<PAGE>   1
 
                        SECURITIES AND EXCHANGE COMMISSION
                              WASHINGTON, D.C. 20549
 
                                     FORM 10-K
 
               ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
                          SECURITIES EXCHANGE ACT OF 1934
 
   For the Fiscal Year ended December 31, 1996  Commission file number
 
                              BOYKIN LODGING COMPANY
              (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
 
<TABLE>
<S>                                                   <C>
                    Ohio                                               34-1824586
--------------------------------------------          --------------------------------------------
      (State or Other Jurisdiction of                     (I.R.S. Employer Identification No.)
       Incorporation or Organization)
 
Terminal Tower, Suite 1500, 50 Public Square                             44113
--------------------------------------------          --------------------------------------------
  (Address of Principal Executive Office)                              (Zip Code)
 
                                          (216) 241-6375
--------------------------------------------------------------------------------------------------
                       (Registrant's telephone number, including area code)
</TABLE>
 
Securities registered pursuant to Section 12(b) of the Act:
 
<TABLE>
<CAPTION>
             TITLE OF CLASS                        NAME OF EXCHANGE ON WHICH REGISTERED
    ---------------------------------              -------------------------------------
    <S>                                            <C>
    Common Shares, Without Par Value               New York Stock Exchange
</TABLE>
 
Securities registered pursuant to Section 12(g) of the Act:  None
 
     Indicate by check mark whether the registrant (1) has filed all reports 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 registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.  Yes [X]  No [ ]
 
     Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K.  [ ]
 
 State the aggregate market value of the voting stock held by nonaffiliates of
                                the Registrant:
                                       
            $217,669,644 computed based on the closing price of the
                       Common Shares on March 20, 1997.
                                       
  The number of Common Shares, without par value, outstanding as of March 20,
                                1997: 9,516,251
 
                     DOCUMENTS INCORPORATED BY REFERENCE:
 
Definitive Proxy Statement for the Annual Meeting of Shareholders to be held May
6, 1997, into Part III, Items 10, 11, 12, and 13.
<PAGE>   2
 
                                     PART I
 
ITEM 1. BUSINESS
 
(A) GENERAL DEVELOPMENT OF BUSINESS
 
     Boykin Lodging Company (the "Company"), an Ohio corporation, was formed in
February 1996 to continue and expand the hotel ownership, acquisition,
redevelopment and repositioning activities of its predecessors, Boykin
Management Company and its affiliates (the "Boykin Group"). The Company
completed its initial public offering (the "Offering") on November 4, 1996 and
operates as a self-administered equity REIT. In conjunction with the Offering,
the Company contributed approximately $134 million to Boykin Hotel Properties,
L.P., an Ohio limited partnership (the "Partnership"), in exchange for an
approximately 84.5% equity interest as the sole general partner of the
Partnership and loaned $40 million to the Partnership. The Partnership then
acquired nine hotel properties in which the Boykin Group held significant
ownership interests.
 
     The Boykin Group was founded in 1959, and was one of the first franchisees
of Marriott Hotels and an early franchisee of Howard Johnson's Hotels. Since its
founding, the Boykin Group has developed 13 full-service hotels containing a
total of 3,085 rooms and has owned or managed 36 properties containing a total
of 6,943 rooms. On December 31, 1996, the Company, through the Partnership,
owned nine hotels (the "Initial Hotels") with a total of 2,408 guest rooms. In
the first quarter of 1997, the Company acquired two additional hotel properties
totaling 294 guest rooms. (These two hotel properties along with the Initial
Hotels are collectively referred to as the "Hotels.") In the first quarter of
1997, the Company also acquired a property that will be closed down, renovated
and opened in January 1998 as a franchised resort hotel with 205 guest rooms
(the "Redevelopment Property"). The Company's primary business strategies are to
achieve revenue growth in the Hotels, acquire and lease additional hotel and
resort properties in the upscale and moderate markets on an accretive basis,
strategically renovate and upgrade properties to maximize performance, and
selectively expand and develop additional hotel properties.
 
     The Company's management has substantial hotel operating, development,
acquisition and transactional experience. Robert W. Boykin, President and Chief
Executive Officer of the Company, has more than 28 years of experience in the
hotel industry, all with the Boykin Group and the Company. Raymond P. Heitland,
the Company's Chief Financial Officer, has 27 years of industry experience and
tenure with the Boykin Group and the Company. Mark L. Bishop, the Company's
Senior Vice President--Acquisitions and Development, has 18 years of industry
experience. During the past 10 years, the Company's officers have directly
overseen the acquisition, disposition, recapitalization, development and
repositioning of approximately $770 million of hotel assets throughout the
United States.
 
(B) FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS
 
     All of the Company's operations are in a single industry segment.
 
(C) NARRATIVE DESCRIPTION OF BUSINESS
 
     The Company's primary business objectives are to maximize current returns
to shareholders through increases in cash flow available for distribution and to
increase long-term total returns to shareholders through appreciation in value
of the Common Shares. The Company seeks to achieve these objectives through
participation in increased revenues from the Hotels pursuant to the leases (the
"Percentage Leases") and by selective acquisition, ownership, redevelopment,
repositioning and expansion of additional hotel properties. The Company will
seek to continue to invest in properties where the Company's established
industry and marketing expertise enable it to improve the acquired hotels'
performance.
 
  Hotel Portfolio
 
     The Hotels are operated under franchise license agreements with premiere
nationally recognized hotel chains, including Marriott(R), Radisson(R), Hilton
Inns(R), Holiday Inn(R), Quality Suites(R) and Hampton Inns(R). The Company
expects that the Redevelopment Property, which will be closed for renovations
beginning
 
                                        1
<PAGE>   3
 
approximately April 15, 1997, will be similarly franchised at the time of its
planned opening in early 1998. Serving both business and leisure travelers, the
Hotels are located in Berkeley, California; Buffalo, New York; Cleveland and
Columbus, Ohio; Charlotte and Raleigh, North Carolina; and Ft. Myers and
Melbourne, Florida. The Redevelopment Property is in Daytona Beach, Florida. The
Hotels include ten full-service hotels and one limited-service hotel, all of
which compete in the upscale to moderate price segment of the hospitality
market. For the 12 months ended December 31, 1996, the Initial Hotels had an
average occupancy rate of 76.0%, an ADR of $89.31 and a REVPAR of $67.87. The
Boykin Group developed and has owned and managed seven of the Initial Hotels
since their opening.
 
     The Hotels are leased by the Partnership to Boykin Management Company
Limited Liability Company (the "Initial Lessee") pursuant to the Percentage
Leases that are designed to allow the Company to achieve substantial
participation in the future revenue growth generated by the Hotels. The Initial
Lessee is owned by Robert W. Boykin, the President and Chief Executive Officer
of the Company, and John E. Boykin, Robert W. Boykin's brother and a Director
and the Secretary of the Initial Lessee. The Company intends to lease the other
hotel properties that it acquires to the Initial Lessee or to other appropriate
operating companies.
 
  Internal Growth
 
     The Company intends to derive increased cash flow through the Initial
Lessee's application of its operating strategies, which include intensive
management and the active balancing of room rates with forecasted room demand in
order to maximize total hotel revenues (a system known as "yield management").
The Company believes that the Initial Lessee's continued commitment to customer
service and the experience of its management team position the Company to
capitalize on the expected continued strength in the economy and improvement in
the U.S. hotel market. The Company's objectives include enhancing its
competitive market position through the continuation of a regular program of
renovation and capital improvement.
 
  Acquisitions
 
     The Company intends to achieve a significant part of its growth through the
acquisition, redevelopment and repositioning of additional full-service hotels.
The Company believes that there are full-service hotel properties that can be
acquired at a discount to replacement cost, and that many of these properties
are located in areas of increasing demand. While the Company intends to maintain
its focus on full-service hotels, it may also acquire upscale limited-service
hotels when doing so will further its strategic objectives.
 
     The Company is concentrating its investment activities on hotel properties
that are in one or more of the following categories:
 
          Product Type -- Full-service commercial hotels, airport hotels, major
     tourist hotels and destination resorts in major markets and business
     centers.
 
          Market Repositioning Opportunities -- Undervalued hotels whose
     occupancy, daily rates and overall revenues can be significantly enhanced
     through new brand affiliations, implementation of new marketing strategies
     and effective yield management.
 
          Redevelopment and Renovation Opportunities -- Hotels with sound
     operational fundamentals that, because of a lack of capital, require
     physical renovation to achieve their full performance potential. Other
     properties which can benefit from total redevelopment and market
     repositioning.
 
          Portfolio Acquisitions -- Portfolios of hotels which result in
     geographic economies of scale or which may be leased back to proven hotel
     operators as additional lessees, and that may benefit from the Company's
     repositioning and redevelopment experience and access to capital.
 
     The Company is implementing its acquisition strategy on a national scale,
with a focus in the Midwest, the Southeast and the West Coast. The Company
believes it will benefit from its continuing relationship with the Initial
Lessee and from developing relationships with additional lessees who have
demonstrated ability to manage hotel properties.
 
                                        2
<PAGE>   4
 
     The Company actively seeks hotel properties that can be associated with the
brands that will lead the hospitality industry in REVPAR, such as Marriott(R),
Radisson(R), Hilton Inns(R), Hyatt(R), Westin(R), Omni(R), Doubletree(R),
Sheraton(R), Holiday Inn(R) and Quality Suites(R). The Company intends to
maximize its market share and revenues by taking advantage of its orientation
toward sales and marketing to identify the most effective branding and to
leverage its brands with effective direct sales strategies. The Company
affiliates with a number of different franchise companies in order to maximize
the performance of its hotels by providing greater access to a broad base of
national marketing and reservation systems and to mitigate the risks of
franchise loss and franchise overlap. The Company will seek to maintain a
geographically diversified hotel portfolio, and it may also cluster hotels
within certain primary markets in order to take advantage of operational and
managerial economies of scale.
 
     There can be no assurance that the Company will be able to acquire
properties that meet its investment criteria or that have operations that can be
integrated successfully with the operation of the Hotels.
 
  Renovation
 
     During the fiscal years 1991 through 1996, the Company spent approximately
$22 million on renovations and capital improvements at the Initial Hotels,
including approximately $1.1 million for the restoration of the Melbourne
Quality Suites hotel following damage from Hurricane Erin in August 1995. This
represents an average of approximately $1,400 per room per year (excluding the
amount spent on the Melbourne property restoration, which was funded entirely
from insurance proceeds).
 
     The Company will reserve a minimum of 4% of total hotel revenue to fund
capital expenditures. On a pro forma basis for the year ended December 31, 1996
this would have amounted to approximately $3.5 million, which is approximately
6% of room revenue and an average of $1,500 per room.
 
  Development
 
     In addition to the activities described above, the Company may develop
additional hotels on land that the Company acquires in its current geographic
markets or on land contiguous to the Hotels. The Company believes that selective
development of hotels in its existing geographic markets would enable it to take
advantage of operating efficiencies to generate attractive returns on
investment.
 
  Access to Capital
 
     The Company has obtained a $75 million credit facility for acquiring hotels
without financing contingencies and for certain other purposes, including
capital expenditures and working capital. The Company expects to have access to
a wide variety of financing sources to fund acquisitions, such as the ability to
issue public and private debt, equity and hybrid securities, and the ability to
utilize equity interests in the Partnership ("Units") as consideration when cash
is not appropriate for tax or other reasons.
 
  The Initial Lessee
 
     In order to qualify as a REIT, the Company does not operate its hotels, but
leases its properties to established hotel operators pursuant to leases which
provide the Company with the greater of a base rental income or a percentage of
revenues from operations. In connection with the Offering, Robert W. and John E.
Boykin formed the Initial Lessee. The Initial Lessee operates the Hotels under
the Percentage Leases.
 
     While the Initial Lessee operates and manages only the Hotels, its
subsidiaries continue hotel management activities for owners other than the
Company, a hotel interior design business, and a hotel and restaurant food,
beverage, supply and equipment purchasing business.
 
     The Company and the Initial Lessee have agreed on several measures to align
the interests of the Initial Lessee and its owners with the interests of the
Company's shareholders and to minimize conflicts of interest between them,
including certain cross-ownership and required investment arrangements,
office-holding limitations, minimum net worth requirements, conflict-avoidance
mechanisms, and noncompetition undertakings.
 
                                        3
<PAGE>   5
 
  Additional Lessees
 
     The Company believes that having multiple tenants will facilitate meeting
its growth objectives, and therefore is pursuing relationships with additional
lessees.
 
  Employees
 
     The Company has only five employees. These employees perform, directly or
through the Partnership, various acquisition, development, redevelopment and
management functions.
 
     The Initial Lessee as of December 31, 1996 had approximately 2,400
employees and owned or managed 22 properties located throughout the United
States. Approximately 75% of the Initial Lessee's employees will be engaged in
managing the operations of the Hotels. Approximately 25% of the Initial Lessee's
employees will also have responsibilities relating to the design, purchasing and
management services to be rendered to third parties. The Company believes that
its and the Initial Lessee's relations with their respective employees are
excellent.
 
     Inventory.  All working capital assets required in the operation of the
Hotels are provided by the Initial Lessee at its expense.
 
     Franchise Agreements.  The Initial Lessee is the franchisee under the
franchise agreements for the Hotels.
 
     Five of the eleven Hotels are licensed by Marriott International, Inc. Of
the six remaining Hotels, one is licensed by Promus Hotels, Inc. (licensor of
Hampton Inns hotels), one by Hilton Inns, Inc., one by Choice Hotels
International, Inc. (licensor of Quality Suites hotels), one by Radisson Hotels
International, Inc. and two by Holiday Inns Franchising, Inc. The Company
expects to have an affiliation with a nationally recognized franchisor for the
Redevelopment Property when it opens in early 1998.
 
     The Company anticipates that the additional hotel properties in which it
invests will in most cases be operated under franchise agreements.
 
     Franchise agreements generally impose certain management, operational,
recordkeeping, accounting, reporting, and marketing standards and procedures
with which the Initial Lessee must comply. The franchise agreements will
obligate the Initial Lessee to comply with the franchisors' standards and
requirements with respect to, among other things, training of operational
personnel, safety, maintenance of insurance, provision of ancillary services and
products, display of signage, and the type, quality, and age of furniture,
fixtures & equipment (" FF&E") included in guest rooms and lobbies and other
common areas.
 
     Termination.  Each franchise agreement gives the Initial Lessee the right
to operate the related Initial Hotel under a franchise for a period of years
specified in that agreement. The Initial Lessee is responsible for making all
payments under the franchise agreements to the franchisor. The expiration dates
for the Initial Hotels' franchise agreements range from October 31, 1997 to
September 4, 2014. The franchise agreements provide for early termination at the
franchisor's option on the occurrence of certain events, including the Initial
Lessee's failure to pay fees or perform its other covenants under the franchise
agreement, bankruptcy, abandonment of the franchise, or assignment of the
franchise without the consent of the franchisor. The Initial Lessee has the
right to terminate the Berkeley Marina Marriott franchise agreement, which is
scheduled to expire on October 31, 1997, at any time. Each of the Initial Lessee
and Choice Hotels International, Inc. has the right to terminate the Melbourne
Quality Suites franchise agreement, which is scheduled to expire on December 31,
2006, effective December 31, 2001.
 
     Sale of Hotel.  The franchise agreements with Marriott contain a provision
requiring the franchisee, on receiving a bona fide offer to buy or lease the
related hotel, to give the franchisor the option to buy or lease (as applicable)
that hotel on the same terms as are contained in that offer. The Choice Hotel
franchise agreement provides that the agreement automatically terminates on
transfer of the related hotel unless the franchisor expressly consents to that
transfer. The Hampton Inn license agreement provides that a transferee of the
related hotel must apply for a new franchise and that transfers not specifically
authorized under the license
 
                                        4
<PAGE>   6
 
agreement (for example, transfers upon the death of the licensee or of an equity
owner of the licensee) are void and are also a breach of the license agreement.
The Holiday Inn license agreements provide that a transferee of the hotel must
apply for a new license unless the franchisor has given its prior written
consent to the transfer of the hotel.
 
     Noncompetition.  The franchise agreements for the five Marriott hotels
prohibit the franchisee from being connected or associated in any manner with
any hotel, motel or inn business within a five-mile radius around the franchised
hotel. These restrictions can be waived by Marriott, whose waiver may not be
unreasonably withheld. The Company obtained a waiver of these restrictions in
regard to the Offering. If a franchise agreement is terminated because of a
default by the Initial Lessee, the Initial Lessee may not, for 24 months after
termination, operate any motel, hotel or inn business (other than those in which
it is then engaged) that is in the five-mile radius trade area.
 
     There are no restrictions on the Company's ownership of other hotels in the
Hampton or Holiday Inn license agreements, or in the Radisson or Choice Hotel
franchise agreements.
 
     Fees.  Under the franchise agreements, the Initial Lessee will pay
franchise fees ranging from 3% to 6% of gross room sales and advertising or
marketing and reservation fees ranging from .8% to 4% of gross room sales.
 
  Environmental Matters
 
     Under various federal, state and local laws, ordinances, and regulations,
an owner or operator of real estate may be liable for the costs of removal or
remediation of certain hazardous or toxic substances on, under or in the
property. This liability may be imposed without regard to whether the owner or
operator knew of, or was responsible for, the presence of the hazardous or toxic
substances. Furthermore, a person who arranges for the disposal of a hazardous
substance at another property or transports a hazardous substance for disposal
or treatment at another property may be liable for the costs of removal or
remediation of hazardous substances at that property, regardless of whether that
person owns or operates that property. The costs of any such remediation or
removal may be substantial, and the presence of any such substance, or the
failure promptly to remediate any such substance, may adversely affect the
property owner's ability to sell or lease the property or to borrow, using it as
collateral. Other federal, state and local laws, ordinances and regulations
require abatement or removal of certain asbestos-containing materials in
connection with demolition or certain renovations or remodeling, impose certain
worker protection and notification requirements, and govern emissions of and
exposure to asbestos fibers in the air. Other federal, state and local laws,
ordinances and regulations and the common law impose on owners and operators
certain requirements regarding conditions and activities that may affect human
health or the environment. These conditions and activities include, for example,
the presence of lead in drinking water, the presence of lead-containing paint in
occupied structures, and the ownership or operation of underground storage
tanks. Failure to comply with applicable requirements could result in difficulty
in the lease or sale of any affected property or the imposition of monetary
penalties, in addition to the costs required to achieve compliance and potential
liability to third parties. The Company, the Partnership or the Initial Lessee,
as the case may be, may be potentially liable for such costs or claims in
connection with the ownership and operation of the Hotels.
 
     The Company believes that the Hotels are in compliance in all material
respects with all federal, state and local laws, ordinances and regulations
regarding hazardous or toxic substances and other environmental matters, the
violation of which could have a material adverse effect on the Company or the
Partnership. Nevertheless, it is possible that there exists material
environmental contamination of which the Company is unaware.
 
     No assurance can be given that (i) the environmental assessments that the
Company has had conducted with respect to the Hotels revealed all potential
environmental liabilities; (ii) future or amended laws, ordinances or
regulations, or more stringent interpretations or enforcement policies of
existing environmental requirements, will not impose any material environmental
liability; or (iii) the environmental condition of the
 
                                        5
<PAGE>   7
 
Hotels has not been and will not be affected by changes in the condition of
properties in the vicinity of the Hotels or by the acts of third parties
unrelated to the Company, Partnership or the Initial Lessee.
 
  Competition
 
     Each of the Hotels is located in a developed area that includes other hotel
properties. The occupancy, ADR and REVPAR of any Hotel or any hotel property
acquired in the future could be materially and adversely affected by the number
of competitive hotel properties in its market area. The Company may be competing
for investment opportunities with entities that have substantially greater
financial resources than the Company. These entities may generally be able to
accept more risk than the Company can prudently manage, including risks with
respect to the creditworthiness of entities in which investments may be made or
risks attendant to a geographic concentration of investments. Competition may
generally reduce the number of suitable investment opportunities offered to the
Company and increase the bargaining power of property owners seeking to sell.
 
  Seasonality
 
     The Hotels' operations historically have been seasonal. Eight of the Hotels
maintain higher occupancy rates during the second and third quarters. The
Florida Hotels experience their highest occupancy in the first quarter. This
seasonality pattern can be expected to cause fluctuations in the Company's
quarterly lease revenue under the Percentage Leases.
 
  The Intercompany Convertible Note
 
     The Company loaned $40 million of the net proceeds of the Offering to the
Partnership. The loan is evidenced by an Intercompany Convertible Note, which
will mature on November 4, 2001. Interest accrues at a rate equal to 9.5% per
annum, increasing to 9.75% per annum on November 4, 1999, and is payable
quarterly. The Intercompany Convertible Note may be prepaid in full, but not in
part, at any time. The Company has the right to convert the Intercompany
Convertible Note after November 4, 1998, and prior to maturity and in advance of
any proposed prepayment by the Partnership, into additional equity interests in
the Partnership at face value based on the initial offering price of the Common
Shares in the Offering of $20 per share (and assuming that the value of one
Partnership Unit equals the value of one Common Share). On conversion of the
Intercompany Convertible Note, the Company would receive an additional equity
interest in the Partnership of 2.9%, which will reduce the equity interest in
the Partnership of the other holders of Units to 12.6%, assuming no other Common
Shares or Units are issued prior to that conversion. The Intercompany
Convertible Note is secured by a mortgage on certain of the Hotels and is
subordinated in right of payment to all other indebtedness of the Partnership.
 
(D) FINANCIAL INFORMATION ABOUT FOREIGN AND DOMESTIC OPERATIONS AND EXPORT SALES
 
     All of the Company's operations are conducted in the United States.
 
                                        6
<PAGE>   8
 
ITEM 2. PROPERTIES
 
     A. HOTEL PROPERTIES:
 
     On December 31, 1996, the Company owned the following nine hotel
properties:
 
<TABLE>
<CAPTION>
                                                                     NUMBER OF
                             PROPERTY                                  ROOMS        LOCATION
-------------------------------------------------------------------  ---------   ---------------
<S>                                                                  <C>         <C>
Berkeley Marina Marriott...........................................     373      Berkeley, CA
Buffalo Marriott...................................................     356      Buffalo, NY
Cleveland Airport Marriott.........................................     375      Cleveland, OH
Cleveland Marriott East............................................     403      Cleveland, OH
Columbus North Marriott............................................     300      Columbus, OH
Lake Norman Hampton Inn............................................     117      Charlotte, NC
Lake Norman Holiday Inn............................................     119      Charlotte, NC
Melbourne Quality Suites...........................................     208      Melbourne, FL
Radisson Inn Sanibel Gateway.......................................     157      Fort Myers, FL
</TABLE>
 
     BERKELEY MARINA MARRIOTT.  This waterfront hotel is on the east side of San
Francisco Bay in the Berkeley Marina Complex. The hotel is in a secluded area
approximately 20 minutes from downtown San Francisco and 30 minutes from San
Francisco International Airport. The hotel is located near the Golden Gate
Bridge, Fisherman's Wharf and the Napa/Sonoma wine country. The University of
California at Berkeley is three miles away. The majority of the guests are
business travelers. The property was owned and managed by the Boykin Group as a
Marriott since its opening in 1972. The property was expanded to its current
size in 1985.
 
     The land underlying this hotel is leased under a ground lease that expires
in 2033 but can be extended by the tenant to 2051. The rent payable under the
lease includes annual minimum rent of $100,000 and percentage rent based on the
hotel's revenues. The tenant is responsible for all taxes, maintenance and
insurance on the leased property.
 
     BUFFALO MARRIOTT.  This hotel is the only full-service Marriott hotel in
the greater Buffalo Metropolitan area. Located just off Interstate 290 in
Amherst, the hotel is adjacent to the State University of New York at Buffalo
and is approximately 15 minutes from downtown Buffalo, 30 minutes from Niagara
Falls, and 10 minutes from the Greater Buffalo International Airport. The
majority of the guests are business travelers. The property was owned and
managed by the Boykin Group as a Marriott since opening in 1981.
 
     CLEVELAND AIRPORT MARRIOTT.  This hotel is located in Cleveland, Ohio, on
Interstate 71 approximately eight miles from downtown Cleveland and two miles
from Cleveland Hopkins International Airport. Approximately one half of the
guests are business travelers. The property was developed by the Boykin Group
and was managed by the Boykin Group since its opening in 1970.
 
     CLEVELAND MARRIOTT EAST.  This hotel is located in Beachwood, Ohio, a
suburb of Cleveland, just off Interstate 271. The hotel adjoins commercial
office development and is about 20 minutes from downtown Cleveland and 30
minutes from the Cleveland Hopkins International Airport. The majority of the
guests are business travelers. The hotel is also adjacent to the planned
650-acre Chagrin Highlands research-office park development. The property was
owned and managed by the Boykin Group as a Marriott since its opening in 1977.
 
     COLUMBUS NORTH MARRIOTT.  This hotel is located in Columbus, Ohio, just off
Interstate 71 and near Interstate 270. The hotel is the only full-service
Marriott Hotel in Columbus, and it is approximately 20 minutes from downtown
Columbus, 20 minutes from The Ohio State University and 20 minutes from the Port
 
                                        7
<PAGE>   9
 
Columbus International Airport. About one half of the guests are business
travelers. The property was owned and managed by the Boykin Group as a Marriott
since its opening in 1981.
 
     LAKE NORMAN HAMPTON INN.  This limited-service hotel, which was built in
1991, is located in Lake Norman, North Carolina, at the southeast corner of the
intersection of Interstate 77 North, Exit 28 and North Carolina Highway 73.
Charlotte, North Carolina is 19 miles to the south. Lake Norman is an upscale
community located approximately five miles south of downtown Mooresville, North
Carolina, and just southeast of Lake Norman, one of North Carolina's most widely
used recreational lakes, offering boating, swimming, and nearby golf facilities.
Most of the area's hotel market is represented by commercial travelers.
 
     LAKE NORMAN HOLIDAY INN.  This hotel is located in Lake Norman, North
Carolina, at the northeast corner of the intersection of Interstate 77 North,
Exit 28 and North Carolina Highway 73. See "Lake Norman Hampton Inn" for a
description of this hotel's location.
 
     MELBOURNE QUALITY SUITES.  This oceanfront hotel is located in Indialantic,
Florida, on the beach off Florida's coastal highway A1A, around 20 miles south
of Kennedy Space Center and 65 miles southeast of Disney World. The hotel is
approximately 10 miles from Melbourne International Airport. Most of the guests
are tourist or vacation travelers attracted by popular destinations such as
Disney World, Universal Studios and Sea World. This property was owned and
managed by the Boykin Group as a Quality Suites hotel since its opening in 1986.
 
     RADISSON INN SANIBEL GATEWAY.  This hotel, located in Fort Myers, Florida,
is 15 miles from I-75 and seven miles off U.S. Highway 41. The hotel is two and
one-half miles from Sanibel Island and four and one-half miles from Ft. Myers
Beach. It is 25 minutes from the New Southwest Florida Airport and 15 minutes
from the Boston Red Sox and Minnesota Twins spring training complexes. The
majority of the guests are tourists and vacationers. The property was owned and
managed by the Boykin Group since its opening in 1986.
 
     In March 1997, the Company acquired the following two hotel properties:
 
<TABLE>
<CAPTION>
                                                                     NUMBER OF
                             PROPERTY                                  ROOMS        LOCATION
-------------------------------------------------------------------  ---------   --------------
<S>                                                                  <C>         <C>
Hilton Melbourne Beach.............................................     118      Melbourne, FL
Holiday Inn Crabtree...............................................     176      Raleigh, NC
</TABLE>
 
     HILTON MELBOURNE BEACH.  This hotel is located directly on the beach in
Melbourne, Florida. The Company acquired the hotel in March 1997 for $9.3
million, using proceeds of the Offering. The property is located approximately
one mile from the Melbourne Quality Suites. The acquisition of this hotel will
allow the Company to benefit from cross-selling and labor efficiencies. This
hotel has 118 guest rooms, a 120 seat restaurant, a 110 seat nightclub and 3,900
square feet of meeting space. The hotel recently underwent an extensive $3.6
million renovation. See "Melbourne Quality Suites" for a description of the
hotel's location.
 
     HOLIDAY INN CRABTREE.  This hotel is located in Raleigh, North Carolina.
The Company acquired the hotel in March 1997 for $7.5 million, using proceeds of
the Offering. The Company expects to invest approximately $3 million in capital
improvements to the hotel. This hotel is opposite the Crabtree Mall, the largest
mall in the Carolinas, and enjoys a premier highway location in the active North
Raleigh market. Business travelers represent most of the hotel's business.
 
  The Percentage Leases
 
     Each Hotel is separately leased by the Company to the Initial Lessee under
a Percentage Lease. Hotels acquired in the future may be leased to the Initial
Lessee or to other lessees. Each Percentage Lease contains the provisions
described below. The Company expects that leases with respect to its future
hotel property investments will contain substantially similar provisions,
although the Board of Directors may, in its discretion, alter any of these
provisions with respect to any particular lease, depending on the purchase price
paid, economic conditions and other factors it considers relevant.
 
                                        8
<PAGE>   10
 
     Duration.  The Percentage Leases have noncancelable terms ranging from four
to ten years, subject to earlier termination on the occurrence of certain
contingencies described in the Percentage Leases (including, particularly, the
provisions described herein under "Damage to Hotels," "Condemnation of Hotels"
and "Termination of Percentage Leases on Disposition of the Hotels"). The
Percentage Leases do not contain renewal terms. The Percentage Leases for seven
of the Initial Hotels expire on the earlier of the franchise renewal date or the
tenth anniversary of the Offering. Having these lease terminations coincide with
franchise renewal dates may facilitate any necessary repositioning of the hotels
at the time of the franchise renewals.
 
     Amounts Payable Under the Percentage Leases.  The Initial Lessee is
obligated to pay (i) the higher of Minimum Rent or Percentage Rent; and (ii)
certain other amounts, including interest accrued on any late payment or charge
(the "Additional Charges"). Minimum Rent is a fixed amount determined by
negotiation between the Company and the Initial Lessee. Percentage Rent is
calculated by multiplying fixed percentages by gross room and other revenue, and
gross food and beverage revenue, over specified threshold amounts. Minimum Rent
is payable monthly in advance, and Percentage Rent is payable for each quarter
within 30 days after the end of the quarter.
 
     The threshold gross room and other revenue amounts used in computing
Percentage Rent and Minimum Rent will be adjusted for changes in the Consumer
Price Index. The changes are calculated at the beginning of each calendar year
beginning with 1997, based on the average annual change in the CPI during the
prior 12 months.
 
     Each Percentage Lease requires the Initial Lessee to pay rent, all costs
and expenses, and all utility and other charges incurred in the operation of the
hotel. All capital expenditures (as defined in the lease) are the responsibility
of the Company. Each Percentage Lease also provides for rent reductions and
abatements in the event of damage or destruction or a partial taking of the
hotel as described under "Damage to Hotels" and "Condemnation of Hotels." The
Initial Lessee is required to carry insurance to cover rental interruption for a
period up to one year.
 
     Maintenance and Modifications.  The Initial Lessee is required, at its
expense, to maintain the hotel in good order and repair, except for ordinary
wear and tear, and to make nonstructural, foreseen and unforeseen, and ordinary
and extraordinary, repairs which may be necessary and appropriate to keep the
hotel in good order and repair. The Company funds capital expenditures and the
repair, replacement and refurbishment of FF&E in the hotel, when and as
considered necessary by the Company or as required by the franchise agreements,
and will reserve an amount equal to 4% of the Initial Lessee's aggregate gross
revenues generated from the hotel to help provide funds to cover such expenses.
The Company and the Initial Lessee agree on an annual capital budget for each
Hotel.
 
     The Initial Lessee, at its expense, may make noncapital and capital
additions, modifications or improvements to the hotel, so long as doing so does
not significantly alter the character or purposes of the hotel or significantly
detract from its value or operating efficiencies. All such alterations,
replacements and improvements will be subject to all of the terms of the
Percentage Lease and will become the property of the Company on termination of
the lease. The Company will own the FF&E, except in limited circumstances under
which the Initial Lessee may purchase certain FF&E, and the Initial Lessee will
own substantially all other personal property not affixed to, or considered a
part of, the real estate or improvements thereon. Any purchase of FF&E by the
Initial Lessee will be made on terms negotiated between the Company and the
Initial Lessee.
 
     For so long as the Initial Lessee maintains its interior design and
purchasing operations, it will perform interior design and purchasing services
for the Hotels without charge to the Company.
 
     Insurance and Property Taxes.  The Company is responsible for paying real
estate and personal property taxes on the hotel and for maintaining property
insurance, including casualty insurance. The Initial Lessee is required to
maintain comprehensive general public liability, workers' compensation, 12-month
rental interruption insurance and any other insurance customary for properties
similar to the hotel or required by any relevant
 
                                        9
<PAGE>   11
 
Franchisor, and to have the Company named as an additional insured. The Company
believes that the insurance coverage carried by each Hotel is adequate in scope
and amount.
 
     Indemnification.  Under each Percentage Lease, the Initial Lessee
indemnifies the Company against all liabilities, costs and expenses (including
reasonable attorneys' fees and disbursements) incurred by, imposed on or
asserted against the Partnership, on account of, among other things, (i) any
accident or injury to person or property on or about the hotel; (ii) any
negligence by the Initial Lessee or any of its agents as to the leased property;
(iii) any environmental liability resulting from conditions existing at the time
of completion of the Offering or caused or resulting thereafter from any action,
inaction or negligence of the Initial Lessee (see "Business and
Properties -- Environmental Matters"); (iv) taxes and assessments in respect of
the hotel (other than real estate taxes, personal property taxes and income
taxes of the Company on income attributable to the hotel); (v) the sale or
consumption of alcoholic beverages on or in the real property or improvements
thereon; or (vi) any breach of the lease by the Initial Lessee. The Initial
Lessee is not required, however, to indemnify the Company against the Company's
negligence or willful misconduct.
 
     Assignment and Subleasing.  The Initial Lessee is not permitted to sublet
all or any part of the hotel or assign its interest under the lease without the
prior written consent of the Partnership. The Initial Lessee may, however, enter
into a management agreement with a third party for the management and operation
of the hotel, with the consent of the Company, which the Company may withhold in
its sole and absolute discretion. No assignment, subletting or management
agreement will release the Initial Lessee from any of its obligations under the
lease. The lease may not be indirectly sold by selling direct or indirect
ownership or control of the Initial Lessee without causing a default under the
Initial Lease.
 
     Damage to Hotels.  If damage to or destruction of any hotel renders the
hotel unsuitable for the Initial Lessee's use and occupancy and is covered by
insurance, the Company may elect to repair, rebuild or restore the hotel or
offer to acquire it on the terms set forth in the lease. If the hotel is not
rebuilt, the lease will terminate and the insurance proceeds will be retained by
the Company. If damage to or destruction of the hotel does not render the hotel
wholly unsuitable for the Initial Lessee's use and occupancy and is covered by
insurance, the Company generally will be obligated to repair or restore the
hotel. The lease will remain in full force and effect during the first 12 months
of any period required for repair or restoration of the hotel, after which time
rent will be equitably abated.
 
     Condemnation of Hotels.  On any total condemnation of a hotel, each of the
Company and the Initial Lessee will be entitled to terminate the lease as of the
date of taking. The resulting condemnation award will be allocated between the
Company and the Initial Lessee as set forth in the lease. On any partial taking
that does not render the hotel unsuitable for the Initial Lessee's use, the
Company must restore the untaken portion of the hotel to a complete
architectural unit, subject to an equitable abatement of the rent during the
period in which the hotel is not fully useable, and the Company must provide the
required funds to cover the cost of that restoration, which may include that
part of the condemnation award specified for restoration.
 
     Events of Default.  Events of Default under each Percentage Lease include,
among others, any uncured breach by the Initial Lessee of any payment term or
other lease covenant, an event of default under any other Percentage Lease,
bankruptcy and similar events, and any franchise agreement default by the
Initial Lessee that results in termination of the affected franchise.
 
     Termination of Percentage Leases on Disposition of the Hotels.  If the
Company enters into an agreement to transfer a hotel to a nonaffiliate, the
Company may terminate that hotel's Percentage Lease by giving the Initial Lessee
30 days' prior notice and paying it the fair market value of its leasehold
interest in the remaining term of that Percentage Lease.
 
  B. REDEVELOPMENT PROPERTY
 
     In March 1997, the Company purchased the real and personal property of the
Whitehall Inn located in Daytona Beach, Florida. The Company's total investment
was $4.2 million and was funded with cash proceeds from the Offering. The
property consists of approximately two acres of land directly on the Atlantic
ocean, an
 
                                       10
<PAGE>   12
 
11 story building with 205 guest room bays and food and beverage facilities
built in 1974, and an attached two story addition constructed in 1988 containing
meeting facilities and certain personal property. The Company will discontinue
operations at the property on approximately April 15, 1997. The Company plans to
spend approximately $4 million to completely renovate the property, and expects
to commence its business operations as a resort with a major hotel franchise
affiliation in January 1998. At that time, the property will be leased to the
Initial Lessee on a long term basis, and the Initial Lessee will operate and
manage the new business.
 
  C. OFFICE SPACE
 
     Pursuant to a Shared Services and Office Space Agreement, the Company pays
the Initial Lessee $2,000 per month for the right to use certain office space
and receive certain related services. The office space is located in the
Terminal Tower, 50 Public Square, Suite 1500, Cleveland, Ohio 44113.
 
ITEM 3. LEGAL PROCEEDINGS
 
     The Company is subject to various legal proceedings and claims that arise
in the ordinary course of business. In the opinion of management, the amount of
any ultimate liability with respect to these actions will not materially affect
the financial statements of the Company.
 
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
 
     There were no matters submitted to a vote of security holders during the
fourth quarter of the fiscal year covered by this report.
 
                               EXECUTIVE OFFICERS
 
     Pursuant to Instruction 3 to Item 401(b) of Regulation S-K, the following
information is reported below.
 
     Executive officers of the Company are elected and serve at the discretion
of the Board of Directors until their successors are duly chosen and qualified.
 
     (a) The executive officers of the Company are as follows:
 
<TABLE>
<CAPTION>
             NAME             AGE                             POSITION
---------------------------------     --------------------------------------------------------
<S>                           <C>     <C>
Robert W. Boykin              47      Director, Chairman of the Board, President and Chief
                                      Executive Officer
Raymond P. Heitland           61      Director, Chief Financial Officer, Secretary and
                                      Treasurer
Mark L. Bishop                37      Senior Vice President--Acquisitions and Development
</TABLE>
 
     Mr. Boykin served as the President and Chief Executive officer of Boykin
Management Company from 1985 until November 1996. Mr. Heitland served as the
Chief Financial Officer of Boykin Management Company from 1970 until November
1996. Mr. Bishop served as Senior Vice President -- Acquisitions of Boykin
Management Company from April 1994 until November 1996, and as Vice
President/Senior Marketing Consultant at Grubb & Ellis Company from February
1991 until April 1994.
 
     There are no arrangements or understandings known to the Company between
any executive officer and any other person pursuant to which any executive
officer was elected to office. There is no family relationship between any
director or executive officer and any other director or executive officer of the
Company.
 
     Employment Arrangements. On November 4, 1996, the Company entered into
employment agreements with Robert W. Boykin, Raymond P. Heitland and Mark L.
Bishop. The agreement with Robert W. Boykin provides for an initial three-year
term, and the agreements for each of Mr. Heitland and Mr. Bishop provide for an
initial term of one year.
 
                                       11
<PAGE>   13
 
                                    PART II
 
ITEM 5. MARKET FOR REGISTRANT'S COMMON SHARES AND RELATED SHAREHOLDER MATTERS
 
  Market Information
 
     (a) The Company's Common Shares are traded on the New York Stock Exchange
under the symbol "BOY." The Company completed its initial public offering on
November 4, 1996. During the fourth quarter of fiscal 1996, the high and low
prices of the Company's Common Shares were $24 and $20, respectively.
 
     (b) As of March 20, 1997, there were 162 record holders of the Common
Shares.
 
     (c) The Company paid a dividend of $0.2873 per share to shareholders of
record on December 31, 1996. The amount of this dividend was based on the
anticipated quarterly dividend rate of $0.45 per share, prorated for the 58 days
the Company was operational after the completion of its initial public offering.
While the Company intends to continue paying dividends, dividend payment
determinations will be made by the Company's Board of Directors based on an
analysis of the Company's earnings, the competitive climate in which the Company
operates, and other relevant considerations.
 
  Shareholder Matters
 
     The Company was formed in February 1996 and issued one Common Share to
Raymond P. Heitland for $100. Other than the Common Shares sold in the Offering
and the one share sold to Mr. Heitland, the Company has not sold any Common
Shares. On November 4, 1996, in connection with the Company's initial public
offering, Robert W. Boykin, Raymond P. Heitland and Mark L. Bishop were granted
options to purchase 250,000, 75,000 and 75,000 Common Shares, respectively, and
the Company's nonemployee directors were each granted options to purchase 5,000
Common Shares. The exercise price of all of the options granted is $20 per
share. Options are not exercisable for the one-year period from the date of
grant. The option agreement with Mr. Boykin provides that: (i) incentive stock
options vest with respect to 5,000 shares on November 4 of each of 1997 through
2005, and (ii) nonqualified stock options vest with respect to 68,333, 68,333
and 68,334 shares on November 4, 1997, November 4, 1998 and November 4, 1999,
respectively. The option agreement with Mr. Heitland provides that: (i)
incentive stock options vest with respect to 5,000 shares on November 4 of each
of 1997 through 2003, and (ii) nonqualified stock options vest with respect to
13,333, 13,333 and 13,334 shares on November 4, 1997, November 4, 1998 and
November 4, 1999, respectively. The option agreement with Mr. Bishop provides
that: (i) incentive stock options vest with respect to 5,000 shares on November
4 of each of 1997 through 1999, and (ii) nonqualified stock options vest with
respect to 20,000 shares on November 4 of each of 1997 through 1999. The Company
anticipates filing a Form S-8 registration statement with the Securities and
Exchange Commission registering the Common Shares to be issued upon the exercise
of the options described above.
 
ITEM 6. SELECTED FINANCIAL DATA
 
     The following tables set forth selected historical and pro forma operating
and financial data for the Company and Initial Lessee and selected combined
historical financial data for the Initial Hotels. The selected historical
financial data for the Company and Initial Lessee for the period November 4,
1996 (inception of operations) to December 31, 1996, and the selected combined
historical financial data for the Initial Hotels for the period January 1, 1996
through November 3, 1996, and for the years ended December 31, 1995 and 1994
have been derived from the historical financial statements of the Company, the
Initial Lessee and the Initial Hotels, respectively, audited by Arthur Andersen
LLP, independent public accountants, whose reports with respect thereto are
included herein (see Index to Financial Statements at Page F-1).
 
     The pro forma information is presented as if the Offering and related
formation transactions and the acquisitions of the Holiday Inn and Hampton Inn
in February 1966 had been consummated as of January 1, 1995.
 
     The following selected financial data should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and all of the financial statements and notes thereto included
elsewhere in this Form 10-K.
 
                                       12
<PAGE>   14
 
                             BOYKIN LODGING COMPANY
 
         SELECTED HISTORICAL AND PRO FORMA OPERATING AND FINANCIAL DATA
 
               (AMOUNTS IN THOUSANDS, EXCEPT FOR PER SHARE DATA)
 
<TABLE>
<CAPTION>
                                                            HISTORICAL PERIOD         PRO FORMA
                                                          FROM NOVEMBER 4, 1996      YEAR ENDED
                                                              (INCEPTION OF         DECEMBER 31,
                                                             OPERATIONS) TO       -----------------
                                                            DECEMBER 31, 1996      1996      1995
                                                          ---------------------   -------   -------
<S>                                                       <C>                     <C>       <C>
OPERATING DATA:
  Lease revenue.........................................        $   3,258         $27,811   $25,521
  Interest income.......................................              120             120        --
                                                                 --------         -------   -------
     Total revenues.....................................            3,378          27,931    25,521
                                                                 --------         -------   -------
  Real estate related depreciation and amortization.....            1,344           8,136     8,136
  Real estate and personal property taxes, insurance and
     rent...............................................              620           4,058     3,893
  General and administrative............................              450           1,450     1,450
  Interest expense......................................               54              --        --
  Amortization of deferred financing costs..............               69             436       436
                                                                 --------         -------   -------
     Total expenses.....................................            2,537          14,080    13,915
                                                                 --------         -------   -------
  Income before minority interest and extraordinary
     item...............................................              841          13,851    11,606
  Minority interest.....................................              (40)         (1,557)   (1,210)
                                                                 --------         -------   -------
  Income before extraordinary item......................              801          12,294    10,396
  Extraordinary item -- loss on early extinguishment of
     debt (net of $970 of minority interest)............           (4,908)             --        --
                                                                 --------         -------   -------
  Net income (loss) applicable to common shares.........        $  (4,107)        $12,294   $10,396
                                                                 ========         =======   =======
EARNINGS PER SHARE:
  Income before extraordinary item......................        $     .09         $  1.29   $  1.09
  Extraordinary item, net...............................             (.55)             --        --
                                                                 --------         -------   -------
     Net income (loss) per common share.................        $    (.46)        $  1.29   $  1.09
                                                                 ========         =======   =======
  Weighted average number of common shares
     outstanding........................................            8,981           9,516     9,516
OTHER DATA:
  Funds from operations.................................        $   2,185         $21,987   $19,742
  Distributions.........................................        $   2,700
  Weighted average number of common shares and units
     outstanding........................................           10,359          10,894    10,894
BALANCE SHEET DATA:
  Investment in hotel properties, net...................        $ 113,322
  Total assets..........................................          137,271
  Total debt............................................               --
  Minority interest in Partnership......................           14,045
  Shareholders' equity..................................          117,021
</TABLE>
 
                                       13
<PAGE>   15
 
              BOYKIN MANAGEMENT COMPANY LIMITED LIABILITY COMPANY
 
         SELECTED HISTORICAL AND PRO FORMA OPERATING AND FINANCIAL DATA
 
                             (AMOUNTS IN THOUSANDS)
 
<TABLE>
<CAPTION>
                                                            HISTORICAL PERIOD         PRO FORMA
                                                            NOVEMBER 4, 1996         YEAR ENDED
                                                              (INCEPTION OF         DECEMBER 31,
                                                             OPERATIONS) TO       -----------------
                                                            DECEMBER 31, 1996      1996      1995
                                                          ---------------------   -------   -------
<S>                                                       <C>                     <C>       <C>
OPERATING DATA:
  Room revenue..........................................         $ 7,684          $59,650   $54,785
  Food and beverage revenue.............................           3,976           24,099    23,643
  Other hotel revenue...................................             620            4,783     4,643
                                                                 -------          -------   -------
     Total revenues of Initial Hotels...................          12,280           88,532    83,071
  Other revenue.........................................             382            2,777     2,051
                                                                 -------          -------   -------
     Total revenues.....................................          12,662           91,309    85,122
                                                                 -------          -------   -------
  Operating expenses....................................           9,748           60,875    56,601
  Cost of goods sold of nonhotel operations.............             102            1,686     1,254
  Percentage Lease expense..............................           3,258           27,811    25,521
                                                                 -------          -------   -------
     Total expenses.....................................          13,108           90,372    83,376
                                                                 -------          -------   -------
  Net income (loss).....................................         $  (446)         $   937   $ 1,746
                                                                 =======          =======   =======
</TABLE>
 
                                 INITIAL HOTELS
 
                  SELECTED COMBINED HISTORICAL FINANCIAL DATA
 
                             (AMOUNTS IN THOUSANDS)
 
<TABLE>
<CAPTION>
                                                                                         JANUARY 1,
                                                     YEAR ENDED DECEMBER 31,               1996 TO
                                             ----------------------------------------    NOVEMBER 3,
                                              1992       1993       1994       1995        1996(A)
                                             -------    -------    -------    -------    -----------
<S>                                          <C>        <C>        <C>        <C>        <C>
OPERATING DATA:
Room revenue...............................  $45,200    $45,753    $48,652    $50,730      $51,627
Food and beverage revenue..................   22,514     22,357     22,811     22,984       20,062
Other revenue..............................    3,634      3,977      4,092      4,490        4,148
                                             -------    -------    -------    -------      -------
Total revenues.............................   71,348     72,087     75,555     78,204       75,837
                                             -------    -------    -------    -------      -------
Departmental and other expenses............   52,248     53,242     53,967     54,629       52,367
Real estate and personal property taxes,
  insurance and rent.......................    2,988      3,112      3,329      3,579        3,228
  Depreciation and amortization............    5,822      5,822      5,690      6,545        6,308
Interest expense...........................   12,997     12,375     12,397     14,169       13,430
Gain on property insurance recovery........       --         --         --       (670)         (32)
                                             -------    -------    -------    -------      -------
Income (loss) before extraordinary item....   (2,707)    (2,464)       172        (48)         536
Extraordinary item -- gain (loss) on early
  extinguishment of debt...................       --         --         --        556       (1,315)
                                             -------    -------    -------    -------      -------
Net income (loss)..........................  $(2,707)   $(2,464)   $   172    $   508      $  (779)
                                             =======    =======    =======    =======      =======
</TABLE>
 
---------------
 
(A) On February 8, 1996, the Holiday Inn and Hampton Inn were acquired by a
    Boykin Affiliate. The acquisition was accounted for as a purchase and,
    accordingly, the operating results of the Holiday Inn and Hampton Inn have
    been included in the above operating data commencing February 8, 1996.
 
                                       14
<PAGE>   16
 
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
        OF OPERATIONS
 
BACKGROUND
 
     On November 4, 1996, the Company completed an initial public offering of
8,275,000 shares. An additional 1,241,250 common shares were issued by the
Company on November 29, 1996 upon an exercise in full of the underwriters'
over-allotment option. The net proceeds to the Company from these transactions
were $173,898,000. The Company contributed all of the net proceeds to the
Partnership in exchange for (i) an 84.5% general partnership interest in the
Partnership, and (ii) a $40,000,000 intercompany convertible note (the "Note").
The Note matures on the fifth anniversary of the Offering. On conversion of the
Note, the Company will receive an additional general partnership interest in the
Partnership of 2.9%. The Company is the sole general partner of the Partnership.
 
     The Partnership used a substantial portion of the proceeds from the Company
and issued limited partnership interests representing approximately 15.5% of the
Partnership to acquire the nine Initial Hotels. The Partnership leases the
Initial Hotels to the Initial Lessee pursuant to the Percentage Leases.
 
     The Company's principal source of revenue is lease payments from the
Initial Lessee pursuant to the Percentage Leases. Percentage Lease revenue is
based upon the room, food and beverage and other revenues of the Initial Hotels
and other hotels leased to the Initial Lessee. The Initial Lessee's ability to
make payments to the Company pursuant to the Percentage Leases is dependent
primarily upon the operations of the Initial Hotels. Therefore, management
believes that a discussion of the historical and pro forma operations of the
Initial Lessee and the historical operations of the Initial Hotels is important
to an understanding of the business of the Company.
 
     The following discusses (i) the Company's actual results of operations for
the period from November 4, 1996 (inception of operations) through December 31,
1996 and pro forma results of operations for the years ended December 31, 1996
and 1995, (ii) the Initial Lessee's actual results of operations for the period
from November 4, 1996 (inception of operations) through December 31, 1996 and
pro forma results of operations for the years ended December 31, 1996 and 1995,
(iii) the historical results of operations for the Initial Hotels for the period
January 1, 1996 to November 3, 1996 and the year ended December 31, 1995, and
(iv) the historical results of operations for the Initial Hotels for the years
ended December 31, 1995 and 1994.
 
                             RESULTS OF OPERATIONS
 
THE COMPANY
 
  Actual Results of Operations
 
     For the period from November 4, 1996 (inception of operations) to December
31, 1996, the Company earned $3,258,000 of Percentage Lease revenue. Interest
income earned on available funds was $120,000. Real estate related depreciation
and amortization and amortization of deferred financing costs aggregated to
$1,413,000. Real estate and personal property taxes, insurance and ground rent
were $620,000 in the aggregate. General and administrative expenses were
$450,000. The minority interest in the income before extraordinary item of the
Partnership was $40,000. An extraordinary charge of $4,908,000 (net of minority
interest of $970,000), representing the write-off of deferred financing costs
and the payment of prepayment penalties and fees, was incurred in connection
with the retirement of all mortgage indebtedness assumed by the Partnership in
connection with the formation of the Company. The Company's net income before
the extraordinary charge was $801,000, while the net loss was $4,107,000. Funds
From Operations ("FFO"), which is the sum of the net income before extraordinary
item, minority interest, and real estate related depreciation and amortization,
was $2,185,000.
 
  Pro Forma Results of Operations
 
     For the year ended December 31, 1996, the Company's pro forma revenue from
Percentage Leases were $27,811,000, representing a $2,290,000, or 9% increase
over pro forma Percentage Lease revenue for the year ended December 31, 1995.
Pro forma Percentage Lease revenue for 1996 increased over that of 1995
primarily
 
                                       15
<PAGE>   17
 
as a result of increases in the average daily rates and improvements in
occupancy rates at the Initial Hotels. See "Results of Operations -- The Initial
Hotels -- Actual Results of Operations."
 
     Pro forma expenses before minority interest, consisting principally of
depreciation, amortization, property taxes, insurance, ground rent and general
administrative expenses remained relatively constant between 1995 and 1996. As a
percentage of revenues, the Company's expenses before minority interest
decreased from 54.5% in 1995 to 50.4% in 1996, indicative of the relatively
fixed nature of the expenses.
 
     Pro forma FFO for the years ended December 31, 1996 and 1995 was
$21,987,000 and $19,742,000, respectively. The increase in FFO in 1996 is
attributable to the increase in Percentage Lease revenues. FFO consists of
income (loss) before minority interest (computed in accordance with generally
accepted accounting principles) excluding gains (losses) from debt restructuring
and sales of property (including furniture and equipment) plus real estate
related depreciation and amortization (excluding amortization of deferred
financing costs) and after adjustments for unconsolidated partnerships and joint
ventures. Industry analysts consider FFO to be an appropriate measure of the
performance of an equity REIT. FFO should not be considered as a basis for
computing distributions or as an alternative (i) to net income or other
measurements under generally accepted accounting principles, as an indicator of
operating performance, or (ii) to cash flows from operating, investing, or
financing activities, as a measure of liquidity. FFO would not reflect cash
expenditures for capital improvements or principal amortization of indebtedness
with respect to the Initial Hotels.
 
THE INITIAL LESSEE
 
  Actual Results of Operations
 
     For the period from November 4, 1996 (inception of operations) to December
31, 1996, the Initial Lessee had hotel revenues of $12,280,000. The Percentage
Lease expense during the period was $3,258,000 while departmental expenses of
the Initial Hotels and other expenses of the Initial Lessee were $9,850,000 in
the aggregate. For the period, the Initial Lessee incurred a net loss of
$446,000. The loss was partially the result of the application of the Percentage
Lease rent terms during an interim period (as opposed to a full calendar year).
The terms of each Percentage Lease allow for annualizing the rent payable to
compensate for the effects of seasonality when base rents may be required during
periods of lower occupancy which would otherwise be offset during peak seasons.
Historically, the fourth quarter has been a period of lower occupancy for the
Initial Hotels on a combined basis in comparison to the other three quarters of
the year.
 
  Pro Forma Results of Operations
 
     For the year ended December 31, 1996, the Initial Lessee's pro forma hotel
revenues were $88,532,000, which would have been a 6.6% increase over pro forma
hotel revenues for the year ended December 31, 1995 of $83,071,000. Pro forma
Percentage Lease expense increased from $25,521,000 in 1995 to $27,811,000 in
1996 due to the increased pro forma hotel revenues. Pro forma departmental
expenses of the Initial Hotels and other pro forma expenses of the Initial
Lessee were $62,561,000 in 1996 as compared to $57,855,000 in 1995. Pro forma
net income of the Initial Lessee for the years ended December 31, 1996 and 1995
were $937,000 and $1,746,000, respectively.
 
                                       16
<PAGE>   18
 
THE INITIAL HOTELS -- ACTUAL RESULTS OF OPERATIONS
 
GENERAL
 
     The following table sets forth certain combined historical financial
information for the Initial Hotels, as a percentage of revenues, and the key
performance indicators for the periods indicated.
 
<TABLE>
<CAPTION>
                                                                                     YEAR ENDED
                                                              JANUARY 1, 1996       DECEMBER 31,
                                                                     TO            ---------------
                                                              NOVEMBER 3, 1996     1995      1994
                                                              ----------------     -----     -----
<S>                                                           <C>                  <C>       <C>
FINANCIAL DATA:
  Room revenue..............................................         68.1%          64.9%     64.4%
  Food and beverage revenue.................................         26.4           29.4      30.2
  Other revenue.............................................          5.5            5.7       5.4
                                                                    -----          -----     -----
  Total revenue.............................................        100.0          100.0     100.0
  Departmental and other expense............................         69.0           69.9      71.4
  Real estate and personal property taxes, insurance and
     rent...................................................          4.3            4.6       4.4
  Depreciation and amortization.............................          8.3            8.4       7.5
  Interest expense..........................................         17.7           18.1      16.4
  Gain on property insurance recovery.......................           --           (.9)        --
                                                                    -----          -----     -----
  Income (loss) before extraordinary items..................           .7           (.1)        .3
  Extraordinary item -- gain (loss) on early extinguishment
     of debt................................................        (1.7)             .7        --
                                                                    -----          -----     -----
  Net income (loss).........................................        (1.0)%            .6%       .3%
                                                                    =====          =====     =====
</TABLE>
 
     Results of operations are best explained in terms of three key performance
indicators: occupancy, average daily rate (ADR) and revenue per available room
(REVPAR). Increases in REVPAR attributable to increases in occupancy are
accompanied by increases in most categories of variable operating costs.
Increases in REVPAR attributable to increases in ADR are accompanied by
increases in limited categories of operating costs, such as management and
franchise fees.
 
<TABLE>
<CAPTION>
                                                                                   YEAR ENDED
                                                           JANUARY 1, 1996        DECEMBER 31,
                                                                  TO            -----------------
                                                           NOVEMBER 3, 1996      1995       1994
                                                           ----------------     ------     ------
<S>                                                        <C>                  <C>        <C>
PERFORMANCE(1):
  Occupancy..............................................        78.5%           74.3%      74.9%
  ADR....................................................       $89.96          $88.63     $82.00
  REVPAR.................................................       $70.62          $65.87     $61.44
</TABLE>
 
---------------
 
(1) No assurance can be given that the trends reflected in this data will
    continue or that occupancy, ADR and REVPAR will not decrease as a result of
    changes in national or local economic or hospitality industry conditions.
 
  Comparison of the Initial Hotels for the Period January 1, 1996 to November 3,
  1996 to the Year Ended December 31, 1995
 
     Despite being a short period, room revenue increased by $897,000 or 1.8% in
1996 over 1995, principally as a result of (i) the acquisitions of the Holiday
Inn and Hampton Inn in Charlotte, North Carolina in February 1996, which
resulted in incremental room revenues of $3,281,000 in 1996, (ii) the August
1995 hurricane damage to the Melbourne, Florida property which resulted in that
property being closed for an extended period of 1995 (estimated lost room
revenues in 1995 were $1,079,000), (iii) an increase in ADR from $88.63 in 1995
to $89.96 in 1996, and (iv) an increase in occupancy rates from 74.3% in 1995 to
78.5% in 1996. Excluding the Holiday Inn and Hampton Inn acquired in 1996, ADR
increased at all of the Initial Hotels, while occupancy rates increased at all
but one of the Initial Hotels. The occupancy growth is
 
                                       17
<PAGE>   19
 
attributable to a continuation through 1996 of the strong industry-wide demand
which commenced in the last half of 1995, particularly in the Ohio and
California markets.
 
     As the 1996 period includes only approximately ten months of operating
results, changes in revenue and expense items will be discussed in terms of
percentages of hotel revenues.
 
     As a percentage of total hotel revenues, food and beverage revenues
decreased due to the increase in ADR in the 1996 period and due to the Hampton
Inn, acquired in February 1996, being a limited service hotel with no food and
beverage operations.
 
     As a percentage of total hotel revenues, departmental and other expenses
decreased from 69.9% in 1995 to 69.0% in the 1996 period due to the increase in
ADR and the previously discussed change in hotel revenue mix. As room revenue is
more profitable than food and beverage revenue, the increase in room revenue as
a percentage of total revenue caused departmental and other expenses to decrease
as a percentage of total revenue. Partially offsetting factors were (i)
management fee rate increases in May 1995 at four of the Initial Hotels, which
resulted in management fee expense increasing from 4.2% of total revenue in 1995
to 4.4% in 1996, (ii) franchise royalty fee rate increases at two of the Initial
Hotels in 1996, which resulted in franchise royalties and other charges
increasing from 4.9% of total revenue in 1995 to 5.4% in 1996, and (iii) final
settlement of a business interruption insurance claim with respect to the
Melbourne, Florida property in 1996 which resulted in a $118,000 charge against
1996 operations, or .2% of total revenue.
 
     Real estate and personal property taxes, insurance and rent and interest
expense as a percentage of revenues decreased in 1996 as compared to 1995 as,
for the most part, changes in these expense items are not driven by increases or
decreases in revenue.
 
     Depreciation and amortization as a percentage of total revenue decreased
from 8.4% in 1995 to 8.3% in 1996. The additional depreciation expense related
to the property writeup recorded in May 1995 at the Melbourne, Berkeley and
Cleveland Airport properties in connection with the redemption of certain
partnership interests and depreciation on new property additions resulted in
depreciation and amortization, as a percentage of total revenue, remaining
constant between 1995 and 1996.
 
     The $670,000 gain on property insurance recovery in 1995 resulted from the
insurance recovery related to property damage at the Melbourne, Florida property
caused by Hurricane Erin in August 1995.
 
     The gain on early extinguishment of debt of $556,000 in 1995 related to the
refinancing of four of the Initial Hotels in May 1995. The $1,315,000 loss on
early extinguishment of debt in 1996 related to the refinancing of the mortgage
debt of the Buffalo, New York property.
 
     Net income was impacted most significantly by the acquisition of the
Holiday Inn and Hampton Inn (combined net loss of $357,000 in the 1996 period)
in February 1996, the change in extraordinary items between periods, the
decrease in gain on property insurance recovery and the increases realized in
ADR and occupancy.
 
  Comparison of the Year Ended December 31, 1995 with 1994
 
     Room revenues increased $2,078,000, or 4.3% from 1994 to 1995. As seen by
the growth of REVPAR, the increase in revenues in 1995 was driven by increases
in the ADR at almost all of the hotels, while occupancy declined .6% overall.
This was attributable in part to the general improvement in the business travel
and tourism industries. The continuation of the Initial Hotels' focus on
maximizing REVPAR by focusing on increasing ADR while maintaining stable
occupancy during this period had a significant effect. Food and beverage revenue
increased $173,000, or .8% from 1994 to 1995. This reflects the slight decline
in occupancy offset by inflationary price increases in food and beverages. The
composition of revenue stayed consistent between the periods, with only a slight
decline in food and beverage revenues, from 30.2% of the total to 29.4%,
reflecting that the gains in revenue occurred in room rates during this period.
 
     Total revenues increased $2,649,000, or 3.5%, from 1994 to 1995. This
increase was in spite of the loss of an estimated $1,300,000 in revenues arising
from the damage to the Melbourne, Florida property by Hurricane
 
                                       18
<PAGE>   20
 
Erin in August 1995. The hurricane damage was covered by insurance, including
business interruption insurance, so the net income of the combined hotels was
not materially affected.
 
     Departmental and other expenses increased by $662,000, or 1.2% between the
years because of general inflationary pressures which were offset by aggressive
cost management and $1,093,000 in estimated proceeds from the Melbourne business
interruption insurance claims which were netted against operating expenses.
These costs declined as a percentage of revenues from 71.4% in 1994 to 69.9% in
1995 due to the positive effect of revenues growing at a faster pace than
expenses. In addition, management fees increased from 3.8% of revenues in 1994
to 4.2% of revenues in 1995 because of higher revenues and increases in the
management fee rate implemented in the second quarter of 1995 at four of the
Initial Hotels. Franchisor fees increased $861,000, or 29.2%, between years
primarily because 1994 contained a reduction in franchise fees of $600,000 from
the forgiveness of accrued franchise fees at the Melbourne, Florida hotel that
resulted from a renegotiation of the franchise agreement. This was offset by
growth in fees as a result of improved revenues and a contractually scheduled
increase in the fee rate at the Columbus, Ohio hotel. Real estate and personal
property taxes, insurance and rent increased 7.5% from 1994 to 1995. This is
primarily attributable to higher costs for insurance as the Initial Hotels
purchased improved coverage. The gain on property insurance recovery of $670,000
recorded in 1995 related to the excess of insurance proceeds over the net book
value of assets replaced at the Melbourne Quality Suites due to the damage
caused by Hurricane Erin in August 1995.
 
     Depreciation and amortization expense increased by $855,000, or 15%
primarily due to the additional depreciation on the property writeup recorded in
May 1995 when the Melbourne, Berkeley and Cleveland Airport hotels redeemed
their respective partnership interests held by non-Boykin Group Affiliates and
Boykin Group Affiliates were admitted as new partners. Interest expense
increased by $1,772,000, or 14.3% due to the new mortgage debt incurred in May
1995 to finance the redemption of the Melbourne, Berkeley and Cleveland Airport
hotels' partnership interests and to refinance existing mortgage debt at the
Fort Myers, Melbourne, Berkeley and Cleveland Airport hotels.
 
     The gain on early extinguishment of debt of $556,000 recorded in May 1995
related to the refinancing referred to above.
 
     Net income improved $336,000 due to the improved ADR at most of the Initial
Hotels, the benefit of the Melbourne property insurance settlement and the
extraordinary gain on refinancing, all of which were partially offset by higher
depreciation and interest costs resulting from the May 1995 redemption of
partnership interests held by certain non-Boykin Group Affiliates.
 
LIQUIDITY AND CAPITAL RESOURCES
 
     The Company's principal source of cash to meet its cash requirements,
including distributions to shareholders, is its share of the Partnership's cash
flow from the Percentage Leases. The Initial Lessee's obligations under the
Percentage Leases are unsecured and the Initial Lessee's ability to make rent
payments to the Partnership under the Percentage Leases, and the Company's
liquidity, including its ability to make distributions to shareholders, are
dependent on the Initial Lessee's ability to generate sufficient cash flow from
the operation of the Hotels.
 
     On December 31, 1996, the Company had $21,362,000 of cash and cash
equivalents, primarily as the result of funds remaining from the Offering. In
addition, the Company had no outstanding borrowings against the Credit Facility
on December 31, 1996.
 
     The Company intends to acquire and selectively develop additional hotel
properties and will incur indebtedness to fund such acquisitions and
development. The Company may also incur indebtedness to meet distribution
requirements imposed on a REIT under the Internal Revenue Code to the extent
that working capital and cash flow from the Company's investments are
insufficient to make the required distributions. The terms of the Company's $75
million Credit Facility permit borrowings for that purpose, but impose certain
limitations on the Company's ability to engage in other borrowings.
 
     The Credit Facility has a three-year term. Borrowings against the Credit
Facility bear interest at a floating rate of prime plus .5% (8.75% at December
31, 1996) or at the Company's election, 2% over various
 
                                       19
<PAGE>   21
 
Eurodollar (LIBOR) rates. The Company is required to pay a .25% fee on the
unused portion of the Credit Facility. The Credit Facility requires, among other
things, the maintenance of a minimum net worth, and specified coverage ratios of
EBITDA to debt service and EBITDA to debt service and fixed charges.
 
     The Company obtained the Credit Facility to assist it in funding its
acquisitions and development of additional hotels and for certain other
purposes, including capital expenditures and working capital, as necessary.
Borrowings under the Credit Facility are secured by first mortgages on seven of
the Initial Hotels including lease revenues generated from such properties. The
Company may seek to increase the amount of the Credit Facility, negotiate
additional credit facilities, or issue debt instruments. Any debt incurred or
issued by the Company may be secured or unsecured, long-term, medium-term or
short-term, bear interest at a fixed or variable rate, and be subject to such
other terms as the Board of Directors considers prudent.
 
     The Company will acquire or develop additional hotel properties only as
suitable opportunities arise, and the Company will not undertake acquisition or
development of properties unless adequate sources of financing are available.
Funds for future acquisitions or development of hotels are expected to be
derived, in whole or in part, from remaining available funds from the Offering
and from borrowings under the Credit Facility or other borrowings or from the
proceeds of additional issuances of Common Shares or other securities.
 
     Subsequent to December 31, 1996, the Company acquired two hotel properties
for an aggregate consideration of $16.8 million, which was funded with cash
proceeds from the Offering. The hotel properties acquired were the 118-room
Hilton Melbourne Beach in Melbourne, Florida and the 176-room Holiday Inn
Crabtree in Raleigh, North Carolina. The Company plans to invest approximately
$3 million in capital improvements in the Holiday Inn Crabtree over the next
twelve months. The funds for these improvements will come from borrowings under
the Credit Facility. These properties were leased to the Initial Lessee, which
will operate the properties under long-term Percentage Leases. Also, in March
1997 the Company purchased the real and personal property of the Whitehall Inn
located in Daytona Beach, Florida. The Company's total investment was $4.2
million, which was funded with cash proceeds from the Offering. The Company will
discontinue operations there in mid-April 1997, at which time a complete
renovation of the property will begin. The renovation, which is expected to cost
$4 million, will be funded from borrowings under the Credit Facility. The
Company expects to begin business operations as a resort with a major hotel
franchise affiliation in January 1998. The property will be leased to the
Initial Lessee, which will operate the resort under a long-term Percentage
Lease.
 
     The Percentage Leases require the Company to establish aggregate minimum
reserves for capital expenditures of 4% of total revenues of the Hotels. In
addition, the Company intends to make funds available from the Credit Facility,
as needed. The Company intends to use the reserve for capital improvements to
the Hotels and refurbishment and replacement of FF&E, but may make other uses of
amounts reserved that it considers appropriate from time to time. The Company
anticipates making similar arrangements with respect to future hotels that it
may acquire or develop. During the period from November 4, 1996 to December 31,
1996, the Company made $622,000 of capital expenditures. The Company considers
the majority of these improvements to be revenue producing and therefore these
amounts have been capitalized and are being depreciated over their estimated
useful lives.
 
INFLATION
 
     The Company's revenues are based on the Percentage Leases, which result in
changes in the Company's revenues based on changes in the revenues of the
Hotels. Therefore, the Company relies entirely on the performance of the Hotels
and the Initial Lessee's ability to increase revenues to keep pace with
inflation. Operators of hotels in general, and the Initial Lessee, can change
room rates quickly, but competitive pressures may limit the Initial Lessee's
ability to raise rates faster than inflation.
 
     The Company's largest expense item is the depreciation of its investments
in hotel properties. The Company's other expenses (general and administrative
costs as well as real estate and personal property taxes, property and casualty
insurance and ground rent) are subject to inflation and are expected to grow
with the general rate of inflation.
 
                                       20
<PAGE>   22
 
SEASONALITY
 
     The Initial Hotels' operations historically have been seasonal. Seven of
the Initial Hotels maintain higher occupancy rates during the second and third
quarters. The two Initial Hotels located in Florida experience their highest
occupancy in the first quarter. This seasonality pattern can be expected to
cause fluctuations in the Company's quarterly lease revenue under the Percentage
Leases. The Company anticipates that its cash flow from the Percentage Leases
will be sufficient to enable the Company to make quarterly distributions at the
estimated initial rate for the next twelve months. To the extent that cash flow
from operations is insufficient during any quarter because of temporary or
seasonal fluctuations in Percentage Lease revenue, the Company expects to
utilize cash on hand or borrowings to make those distributions. No assurance can
be given that the Company will make distributions in the future at the current
rate, or at all.
 
ITEM 8. CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
 
     See Index to the Financial Statements on page F-1.
 
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
        FINANCIAL DISCLOSURE
 
     Not applicable.
 
                                    PART III
 
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
 
     The information required by this Item 10 is incorporated by reference to
the information under the headings "Election of Directors" and "Section 16(a)
Beneficial Ownership Reporting Compliance" contained in the Company's Proxy
Statement in connection with its Annual Meeting of Shareholders to be held on
May 6, 1997, and the information under the heading "Executive Officers" in Part
I of this Annual Report on Form 10-K.
 
ITEM 11. EXECUTIVE COMPENSATION
 
     The information required by this Item 11 is incorporated by reference to
the information under the heading "Executive Compensation" contained in the
Company's Proxy Statement in connection with its Annual Meeting of Shareholders
to be held on May 6, 1997.
 
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
 
     The information required by this Item 12 is incorporated by reference to
the information under the heading "Security Ownership of Certain Beneficial
Owners and Management" contained in the Company's Proxy Statement in connection
with its Annual Meeting of Shareholders to be held on May 6, 1997.
 
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
 
     The information required by this Item 13 is incorporated by reference to
the information under the heading "Transactions with Management" contained in
the Company's Proxy Statement in connection with its Annual Meeting of
Shareholders to be held on May 6, 1997.
 
                                       21
<PAGE>   23
 
                                    PART IV
 
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
 
     (a) See page F-1 for an index to financial statements.
 
<TABLE>
<CAPTION>
  EXHIBITS
  ------
  <S>       <C>
    3.1*    Amended and Restated Articles of Incorporation
    3.2*    Code of Regulations
    4.1*    Specimen Share Certificate
   10.1*    Limited Partnership Agreement of Boykin Hotel Properties, L.P.
   10.2*    Form of Registration Rights Agreement
   10.3*    Long-Term Incentive Plan
   10.4*    Directors' Deferred Compensation Plan
   10.5*    Employment Agreement between the Company and Robert W. Boykin
   10.6*    Employment Agreement between the Company and Raymond P. Heitland
   10.7*    Employment Agreement between the Company and Mark L. Bishop
   10.8*    Form of Percentage Lease
   10.9*    Intercompany Convertible Note
  10.10*    Agreements with General Partners of the Contributed Partnerships
  10.11*    Form of Noncompetition Agreement
  10.12*    Alignment of Interests Agreement
  11        Statement re Computation of Per Share Earnings
  21        Subsidiaries of the Registrant
  27        Financial Data Schedules
</TABLE>
 
     * Incorporated by reference from Amendment No. 3 to the Company's
Registration Statement on Form S-11 (Registration No. 333-6341) (the "Form
S-11") filed on October 24, 1996. Each of the above exhibits has the same
exhibit number in the Form S-11.
 
     (b) No reports on Form 8-K were filed during the quarter ended December 31,
         1996.
 
                           FORWARD LOOKING STATEMENTS
 
     This Form 10-K contains forward looking statements. Although the Company
believes that its acquisition and redevelopment plans are based upon reasonable
assumptions, it can give no assurance that such expectations will be realized.
Factors that could cause actual results to differ materially from the Company's
expectations include the Company's financial performance, real estate market
conditions, execution of the Company's hotel acquisition programs, difficulties
with contractors hired to redevelop or renovate properties, changes in local or
national economic conditions, and other similar risks.
 
                                       22
<PAGE>   24
 
                                   SIGNATURES
 
     PURSUANT TO THE REQUIREMENTS OF SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934, THE REGISTRANT HAS DULY CAUSED THIS REPORT TO BE SIGNED ON
ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED.
 
<TABLE>
  <S>                                         <C>
  March 28, 1997                              BOYKIN LODGING COMPANY
                                              By: /s/ Robert W. Boykin
                                              -----------------------------------------------
</TABLE>
 
     Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
 
<TABLE>
  <S>                                         <C>
  March 28, 1997                              /s/ ROBERT W. BOYKIN
                                              -----------------------------------------------
                                              Robert W. Boykin
                                              Director, Chairman of the Board,
                                              President and Chief Executive Officer
                                              Principal Executive Officer)
 
  March 28, 1997                              /s/ RAYMOND P. HEITLAND
                                              -----------------------------------------------
                                              Raymond P. Heitland
                                              Director, Chief Financial Officer
                                              (Principal Accounting Officer)
 
  March 28, 1997                              /s/ IVAN J. WINFIELD
                                              -----------------------------------------------
                                              Ivan J. Winfield
                                              Director
 
  March 28, 1997                              /s/ LEE C. HOWLEY, JR.
                                              -----------------------------------------------
                                              Lee C. Howley, Jr.
                                              Director
 
  March 28, 1997                              /s/ FRANK E. MOSIER
                                              -----------------------------------------------
                                              Frank E. Mosier
                                              Director
 
  March 28, 1997                                                       
                                              -----------------------------------------------
                                              William N. Hulett III
                                              Director
 
  March 28, 1997                              /s/ ALBERT T. ADAMS
                                              -----------------------------------------------
                                              Albert T. Adams
                                              Director
</TABLE>
 
                                       23
<PAGE>   25
 
                                 EXHIBIT INDEX
 
<TABLE>
<CAPTION>
                                                                                     SEQUENTIALLY
                                                                                       NUMBERED
                                         EXHIBIT                                        PAGES
                                                                                     ------------
<S>     <C>                                                                          <C>
 3.1    Amended and Restated Articles of Incorporation                                    *
 3.2    Code of Regulations                                                               *
 4.1    Specimen Share Certificate                                                        *
10.1    Limited Partnership Agreement of Boykin Hotel Properties, L.P.                    *
10.2    Form of Registration Rights Agreement                                             *
10.3    Long-Term Incentive Plan                                                          *
10.4    Directors' Deferred Compensation Plan                                             *
10.5    Employment Agreement between the Company and Robert W. Boykin                     *
10.6    Employment Agreement between the Company and Raymond P. Heitland                  *
10.7    Employment Agreement between the Company and Mark L. Bishop                       *
10.8    Form of Percentage Lease                                                          *
10.9    Intercompany Convertible Note                                                     *
10.10   Agreements with General Partners of the Contributed Partnerships                  *
10.11   Form of Noncompetition Agreement                                                  *
10.12   Alignment of Interests Agreement                                                  *
11      Statement re Computation of Per Share Earnings
21      Subsidiaries of the Registrant
27      Financial Data Schedules
</TABLE>
 
---------------
 
* Incorporated by reference from Amendment No. 3 to the Company's registration
  statement on Form S-11 (Registration No. 333-6341) (the "Form S-11") filed on
  October 24, 1996. Each of the above exhibits has the same exhibit number in
  the Form S-11.
<PAGE>   26
 
                         INDEX TO FINANCIAL STATEMENTS
 
<TABLE>
<CAPTION>
                                                                                        PAGE
                                                                                        ----
<S>                                                                                     <C>
BOYKIN LODGING COMPANY:
  Report of Independent Public Accountants............................................   F-2
  Consolidated Balance Sheet as of December 31, 1996..................................   F-3
  Consolidated Statement of Operations for the Period February 8, 1996 (Inception)
     through December 31, 1996........................................................   F-4
  Consolidated Statement of Shareholders' Equity for the Period February 8, 1996
     (Inception), through December 31, 1996...........................................   F-5
  Consolidated Statement of Cash Flows for the Period February 8, 1996 (Inception),
     through December 31, 1996........................................................   F-6
  Notes to Consolidated Financial Statements..........................................   F-7
  Schedule III -- Real Estate and Accumulated Depreciation............................  F-14
 
INITIAL HOTELS (PREDECESSORS TO BOYKIN LODGING COMPANY):
  Report of Independent Public Accountants............................................  F-15
  Combined Balance Sheets as of November 3, 1996 and December 31, 1995................  F-16
  Combined Statements of Operations for the Period January 1, 1996, through November
     3, 1996, and the years ended December 31, 1995 and 1994..........................  F-17
  Combined Statements of Partners' Deficit for the Period January 1, 1996, through
     November 3, 1996, and the years ended December 31, 1995 and 1994.................  F-18
  Combined Statements of Cash Flows for the Period January 1, 1996, through November
     3, 1996, and the years ended December 31, 1995 and 1994..........................  F-19
  Notes to Combined Financial Statements..............................................  F-20
 
BOYKIN MANAGEMENT COMPANY LIMITED LIABILITY COMPANY AND SUBSIDIARIES (THE INITIAL
  LESSEE):
  Report of Independent Public Accountants............................................  F-27
  Consolidated Balance Sheet as of December 31, 1996..................................  F-28
  Consolidated Statement of Operations for the Period November 4, 1996 (Inception of
     Operations), through December 31, 1996...........................................  F-29
  Consolidated Statements of Members' Capital for the Period November 4, 1996
     (Inception of Operations), through December 31, 1996.............................  F-30
  Consolidated Statement of Cash Flows for the Period November 4, 1996 (Inception of
     Operations) through December 31, 1996............................................  F-31
  Notes to Consolidated Financial Statements..........................................  F-32
 
BOYKIN MANAGEMENT COMPANY, PURCHASING CONCEPTS, INC. AND BOPA DESIGN COMPANY
  (PREDECESSORS TO THE LESSEE):
  Report of Independent Public Accountants............................................  F-36
  Combined Statements of Net Assets as of November 3, 1996, and March 31, 1996........  F-37
  Combined Statements of Revenues and Expenses for the Period January 1, 1996, through
     November 3, 1996 and the Years Ended March 31, 1996 and 1995.....................  F-38
  Notes to Combined Financial Statements..............................................  F-39
</TABLE>
 
                                       F-1
<PAGE>   27
 
                    REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
 
To the Board of Directors of
Boykin Lodging Company:
 
     We have audited the accompanying consolidated balance sheet of Boykin
Lodging Company (an Ohio corporation) and subsidiary as of December 31, 1996 and
the related consolidated statements of operations, shareholders' equity and cash
flows for the period February 8, 1996 (inception) through December 31, 1996.
These financial statements and the schedule referred to below are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements and schedule based on our audit.
 
     We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
 
     In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Boykin Lodging Company and
subsidiary as of December 31, 1996 and the results of their operations and their
cash flows for the period February 8, 1996 (inception) through December 31,
1996, in conformity with generally accepted accounting principles.
 
     Our audit was made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The schedule listed in the index of
financial statements is the responsibility of the Company's management and is
presented for purposes of complying with the Securities and Exchange
Commission's rules and is not part of the basic financial statements. The
schedule has been subjected to the auditing procedures applied in the audit of
the basic financial statements and, in our opinion, fairly states in all
material respects the financial data required to be set forth therein in
relation to the basic financial statements taken as a whole.
 
                                            ARTHUR ANDERSEN LLP
 
Cleveland, Ohio,
  February 25, 1997
(except with respect to the matters
discussed in Note 13, as to which
the date is March 14, 1997).
 
                                       F-2
<PAGE>   28
 
                             BOYKIN LODGING COMPANY
 
               CONSOLIDATED BALANCE SHEET AS OF DECEMBER 31, 1996
 
                                 (IN THOUSANDS)
 
<TABLE>
<S>                                                                                 <C>
ASSETS
Investment in hotel properties, net...........................................      $113,322
Cash and cash equivalents.....................................................        21,362
Rent receivable from the lessee...............................................           306
Deferred expenses, net........................................................         1,509
Other assets..................................................................           772
                                                                                    --------
       Total assets...........................................................      $137,271
                                                                                    ========
 
LIABILITIES AND SHAREHOLDERS' EQUITY
Accounts payable and accrued expenses.........................................      $  2,433
Dividends/distributions payable...............................................         3,091
Due to lessee.................................................................           681
Minority interest in partnership..............................................        14,045
Shareholders' Equity:
  Preferred shares, without par value; 10,000,000 shares authorized; no shares
     issued and outstanding...................................................            --
  Common shares, without par value; 40,000,000 shares authorized; 9,516,251
     shares issued and outstanding, stated at.................................            --
  Additional paid-in capital..................................................       123,828
  Retained deficit............................................................        (6,807)
                                                                                    --------
                                                                                     117,021
                                                                                    --------
       Total shareholders' equity.............................................      $137,271
                                                                                    ========
</TABLE>
 
          The accompanying notes to consolidated financial statements
                  are an integral part of this balance sheet.
 
                                       F-3
<PAGE>   29
 
                             BOYKIN LODGING COMPANY
 
                      CONSOLIDATED STATEMENT OF OPERATIONS
 
                  FOR THE PERIOD FEBRUARY 8, 1996 (INCEPTION)
                           THROUGH DECEMBER 31, 1996
 
                    (IN THOUSANDS EXCEPT FOR PER SHARE DATA)
 
<TABLE>
<S>                                                                                  <C>
Revenues:
  Lease revenue....................................................................  $ 3,258
  Interest income..................................................................      120
                                                                                     -------
                                                                                       3,378
                                                                                     -------
Expenses:
  Real estate related depreciation and amortization................................    1,344
  Real estate and personal property taxes, insurance and ground rent...............      620
  General and administrative.......................................................      450
  Interest expense.................................................................       54
  Amortization of deferred financing costs.........................................       69
                                                                                     -------
                                                                                       2,537
                                                                                     -------
Income before minority interest and extraordinary item.............................      841
Minority interest..................................................................      (40)
                                                                                     -------
Income before extraordinary item...................................................      801
Extraordinary item -- loss on early extinguishment of debt
  (net of $970 of minority interest)...............................................   (4,908)
                                                                                     -------
Net loss applicable to common shares...............................................  $(4,107)
                                                                                     =======
Earnings per share:
  Income before extraordinary item.................................................  $   .09
  Extraordinary item, net..........................................................     (.55)
                                                                                     -------
                                                                                     $  (.46)
                                                                                     =======
       Weighted average number of shares...........................................    8,981
                                                                                     =======
</TABLE>
 
          The accompanying notes to consolidated financial statements
                    are an integral part of this statement.
 
                                       F-4
<PAGE>   30
 
                             BOYKIN LODGING COMPANY
 
                 CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
 
                  FOR THE PERIOD FEBRUARY 8, 1996 (INCEPTION)
                           THROUGH DECEMBER 31, 1996
 
                         (DOLLAR AMOUNTS IN THOUSANDS)
 
<TABLE>
<CAPTION>
                                                  COMMON       PAID-IN      RETAINED
                                                  SHARES       CAPITAL      DEFICIT       TOTAL
                                                 ---------     --------     --------     --------
<S>                                              <C>           <C>          <C>          <C>
Issuance of common shares, net of offering
  expenses of $16,427..........................  9,516,251     $173,898     $     --     $173,898
Purchase accounting adjustment necessary to
  reflect assets at predecessor cost...........         --      (50,070)          --      (50,070)
Dividends declared.............................         --           --       (2,700)      (2,700)
Net loss.......................................         --           --       (4,107)      (4,107)
                                                 ---------     --------      -------     --------
Balance, December 31, 1996.....................  9,516,251     $123,828     $ (6,807)    $117,021
                                                 =========     ========      =======     ========
</TABLE>
 
          The accompanying notes to consolidated financial statements
                    are an integral part of this statement.
 
                                       F-5
<PAGE>   31
 
                             BOYKIN LODGING COMPANY
 
                      CONSOLIDATED STATEMENT OF CASH FLOWS
 
                  FOR THE PERIOD FEBRUARY 8, 1996 (INCEPTION)
                           THROUGH DECEMBER 31, 1996
 
                                 (IN THOUSANDS)
 
<TABLE>
<S>                                                                                <C>
Cash flows from operating activities:
  Net loss.......................................................................  $  (4,107)
  Adjustments to reconcile net loss to net cash provided by operating activities:
     Depreciation and amortization...............................................      1,413
     Minority interest...........................................................        930
     Noncash portion of extraordinary item.......................................         57
     Changes in assets and liabilities:
       Rent receivable from the lessee...........................................       (306)
       Other assets..............................................................       (772)
       Accounts payable and accrued expenses.....................................      2,433
       Due to affiliates.........................................................        681
                                                                                   ---------
          Net cash provided by operating activities..............................        329
                                                                                   ---------
Cash flows from investing activities:
  Improvements and additions to hotel properties.................................       (622)
  Title insurance, transfer taxes and filing fees paid to acquire Initial Hotel
     properties..................................................................     (1,202)
                                                                                   ---------
          Net cash flow used for investing activities............................     (1,824)
                                                                                   ---------
Cash flows from financing activities:
  Net proceeds from offering.....................................................    173,898
  Payments to noncontinuing equity investors of predecessor......................     (9,111)
  Borrowings against bank credit facility........................................      2,000
  Repayment of borrowings against bank credit facility...........................     (2,000)
  Repayment of assumed mortgage indebtedness.....................................   (140,623)
  Financing costs................................................................     (1,307)
                                                                                   ---------
          Net cash flow provided by financing activities.........................     22,857
                                                                                   ---------
Net change in cash and cash equivalents..........................................     21,362
Cash and cash equivalents, beginning of period...................................         --
                                                                                   ---------
Cash and cash equivalents, end of period.........................................  $  21,362
                                                                                   =========
Supplemental cash flow information:
  Interest paid..................................................................  $      25
</TABLE>
 
          The accompanying notes to consolidated financial statements
                    are an integral part of this statement.
 
                                       F-6
<PAGE>   32
 
                             BOYKIN LODGING COMPANY
 
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
                               DECEMBER 31, 1996
 
              (DOLLAR AMOUNTS IN THOUSANDS EXCEPT PER SHARE DATA)
 
1.  ORGANIZATION AND INITIAL PUBLIC OFFERING:
 
     Boykin Lodging Company (the Company) was incorporated February 8, 1996 to
acquire equity interests in hotel properties. The Company had no operations
prior to November 4, 1996. On November 4, 1996, the Company completed an initial
public offering of 8,275,000 shares of common stock. An additional 1,241,250
shares of common stock were issued by the Company on November 29, 1996 upon an
exercise in-full of the underwriters' over-allotment option (together with the
initial public offering, the Offering). The Offering price of all shares sold
was $20 per share, resulting in gross proceeds of approximately $190,325 and net
proceeds (less the underwriters' discount and offering expenses) of
approximately $173,898. The Company contributed all of the net proceeds of the
Offering to Boykin Hotel Properties, L.P., a limited partnership (the
Partnership) in exchange for (i) an 84.5% general partnership interest in the
Partnership, and (ii) a $40,000 Intercompany Convertible Note (the Note). The
Note matures on the fifth anniversary of the closing of the Offering. Interest
on the Note accrues at a rate equal to 9.5% per annum, increasing to 9.75% per
annum on the third anniversary of the completion of the Offering, and is payable
quarterly. The Note may be prepaid in full, but not in part, at any time. The
Company will have the right to convert the Note after the second anniversary of
the completion of the Offering, and prior to maturity and in advance of any
proposed prepayment by the Partnership, into additional equity interests in the
Partnership at face value based on the initial offering price of the Company's
common shares (and assuming that the value of one Partnership unit equals the
value of one common share). On conversion of the Note, the Company will receive
an additional general partnership interest in the Partnership of 2.9%. Assuming
conversion of the Note, the Company has an 87.4% general partnership interest in
the Partnership. The Company is the sole general partner of the Partnership. The
Note is secured by mortgages on certain hotel properties.
 
     The Partnership used a substantial portion of the proceeds from the Company
and issued limited partnership interests representing approximately 15.5% of the
Partnership to acquire nine hotel properties (the Initial Hotels) from various
entities, to finance certain capital improvements, and for general working
capital purposes. The Partnership leases the nine hotels to Boykin Management
Company Limited Liability Company (the Lessee) pursuant to leases which contain
provisions for rent based on the revenues of the hotels (the Percentage Leases).
Each Percentage Lease obligates the Lessee to pay rent equal to the greater of
the minimum rent or a percentage rent based on the gross revenues of each hotel.
The Lessee holds the franchise agreement for each hotel. The Lessee is owned by
Robert W. Boykin, Chairman, President and Chief Executive Officer of the Company
(53.8%) and his brother, John E. Boykin (46.2%).
 
     Pursuant to the Partnership Agreement, the limited partners of the
Partnership received exchange rights, which enable them to cause the Partnership
to pay cash for their interests in the Partnership, or at the Company's
election, to exchange common shares for such interests. The exchange rights may
be exercised in whole or in part. The number of common shares initially issuable
to the limited partners upon exercise of the exchange rights is 1,378,000. The
number of shares issuable upon exercise of the exchange rights will be adjusted
upon the occurrence of stock splits, mergers, consolidations or similar pro rata
share transactions, which otherwise would have the effect of diluting the
ownership interests of the limited partners or the shareholders of the Company.
 
  Basis of Presentation
 
     The Company exercises unilateral control over the Partnership. Therefore,
the financial statements of the Company and the Partnership are consolidated.
All significant intercompany transactions and balances have been eliminated.
 
                                       F-7
<PAGE>   33
 
                             BOYKIN LODGING COMPANY
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
 
2.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
 
  Investment in Hotel Properties
 
     Hotel properties are stated at cost and are depreciated using the
straight-line method over estimated useful lives ranging from 20 to 30 years for
buildings and improvements and 3 to 20 years for furniture and equipment.
 
     In accounting for the acquisitions of the hotels discussed in Note 1,
purchase accounting was applied to those hotel properties in which (i)
non-affiliated persons exchanged their interests for units of the Partnership or
cash, or (ii) affiliated persons exchanged their interests for cash
consideration. The exchange of ownership interests by affiliated persons for
units of the Partnership did not result in purchase accounting adjustments to
historical net book values as such transactions were between entities under
common control.
 
     The Company reviews the hotel properties for impairment when events or
changes in circumstances indicate the carrying amounts of the hotel properties
may not be recoverable. When such conditions exist, management estimates the
future cash flows from operations and disposition of the hotel properties. If
the estimated undiscounted future cash flows are less than the carrying amount
of the asset, an adjustment to reduce the carrying amount to the related hotel
property's estimated fair market value would be recorded and an impairment loss
would be recognized. The Company does not believe that there are any factors or
circumstances indicating impairment of any of its investment in hotel
properties.
 
  Cash and Cash Equivalents
 
     Cash and cash equivalents are defined as cash on hand and in banks plus all
short-term investments with an original maturity of three months or less.
 
  Deferred Expenses and Other Assets
 
     Included in deferred expenses and other assets at December 31, 1996 are the
following:
 
<TABLE>
            <S>                                                           <C>
            Financing costs.............................................  $1,307
            Franchise fees..............................................     276
                                                                          ------
                                                                           1,583
            Accumulated amortization....................................     (74)
                                                                          ------
                                                                          $1,509
                                                                          ======
</TABLE>
 
     Deferred financing costs are being amortized over the three-year term of
the related credit agreement. Accumulated amortization at December 31, 1996 was
$69.
 
     Deferred franchise fees are being amortized on a straight-line basis over
the terms of related franchise agreements. Accumulated amortization at December
31, 1996 was $5.
 
  Dividends/Distributions
 
     The Company pays dividends which are dependent upon the receipt of
distributions from the Partnership.
 
  Revenue Recognition
 
     The Company recognizes lease revenue on an accrual basis over the terms of
the respective Percentage Leases.
 
                                       F-8
<PAGE>   34
 
                             BOYKIN LODGING COMPANY
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
 
  Minority Interest
 
     Minority interest in the Partnership represents the limited partners'
actual proportionate share of the equity in the Partnership. Income is allocated
to minority interest based on the weighted average limited partnership
percentage ownership throughout the period.
 
  Income Taxes
 
     No provision for income taxes has been reflected in the accompanying
consolidated financial statements, since the Company has a taxable loss for its
initial period February 8, 1996 through December 31, 1996.
 
     With the filing of its initial federal income tax return, the Company will
elect to be taxed as a real estate investment trust under Sections 856-860 of
the Internal Revenue Code. Therefore, the Company should not have federal
taxable income to the extent that the Company distributes all of its taxable
income to its shareholders.
 
     The Company's earnings and profits, as defined by federal income tax law,
will determine the taxability of distributions to stockholders. Earnings and
profits will differ from income reported for financial reporting purposes
primarily due to the differences in the estimated useful lives and methods used
to compute depreciation. Dividends payable to shareholders at December 31, 1996
represent a 100% return of capital for federal income tax purposes.
 
  Net Income Per Share and Partnership Units
 
     Net income per share is based on the weighted average number of common
shares and common equivalent shares outstanding during the period. Outstanding
options are included as common equivalent shares using the treasury stock method
when the effect is dilutive. The weighted average number of shares used in
determining net income per share was 8,981,000 for the period November 4, 1996
through December 31, 1996. At December 31, 1996, a total of 1,378,000 limited
partnership units were issued and outstanding. The weighted average number of
common shares and limited partnership units outstanding for the same period was
10,359,000.
 
  Fair Value of Financial Instruments
 
     For disclosure purposes, fair value is determined by using available market
information and appropriate valuation methodologies. Cash and cash equivalents,
due to their short maturities, are carried at amounts which reasonably
approximate fair value.
 
  Use of Estimates
 
     The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
 
                                       F-9
<PAGE>   35
 
                             BOYKIN LODGING COMPANY
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
 
3.  INVESTMENT IN HOTEL PROPERTIES:
 
     Investment in hotel properties as of December 31, 1996 consists of the
following:
 
<TABLE>
            <S>                                                         <C>
            Land......................................................  $ 10,892
            Buildings and improvements................................    89,337
            Furniture and equipment...................................    13,707
            Construction in progress..................................       725
                                                                        --------
                                                                         114,661
            Less- Accumulated depreciation............................    (1,339)
                                                                        --------
                                                                        $113,322
                                                                        ========
</TABLE>
 
     The nine hotel properties (collectively, the Initial Hotels) owned by the
Company at December 31, 1996 are located in Ohio (3), Florida (2), North
Carolina (2), New York (1) and California (1) and are subject to leases as
described in Note 7.
 
4.  CREDIT FACILITY:
 
     In November 1996, the Company obtained a three-year commitment for a
$75,000 credit facility to be used for acquisitions, capital improvements,
working capital and general corporate purposes. Borrowings against the credit
facility bear interest at a floating rate of prime rate plus .5% (8.75% at
December 31, 1996) or, at the Company's election, 2% over various Eurodollar
(LIBOR) rates. The Company is required to pay a .25% fee on the unused portion
of the credit facility. As of December 31, 1996, the Company had no outstanding
borrowings against the credit facility.
 
     The credit facility is secured by mortgage interests in seven of the
Initial Hotel properties including lease revenues generated from such
properties.
 
     The credit facility requires, among other things, the Company to maintain a
minimum net worth, a specified coverage ratio of EBITDA to debt service, and a
specified coverage ratio of EBITDA to debt service and fixed charges. Further,
the Company is required to maintain its franchise agreement at each of the hotel
properties and to maintain its REIT status. The Company was in compliance with
its covenants at December 31, 1996.
 
5.  DESCRIPTION OF CAPITAL STOCK:
 
  Common Shares
 
     Holders of the Company's common shares are entitled to receive dividends
when, as and if declared by the Board of Directors of the Company, out of funds
legally available therefor. The holders of common shares, upon any liquidation,
dissolution or winding-up of the Company, are entitled to share ratably in any
assets remaining after payment in full of all liabilities of the Company and all
preferences of the holders of any outstanding preferred shares. The common
shares possess ordinary voting rights, each share entitling the holder thereof
to one vote. Holders of common shares do not have cumulative voting rights in
the election of directors and do not have preemptive rights.
 
  Preferred Shares
 
     The Board of Directors is authorized to provide for the issuance of two
classes of preferred shares (collectively, the Preferred Shares), each in one or
more series, to establish the number of shares in each series and to fix the
designation, powers, preferences and rights (other than voting rights) of each
series and the qualifications, limitations or restrictions thereon. An aggregate
of ten million Preferred Shares are
 
                                      F-10
<PAGE>   36
 
                             BOYKIN LODGING COMPANY
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
 
authorized. Because the Board of Directors has the power to establish the
preferences and rights of each series of Preferred Shares, the Board of
Directors may afford the holders of any series of Preferred Shares preferences,
powers and rights senior to the rights of holders of common shares. The issuance
of Preferred Shares could have the effect of delaying or preventing a change in
control of the Company. No Preferred Shares had been issued or were outstanding
as of December 31, 1996.
 
6.  EXTRAORDINARY ITEM:
 
     In acquiring the Initial Hotels, the Partnership assumed the underlying
mortgage indebtedness of the properties. Using a portion of the proceeds from
(i) the sale of the general partnership interest to the Company, and (ii) the
Note, the Partnership retired all of the mortgage indebtedness. In connection
therewith, an extraordinary loss of $5,878 was incurred for the payment of
prepayment penalties and other fees ($5,821) and the writeoff of deferred
financing costs ($57).
 
7.  PERCENTAGE LEASE AGREEMENTS:
 
     The Percentage Leases have noncancelable terms ranging from four to 10
years, subject to earlier termination on the occurrence of certain
contingencies, as defined. The rent due under each Percentage Lease is the
greater of minimum rent, as defined, or percentage rent. Percentage rent
applicable to room and other hotel revenue varies by lease and is calculated by
multiplying fixed percentages by the total amounts of such revenues over
specified threshold amounts. Both the minimum rent and the revenue thresholds
used in computing percentage rents are subject to annual adjustments beginning
January 1, 1997, based on increases in the United States Consumer Price Index.
Percentage rent applicable to food and beverage revenues is calculated as 6% of
such revenues. Percentage Lease revenue for the period November 4, 1996 through
December 31, 1996 was $3,258, of which approximately $306 was in excess of
minimum rent.
 
     Future minimum rentals (ignoring CPI increases) to be received by the
Company from the Lessee pursuant to the Percentage Leases for each of the next
five years and in total thereafter are as follows:
 
<TABLE>
            <S>                                                         <C>
            1997......................................................  $ 18,640
            1998......................................................    18,640
            1999......................................................    18,640
            2000......................................................    18,640
            2001......................................................    12,737
            Thereafter................................................    31,455
                                                                        --------
                                                                        $118,752
                                                                        ========
</TABLE>
 
8.  SHARE COMPENSATION PLANS:
 
     The Company has a Long-Term Incentive Plan (LTIP) which provides for the
granting to eligible employees of incentive or nonqualified share options,
restricted shares, deferred shares, share purchase rights and share appreciation
rights in tandem with options, or any combination thereof. The Company has
reserved 1,000,000 common shares for issuance under the LTIP. The term of each
option granted will not exceed ten years from date of grant, and the exercise
price may not be less than 100% of the fair market value of the Company's common
shares on the grant date. On November 4, 1996, the Company granted options to
purchase an aggregate of 400,000 common shares to certain executives. No other
awards or grants have been made under the LTIP as of December 31, 1996.
 
     The Company has adopted the disclosure only provisions of Statement of
Financial Accounting Standards (SFAS) No. 123, "Accounting for Stock-Based
Compensation," and applies Accounting Principles Board Opinion No. 25 and
related interpretations in accounting for its employee share option plan. If the
Company had elected to recognize compensation costs for the LTIP based on the
fair value at the grant dates
 
                                      F-11
<PAGE>   37
 
                             BOYKIN LODGING COMPANY
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
 
for option awards consistent with the method prescribed by SFAS No. 123, net
loss and net loss per share would have been changed to the pro forma amounts
indicated below.
 
<TABLE>
<CAPTION>
                                                            AS REPORTED     PRO FORMA
                                                            -----------     ---------
            <S>                                             <C>             <C>
            Net loss......................................    $(4,107)       $(4,166)
            Net loss per share............................       (.46)          (.46)
</TABLE>
 
The fair value of employee share options used to compute the pro forma net loss
and net loss per share disclosures is the Black-Scholes option pricing model
with the following weighted average assumptions: dividend yield of 7.75%;
expected volatility of 17.3%; a risk free interest rate of 6.32% and an expected
holding period of 8.5 years.
 
     On November 4, 1996, nonemployee directors received options for the
purchase of an aggregate of 25,000 shares, exercisable at $20 per share on and
after November 4, 1997. These options have a term of 10 years and will vest
fully one year after the grant date.
 
     At December 31, 1996, the Company had outstanding 425,000 options to
purchase shares at a weighted average exercise price of $20, none of which were
exercisable at December 31, 1996.
 
     The weighted average fair value of the Company's options granted during the
period ended December 31, 1996 is $1.59 per option.
 
9.  COMMITMENTS:
 
     The Percentage Leases require the Company to establish aggregate minimum
reserves of 4% of total revenue of the Initial Hotels for capital expenditures.
The Company intends to use the capital expenditures reserve for the replacement
and refurbishment of furniture, fixtures and equipment and other capital
expenditures although it may make other uses of the amounts in the fund that it
considers appropriate from time to time.
 
  Other
 
     The land on which one of the Initial Hotels is located is leased under an
operating lease agreement expiring in 2033 which can be extended to 2051. The
lease requires minimum annual rentals of $100, and percentage rentals based on
hotel revenues. The Partnership or the Initial Hotel, as applicable, is
responsible for all taxes, insurance and maintenance on the property. Rental
expense charged to operations for the land lease was as follows:
 
<TABLE>
            <S>                                                             <C>
            Minimum rent..................................................  $  8
            Percentage rent...............................................   100
                                                                            ----
                                                                            $108
                                                                            ====
</TABLE>
 
10.  RELATED PARTY TRANSACTIONS:
 
     The Chairman, President and Chief Executive Officer of the Company is the
majority shareholder of the Lessee. The Lessee was the sole source of the
Company's Percentage Lease revenue in 1996. At December 31, 1996, the Company
has rent receivable of $306 due from the Lessee.
 
     At December 31, 1996, the Company has a payable to the Lessee of $681,
primarily for the reimbursement of capital expenditure costs incurred on behalf
of the Company.
 
     The Initial Hotels were acquired by the Partnership from entities in which
certain officers of the Company and their affiliates had substantial ownership
interests. These officers and their affiliates received 1,222,143 Partnership
units in exchange for their interests in the hotel properties.
 
                                      F-12
<PAGE>   38
 
                             BOYKIN LODGING COMPANY
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
 
11.  STATEMENT OF CASH FLOWS, SUPPLEMENTAL DISCLOSURES:
 
     During the period November 4, 1996 to December 31, 1996, noncash investing
and financing transactions were as follows: (i) in connection with the Offering,
approximately $64,000 of historical net book value in hotel properties was
contributed to the Partnership in exchange for Partnership units and the
Partnership assumed approximately $140,000 of debt, and (ii) approximately
$3,000 of dividends and Partnership distributions were declared but not paid as
of December 31, 1996.
 
12.  PRO FORMA FINANCIAL INFORMATION:
 
     The pro forma financial information set forth below is presented as if the
Offering and the related formation transactions had been consummated as of
January 1, 1995. The pro forma financial information is not necessarily
indicative of what actual results of operations of the Company would have been
assuming the Offering and the related formation transactions had been
consummated as of January 1, 1995 nor does it purport to represent the results
of operations for future periods.
 
<TABLE>
<CAPTION>
                                                                           YEAR ENDED
                                                                          DECEMBER 31,
                                                                       -------------------
                                                                        1996        1995
                                                                       -------     -------
                                                                           (UNAUDITED)
    <S>                                                                <C>         <C>
    Lease revenue....................................................  $27,811     $25,521
    Interest income..................................................      120          --
                                                                       -------     -------
      Total revenue..................................................   27,931      25,521
    Real estate related depreciation and amortization................    8,136       8,136
    Real estate and personal property taxes, insurance and ground
      rent...........................................................    4,058       3,893
    General and administrative.......................................    1,450       1,450
    Amortization of deferred financing costs.........................      436         436
                                                                       -------     -------
    Income before minority interest and extraordinary item...........   13,851      11,606
    Minority interest................................................    1,557       1,210
                                                                       -------     -------
    Income before extraordinary item.................................  $12,294     $10,396
                                                                       =======     =======
    Income per share before extraordinary item.......................  $  1.29     $  1.09
                                                                       =======     =======
</TABLE>
 
13.  SUBSEQUENT EVENTS:
 
     Subsequent to December 31, 1996, the Company acquired two hotel properties
for an aggregate consideration of $16.8 million which was funded with cash
proceeds from the Offering. The hotel properties acquired were the 118-room
Hilton Melbourne Beach in Melbourne, Florida and the 176-room Holiday Inn
Crabtree in Raleigh, North Carolina. The Company plans to invest approximately
$3 million in capital improvements in the Holiday Inn Crabtree over the next
twelve months. The funds for these improvements will come from borrowings under
the credit facility. These properties were leased to the Lessee which will
operate the properties under long-term Percentage Leases. Also, in March 1997,
the Company purchased the real and personal property of the Whitehall Inn
located in Daytona Beach, Florida. The Company's total investment was $4.2
million, which was funded with cash proceeds from the Offering. The Company will
discontinue operations at the Whitehall Inn in April 1997 at which time a
complete renovation of the property will begin. The renovation, which is
expected to cost $4 million, will be funded from borrowings under the credit
facility. The Company expects to begin business operations as a resort with a
major hotel franchise affiliation in January 1998. The property will be leased
to the Lessee which will manage the resort under a long-term Percentage Lease.
 
                                      F-13
<PAGE>   39
 
                             BOYKIN LODGING COMPANY
 
            SCHEDULE III -- REAL ESTATE AND ACCUMULATED DEPRECIATION
 
                            AS OF DECEMBER 31, 1996
 
                                 (IN THOUSANDS)
<TABLE>
<CAPTION>
                                                                  COSTS CAPITALIZED
                                                                    SUBSEQUENT TO           GROSS AMOUNTS AT WHICH
                                             INITIAL COST            ACQUISITION          CARRIED AT CLOSE OF PERIOD
                                        ----------------------  ---------------------  --------------------------------
                                                 BUILDINGS AND          BUILDINGS AND           BUILDINGS AND
       DESCRIPTION        ENCUMBRANCES   LAND    IMPROVEMENTS    LAND   IMPROVEMENTS    LAND    IMPROVEMENTS   TOTAL(A)
--------------------------------------  -------  -------------  ------  -------------  -------  -------------  --------
<S>                       <C>           <C>      <C>            <C>     <C>            <C>      <C>            <C>
Berkeley Marina Marriott,
  Berkeley, California....    $   --    $    --     $10,807     $           $  10      $    --     $10,817     $ 10,817
Buffalo Marriott,
  Buffalo, New York.......        --      1,164      15,174         --         --        1,164      15,174       16,338
Cleveland Airport
  Marriott,
  Cleveland, Ohio.........        --      1,175      11,441         --         --        1,175      11,441       12,616
Cleveland Marriott East,
  Beachwood, Ohio.........        --      1,918      19,514         --        101        1,918      19,615       21,533
Columbus Marriott North,
  Columbus, Ohio..........        --      1,635      12,873         --         76        1,635      12,949       14,584
Melbourne Oceanfront
  Quality
  Suites Inn, Melbourne,
  Florida.................        --      3,092       7,819         --        254        3,092       8,073       11,165
Radisson Inn Sanibel
  Gateway,
  Ft. Myers, Florida......        --        718       2,686         --         --          718       2,686        3,404
Hampton Inn,
  Charlotte, North
  Carolina................        --        490       4,131         --          1          490       4,132        4,622
Holiday Inn,
  Charlotte, North
  Carolina................        --        700       4,435         --         15          700       4,450        5,150
                             ------     -------     -------     -------   -------      -------     -------     --------
    Total.................    $   --    $10,892     $88,880     $   --      $ 457      $10,892     $89,337     $100,229
                             ======     =======     =======     =======   =======      =======     =======     ========
 
<CAPTION>
 
                             ACCUMULATED                                                   LIFE ON WHICH
                            DEPRECIATION     NET BOOK VALUE                               DEPRECIATION IN
                            BUILDINGS AND  LAND AND BUILDINGS    DATE OF       DATE OF    INCOME STATEMENT
       DESCRIPTION          IMPROVEMENTS    AND IMPROVEMENTS   CONSTRUCTION  ACQUISITION    IS COMPUTED
--------------------------  -------------  ------------------  ------------  -----------  ----------------
<S>                        <C>             <C>                 <C>           <C>          <C>
Berkeley Marina Marriott,
  Berkeley, California....      $  91           $ 10,726           1972          1996         20 years
Buffalo Marriott,
  Buffalo, New York.......        103             16,235           1981          1996         25 years
Cleveland Airport
  Marriott,
  Cleveland, Ohio.........        103             12,513           1970          1996         20 years
Cleveland Marriott East,
  Beachwood, Ohio.........        135             21,398           1977          1996         25 years
Columbus Marriott North,
  Columbus, Ohio..........         90             14,494           1981          1996         25 years
Melbourne Oceanfront
  Quality
  Suites Inn, Melbourne,
  Florida.................         45             11,120           1986          1996         30 years
Radisson Inn Sanibel
  Gateway,
  Ft. Myers, Florida......         15              3,389           1986          1996         30 years
Hampton Inn,
  Charlotte, North
  Carolina................         23              4,599           1991          1996         30 years
Holiday Inn,
  Charlotte, North
  Carolina................         25              5,125           1987          1996         30 years
                                 ----            -------
    Total.................      $ 630           $ 99,599
                                 ====            =======
</TABLE>
 
---------------
 
(a) Aggregate cost for federal income tax reporting purposes at December 31,
    1996 is as follows:
 
<TABLE>
            <S>                                                <C>
            Land.............................................  $  8,572
            Buildings and improvements.......................    98,405
                                                               --------
                                                               $106,977
                                                               ========
</TABLE>
 
                                      F-14
<PAGE>   40
 
                    REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
 
To Boykin Lodging Company:
 
     We have audited the accompanying combined balance sheets of the Initial
Hotels, as defined in Note 1 to the combined financial statements, as of
November 3, 1996 and December 31, 1995, and the related combined statements of
operations, partners' deficit and cash flows for the period January 1, 1996 to
November 3, 1996 and the years ended December 31, 1995 and 1994. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
 
     We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
 
     In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of the Initial Hotels as of
November 3, 1996 and December 31, 1995, and the combined results of their
operations and their cash flows for the period January 1, 1996 to November 3,
1996 and the years ended December 31, 1995 and 1994, in conformity with
generally accepted accounting principles.
 
                                            ARTHUR ANDERSEN LLP
 
Cleveland, Ohio,
  February 25, 1997.
 
                                      F-15
<PAGE>   41
 
                                 INITIAL HOTELS
 
                            COMBINED BALANCE SHEETS
 
                  AS OF NOVEMBER 3, 1996 AND DECEMBER 31, 1995
 
                                 (IN THOUSANDS)
 
<TABLE>
<CAPTION>
                                                                NOVEMBER 3,     DECEMBER 31,
                                                                   1996             1995
                                                                -----------     ------------
<S>                                                             <C>             <C>
ASSETS
Investments in hotel properties, at cost:
  Land........................................................   $   8,572        $  7,382
  Buildings and improvements..................................      97,213          89,371
  Furniture and equipment.....................................      38,842          36,099
  Construction in progress....................................       1,054           1,036
                                                                  --------        --------
                                                                   145,681         133,888
  Less- Accumulated depreciation..............................      69,080          63,311
                                                                  --------        --------
  Net investment in hotel properties..........................      76,601          70,577
Cash and cash equivalents.....................................       5,302           2,909
Accounts receivable, net of allowance for doubtful accounts of
  $20 at November 3, 1996 and $34 at December 31, 1995........       4,290           2,369
Insurance claim receivable....................................          --             913
Receivables from affiliate....................................         625             129
Inventories...................................................         458             480
Prepaids and other assets.....................................       1,079             788
Cash held in escrow...........................................       2,370           2,607
Deferred expenses, net........................................       2,315           2,560
                                                                  --------        --------
                                                                 $  93,040        $ 83,332
                                                                  ========        ========
 
LIABILITIES AND PARTNERS' DEFICIT
Mortgage notes payable........................................   $ 132,588        $122,203
Advances from and accrued interest due to partners............       7,979           7,751
Accounts payable:
  Trade.......................................................       1,703           1,490
  Affiliate...................................................           4              75
  Management fees to related party............................       1,166             943
  Bank overdraft..............................................         138           1,402
Accrued expenses and other liabilities........................       6,961           5,728
Commitments and contingencies.................................
                                                                  --------        --------
                                                                   150,539         139,592
Partners' deficit.............................................     (57,499)        (56,260)
                                                                  --------        --------
                                                                 $  93,040        $ 83,332
                                                                  ========        ========
</TABLE>
 
            The accompanying notes to combined financial statements
             are an integral part of these combined balance sheets.
 
                                      F-16
<PAGE>   42
 
                                 INITIAL HOTELS
 
                       COMBINED STATEMENTS OF OPERATIONS
 
            FOR THE PERIOD JANUARY 1, 1996 THROUGH NOVEMBER 3, 1996
                 AND THE YEARS ENDED DECEMBER 31, 1995 AND 1994
 
                                 (IN THOUSANDS)
 
<TABLE>
<CAPTION>
                                                                PERIOD
                                                              JANUARY 1,        YEARS ENDED
                                                                THROUGH         DECEMBER 31,
                                                              NOVEMBER 3,    ------------------
                                                                 1996         1995       1994
                                                              -----------    -------    -------
<S>                                                           <C>            <C>        <C>
Revenues from hotel operations:
  Room revenue..............................................    $51,627      $50,730    $48,652
  Food and beverage revenue.................................     20,062       22,984     22,811
  Other revenue.............................................      4,148        4,490      4,092
                                                                -------      -------    -------
     Total revenues.........................................     75,837       78,204     75,555
                                                                -------      -------    -------
Expenses:
  Departmental expenses:
     Rooms..................................................     11,683       11,896     11,869
     Food and beverage......................................     14,613       16,597     16,924
     Other..................................................      2,124        2,313      1,986
  General and administrative................................      6,574        6,832      6,906
  Advertising and promotion.................................      3,027        3,253      3,191
  Utilities.................................................      3,039        3,245      3,346
  Management fees to related party..........................      3,366        3,280      2,882
  Franchisor royalties and other charges....................      4,081        3,813      2,952
  Repairs and maintenance...................................      3,468        3,771      3,728
  Real estate and personal property taxes, insurance and
     rent...................................................      3,228        3,579      3,329
  Interest expense..........................................     12,802       13,430     11,324
  Interest expense on partner advances......................        628          739      1,073
  Depreciation and amortization.............................      6,308        6,545      5,690
  Unallocated business interruption insurance (income)
     expense................................................        118         (474)        --
  Gain on property insurance recovery.......................        (32)        (670)        --
  Other.....................................................        274          103        183
                                                                -------      -------    -------
     Total expenses.........................................     75,301       78,922     75,383
                                                                -------      -------    -------
     Income (loss) before extraordinary item................        536          (48)       172
Extraordinary item -- gain (loss) on early extinguishment of
  debt......................................................     (1,315)         556         --
                                                                -------      -------    -------
Net income (loss)...........................................    $  (779)     $   508    $   172
                                                                =======      =======    =======
</TABLE>
 
            The accompanying notes to combined financial statements
               are an integral part of these combined statements.
 
                                      F-17
<PAGE>   43
 
                                 INITIAL HOTELS
 
                    COMBINED STATEMENTS OF PARTNERS' DEFICIT
 
            FOR THE PERIOD JANUARY 1, 1996 THROUGH NOVEMBER 3, 1996
                 AND THE YEARS ENDED DECEMBER 31, 1995 AND 1994
 
                                 (IN THOUSANDS)
 
<TABLE>
<CAPTION>
                                                                                  NET
                                                                                COMBINED
                                                                                PARTNERS'
                                                                                (DEFICIT)
                                                                                --------
     <S>                                                                        <C>
     Balance, December 31, 1993.............................................    $(66,795)
       Net income...........................................................         172
       Cash distributions...................................................        (574)
                                                                                --------
     Balance, December 31, 1994.............................................     (67,197)
       Net income...........................................................         508
       Capital contributions................................................       7,811
       Cash distributions...................................................      (2,015)
       Redemption of partnership interests, net of $9,357
          aggregate cash redemption payments................................       4,633
                                                                                --------
     Balance, December 31, 1995.............................................     (56,260)
       Net loss.............................................................        (779)
       Capital contributions................................................       1,638
       Cash distributions...................................................      (2,029)
       Net loss of Pacific Ohio Partners for the period October 1, 1995 to
          December 31, 1995 excluded from these statements..................         (69)
                                                                                --------
     Balance, November 3, 1996..............................................    $(57,499)
                                                                                ========
</TABLE>
 
            The accompanying notes to combined financial statements
               are an integral part of these combined statements.
 
                                      F-18
<PAGE>   44
 
                                 INITIAL HOTELS
 
                       COMBINED STATEMENTS OF CASH FLOWS
 
            FOR THE PERIOD JANUARY 1, 1996 THROUGH NOVEMBER 3, 1996
                 AND THE YEARS ENDED DECEMBER 31, 1995 AND 1994
 
                                 (IN THOUSANDS)
 
<TABLE>
<CAPTION>
                                                            PERIOD
                                                          JANUARY 1,          YEARS ENDED
                                                            THROUGH           DECEMBER 31,
                                                          NOVEMBER 3,     --------------------
                                                             1996           1995        1994
                                                          -----------     --------     -------
<S>                                                       <C>             <C>          <C>
Cash flows from operating activities:
  Net income (loss).....................................   $    (779)     $    508     $   172
  Adjustments to reconcile net income (loss) to net cash
     provided by operating activities --
     Net loss of Pacific Ohio Partners for the period
       October 1, 1995 to December 31, 1995, excluded
       from the combined statements of operations.......         (69)           --          --
     Depreciation and amortization expense..............       8,897         7,645       5,756
     Deferred interest expense on partner advances......         628           705         989
     Extraordinary loss (gain) on early extinguishment
       of debt..........................................       1,315          (556)         --
     Gain on property insurance recovery................          --          (670)         --
     Payments for franchise fees and other deferred
       costs............................................        (156)           --          --
     Changes in assets and liabilities --
       Receivables......................................      (1,824)         (264)        155
       Inventories, prepaids and other assets...........        (269)         (221)        311
       Cash held in escrow..............................         237          (711)         61
       Accounts payable, accrued expenses and other
          liabilities...................................         334           739         256
                                                            --------       -------     -------
          Net cash provided by operating activities.....       8,314         7,175       7,700
                                                            --------       -------     -------
Cash flows from investing activities:
  Improvements and additions to hotel properties, net...      (3,061)       (5,366)     (4,746)
  Acquisition of hotels.................................      (9,721)           --          --
  Property insurance proceeds received, net.............         320         1,122          --
                                                            --------       -------     -------
          Net cash used for investing activities........     (12,462)       (4,244)     (4,746)
                                                            --------       -------     -------
Cash flows from financing activities:
  Principal payments on mortgage notes payable..........   $ (43,417)     $(54,082)    $  (872)
  Proceeds from refinancing and new borrowings of
     mortgage debt......................................      51,173        66,250          --
  Payment of debt prepayment premium and debt issuance
     costs..............................................        (424)       (4,473)         --
  Payments on advances from partners....................        (400)         (529)        (42)
  Capital contributions.................................       1,638           188          --
  Cash distributions paid...............................      (2,029)       (2,015)       (574)
  Redemptions of partnership interests..................          --        (9,357)         --
                                                            --------       -------     -------
          Net cash provided by (used for) financing
            activities..................................       6,541        (4,018)     (1,488)
                                                            --------       -------     -------
Net change in cash and cash equivalents.................       2,393        (1,087)      1,466
Cash and cash equivalents at beginning of period........       2,909         3,996       2,530
                                                            --------       -------     -------
Cash and cash equivalents at end of period..............   $   5,302      $  2,909     $ 3,996
                                                            ========       =======     =======
Supplemental disclosures of cash flow information:
  Cash paid during the period for interest..............   $  10,088      $ 12,056     $11,499
Supplemental schedule of noncash investing and financing
  activities:
  Contributions of partner advances to capital..........   $      --      $  7,623     $    --
  Mortgage principal forgiven...........................          --         2,335          --
  Prepayment penalty financed with additional
     borrowing..........................................       1,246            --          --
</TABLE>
 
            The accompanying notes to combined financial statements
               are an integral part of these combined statements.
 
                                      F-19
<PAGE>   45
 
                                 INITIAL HOTELS
 
                     NOTES TO COMBINED FINANCIAL STATEMENTS
 
             AS OF NOVEMBER 3, 1996 AND DECEMBER 31, 1995 AND 1994
 
                         (DOLLAR AMOUNTS IN THOUSANDS)
 
1.  ORGANIZATION AND BASIS OF PRESENTATION:
 
  Organization
 
     The Initial Hotels consist of the following hotels:
 
<TABLE>
<CAPTION>
                                                              NUMBER OF
           PROPERTY NAME                    LOCATION            ROOMS
-----------------------------------  -----------------------  ---------
<S>                                  <C>                      <C>
Berkeley Marina Marriott...........  Berkeley, California        373
Buffalo Marriott...................  Buffalo, New York           356
Cleveland Airport Marriott.........  Cleveland, Ohio             375
Cleveland Marriott East............  Beachwood, Ohio             403
Columbus Marriott North............  Columbus, Ohio              300
Melbourne Quality Suites Inn.......  Melbourne, Florida          208
Radisson Inn Sanibel Gateway.......  Ft. Myers, Florida          157
Hampton Inn........................  Charlotte, N. Carolina      117
Holiday Inn........................  Charlotte, N. Carolina      119
</TABLE>
 
     Boykin Management Company (BMC) was involved in the development of each of
the above hotels except the Hampton Inn and Holiday Inn and has managed all of
the Initial Hotels excluding the Hampton Inn and Holiday Inn since their
respective inceptions. The hotels were owned by partnerships (Boykin
Partnerships) in which the shareholders of The Boykin Company (TBC), BMC's
parent company, and certain officers and employees of BMC (collectively, BMC
Affiliates) have significant direct and indirect ownership interests.
 
     As of November 3, 1996, the Initial Hotels were owned as follows:
 
<TABLE>
<CAPTION>
                                                                          PARTNERSHIP
                                                                            INTEREST
                                                                       ------------------
                                                                          BMC       THIRD
                                                                       AFFILIATES   PARTY
                                                                       ----------   -----
        <S>                                                            <C>          <C>
        Berkeley Marina Associates, L.P. (BMLP)......................     100%        0%
        Buffalo Hotel Joint Venture (BHJV)...........................      50%       50%
        Pacific Ohio Partners (POP)..................................     100%        0%
        Beachwood Hotel Joint Venture (Beachwood)....................      35%       65%
        Columbus Hotel Joint Venture (CHJV)..........................      50%       50%
        Melbourne Oceanfront Hotel Associates (MOHA).................     100%        0%
        Fort Myers Hotel Partnership (FMHP)..........................     100%        0%
        B.B.G., I, L.L.C. (BBG)......................................      46%       54%
</TABLE>
 
     Boykin Lodging Company (the Company) is an Ohio corporation which has been
established to acquire equity interests in hotel properties.
 
     The Company sold 8,275,000 shares of its common stock in an initial public
offering on November 4, 1996. On November 29, 1996, the underwriters exercised
their overallotment option and purchased an additional 1,241,250 of the
Company's common shares (together with the initial public offering, the
Offering). The Company contributed all of the net proceeds of the Offering to
Boykin Hotel Properties, L.P., an Ohio limited partnership (the Partnership) in
exchange for an approximate 84.5% general partnership interest and a $40 million
convertible note (the Note). The Company will elect to be taxed as a real estate
investment trust pursuant to Sections 856 -- 860 of the Internal Revenue Code.
 
     The partners of the Boykin Partnerships contributed their respective
partnership interests to the Partnership in exchange for cash and partnership
interests. The Partnership used a portion of the proceeds from the sale of the
general partnership interest and the Note to the Company to retire mortgage
indebtedness
 
                                      F-20
<PAGE>   46
 
                                 INITIAL HOTELS
 
              NOTES TO COMBINED FINANCIAL STATEMENTS -- CONTINUED
 
encumbering the Initial Hotels. All of the Initial Hotels are leased to Boykin
Management Company Limited Liability Company (the Lessee) pursuant to operating
leases which contain provisions for rent based on the revenues of the Initial
Hotels. The Lessee is an affiliate of TBC.
 
  Basis of Presentation
 
     Management believes that these combined financial statements result in a
more meaningful presentation of the Initial Hotel businesses acquired by the
Partnership and thus appropriately reflect the historical financial position and
results of operations of the predecessor of the Company. All significant
intercompany balances and transactions have been eliminated.
 
2.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
 
  Accounting Periods
 
     For 1994 and 1995, all of the Boykin Partnerships except POP and BBG have
been included in the accompanying combined financial statements based on a
December 31 year-end. The accompanying combined financial statements as of
December 31, 1994 and 1995 include the accounts of POP as of September 30, 1994
and 1995. See Note 3 for discussion of BBG.
 
     For the period ended November 3, 1996, POP's operating results were
adjusted to exclude the three-month period October 1, 1995 to December 31, 1995.
The total revenues and net loss of POP excluded from the combined statements of
operations for the period ended November 3, 1996 were $3,328 and $69,
respectively.
 
     In the opinion of management, the effect of nonconforming period ends is
not material to the combined financial statements.
 
  Hotel Properties
 
     Hotel properties are stated at cost. Depreciation is computed using
primarily the straight-line method based upon the following estimated useful
lives:
 
<TABLE>
            <S>                                                        <C>
            Buildings and improvements...............................  7-40 years
            Furniture and equipment..................................  3-20 years
</TABLE>
 
     The partners and management of the Boykin Partnerships review the hotel
properties for impairment when events or changes in circumstances indicate the
carrying amounts of the hotel properties may not be recoverable. When such
conditions exist, management estimates the future cash flows from operations and
disposition of the hotel properties. If the estimated undiscounted future cash
flows are less than the carrying amount of the asset, an adjustment to reduce
the carrying amount to the related hotel property's estimated fair market value
would be recorded and an impairment loss would be recognized. No such impairment
losses have been recognized.
 
     Maintenance and repairs are charged to operations as incurred; major
renewals and betterments are capitalized. Upon the sale or disposition of a
fixed asset, the asset and related accumulated depreciation are removed from the
accounts, and the gain or loss is included in the determination of net income or
loss.
 
  Cash and Cash Equivalents
 
     All highly liquid investments with an original maturity date of three
months or less when purchased are considered to be cash equivalents.
 
                                      F-21
<PAGE>   47
 
                                 INITIAL HOTELS
 
              NOTES TO COMBINED FINANCIAL STATEMENTS -- CONTINUED
 
  Inventories
 
     Inventories consisting primarily of food and beverages and gift store
merchandise are stated at the lower of first-in, first-out cost or market.
 
  Cash Held in Escrow
 
     Cash held in escrow consists of amounts for real estate taxes remitted to
the lenders which hold the mortgages on the hotel facilities and amounts
deposited for the replacement of hotel real and personal property pursuant to
the terms of certain mortgage and franchise agreements.
 
  Deferred Expenses
 
     Deferred expenses consist of initial franchise fees and deferred loan
costs. Amortization of initial franchise fees is computed on a straight-line
basis over the terms of the franchise agreements while deferred loan costs are
amortized over the terms of the related loan agreements. The amortization of
deferred loan costs of $805, $519 and $66 for the period ended November 3, 1996,
and for the years ended December 31, 1995 and 1994, respectively, is included in
interest expense in the accompanying combined statements of operations.
Accumulated amortization of deferred expenses was $1,472 and $1,002 at November
3, 1996 and December 31, 1995, respectively.
 
  Revenue Recognition
 
     Revenue is recognized as earned. Ongoing credit evaluations are performed
and an allowance for potential credit losses is provided against the portion of
accounts receivable which is estimated to be uncollectible. Such losses have
been within management's expectations.
 
  Income Taxes
 
     The Boykin Partnerships are not subject to federal or state income taxes;
however, they must file informational income tax returns and the partners must
take income or loss of the Boykin Partnerships into consideration when filing
their respective tax returns.
 
  Management's Use of Estimates in the Preparation of Financial Statements
 
     The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
 
3.  ACQUISITION:
 
     On February 8, 1996, BBG acquired the Holiday Inn and Hampton Inn from
Norman Associates and Norman Associates II in exchange for aggregate cash
consideration of $9,721. BBG funded the purchase price with first and second
mortgage debt borrowings aggregating $9,500 and contributed capital. The
acquisition was accounted for as a purchase and, accordingly, the operating
results of the Holiday Inn and Hampton Inn have been included in the
accompanying combined financial statements commencing February 8, 1996.
 
4.  MORTGAGE NOTES PAYABLE:
 
     Mortgage notes payable had various repayment terms and had various
scheduled maturity dates during the period 1998 to 2004. Interest rates on the
mortgage notes ranged from 8.54% to 13.25%. Certain of the mortgage notes
required the payment of additional interest upon maturity or repayment in full.
The additional
 
                                      F-22
<PAGE>   48
 
                                 INITIAL HOTELS
 
              NOTES TO COMBINED FINANCIAL STATEMENTS -- CONTINUED
 
interest was charged to interest expense utilizing the effective interest rate
method over the contractual term of the notes and was $1,383 for the period
ended November 3, 1996 and $583 for the year ended December 31, 1995. All of the
mortgage notes payable were collateralized by investments in hotel properties
and were paid off with a portion of the proceeds from the Offering.
 
  Debt Extinguishment
 
     In May 1995, FMHP, MOHA, POP and BMLP refinanced their respective existing
mortgage indebtedness, realizing a net extraordinary gain of $556 on the early
extinguishment of debt. The net extraordinary gain was related to the
forgiveness of $2,335 of principal due on the FMHP mortgage reduced by the
payment of prepayment premiums and the writeoff of unamortized deferred
financing costs on the POP and BMLP mortgages. In addition to retiring existing
indebtedness, the refinancing proceeds were used to redeem partnership interests
held by non-BMC Affiliate partners of BMLP, MOHA and POP (Note 8).
 
     The refinancing and concurrent payment of a prepayment penalty on the BHJV
note resulted in an extraordinary loss due to the early extinguishment of debt
in the amount of $1,315 for the period ended November 3, 1996.
 
5.  PROPERTY DAMAGE FROM HURRICANE:
 
     On August 2, 1995, certain hotel property of MOHA was damaged by
wind-driven rain associated with hurricane Erin. The damage led to the temporary
closure of the hotel until restoration of the damaged property took place. The
temporary closure reduced the available room nights for the year ended December
31, 1995 by 20,430 rooms, or 27% of the otherwise available room nights.
Management estimated that the temporary closure resulted in $1,261 in lost
revenue, and $1,093 in lost net income.
 
     MOHA made a business interruption insurance claim for reimbursement of the
lost net income. Included in the combined statement of operations for the year
ended December 31, 1995 was $1,093 of income related to this claim. This income
was offset against departmental expenses and various other expense categories in
the aggregate amounts of $178 and $441, respectively.
 
     In addition, MOHA made a property insurance claim for the damage to hotel
property. The difference between the proceeds received from this claim and the
net book value of the damaged property was reflected in the combined statement
of operations for 1995 as a gain on property insurance recovery. The costs of
replacing and renovating the damaged property have been capitalized as additions
to hotel property in the accompanying combined balance sheet.
 
     MOHA submitted its claims to its insurance carrier in 1995, and believed
that the claims were in accordance with the terms of the related insurance
policies. However, in 1996 the business interruption insurance claim was settled
for $975. Accordingly, a loss of $118 has been reflected in the accompanying
combined statements of operations for the period ended November 3, 1996. The
insurance carrier did not adjust the property insurance claim.
 
6.  RELATED PARTY TRANSACTIONS:
 
     A substantial portion of the Initial Hotels' management and accounting
functions were performed by BMC, for a fee computed as specified in each hotel's
management agreement. The base management fee is based on percentages of hotel
revenues of 3% or 3.5% except for the Holiday Inn and Hampton Inn for which the
fees are calculated as 5% of hotel revenues. In addition, if specified operating
results are achieved, an incentive fee was due to BMC. The management agreements
with BMC expired at various dates through September 30, 2010.
 
     Certain other costs relating to purchasing and design services are incurred
by an affiliate of BMC and billed to the hotels. Such purchases approximated
$110, $143 and $148 for the period ended November 3,
 
                                      F-23
<PAGE>   49
 
                                 INITIAL HOTELS
 
              NOTES TO COMBINED FINANCIAL STATEMENTS -- CONTINUED
 
1996 and the years ended December 31, 1995 and 1994, respectively. Furthermore,
the hotels made purchases of hotel furnishings through an affiliate of BMC.
These purchases amounted to approximately $956, $2,531 and $1,823 for the period
ended November 3, 1996 and the years ended December 31, 1995 and 1994,
respectively.
 
     Receivables from and payables to affiliates represent amounts due from or
to BMC and its affiliates applicable to insurance charges and various other
items.
 
     BBG paid a 1% asset management fee to an affiliate of its third-party
owner.
 
     Until October 1994, the hotels maintained a "fully insured program under a
Minimum Premium Contract" for various insurance benefits offered to enrolled
employees under an insurance plan which included other entities affiliated with
BMC. The hotels provided a pro-rata share of expense required by the plan which
was based upon enrolled employees at each hotel. The total amount of such shared
expenses billed to the hotels approximated $1,176 for 1994. In October 1994, the
plan was terminated and replaced with a fully-insured plan which requires the
payment of monthly premiums.
 
7.  ADVANCES FROM PARTNERS:
 
     Partner advances consisted of the following:
 
<TABLE>
<CAPTION>
                                                                NOVEMBER 3,     DECEMBER 31,
                                                                   1996             1995
                                                                -----------     ------------
<S>                                                             <C>             <C>
Advances from partners used to complete construction and to
  fund operation, bearing interest at 10% per annum...........    $ 2,637          $2,637
Accrued interest payable on advances from partners............      5,342           5,114
                                                                   ------          ------
                                                                  $ 7,979          $7,751
                                                                   ======          ======
</TABLE>
 
     The advances from partners and related accrued interest therein were paid
off by the Partnership with a portion of the proceeds from the Offering.
 
     Total interest expense on partner advances was $628 for the period ended
November 3, 1996 and $739 and $1,073 for the years ended December 31, 1995 and
1994, respectively.
 
8.  CHANGES IN OWNERSHIP:
 
     In May 1995, in connection with the refinancing discussed in Note 4, MOHA,
BMLP and POP redeemed their respective partnership interests held by non-BMC
Affiliates and BMC Affiliates were admitted as new partners. In addition, FMHP
redeemed its partnership interest held by BMLP. As a result of the redemptions,
BMC Affiliates own 100% of these partnerships. The aggregate cash redemption
price paid to non-BMC Affiliates was $9,357. For each partnership, the
difference between the redemption price paid and the related capital account
balances of the partners redeemed was recorded as an adjustment of the carrying
value of the respective investments in hotel properties of MOHA, FMHP, BMLP and
POP.
 
     The purchase accounting adjustment recorded, which was equal to the cash
paid to redeem the partnership interests plus the deficit capital account
balances of the redeemed partners at the time of the redemptions, was an
aggregate increase in the carrying value of the investments in hotel property as
follows:
 
<TABLE>
            <S>                                                          <C>
            Buildings and improvements.................................   $10,230
            Furniture and equipment....................................     3,760
                                                                          -------
                                                                          $13,990
                                                                          =======
</TABLE>
 
                                      F-24
<PAGE>   50
 
                                 INITIAL HOTELS
 
              NOTES TO COMBINED FINANCIAL STATEMENTS -- CONTINUED
 
9.  COMMITMENTS AND CONTINGENCIES:
 
  Claims and Legal Matters
 
     Certain of the hotels are involved in claims and legal matters incidental
to their businesses. In the opinion of management, the ultimate resolution of
these matters will not have a material impact on the financial position or
results of operations of the hotels.
 
  Franchise Agreements
 
     Under the terms of hotel franchise agreements, annual payments for
franchise royalties and reservation and advertising services are due from the
hotels. For eight of the hotels, fees are computed based upon percentages of
gross room revenues. At November 3, 1996, the franchise royalty fees payable by
the Initial Hotels ranged from 3% to 6% of room revenues while the fees for
advertising services ranged from .8% to 4%. For MOHA, the payment is a flat fee
ranging from $6 per month in 1994 to $12 per month in 1998; in 1999 and
thereafter, the fee at MOHA will be at 6% of gross room revenues. The franchise
agreements expire at various dates through 2014.
 
     In January 1994, MOHA executed an amended franchise agreement. The amended
agreement provided for the forgiveness of $600 of unpaid fees accrued under the
original franchise agreement through December 31, 1993. Such amount is reflected
as a reduction of franchisor royalties and other charges for 1994.
 
     The franchise agreements contain provisions whereby the franchisor would be
entitled to additional payments in the event the franchisees would terminate the
franchise agreements prior to maturity.
 
  Other
 
     The land on which the Berkeley Marina Marriott is located is leased under
an operating lease agreement expiring in 2033 which can be extended to 2051. The
lease requires minimum annual rentals of $100, and percentage rentals based on
hotel revenues. BMLP is responsible for all taxes, insurance and maintenance on
the property. Rental expense charged to operations for the land lease were as
follows:
 
<TABLE>
<CAPTION>
                                                          JANUARY 1,       YEAR ENDED
                                                              TO          DECEMBER 31,
                                                         NOVEMBER 3,      -------------
                                                             1996         1995     1994
                                                         ------------     ----     ----
        <S>                                              <C>              <C>      <C>
        Minimum rent...................................      $ 93         $100     $100
        Percentage rent................................       535          584      550
                                                             ----         ----     ----
                                                             $628         $684     $650
                                                             ====         ====     ====
</TABLE>
 
10.  FAIR VALUE OF FINANCIAL INSTRUMENTS:
 
     Statement of Financial Accounting Standards No. 107 requires disclosure
about fair value for all financial instruments, whether or not recognized for
financial statement purposes. Disclosure about fair value of financial
instruments is based on pertinent information available to management as of the
balance sheet date. Considerable judgment is necessary to interpret market data
and develop estimated fair value. Accordingly, the estimates presented herein
are not necessarily indicative of the amounts which could be realized on
disposition of the financial instruments. The use of different market
assumptions and/or estimation methodologies may have a material effect on the
estimated fair value amounts.
 
  Cash Equivalents
 
     Management estimates that the fair value of cash equivalents approximates
carrying value due to the relative short maturity of these instruments.
 
                                      F-25
<PAGE>   51
 
                                 INITIAL HOTELS
 
              NOTES TO COMBINED FINANCIAL STATEMENTS -- CONTINUED
 
  Long-Term Debt
 
     Management estimates that the fair values of mortgage and other long-term
debt approximate carrying values based upon the hotels' effective borrowing rate
for issuance of debt with similar terms and remaining maturities.
 
11.  PRO FORMA FINANCIAL INFORMATION:
 
     Following is pro forma data assuming that (i) the acquisition of the
Holiday Inn and the Hampton Inn discussed in Note 3, and (ii) the redemptions of
the non-BMC affiliates discussed in Note 8 and the related refinancing discussed
in Note 4 had occurred at the beginning of 1995. The pro forma adjustments to
historical operating results are (i) to increase depreciation expense for the
effect of the purchase accounting adjustments to the carrying values of
investments in hotel properties; (ii) to adjust management fee expense for FMHP,
MOHA, BMLP and POP to 4.5% of hotel revenues as required by the terms of the
refinancing and to adjust management fee expense of the Holiday Inn and Hampton
Inn; and (iii) to increase interest expense to reflect the terms of the new
mortgage debt and the amortization of related deferred financing costs.
 
<TABLE>
<CAPTION>
                                                                UNAUDITED
                                                      -----------------------------
                                                         PERIOD
                                                       JANUARY 1,
                                                           TO           YEAR ENDED
                                                        NOVEMBER       DECEMBER 31,
                                                        3, 1996            1995
                                                      ------------     ------------
          <S>                                         <C>              <C>
          Total revenues............................    $ 76,228         $ 83,071
          Loss before extraordinary items...........        (817)          (2,477)
          Net loss..................................      (2,132)          (1,921)
</TABLE>
 
                                      F-26
<PAGE>   52
 
                    REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
 
To the Board of Directors of
Boykin Management Company
Limited Liability Company:
 
     We have audited the accompanying consolidated balance sheet of Boykin
Management Company Limited Liability Company (an Ohio limited liability company)
and subsidiaries as of December 31, 1996, and the related statements of
operations, members' capital and cash flows for the period November 4, 1996
(inception of operations) through December 31, 1996. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audit.
 
     We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
 
     In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Boykin Management Company
Limited Liability Company and subsidiaries as of December 31, 1996 and the
results of their operations and their cash flows for the period November 4, 1996
(inception of operations) through December 31, 1996 in conformity with generally
accepted accounting principles.
 
                                                   ARTHUR ANDERSEN LLP
 
Cleveland, Ohio,
  February 25, 1997.
 
                                      F-27
<PAGE>   53
 
                           BOYKIN MANAGEMENT COMPANY
 
                   LIMITED LIABILITY COMPANY AND SUBSIDIARIES
 
               CONSOLIDATED BALANCE SHEET AS OF DECEMBER 31, 1996
 
                                 (IN THOUSANDS)
 
<TABLE>
<S>                                                                                  <C>
ASSETS
Cash and cash equivalents..........................................................  $ 5,469
Accounts receivable-
  Trade, net of allowance for doubtful accounts of $68.............................    2,933
  Boykin Hotel Properties, L.P.....................................................      681
  Former owners....................................................................       69
Inventories........................................................................      470
Property and equipment, net........................................................      312
Prepaid expenses and other assets..................................................      587
                                                                                     -------
                                                                                     $10,521
                                                                                     =======
LIABILITIES AND MEMBERS' CAPITAL
Rent payable to Boykin Hotel Properties, L.P.......................................  $   306
Accounts payable-
  Trade............................................................................    1,567
  Advance deposits.................................................................      224
  Bank overdraft liability.........................................................    1,234
  Former owners....................................................................      373
  Affiliate........................................................................      267
  Other............................................................................        8
Accrued Expenses-
  Accrued payroll..................................................................      716
  Accrued vacation.................................................................      784
  Accrued sales, use and occupancy taxes...........................................      702
  Other accrued liabilities........................................................    1,786
                                                                                     -------
                                                                                       7,967
Members' capital-
  Capital contributed..............................................................    3,000
  Retained deficit.................................................................     (446)
                                                                                     -------
                                                                                       2,554
                                                                                     -------
                                                                                     $10,521
                                                                                     =======
</TABLE>
 
                 The accompanying notes to financial statements
                  are an integral part of this balance sheet.
 
                                      F-28
<PAGE>   54
 
                           BOYKIN MANAGEMENT COMPANY
 
                   LIMITED LIABILITY COMPANY AND SUBSIDIARIES
 
                      CONSOLIDATED STATEMENT OF OPERATIONS
 
           FOR THE PERIOD NOVEMBER 4, 1996 (INCEPTION OF OPERATIONS)
                           THROUGH DECEMBER 31, 1996
 
                                 (IN THOUSANDS)
 
<TABLE>
<S>                                                                                  <C>
Revenues:
  Room revenue.....................................................................  $ 7,684
  Food and beverage revenue........................................................    3,976
  Other hotel revenue..............................................................      620
  Other revenue....................................................................      382
                                                                                     -------
       Total revenues..............................................................   12,662
                                                                                     -------
Expenses:
  Departmental expenses of hotels-
     Rooms.........................................................................    2,066
     Food and beverage.............................................................    2,894
     Other.........................................................................      360
  Cost of goods sold of nonhotel operations........................................      102
  Percentage lease expense.........................................................    3,258
  General and administrative.......................................................    1,884
  Advertising and promotion........................................................      609
  Utilities........................................................................      558
  Franchisor royalties and other charges...........................................      665
  Repairs and maintenance..........................................................      674
  Depreciation and amortization....................................................       19
  Other............................................................................       19
                                                                                     -------
       Total expenses..............................................................   13,108
                                                                                     -------
Net loss...........................................................................  $  (446)
                                                                                     =======
</TABLE>
 
                 The accompanying notes to financial statements
                    are an integral part of this statement.
 
                                      F-29
<PAGE>   55
 
                           BOYKIN MANAGEMENT COMPANY
 
                   LIMITED LIABILITY COMPANY AND SUBSIDIARIES
 
                   CONSOLIDATED STATEMENT OF MEMBERS' CAPITAL
 
           FOR THE PERIOD NOVEMBER 4, 1996 (INCEPTION OF OPERATIONS)
                           THROUGH DECEMBER 31, 1996
 
                                 (IN THOUSANDS)
 
<TABLE>
<CAPTION>
                                                                CONTRIBUTED     RETAINED
                                                                  CAPITAL       DEFICIT      TOTAL
                                                                -----------     --------     ------
<S>                                                             <C>             <C>          <C>
Capital contribution..........................................    $ 3,000        $   --      $3,000
Net income....................................................         --          (446)       (446)
                                                                   ------         -----      ------
Balance at December 31, 1996..................................    $ 3,000        $ (446)     $2,554
                                                                   ======         =====      ======
</TABLE>
 
                 The accompanying notes to financial statements
                    are an integral part of this statement.
 
                                      F-30
<PAGE>   56
 
                           BOYKIN MANAGEMENT COMPANY
 
                   LIMITED LIABILITY COMPANY AND SUBSIDIARIES
 
                      CONSOLIDATED STATEMENT OF CASH FLOWS
 
           FOR THE PERIOD NOVEMBER 4, 1996 (INCEPTION OF OPERATIONS)
                           THROUGH DECEMBER 31, 1996
 
                                 (IN THOUSANDS)
 
<TABLE>
<S>                                                                                  <C>
Cash flows from operating activities:
  Net loss.........................................................................  $  (446)
  Adjustments to reconcile net loss to net cash used by operating activities-
       Depreciation and amortization...............................................       19
       Gain on fixed asset disposal................................................      (11)
       Changes in assets and liabilities-
          Accounts receivable......................................................    3,231
          Inventories..............................................................      (12)
          Prepaid expenses and other assets........................................      531
          Accounts payable.........................................................      952
          Rent payable.............................................................      306
          Other accrued liabilities................................................   (5,210)
                                                                                     -------
            Net cash used by operating activities..................................     (640)
                                                                                     -------
Cash flows from investing activities:
  Property additions...............................................................       (1)
  Consideration from sale of fixed asset...........................................       36
  Cash of predecessor entities at date of merger...................................    7,678
  Collection of affiliate note receivable..........................................    3,109
                                                                                     -------
            Net cash provided by investing activities..............................   10,822
                                                                                     -------
Cash flows from financing activities:
  Repayment of debt................................................................   (1,420)
  Payments of obligations to former owners.........................................   (3,529)
  Collections of amounts due from former owners....................................      236
                                                                                     -------
            Net cash used by financing activities..................................   (4,713)
                                                                                     -------
Net increase in cash and cash equivalents..........................................    5,469
Cash and cash equivalents, beginning of period.....................................       --
                                                                                     -------
Cash and cash equivalents, end of period...........................................  $ 5,469
                                                                                     =======
</TABLE>
 
                 The accompanying notes to financial statements
                    are an integral part of this statement.
 
                                      F-31
<PAGE>   57
 
                           BOYKIN MANAGEMENT COMPANY
 
                   LIMITED LIABILITY COMPANY AND SUBSIDIARIES
 
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
                               DECEMBER 31, 1996
 
1.  DESCRIPTION OF BUSINESS:
 
     Boykin Management Company Limited Liability Company and its subsidiaries
(collectively, the Lessee) (i) manage and operate full and limited service
hotels located throughout the United States; (ii) provide national purchasing
services to hotels, and (iii) provide interior design services to hotels and
other business.
 
2.  ORGANIZATION:
 
     The Lessee commenced operations on November 4, 1996 as an Ohio limited
liability company. The Lessee is effectively owned by Robert W. Boykin (53.8%)
and John E. Boykin (46.2%). Robert W. Boykin is the Chairman, President and
Chief Executive Officer of Boykin Lodging Company (the Company).
 
     Pursuant to formation transactions related to the November 4, 1996 initial
public offering of the Company, Boykin Management Company (BMC) and Bopa Design
Company (doing business as Spectrum Services), wholly owned subsidiaries of The
Boykin Company (TBC), were merged into subsidiaries of the Lessee. In addition,
Purchasing Concepts, Inc. (PCI) contributed its assets to a subsidiary of the
Lessee and that subsidiary assumed PCI's liabilities. TBC and PCI are related
through common ownership. The Lessee and its subsidiaries are the successors to
the businesses of BMC, Spectrum Services and PCI. As the Lessee, BMC, Spectrum
Services and PCI were related through common ownership; there were no purchase
accounting adjustments to the historical carrying values of the assets and
liabilities of BMC, Spectrum Services and PCI upon merger into or contribution
to the subsidiaries of the Lessee. In connection with the formation of the
Lessee, certain assets and liabilities of the Initial Hotels (Note 4) were
assumed by the Lessee.
 
3.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
 
     Principles of Consolidation -- The accompanying consolidated financial
statements include the accounts of the Lessee and all of its majority-owned
subsidiaries. All material intercompany transactions and balances have been
eliminated.
 
     Cash Equivalents -- All highly liquid investments with a maturity of three
months or less when purchased are considered to be cash equivalents.
 
     Inventories -- Inventories consisting primarily of food and beverages and
gift store merchandise are stated at the lower of first-in, first-out cost or
market.
 
     Property and Equipment -- Property and equipment is comprised of the
following at December 31, 1996:
 
<TABLE>
          <S>                                                                 <C>
          Leasehold improvements............................................  $ 69
          Furniture and equipment...........................................   262
                                                                              ----
                                                                               331
          Less-Accumulated depreciation and amortization....................   (19)
                                                                              ----
                                                                              $312
                                                                              ====
</TABLE>
 
     Property and equipment is stated at cost. Depreciation is calculated using
the straight-line and accelerated methods based upon the following estimated
useful lives.
 
<TABLE>
          <S>                                                             <C>
          Leasehold improvements........................................   7-10 years
          Furniture and equipment.......................................   3-10 years
</TABLE>
 
                                      F-32
<PAGE>   58
 
                           BOYKIN MANAGEMENT COMPANY
 
                   LIMITED LIABILITY COMPANY AND SUBSIDIARIES
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
 
     The management of the Lessee reviews the property and equipment for
impairment when events or changes in circumstances indicate the carrying amounts
of the assets may not be recoverable. When such conditions exist, management
estimates the future cash flows from operations and disposition of the property
and equipment. If the estimated undiscounted future cash flows are less than the
carrying amount of the asset, an adjustment to reduce the carrying amount to the
related assets estimated fair market value would be recorded and an impairment
loss would be recognized.
 
     Maintenance and repairs are charged to operations as incurred. Upon the
sale or disposition of a fixed asset, the asset and related accumulated
depreciation are removed from the accounts and the gain or loss is included in
the determination of net income or loss.
 
     Revenue Recognition -- Revenue is recognized as earned. Ongoing credit
evaluations are performed and an allowance for potential credit losses is
provided against the portion of accounts receivable which is estimated to be
uncollectible. Such losses have been within management's expectations.
 
     Franchise Costs -- The cost of obtaining the franchise licenses is paid by
Boykin Hotel Properties, L.P (the Partnership) and the ongoing franchise fees
are paid by the Lessee. These fees are generally computed as a percentage of
room revenue for each hotel in accordance with franchise agreements.
 
     Income Taxes -- The Lessee is a limited liability company which is taxed
for federal income tax purposes as a partnership and, accordingly, no income tax
provision has been recorded by the Lessee.
 
     Use of Estimates -- The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
 
4.  PERCENTAGE LEASE AGREEMENTS:
 
     The Lessee leases nine hotels (the Initial Hotels) from the Partnership, a
partnership in which the Company has a general partnership interest, pursuant to
long-term leases (Percentage Leases). The Initial Hotels are located in
Cleveland, Ohio (2), Columbus, Ohio; Buffalo, New York; Berkeley, California;
Charlotte, North Carolina (2); Ft. Myers, Florida; and Melbourne, Florida.
 
     The Percentage Leases have noncancelable terms ranging from four to ten
years, subject to earlier termination on the occurrence of certain
contingencies, as defined. The Percentage Leases do not contain renewal terms.
The Lessee is required to pay the higher of minimum rent, as defined, or a
percentage rent. Percentage rent applicable to room and other hotel revenue
varies by lease and is calculated by multiplying fixed percentages by the total
amounts of such revenues over specified threshold amounts. Percentage rent
related to food and beverage revenues is at 6% of such revenues in all of the
Percentage Leases. Both the threshold amounts used in computing percentage rent
and minimum rent are subject to annual adjustments beginning January 1, 1997
based on increases in the United States Consumer Price Index.
 
     Other than real estate and personal property taxes, casualty insurance and
capital improvements, which are obligations of the Partnership, the Percentage
Leases require the Lessee to pay all costs and expenses incurred in the
operation of the Initial Hotels.
 
     The Percentage Leases require the Lessee to indemnify the Company against
all liabilities, costs and expenses incurred by, imposed on or asserted against
the Partnership in the normal course of operating the Initial Hotels.
 
                                      F-33
<PAGE>   59
 
                           BOYKIN MANAGEMENT COMPANY
 
                   LIMITED LIABILITY COMPANY AND SUBSIDIARIES
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
 
     Future minimum rent (ignoring CPI increases) to be paid by the Lessee under
the Percentage Leases at December 31, 1996 for each of the next five years ended
December 31 and in total thereafter is as follows:
 
                          <TABLE>
                          <S>            <C>
                          1997.......    $ 18,640
                          1998.......      18,640
                          1999.......      18,640
                          2000.......      18,460
                          2001.......      12,737
                          Thereafter..     31,455
                                         --------
                                         $118,752
                                         ========
</TABLE>
 
     Rent expense for the period November 4, 1996 through December 31, 1996 was
$3,258 of which approximately $306 was in excess of minimum rent.
 
5.  COMMITMENTS AND CONTINGENCIES:
 
  Claims and Legal Matters
 
     The Lessee is involved in claims and legal matters incidental to its
businesses. In the opinion of management, the ultimate resolution of these
matters will not have a material impact on the financial position or results of
operations of the Lessee.
 
  Franchise Agreements
 
     Under the terms of hotel franchise agreements, annual payments for
franchise royalties and reservation and advertising services are due from the
hotels. For eight of the hotels, fees are computed based upon percentages of
gross room revenues. At December 31, 1996, the franchise royalty fees payable by
the hotels ranged from 3% to 6% of room revenues while the fees for advertising
services ranged from .8 to 4.0%. For the Melbourne, Florida hotel, the payment
is a flat fee ranging from $6 per month in 1994 to $12 per month in 1998; in
1999 and thereafter, the fee will be at 6% of gross room revenues. The franchise
agreements expire at various dates through 2014.
 
  Other
 
     Robert W. Boykin and John E. Boykin have entered into an agreement with the
Company pursuant to which they have agreed that any distributions received from
the Lessee (in excess of their tax liabilities with respect to the income of the
Lessee) for a period of 10 years, and any net cash proceeds from any sale of the
Lessee within the same 10-year period, will be used to purchase units in the
Partnership or common shares of the Company. Any units or common shares so
purchased must be held for at least two years from the purchase date.
 
     Pursuant to an agreement with the Company, during the first 10 years after
the inception of operations of the Lessee, 50% of the Lessee's consolidated
earnings (after distributions to cover income taxes) will be retained in the
Lessee until its consolidated net worth reaches 25% of the aggregate annual rent
payments under the Percentage Leases (and will be retained thereafter during
that period to maintain that level).
 
6.  OTHER RELATED PARTY TRANSACTIONS:
 
     At December 31, 1996, the Lessee has a receivable from the Partnership of
$681, primarily for the reimbursement of capital expenditure costs incurred on
behalf of the Partnership.
 
                                      F-34
<PAGE>   60
 
                           BOYKIN MANAGEMENT COMPANY
 
                   LIMITED LIABILITY COMPANY AND SUBSIDIARIES
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
 
     At December 31, 1996, the Lessee has a receivable from ($69) and a payable
to ($373) the former owners of the subsidiaries of the Lessee and the Initial
Hotels.
 
     At December 31, 1996, the Lessee has a payable to The Boykin Group of $267
related to the formation of the Lessee.
 
7.  FAIR VALUE OF FINANCIAL INSTRUMENTS:
 
     Statement of Financial Accounting Standards No. 107 requires all entities
to disclose the fair value of certain financial instruments in their financial
statements. The primary financial instruments of the Lessee are cash and cash
equivalents, the fair value of which approximates historical carrying value due
to the short maturity of these instruments.
 
8.  PRO FORMA FINANCIAL INFORMATION (UNAUDITED):
 
     The following unaudited pro forma condensed statements of operations for
the years ended December 31, 1996 and 1995 are presented as if the Lessee leased
and operated from January 1, 1995 all of the Initial Hotels owned by the
Partnership as of December 31, 1996.
 
     The pro forma condensed statements of operations do not purport to present
what actual results of operations would have been if the Initial Hotels were
operated by the Lessee pursuant to the Percentage Leases from January 1, 1995 or
to project results for any future period.
 
<TABLE>
<CAPTION>
                                                                  (UNAUDITED) YEAR
                                                                 ENDED DECEMBER 31,
                                                                 -------------------
                                                                  1996        1995
                                                                 -------     -------
          <S>                                                    <C>         <C>
          Room revenue.........................................  $59,650     $54,785
          Food and beverage revenue............................   24,099      23,643
          Other hotel revenue..................................    4,783       4,643
          Other revenue........................................    2,777       2,051
                                                                 -------
            Total revenues.....................................   91,309      85,122
          Departmental expenses of hotels......................   33,881      32,350
          Cost of goods sold of nonhotel operations............    1,686       1,254
          Percentage Lease expense.............................   27,811      25,521
          Other expenses.......................................   26,994      24,251
                                                                 -------     -------
            Net income.........................................  $   937     $ 1,746
                                                                 =======     =======
</TABLE>
 
                                      F-35
<PAGE>   61
 
                    REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
 
To Boykin Management Company, Purchasing Concepts, Inc.
and Bopa Design Company:
 
     We have audited the accompanying combined statements of net assets of
Boykin Management Company (an Ohio corporation), Purchasing Concepts, Inc. (an
Ohio corporation) and Bopa Design Company (an Ohio corporation) as of November
3, 1996 and March 31, 1996 and the related combined statements of revenues and
expenses for the period January 1, 1996 through November 3, 1996 and for the
years ended March 31, 1996 and 1995. These financial statements are the
responsibility of the Companies' management. Our responsibility is to express an
opinion on these financial statements based on our audits.
 
     We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
 
     The accompanying financial statements have been prepared to present the
combined net assets of Boykin Management Company, Purchasing Concepts, Inc. and
Bopa Design Company which were merged into or contributed to subsidiaries of
Boykin Management Company Limited Liability Company pursuant to the formation
transactions referred to in Note 2 and the related combined revenues and
expenses of such businesses. These financial statements are not intended to be a
complete presentation of the combined assets, liabilities, revenues and expenses
of Boykin Management Company, Purchasing Concepts, Inc. and Bopa Design Company.
 
     In our opinion, the financial statements referred to above present fairly,
in all material respects, the combined net assets of Boykin Management Company,
Purchasing Concepts, Inc. and Bopa Design Company as of November 3, 1996 and
March 31, 1996 merged into or contributed to subsidiaries of Boykin Management
Company Limited Liability Company pursuant to the formation transactions
referred to in Note 2, and the revenues and expenses related to such net assets
for the period January 1, 1996 through November 3, 1996 and for the years ended
March 31, 1996 and 1995 in conformity with generally accepted accounting
principles.
 
                                                   ARTHUR ANDERSEN LLP
 
Cleveland, Ohio,
  February 25, 1997.
 
                                      F-36
<PAGE>   62
 
              BOYKIN MANAGEMENT COMPANY, PURCHASING CONCEPTS, INC.
                            AND BOPA DESIGN COMPANY
 
                       COMBINED STATEMENTS OF NET ASSETS
 
                                 (IN THOUSANDS)
 
<TABLE>
<CAPTION>
                                                                        NOVEMBER 3,     MARCH 31,
                                                                           1996           1996
                                                                        -----------     ---------
<S>                                                                     <C>             <C>
Cash and cash equivalents.............................................    $     7        $    --
Management fees and other receivables due from:
  Affiliates..........................................................      5,048          3,997
  Other...............................................................        516            386
Property and equipment, net...........................................        355            324
Prepaid expenses, deposits and other assets...........................         39            183
                                                                           ------        -------
     Total assets.....................................................      5,965          4,890
                                                                           ------        -------
Accounts payable:
  Affiliates..........................................................         97             92
  Bank overdraft liability............................................        258            256
  Other...............................................................        148            188
Advance billings for design services..................................         43            161
Accrued payroll.......................................................        230            179
Other accrued expenses................................................        482            228
Notes payable.........................................................      1,420          1,570
                                                                           ------        -------
     Total liabilities................................................      2,678          2,674
                                                                           ------        -------
Net assets............................................................    $ 3,287        $ 2,216
                                                                           ======        =======
</TABLE>
 
          The accompanying notes to combined financial statements are
                 an integral part of these combined statements.
 
                                      F-37
<PAGE>   63
 
              BOYKIN MANAGEMENT COMPANY, PURCHASING CONCEPTS, INC.
                            AND BOPA DESIGN COMPANY
 
                  COMBINED STATEMENTS OF REVENUES AND EXPENSES
 
                                 (IN THOUSANDS)
 
<TABLE>
<CAPTION>
                                                                  PERIOD
                                                                JANUARY 1,         YEAR ENDED
                                                                  THROUGH           MARCH 31,
                                                                NOVEMBER 3,     -----------------
                                                                   1996          1996       1995
                                                                -----------     ------     ------
<S>                                                             <C>             <C>        <C>
Revenues:
  Management fees-
     Affiliates...............................................    $ 3,402       $3,817     $3,231
     Other....................................................        731          337        359
  Design and other fees-
     Affiliates...............................................      1,646        2,819      1,612
     Other....................................................      1,435        1,212      1,611
  Interest income-
     Affiliates...............................................        225          268        243
     Other....................................................         --            5         14
  Other.......................................................        203          175        157
                                                                   ------       ------     ------
       Total revenues.........................................      7,642        8,633      7,227
                                                                   ------       ------     ------
Expenses:
  Cost of sales and operating expenses........................      3,003        3,720      2,821
  Selling, general and administrative expenses................      2,943        2,733      2,502
  Depreciation and amortization expense.......................         81           85         78
  Rent........................................................        100          105        119
  Interest....................................................         91          170        181
  Expenses associated with attempted public offering..........         --           --      1,335
  Other, net..................................................        (38)          --          8
                                                                   ------       ------     ------
       Total expenses.........................................      6,180        6,813      7,044
                                                                   ------       ------     ------
Revenues in excess of expenses................................    $ 1,462       $1,820     $  183
                                                                   ======       ======     ======
</TABLE>
 
            The accompanying notes to combined financial statements
               are an integral part of these combined statements.
 
                                      F-38
<PAGE>   64
 
              BOYKIN MANAGEMENT COMPANY, PURCHASING CONCEPTS, INC.
                            AND BOPA DESIGN COMPANY
 
                     NOTES TO COMBINED FINANCIAL STATEMENTS
 
                         (DOLLAR AMOUNTS IN THOUSANDS)
 
1.  DESCRIPTION OF BUSINESSES:
 
     Boykin Management Company (BMC), a wholly owned subsidiary of The Boykin
Company (TBC), and certain of its subsidiaries managed and operated full and
limited service hotels located throughout the United States pursuant to
management agreements. See Note 4 for further discussion of the management
agreements. Purchasing Concepts, Inc. (PCI), related to TBC through common
ownership, provided national purchasing services to hotels and restaurants. Bopa
Design Company (doing business as Spectrum Services), a wholly owned subsidiary
of TBC since January 1, 1996, provided interior design services to hotels and
other businesses. Certain of the hotels managed by BMC and served by PCI and
Spectrum Services were related to BMC, PCI and Spectrum Services through common
ownership.
 
2.  BASIS OF PRESENTATION:
 
     Pursuant to formation transactions related to the November 4, 1996 initial
public offering of Boykin Lodging Company, BMC and Spectrum Services merged into
subsidiaries of Boykin Management Company Limited Liability Company (BMCL), a
newly formed Ohio Limited Liability Company. Prior to such mergers, BMC and
Spectrum Services transferred certain assets and liabilities to TBC pursuant to
an Assignment and Assumption Agreement. In addition, PCI contributed its assets
to a subsidiary of BMCL and that subsidiary assumed PCI's liabilities.
 
     BMCL and its subsidiaries are the successors to the businesses of BMC, PCI
and Spectrum Services. BMCL is the lessee of nine hotels formerly affiliated
with TBC which were acquired by Boykin Hotel Properties, L.P., a partnership in
which Boykin Lodging Company is the general partner. The hotels are leased
pursuant to long-term leases which provide for the payment of rents based on
percentages of hotel revenues.
 
     The accompanying financial statements present on a historical combined
basis the net assets of BMC, PCI and Spectrum Services that ultimately were
merged into or contributed to BMCL and its subsidiaries and the related revenues
and expenses of such businesses. Assets and liabilities of BMC, PCI and Spectrum
Services which were not merged into or contributed to BMCL and its subsidiaries
and the items of revenues and expenses related to such assets and liabilities
have been excluded from the accompanying financial statements. Accordingly, the
accompanying financial statements are not intended to be a complete presentation
of the combined assets, liabilities, revenues and expenses of BMC, PCI and
Spectrum Services (collectively, the Combined Entities).
 
3.  SIGNIFICANT ACCOUNTING POLICIES:
 
     The accompanying financial statements have been prepared on the accrual
basis of accounting. All significant intercompany balances and transactions have
been eliminated.
 
  Accounting Periods
 
     BMC had a March 31 fiscal year-end, whereas PCI and Spectrum Services
utilized calendar year-ends. The accompanying financial statements for the years
ended March 31, 1995 and 1996 combine the accounts of BMC as of and for the
years ended March 31, 1995 and 1996 with the accounts of PCI and Spectrum
Services as of and for the years ended December 31, 1994 and 1995, respectively.
Such combined periods are referred to as the years ended March 31, 1995 and
1996. The accompanying financial statements for the period January 1, 1996
through November 3, 1996 combine the accounts of BMC, PCI and Spectrum Services
as of November 3, 1996 and for the period January 1, 1996 through November 3,
1996. For the period ended November 3, 1996, the operating results of BMC have
been adjusted to include the three-month period January 1, 1996 through March
31, 1996. The total revenues and revenues in excess of expenses of BMC
 
                                      F-39
<PAGE>   65
 
              BOYKIN MANAGEMENT COMPANY, PURCHASING CONCEPTS, INC.
                            AND BOPA DESIGN COMPANY
 
              NOTES TO COMBINED FINANCIAL STATEMENTS -- CONTINUED
 
included in the combined statements of revenues and expenses for both the year
ended March 31, 1996 and the period January 1, 1996 through November 3, 1996
were $1,006 and $208, respectively.
 
  Cash and Cash Equivalents
 
     All highly liquid investments with an original maturity of three months or
less are considered to be cash equivalents.
 
  Income Taxes
 
     Income tax attributes of the Combined Entities were not assumed by BMCL or
its subsidiaries. As such, the accompanying combined statements of net assets
include no accrued or deferred income tax liabilities nor any future tax
benefits. The accompanying combined statements of revenues and expenses do not
reflect any federal income tax provisions as BMCL and its subsidiaries were
formed as pass-through entities for tax purposes.
 
     The taxable income of BMC was included in the consolidated federal income
tax return of its parent company, TBC. PCI and Spectrum Services (prior to
January 1, 1996) were S Corporations for federal income tax reporting purposes.
 
  Property and Equipment, Net
 
     Property and equipment, net is comprised of the following at November 3,
1996 and March 31, 1996:
 
<TABLE>
<CAPTION>
                                                                        NOVEMBER 3,     MARCH 31,
                                                                           1996           1996
                                                                        -----------     ---------
<S>                                                                     <C>             <C>
Leasehold improvements................................................     $ 132          $ 124
Furniture and equipment...............................................       696            607
                                                                           -----          -----
                                                                             828            731
Less-Accumulated depreciation and amortization........................      (473)          (407)
                                                                           -----          -----
                                                                           $ 355          $ 324
                                                                           =====          =====
</TABLE>
 
     Property and equipment are stated at cost. Depreciation is computed using
the straight-line and declining balance methods based upon the following
estimated useful lives:
 
<TABLE>
          <S>                                                             <C>
          Leasehold improvements........................................  7-10 years
          Furniture and equipment.......................................  3-10 years
</TABLE>
 
     Maintenance and repairs are charged to operations as incurred; major
renewals and betterments are capitalized. Upon the sale or disposition of a
fixed asset, the asset and related accumulated depreciation are removed from the
accounts and the gain or loss is included in the statement of revenues and
expenses.
 
  Revenue Recognition
 
     Revenue is recognized as earned pursuant to the terms of hotel management
agreements with respect to BMC, and as the services of PCI and Spectrum Services
are rendered. Ongoing credit evaluations are performed and an allowance for
potential credit losses is provided against the portion of accounts receivable
which is estimated to be uncollectible. Such losses have been within
management's expectations.
 
                                      F-40
<PAGE>   66
 
              BOYKIN MANAGEMENT COMPANY, PURCHASING CONCEPTS, INC.
                            AND BOPA DESIGN COMPANY
 
              NOTES TO COMBINED FINANCIAL STATEMENTS -- CONTINUED
 
MANAGEMENT'S USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS
 
     The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
 
4.  REVENUES:
 
     BMC has management agreements with several entities to manage the
operations of hotels and restaurants. Generally, BMC receives a fee based upon
percentages of revenues. In certain management contracts, BMC is entitled to
additional incentive fees in the event the managed property achieves specified
operating results. Certain contracts also include limitations on management
fees, or restrict payment of earned fees to BMC based upon the defined cash flow
of the related property. PCI provides national purchasing services to hotels and
restaurants and Spectrum Services provides interior design services to hotels
and other businesses.
 
     Revenues from affiliates in the accompanying combined statements of
revenues and expenses represent revenues earned by the Combined Entities on
goods or services provided to various hotel properties in which the respective
owners of the Combined Entities or their affiliates had direct or indirect
ownership interests.
 
     Other revenues consisted primarily of telephone commissions.
 
5.  NOTES PAYABLE:
 
     Notes payable consisted of the following:
 
<TABLE>
<CAPTION>
                                                                        NOVEMBER 3,     MARCH 31,
                                                                           1996           1996
                                                                        -----------     ---------
<S>                                                                     <C>             <C>
Installment note payable to a bank in quarterly installments of $75,
  plus interest at prime plus 1/2%; last installment due September 1,
  1999; guaranteed by TBC and certain TBC shareholders................    $   775        $   925
$1,000 line of credit with a bank, due on demand; bearing interest at
  prime; guaranteed by TBC and certain TBC shareholders...............        645            645
                                                                           ------         ------
                                                                          $ 1,420        $ 1,570
                                                                           ======         ======
</TABLE>
 
     All of the debt shown above was retired by BMCL upon completion of the
formation transactions discussed in Note 2.
 
6.  COMMITMENTS AND CONTINGENCIES:
 
     BMC was a guarantor of the mortgage debt (only in the event certain
specified limited events occur) of the following entities:
 
<TABLE>
<CAPTION>
                                                                      DEBT OUTSTANDING
                                   BORROWER                           NOVEMBER 3, 1996
          ----------------------------------------------------------  ----------------
          <S>                                                         <C>
          Melbourne Oceanfront Hotel Associates.....................      $ 13,129
          Fort Myers Hotel Partnership..............................         4,951
          Berkeley Marina Associates Limited Partnership............        29,290
          Pacific Ohio Partners.....................................        19,543
</TABLE>
 
                                      F-41
<PAGE>   67
 
              BOYKIN MANAGEMENT COMPANY, PURCHASING CONCEPTS, INC.
                            AND BOPA DESIGN COMPANY
 
              NOTES TO COMBINED FINANCIAL STATEMENTS -- CONTINUED
 
     All of the guaranteed debt shown above was paid off by Boykin Hotel
Properties, L.P. on November 4, 1996.
 
     In October 1992, BMC entered into a five-year lease agreement for office
space. The lease provides for two, three-year renewal options. The annual rent
is $126. As an incentive to enter into the lease, BMC received a $70 payment
from the lessor which is being recognized as a reduction of rent expense on a
straight-line basis over the five-year lease term.
 
     The Combined Entities are involved in claims and legal matters incidental
to their businesses. In the opinion of management of the Combined Entities, the
ultimate resolution of these matters will not have a material impact on the
financial position or the results of operations of the Combined Entities.
 
7.  RELATED PARTY TRANSACTIONS:
 
     Management fees and other receivables due from affiliates are comprised of
the following at November 3, 1996 and March 31, 1996:
 
<TABLE>
<CAPTION>
                                                                        NOVEMBER 3,     MARCH 31,
                                                                           1996           1996
                                                                        -----------     ---------
<S>                                                                     <C>             <C>
Management fees receivable............................................    $ 1,160        $   797
Design fees receivable................................................        140             65
Loans and interest receivable from Boykin Columbus Joint Venture
  (BCJV)..............................................................      3,109          2,941
Receivable from Boykin Lodging Company................................        514             --
Other (reimbursable expenses, etc.)...................................        125            194
                                                                           ------         ------
                                                                          $ 5,048        $ 3,997
                                                                           ======         ======
</TABLE>
 
     In general, the above amounts are due from partnerships or joint ventures
in which certain owners and officers of PCI, Spectrum Services or TBC, had
ownership interests. These partnerships or joint ventures owned hotel properties
which were managed by BMC.
 
     The shareholders of TBC, certain of their family members and certain
officers of BMC are material partners in BCJV. BMC advanced funds to BCJV in
connection with the construction of a hotel in Columbus, Ohio and to fund
operating deficits of that hotel. The loans receivable from BCJV accrued
interest at 10% per annum. Interest income earned on the loans to BCJV was $223,
$260 and $230 in the period January 1, 1996 through November 3, 1996 and the
years ended March 31, 1996 and 1995, respectively. The loans and interest
receivable from BCJV were paid off in connection with the initial public
offering of Boykin Lodging Company.
 
     The receivable from Boykin Lodging Company represents expenses incurred by
BMC related to the initial public offering of Boykin Lodging Company. These
expenses were reimbursed from the proceeds of the initial public offering.
 
     Accounts payable to affiliates are comprised of property insurance retro
premium adjustments and telephone commissions received by BMC and payable to the
various affiliated hotels at the respective statement dates.
 
     Advance billings for design services are related primarily to billings to
affiliates.
 
     BMC guaranteed the mortgage debt of Fort Myers Hotel Partnership until such
debt was refinanced in May 1995. Included in interest income from affiliates for
1995 was $33 of fee revenue related to the guarantee. No guarantee fee was
earned in 1996.
 
                                      F-42
<PAGE>   68
 
              BOYKIN MANAGEMENT COMPANY, PURCHASING CONCEPTS, INC.
                            AND BOPA DESIGN COMPANY
 
              NOTES TO COMBINED FINANCIAL STATEMENTS -- CONTINUED
 
8.  FAIR VALUE OF FINANCIAL INSTRUMENTS:
 
     Statement of Financial Accounting Standards No. 107 requires disclosure
about fair value for all financial instruments, whether or not recognized for
financial statement purposes. Disclosure about fair value of financial
instruments is based on pertinent information available to management as of
November 3, 1996 and March 31, 1996. Considerable judgment is necessary to
interpret market data and develop estimated fair value. Accordingly, the
estimates presented herein are not necessarily indicative of the amounts which
could be realized on disposition of the financial instruments. The use of
different market assumptions and/or estimation methodology may have a material
effect on the estimated fair value amounts.
 
  Cash Equivalents
 
     Management estimates that the fair value of cash equivalents approximates
carrying value due to the relatively short maturity of these instruments.
 
  Loans and Interest Receivable
 
     Management estimates that the fair value of the loans and interest
receivable from BCJV approximates carrying value based upon the discounted
expected cash flows at an interest rate commensurate with the creditworthiness
of BCJV.
 
  Notes Payable
 
     Management estimates that the fair values of notes payable approximate
carrying values based upon BMC's effective borrowing rate for issuance of debt
with similar terms and remaining maturities.
 
                                      F-43