27, 1997     $71.0 million         $70.6 million      One Month LIBOR + 1.75%
  Lehman Brothers.....                                                                 (7.44%)

Acquisition Facility/    October 1, 1998      $135.0 million        $96.8 million      One, Two, or Three Month
  Lehman Brothers.....                                                                 LIBOR + 1.625% (7.31%)
  
Term Loan/               October 26, 1997     $93.96 million        $93.96 million     One, Two, or Three Month
  Lehman Brothers.....                                                                 LIBOR + 1.95% for first
                                                                                       $23.96 million and +1.75%
                                                                                       for $70.0 million (7.64% and
                                                                                       7.19%)

Goldman Facility/        August 16, 1997      $300.0 million        $268.0 million     One Month LIBOR +1.75% to
  Goldman Sachs.......    Extendible to                                                8/16/97 and +2.75% thereafter
                         February 16, 1998                                             (7.44%)

Stamford Note/           January 31, 2000     $10.25 million        $10.25 million     One Month LIBOR +2.25% (7.94%)
  Lehman Brothers.....

Doral Mortgage/          September, 2001      $27.4 million         $27.4 million                  7.64%
  Sumitomo............

BPP Mortgage/              May, 2003          $25.0 million         $25.0 million                  8.42%
  Georgia Life........

Tax Exempt Bonds/.....   October, 2013        $39.5 million         $39.5 million                  6.70%

Prudential Loan/         July 14, 1997        $72.0 million         $72.0 million                  7.00%
  Prudential..........
                                            ---------------------------------------

Totals                                        $774.11 million       $703.51 million
                                            =======================================
</TABLE>

         As previously discussed, during the second quarter ended June 30, 1997,
the Company completed the renovation of the Edmond Meany Tower Hotel in Seattle,
Washington. Hotels with significant renovations in progress at the end of the
second quarter and planned for 1997 and 1998, included the Sheraton Colony
Square in Atlanta, Georgia; the Westin in Tampa, Florida; the Doubletree
Philadelphia Airport in Philadelphia, Pennsylvania; the Westwood Marquis in Los
Angeles, California; the Clarion Hotel at the San Francisco Airport; and the
Doral Inn, Doral Tuscany and Doral Court in New York, New York. In addition, the
Boston Park Plaza's renovation is currently scheduled to begin in November 1997
during a seasonally weak period. The Company plans to expend in excess of $100
million for renovations in 1997 including the renovations mentioned above. Major
and minor renovations, expansions and upgrades of other hotels are also being
contemplated. In addition, the Company intends to develop new hotels on a
selective basis and, as of June 30, 1997, had begun construction of a 426-room
hotel in downtown Seattle, Washington and a 423-room hotel in San Francisco,
California. Sources of capital for major renovations, expansions and upgrades of
hotels as well as new construction are expected to be excess funds from
operations, additional debt financing, and additional equity raised in the
public and private markets.

         As of June 30, 1997, since January 1, 1996, the Company has invested
over $1.3 billion in acquisitions of hotel assets. As part of its investment
strategy, the Company plans to continue


                                       29
<PAGE>   30
to acquire additional hotels. Future acquisitions are expected to be funded
through further draws under the Credit Facilities, draws under new lines of
credit, issuance of long-term debt on either a secured or unsecured basis,
issuance of limited partnership units by Realty and Operating that are
exchangeable for Paired Shares and the issuance of additional equity or debt
securities by the Company. The Company intends to incur additional indebtedness
in a manner consistent with its policy of maintaining a ratio of debt-to-total
market capitalization of not more than 50%.

         On April 3, 1997, the Company announced that it was working with
institutional lenders on the development of new credit facilities for up to $700
million which would consolidate and replace current credit facilities and
provide capacity for future acquisitions. In July, 1997, the Company entered
into a $200 million three-year unsecured term loan arranged by Bankers Trust
Company and co-arranged by affiliates of Goldman Sachs and Lehman Brothers. The
term loan bears interest at a rate which will vary depending upon the leverage
of the Company starting at LIBOR plus 112.5 basis points. The initial rate is
LIBOR plus 162.5 basis points. Proceeds from the term loan were used to finance
the repayment of existing indebtedness, including the Prudential Loan and for
the acquisition of the 385-room Radisson Plaza Hotel at Town Center in
Southfield, Michigan.

         During the quarter ended June 30, 1997, the Trust and the Corporation
repurchased 703,500 paired shares at an aggregate cost of approximately $25.7
million.

         Management of each of the Trust and of the Corporation believes that it
will have access to capital resources sufficient to satisfy the cash
requirements of each of the Trust and the Corporation and to expand and develop
their business in accordance with their strategy for future growth.

FUNDS FROM OPERATIONS

         Management believes that funds from operations ("FFO") is one measure
of financial performance of an equity REIT such as the Trust. Combined FFO (as
defined by the National Association of Real Estate Investments Trusts) (1) for
the three months ended June 30, 1997 grew by 184.6% to $51.8 million, compared
to combined FFO of $18.2 million for the corresponding period in 1996. Combined
FFO for the six months ended June 30, 1997 grew by 171.1% to $85.0 million,
compared to combined FFO of $31.3 million for the corresponding period in 1996.
The following table shows the calculation of historical combined FFO for the
indicated periods:

<TABLE>
<CAPTION>
                                                       Three months ended
                                                             June 30
                                                      -------------------
                                                        1997      1996
                                                      -------------------
                                                         (in thousands)
     <S>                                              <C>       <C>
     Income before extraordinary item
      and minority interest.........................  $25,858   $13,058
     Real estate related depreciation
      and amortization..............................   29,827     6,130     
     Amortization of financing costs ...............     (942)     (482)
     Loss on sale of real estate investments .......      504       347
     Minority interest-consolidated joint
      ventures .....................................   (3,407)     (844)
                                                      -------   -------
     Funds From Operations .........................  $51,840   $18,209
                                                      =======   =======
</TABLE>



                                       30
<PAGE>   31




<TABLE>
<CAPTION>
                                                                Six months ended
                                                                     June 30
                                                             ----------------------
                                                              1997           1996
                                                             ----------------------
                                                                 (in thousands)
<S>                                                          <C>            <C>
Income before extraordinary item and minority interest       $35,900        $18,964
Real estate related depreciation and amortization ....        54,387         13,790
Amortization of financing costs ......................        (2,063)          (761)
Loss on sale of real estate investments ..............           504            347
Minority interest-consolidated joint ventures ........        (3,775)        (1,006)
                                                              ------        -------  
Funds From Operations ................................       $84,953        $31,334
                                                             =======        =======
</TABLE>

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

(1)      With respect to the presentation of FFO, management elected early
         adoption of the "new definition" as recommended in the March 1995
         NAREIT White Paper on FFO beginning January 1, 1995. Management and
         industry analysts generally consider funds from operations to be one
         measure of the financial performance of an equity REIT that provides a
         relevant basis for comparison among REITs and it is presented to assist
         investors in analyzing the performance of the Company. FFO is defined
         as income before minority interest (computed in accordance with
         generally accepted accounting principles), excluding gains (losses)
         from debt restructuring and sales of property, and real estate related
         depreciation and amortization (excluding amortization of financing
         costs). FFO does not represent cash generated from operating activities
         in accordance with generally accepted accounting principles and is not
         necessarily indicative of cash available to fund cash needs. FFO should
         not be considered an alternative to net income as an indication of the
         Company's financial performance or as an alternative to cash flows from
         operating activities as a measure of liquidity.

         FFO includes $1.5 million and $780,000 of interest income recognized in
excess of the interest received on mortgage notes receivable (as a result of the
notes having been purchased at a discount) for the three months ended June 30,
1997 and 1996, respectively. FFO includes $2.9 million and $1.6 million of
interest income recognized in excess of interest received on mortgage notes
receivable for the six months ended June 30, 1997 and 1996, respectively.



                                       31
<PAGE>   32
PART II. - OTHER INFORMATION

Item 1.  Legal Proceedings

                  None

Item 2.  Changes in Securities

                  Recent Sales of Unregistered Securities

                  During the quarter ended June 30, 1997, the Trust and the
Corporation issued 38,215 Paired Shares in exchange for a like number of limited
partnership units of Realty and Operating. The issuance of Paired Shares by the
Trust and the Corporation was exempt from registration under the Securities Act
of 1933, as amended (the "Securities Act"), pursuant to Section 4(2) of the
Securities Act.

Item 3.  Defaults Upon Senior Securities

                  None

Item 4.  Submission of Matters to a Vote of Security Holders

                  None

Item 5.  Other Information

                  None

Item 6.  Exhibits and Reports on Form 8-K

         (a)      Exhibits

Exhibit No.

10.1     Form of Amendment No. 2 to Indemnification Agreement dated June 26,
         1997 between Starwood Lodging Trust and each of its Trustees and
         executive officers (Messrs. Ronald C. Brown, Bruce W. Duncan, Steven R.
         Goldman, Madison F. Grose, Gary M. Mendell, Roger S. Pratt, Stephen R.
         Quazzo, Daniel H. Stern and Barry S. Sternlicht).

10.2     Form of Amendment No. 2 to Indemnification Agreement dated June 26,
         1997 between the Starwood Lodging Corporation and each of its Directors
         and executive officers (Messrs. Jean-Marc Chapus, Eric A. Danziger,
         Theodore W. Darnall, Jonathan D. Eilian, Bruce M. Ford, Graeme W.
         Henderson, Earle F. Jones, Michael A. Leven, Alan M. Schnaid and Barry
         S. Sternlicht).


                                       32
<PAGE>   33
10.3     Form of Amendment No. 2 to Amended and Restated Loan Agreement dated
         April 25, 1997 between SLT Realty Limited Partnership, Starwood Lodging
         Trust, CP Hotel Realty Limited Partnership, Midland Building
         Corporation and Lehman Brothers Holdings Inc., D/B/A Lehman Capital, a
         Division of Lehman Brothers Holdings Inc.

10.4     Form of letter dated April 9, 1997 from SLT Realty Limited Partnership
         and Starwood Lodging Trust (collectively the "Borrowers") to Prudential
         Property Investment Separate Account II whereby the Borrowers exercised
         their option to extend the maturity date of the Purchase Money
         Promissory Note, in the original amount of $97,500,000, dated February
         14, 1997, from April 15, 1997 to May 14, 1997.

10.5     Form of Amendment to Purchase Money Promissory Note dated April 26,
         1997 between SLT Realty Limited Partnership and Starwood Lodging Trust
         (together "Makers") in favor of the Prudential Insurance Company of
         America, on behalf of Prudential Property Investment Separate Account
         II ("Payee").

10.6     Form of Amendment No. 2 to Purchase Money Promissory Note dated May 28,
         1997 between SLT Realty Limited Partnership and Starwood Lodging Trust
         (together "Makers") in favor of the Prudential Insurance Company of
         America, on behalf of Prudential Property Investment Separate Account
         II ("Payee").

10.7     Form of Employment Agreement between Starwood Lodging Trust and Barry
         S. Sternlicht dated as of June 30, 1997.

11.      Combined statement regarding computation of per share earnings.

         (b)      Reports on Form 8-K.

                  None.


                                       33
<PAGE>   34
                                   SIGNATURES


         Pursuant to the requirements of the Securities Exchange Act of 1934,
each Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.




STARWOOD LODGING TRUST                  STARWOOD LODGING CORPORATION
Registrant                              Registrant





/s/ RONALD C. BROWN                     /s/ ALAN M. SCHNAID
------------------------------          ---------------------------------------
Ronald C. Brown                         Alan M. Schnaid
Senior Vice President and               Vice President and Corporate Controller
Chief Financial Officer                 (Principal Accounting Officer)
(Principal Financial Officer)






Date: August 14, 1997.



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