<PAGE>
 
               UNITED STATES SECURITIES AND EXCHANGE COMMISSION
                            Washington, D.C. 20549
                                   FORM 10-K


      X    ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
  -----                                                                   
           EXCHANGE ACT OF 1934

For the fiscal year ended   December 31, 1996
                            -----------------

                                      OR
      TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
      EXCHANGE ACT OF 1934


For the transition period from                 to

Commission file number      1-9563
                       ----------------


                          AIRCOA HOTEL PARTNERS, L.P.
                          ---------------------------
            (Exact name of registrant as specified in its charter)


     State of Delaware                                  84-1042607
     -----------------                                  ----------
     (State or other jurisdiction of                   (I.R.S. Employer
     incorporation or organization)                     Identification No.)
     


     5775 DTC Boulevard, Suite 300
     Englewood, Colorado                                     80111
     ---------------------                                   -----
     (Address of principal executive offices)              (Zip Code)

Registrant's telephone number, including area code:        (303) 220-2000
                                                        -  --------------

Securities registered pursuant to Section 12(b) of the Act:  Name of each
                                                             exchange on which
                                                             registered:
Class A Depository Units                             American Stock Exchange

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

        Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
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 ((S)229.405 of this chapter) 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. [ ]

        The aggregate market value of the voting units held by non-affiliates of
the registrant, computed by reference to the price as of the close of trading on
March 3, 1997 was $3,284,332.

        There were 5,340,214 units outstanding of the registrant's Class A Units
as of March 3, 1997.

<PAGE>
 
                          AIRCOA HOTEL PARTNERS, L.P.
 
                         1996 FORM 10-K ANNUAL REPORT
 
                               Table of Contents
  
                                                                         Page
                                                                         ----
                                    PART I
 
Item 1.   Business.....................................................  I - 1
 
Item 2.   Properties...................................................  I - 3
 
Item 3.   Legal Proceedings............................................  I - 4
 
Item 4.   Submission of Matters to a Vote of Security Holders..........  I - 4
 
 
                                    PART II
 
Item 5.   Market for the Registrant's Partnership Units and
          Related Unitholder Matters................................... II - 1
 
Item 6.   Selected Financial Data...................................... II - 2
 
Item 7.   Management's Discussion and Analysis of Financial
          Condition and Results of Operations.......................... II - 3
 
Item 8.   Financial Statements and Supplementary Data.................. II - 9
 
Item 9.   Changes in and Disagreements with Accountants on
          Accounting and Financial Disclosure.......................... II - 9
 
 
                                   PART III
 
Item 10.  Directors and Executive Officers of the General
          Partner..................................................... III - 1
 
Item 11.  Payments and Compensation to General Partner and 
          Affiliates.................................................. III - 3
 
Item 12.  Security Ownership of Certain Beneficial
          Owners and Management....................................... III - 4
 
Item 13.  Certain Relationships and Related Transactions.............. III - 6
 
                                    PART IV

Item 14.  Exhibits, Financial Statement Schedules, and Reports on
          Form 8-K....................................................  IV - 1
<PAGE>
 
                         AIRCOA HOTEL PARTNERS, L. P.
                                AND SUBSIDIARY
                            OPERATING PARTNERSHIPS

                             FINANCIAL STATEMENTS

                          DECEMBER 31, 1996 AND 1995

<PAGE>
 
                                    PART I

Item 1.  Business
-------  --------

         GENERAL DEVELOPMENT OF BUSINESS

         AIRCOA Hotel Partners, L.P., a Delaware limited partnership ("AHP" or
         the "Partnership") was organized in December 1986, by AIRCOA
         Hospitality Services, Inc. ("AHS" or the "General Partner") to acquire,
         own, operate and sell hotels and resort properties. The Partnership
         owns and operates six hotel and resort properties (the "Properties")
         through operating partnerships (the "Operating Partnerships") which
         were acquired in 1986.

         The Partnership owns a 99% limited partner interest in each of the six
         Operating Partnerships which hold title to the Properties and through
         which the Partnership conducts all of its operations. AHS, a wholly
         owned subsidiary of Richfield Hospitality Services, Inc. ("Richfield"),
         is also the 1% general partner of each of the Operating Partnerships.
         Richfield operates the Properties for the Partnership under certain
         management agreements.

         FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS

         The Partnership's operations have been in one industry segment since
         formation. Revenue has been generated through the ownership and
         operation of the Properties. The following table reflects the sources
         of revenue and gross operating profit and total assets for each of the
         three years ended December 31, 1996, 1995 and 1994.

                                           (In thousands, except percentages)
                         1996                 1995                  1994
                    -----------------   ------------------   -------------------
                    Revenue   Percent   Revenue    Percent   Revenue     Percent
                    -------   -------   -------    -------   -------     -------

Rooms              $ 29,038    59.8%   $ 26,810     59.1%    $26,863      58.2%
Food and Beverage    12,272    25.3%     11,733     25.8%     12,274      26.6%
Other Property
 Operations           7,243    14.9%      6,856     15.1%      7,020      15.2%
                    -------   ------    -------    ------    -------     ------ 
Total Revenue      $ 48,553   100.0%   $ 45,399    100.0%   $ 46,157     100.0%
                    =======   ======    =======    ======    =======     ====== 
Gross Operating
 Profit            $ 14,625    30.1%   $ 12,799    28.1%    $ 13,566      29.4%
                    =======   ======    =======    ======    =======     ====== 
Total Assets       $ 70,131            $ 69,406             $ 73,542
                    =======             =======              =======

         Gross operating profit represents operating income of the Partnership
         before rent, taxes and insurance, management fees, depreciation,
         amortization and impairment of property. Gross operating profit is
         indicative of the profitability from operations of the Properties.

         Room revenue is significantly impacted by the rates obtained for rooms
         and the level of occupancy of the Properties. Although not in the same
         proportion, changes in occupancy also impact revenue generated from
         food and beverage and other property operations. Average daily room
         rates of the Properties were $64.26, $59.55, and $59.42 in 1996, 1995
         and 1994, respectively. Average occupancy levels for the Properties
         were 78.3%, 77.6%, and 77.9% in 1996, 1995 and 1994, respectively. For
         a discussion of the changes in various operating statistics, see Item
         7, Management's Discussion and Analysis of Financial Condition and
         Results of Operations.
<PAGE>
 
                       NARRATIVE DESCRIPTION OF BUSINESS

BUSINESS

The principal business of the Partnership is the ownership and operation of six
hotel and resort properties located in geographically diverse areas of the
continental United States.  The Properties are full service facilities serving
the vacation, leisure, meetings, convention and business segments of the hotel
market.  In addition to lodging, various guest services are offered by the
Properties including restaurants, lounges, banquet, room, valet, concierge,
parking and shuttle services.  Other services available at some of the
Properties include a marina, health and fitness facilities, swimming pools,
tennis courts, spas and retail facilities.

IMPORTANCE OF FRANCHISES AND TRADEMARKS

Three of the Properties are affiliated with national franchises and operate
under franchise agreements. The benefits of these franchise agreements include
national brand name recognition and world wide central reservation systems, as
well as operating quality standards and extensive marketing programs. Two of the
Properties are licensed to use the Regal trademark, which is sub-licensed to the
hotels by an affiliate of AHS.  The Partnership considers such affiliations and
licenses to be important to the operations and success of the Properties in
regard to customer recognition and satisfaction.  Other properties may be
licensed in the future to use the Regal trademark.

SEASONALITY OF BUSINESS

Because of the Properties' locations, occupancy levels are generally lower in
the first and fourth quarters and higher in the second and third quarters of the
year.  These fluctuations are consistent with the normal recurring seasonal
patterns of the industry.

INDUSTRY PRACTICES

The Properties periodically offer discounts to contract and group customers and
room rates generally fluctuate during peak and non-peak times of the year.
Deposits are often obtained in advance for facility rentals and rooms.  In
addition, a certain level of capital expenditures, repair and replacement of
hotel property is required under the Partnership's loan agreement.

The Properties are managed by Richfield in accordance with certain management
contracts. Management services provided under the contracts include operations
supervision, strategic business planning, yield management, sales and marketing
oversight, personnel management and accounting and technical services.

MARKET INFORMATION AND COMPETITIVE CONDITIONS

According to Smith Travel Research, all of the U.S. lodging industry performance
measures were higher in 1996 than in 1995.  Average daily room rate for the
industry increased by 6.4% to $71.66 and room occupancy increased .3% to 65.7%.
The hospitality industry in the U.S. experienced a slight increase in occupancy
and notable increases in average room rates during 1996.  The increase in
average room rates during 1996 was achieved primarily due to the increase in
rooms demand exceeding the increase in rooms supply.  As a result, 1996 rooms
revenue exceeded 1995 rooms revenue.  Room revenue per available room (Revpar)
was up 6.7%, slightly above the 6.3% increase for a year ago.  Smith Travel
Research estimates that performance ratios in the lodging industry in 1997
should improve over 1996.

<PAGE>
 
     The Partnership's Revpar has consistently exceeded the industry averages
noted above. This is due to occupancy levels exceeding industry averages, offset
by average room rates below industry averages. The Partnership's operations in
certain markets are price sensitive. The Partnership considers its primary
points of competition to include, but are not limited to, room rates, location,
guest services and responsiveness, adequacy and appearance of facilities and
overall customer satisfaction. The demand at a particular hotel of the
Partnership may be adversely affected by many factors, including changes in
travel patterns, local and regional economic conditions and the degree of
competition with other hotels in the area.

REGULATION

The Operating Partnerships are subject to regulation in connection with their
business, including liquor licensing, occupational health and safety
regulations, environmental regulations, food service regulation and labor laws.
The Operating Partnerships have not experienced significant difficulties with
regulation in these areas; however, failure to comply with those regulations
could result in loss of licenses, permits or other authorizations which could
adversely impact the Partnership's operating revenue.

EMPLOYEES

All hotel personnel are employed by the respective Operating Partnerships.
Richfield processes the payroll on behalf of the Operating Partnerships.  The
number of persons employed by the Operating Partnerships, as of December 31,
1996, was approximately 990.  Management considers employee relations to be
satisfactory.

Item 2.  Properties
-------  ----------
The six hotel and resort properties including the hotel buildings and leasehold
improvements are owned by the Operating Partnerships.  Three of the hotel
properties are located on land owned by the Operating Partnerships, while the
other three hotel properties are located on land leased by the Operating
Partnerships on a long-term basis.  The following table presents certain
information for each of the Properties:

---------------------------------------------------------------------------
                                                                     Number
                                                                       of 
     Property       Primary Markets Served         Area Served       Rooms
---------------------------------------------------------------------------
Aurora Inn and      Vacation, Business          Greater Cleveland/     
Pine Lake Trout                                 Akron, Ohio           
Club ("Aurora")                                                        69
---------------------------------------------------------------------------
Fourwinds/A         Destination Resort          Bloomington/
Clarion Resort      and Marina                  Indianapolis, Indiana  
("Fourwinds")                                                          126
---------------------------------------------------------------------------
Regal at McCormick  Vacation, Meetings          Phoenix/Scottsdale,
Ranch ("McCormick")                             Arizona                125
---------------------------------------------------------------------------
Sheraton Inn-       Business, Meetings          Buffalo/Niagra Falls,
Buffalo Airport     and Leisure                 New York              
("Buffalo")                                                            293
---------------------------------------------------------------------------
Sheraton Lakeside   Vacation                    Orlando/Walt Disney
Inn ("Lakeside")                                World, Florida         651
---------------------------------------------------------------------------
Regal University    Business, Meetings,         Raleigh/Durham/Chapel
Hotel (formerly     Medical and Conventions     Hill, North Carolina   
Sheraton University
Center)("University")                                                  322
---------------------------------------------------------------------------

                                                      TOTAL          1,586
---------------------------------------------------------------------------


<PAGE>
 
          The appraised value of the Properties is summarized below:

                                        Appraised Values
                        -------------------------------------------------------
                        December 1996         December 1995       December 1994
                        -------------         -------------       -------------
Aurora Inn & Pine Lake 
 Trout Club              $  7,700,000           7,200,000           7,520,000
Fourwinds/A Clarion 
 Resort                     8,030,000           8,800,000          10,200,000
Regal McCormick Ranch      13,770,000           9,875,000           9,015,000
Sheraton Inn-Buffalo
 Airport                   14,000,000          15,000,000          17,730,000
Sheraton Lakeside Inn      28,000,000          30,000,000          34,000,000
Regal University Hotel     15,800,000          12,000,000           8,025,000
                        -------------         -----------         -----------
Total appraised value    $ 87,300,000          82,875,000          86,490,000

         The increase in the aggregate appraised value of the portfolio from
         1995 to 1996 was primarily the result of increases in the fair value of
         Regal McCormick Ranch and Regal University Hotel. These increases were
         due to increased demand for hotel rooms in the markets in which these
         hotels are located. Additionally, Regal University Hotel's appraised
         value benefited from a renovation completed in 1996.

         The decline in the aggregate appraised value of the portfolio from 1994
         to 1995 was primarily the result of decreases in the value of the
         Sheraton Lakeside Inn and the Sheraton Inn - Buffalo Airport in 1995
         and 1994, and the decline in the Fourwinds Resort in 1995. These
         declines are primarily attributable to these hotels being located in
         markets with increases in the supply of available rooms and static
         demand for hotel rooms. See Item 7, Management's Discussion and
         Analysis of Financial Condition and Results of Operations.

Item 3.  Legal Proceedings
-------  -----------------
         There are no material pending legal proceedings to which the
         Partnership or any of the Operating Partnerships is a party, except for
         ordinary and routine litigation incidental to the business of the
         Partnership.

Item 4.  Submission of Matters to a Vote of Security Holders
-------  ---------------------------------------------------
         There were no matters submitted to a vote of Unitholders during the
         quarter ended December 31, 1996.
<PAGE>
 
                                    PART II


Item 5.  Market for the Registrant's Partnership Units and Related Unitholder
-------  --------------------------------------------------------------------
Matters
-------

     Class A Units of AIRCOA Hotel Partners, L.P. are traded on the American
     Stock Exchange under the symbol AHT. There is no established public trading
     market for the Partnership's Class B Units, the majority of which are held
     by affiliates of the General Partner. Under certain circumstances (which
     have not been satisfied at any time since the inception of the Partnership)
     described in the Partnership Agreement, the Class B Units may be converted
     into Class A Units. During 1994 and 1996 the Partnership has not sold any
     Class A or Class B Units. During 1995, the Partnership sold a note with a
     face value of $2,100,000. The note is convertible into Class A Units at a
     price of $16.60 per Class A Unit. The note was sold to a related party
     investor (the General Partner) in an unregistered sale made in reliance
     upon section 4(2) of the Securities Act of 1933, as amended. The note was
     only offered to the purchaser and no general advertisement was utilized in
     connection with the offer and sale of the note. Beginning in 1997, in
     accordance with the terms of the Partnership Agreement, and each year
     thereafter through 2001, a minimum of 250,000 Class B Units are required to
     be converted at a redemption value of $20.00 per Class B Unit, by issuing
     Class A Units valued at the then current market price of a Class A Unit.
     During the last quarter of 1996, the Partnership received an offer from an
     affiliate to purchase all of the Class A and Class B Units not currently
     owned by the affiliate or any other affiliates of the Partnership (See
     Other Matters). See Item 7, Management's Discussion and Analysis of
     Financial Conditions and Results of Operations. The following table sets
     forth the range of high and low closing prices of Class A Units for each
     full quarterly period for the two most recent years, as reported by the
     American Stock Exchange.
 
For the Quarter Ended     High      Low
---------------------    -------  -------

March 31, 1995                 4    2 7/8
June 30, 1995              3 5/8   2 3/16
September 30, 1995       2 13/16  1 13/16
December 31, 1995          2 1/8    1 1/2
 
March 31, 1996                 2  1 11/16
June 30, 1996             2 1/16  1 11/16
September 30, 1996         2 1/8    1 3/8
December 31, 1996          2 1/8    1 3/8


     As of December 31, 1996 the Partnership had approximately 1,400 Class A
     Unitholders.

     The Class A Unitholders have not received any distributions since 1990.
     The Class B Units do not receive distributions until the Class A
     Unitholders receive Minimum Annual Distributions, as defined in the
     Partnership Agreement. In addition, the Partnership's mortgage loan
     agreement stipulates certain limitations on these distributions based on
     excess cash flow as defined in the mortgage loan agreement. See Item 7,
     Management's Discussion and Analysis of Financial Condition and Results of
     Operations.
<PAGE>
 
Item 6.  Selected Financial Data
-------  -----------------------
<TABLE>
<CAPTION>
 
                                                                                   Years ended December 31,
                                                               -----------------------------------------------------------
                                                                  1996         1995        1994        1993        1992
                                                               ----------   ----------  ----------  ----------  ----------
<S>                                                            <C>          <C>         <C>         <C>         <C>
                                                                           (In thousands, except per unit amounts)
                                                                           ---------------------------------------
Consolidated Operations Data
----------------------------
Revenue                                                        $   48,553      45,399      46,157      45,268      42,998
Operating income (loss) (1)                                         5,775        (630)      5,122       5,556       4,331
Net income (loss) (1)                                               1,009      (5,421)        627       1,120         113
Income (loss) per unit:
    Class A: Net loss                                               (0.02)      (1.50)       (.10)       (.02)       (.22)
    Class B: Net income                                              1.14        2.86        1.25        1.27        1.17
 
Weighted average number of units outstanding:
          Class A                                               5,340,214   5,340,214   5,340,214   5,340,214   4,490,214
          Class B                                                 950,000     950,000     950,000     950,000     950,000
 
Consolidated Balance Sheet Data
-------------------------------
Working capital deficit (2)                                        (1,716)     (2,452)     (7,178)    (48,180)    (48,771)
Total assets                                                       70,131      69,406      73,542      77,369      78,589
Long-term debt and affiliate notes payable (2)                     50,604      51,390      46,180       6,000       8,715
Partners' capital                                                  10,761       9,752      15,173      14,546      13,426
Appraised values of properties                                     88,300      82,875      86,490      89,530      90,240
 
Consolidated Cash Flow Data
---------------------------
 
Capital expenditures                                                3,847       3,286       2,049       2,353       2,530
Net cash provided by operating activities                           5,071       3,143       5,568       5,841       4,080
Net cash used in investing activities                              (3,847)     (3,306)     (1,944)     (2,394)     (2,433)   
Net cash provided (used) by financing activities                     (990)      1,018      (5,279)     (3,612)     (1,391)   
</TABLE>
          (1) Includes a loss for the impairment of the Partnership's
       Lakeside property in the amount of $4,789 for the year ended December 31,
       1995.
          (2) Certain of the Partnership's indebtedness to unaffiliated
       financial institutions was classified as current at December 31, 1993 and
       1992.
<PAGE>
 
Item 7.  Management's Discussion and Analysis of Financial Condition and Results
-------  -----------------------------------------------------------------------
of Operations
-------------

     RESULTS OF OPERATIONS

     The following table reflects certain historical financial information and
     operating statistics for the years ended December 31, 1996, 1995 and 1994.

Historical Financial Information
--------------------------------

                                (in thousands, except operating statistics)
 
                                            1996      1995     1994
                                          ---------  -------  -------
Revenue:
       Rooms                               $29,038   26,810   26,863
       Food and beverage                    12,272   11,733   12,274
       Other property operations             7,243    6,856    7,020
                                           -------   ------   ------
          Total revenue                     48,553   45,399   46,157
 
Expenses:
       Hotel operations                     33,928   32,600   32,591
                                           -------   ------   ------
          Gross operating profit            14,625   12,799   13,566
       Other operating expenses (1)(2)       8,850   13,429    8,444
                                           -------   ------   ------
          Operating income (loss)            5,775     (630)   5,122
       Other expense, net (3)               (4,766)  (4,791)  (4,495)
                                           -------   ------   ------
 
          Net income (loss)                $ 1,009   (5,421)     627
                                           -------   ------   ------

                              Operating Statistics
                              --------------------

Average room rate                          $ 64.26    59.55    59.42
 
Average occupancy percent                     78.3%    77.6%    77.9%
 
Number of available rooms                    1,586    1,586    1,586

      (1)  Includes rent, taxes and insurance, management fees, depreciation and
           amortization, and impairment of property.
      (2)  1995 includes impairment loss on the Lakeside property in the amount
           of $4,789. No impairment loss was recorded in 1996 or 1994.
      (3)  Principally comprised of interest expense.

     REVENUE

     Total revenue increased $3,154,000 or 6.9% in 1996, compared to a decrease
     of $758,000 or 1.6% in 1995.  Of total revenue in 1996, 1995 and 1994,
     rooms comprised 59.8%, 59.1% and 58.2%, respectively; food and beverage
     comprised 25.3%, 25.8% and 26.6%, respectively, and other property
     operations comprised 14.9%, 15.1% and 15.2%, respectively.
<PAGE>
 
     Rooms revenue is primarily a function of the Properties' occupancy levels
     and room rates. Rooms revenue increased $2,228,000 or 8.3% in 1996 due
     primarily to an increase in average daily room rates of $4.71 as well as an
     increase in occupancy from 77.6% to 78.3%. Rooms revenue decreased $53,000
     in 1995 due to a decrease in occupancy from 77.9% to 77.6% offset in part
     by an increase in average daily room rates of $.13. Rooms revenue increases
     in 1996 were primarily attributable to increases at Sheraton Lakeside Inn,
     Regal University Hotel (formerly Sheraton University Center) and Sheraton
     Inn - Buffalo Airport. The leisure market in Orlando improved during 1996,
     which resulted in Sheraton Lakeside generating higher average room rates
     and increased wholesale business. Regal University Hotel benefited from its
     1995 renovation as well as strong growth in average rooms rates in the
     group business and leisure markets during 1996. While the leisure market
     continued to be stagnant at Sheraton Inn -Buffalo Airport, aggressive rate
     strategies resulted in improved occupancy in the leisure market.

     Rooms revenue decreases in 1995 were primarily attributable to decreases at
     the Sheraton Lakeside and Sheraton Inn Buffalo Airport.  The leisure market
     at Sheraton Lakeside continued to be impacted by significant competitive
     pressures, resulting from an increase in room supply in the Orlando area.
     The reduction in rooms revenue at Sheraton Buffalo was due to a decrease in
     Canadian leisure activity resulting from declines in the value of the
     Canadian dollar and loss of a substantial airline room contract.  The
     decreases in Lakeside and Buffalo were mitigated by the impact of increases
     in rooms revenue, due to increases in average rate, at Regal McCormick
     Ranch, Sheraton University Center and Aurora Inn.

     Food and beverage revenue increased $539,000 or 4.6% in 1996 and decreased
     $541,000 or 4.4% in 1995.  Food and beverage revenue is impacted by room
     occupancy and the mix of room sales between leisure, group, contract and
     business customers.  The food and beverage revenue increase in 1996
     resulted primarily from an increase at Regal McCormick Ranch due to the
     addition of an outdoor banquet facility.  In addition, food and beverage
     revenue benefited from increased banquet revenue at Regal University Hotel
     and the increased occupancy at Sheraton Inn - Buffalo Airport.  The primary
     reason for the decrease in 1995 was related to increased competition from
     stand-alone restaurants in the area surrounding the Regal McCormick Ranch,
     the smaller percentage contribution from the Canadian leisure market
     maintained at the Sheraton Buffalo and a decrease in banquet activity at
     both locations.

     Other property operations consist of marina sales and rentals (at
     Fourwinds), gift shops, food marts, lease income, phone charges and other
     miscellaneous guest services.  Other property operations increased $387,000
     or 5.6% in 1996 and decreased $164,000 or 2.3% in 1995.  The 1996 increase
     in other property operations was attributable to increased activities at
     Regal McCormick Ranch during the first quarter of 1996, benefiting from
     Phoenix, Arizona hosting the 1996 Super Bowl and increases at Sheraton
     Lakeside's food mart outlet. The 1995 decrease in other property operations
     was primarily due to storm damage at the Clarion Fourwinds Resort, which
     impacted the "marina-related" revenue.

     While the hotel industry continues to be very competitive, the Properties,
     as a group, have outperformed the industry when measuring revenue per
     available room ("Revpar", calculated as occupancy percent times average
     room rate). The Properties' Revpar, as a group, was $50.32, $46.23 and
     $46.29 in 1996, 1995 and 1994, respectively. Revpar for the United States
     hotel industry, accumulated by Smith Travel Research, was $47.08, $44.11
     and $41.49 in 1996, 1995 and 1994, respectively.
<PAGE>
 
              COSTS AND OPERATING EXPENSES

     Total operating expenses decreased $3,251,000 or 7.1% in 1996.  The
     decrease is primarily attributable to the impairment of the Lakeside
     property of $4,789,000 in 1995, and an increase in other operating expenses
     of $1,538,000.  Excluding the impairment of the Lakeside property, total
     operating costs increased primarily as a result of increases in rooms and
     administrative and general expenses.  Although rooms expense increased over
     1995, rooms expense as a percent of rooms revenue decreased to 26.8% in
     1996 from 27.5% in 1995.  This resulted from the increase in rooms revenue
     being generated through increased average room rates, rather than increased
     occupancy.  Food and beverage costs as a percent of food and beverage
     revenue decreased to 71.6% in 1996 from 73.1% in 1995.  As discussed below,
     in 1995 additional marketing expenses were incurred in connection with the
     repositioning of restaurants at certain of the Partnership's hotels.  The
     increase in administrative and general expense is primarily due to
     increased legal costs.

     Total operating expenses increased $4,994,000 or 12.2% in 1995.  This
     increase is primarily attributable to the impairment of the Lakeside
     property of $4,789,000, and an increase in other operating expenses of
     $196,000.  Excluding the impairment of the Lakeside property, total
     operating costs increased primarily as a result of increased food and
     beverage costs.  Food and beverage costs as a percent of food and beverage
     revenue increased to 73.1% in 1995 from 71.4% in 1994.  The primary reason
     for the increase in this percentage is a result of costs incurred for
     promotional campaigns and marketing plans to reposition the restaurants at
     the Clarion Fourwinds Resort, Aurora Inn and Regal McCormick Ranch.

     Included in costs and operating expenses in 1995 is a loss for the
     impairment of the Lakeside property in the amount of $4,789,000, recorded
     in the fourth quarter of 1995.  The circumstances leading up to this
     impairment loss were primarily a result of the existing and expected local
     market conditions, a decreasing trend in the property's appraised value and
     historical operating results in recent years.  This loss was recognized in
     accordance with the provisions of Statement of Financial Accounting
     Standards No. 121, Impairment of Long-Lived Assets and Long-Lived Assets to
     Be Disposed Of (SFAS No. 121), which was issued by the Financial Accounting
     Standards Board in March 1995 and adopted by the Partnership in the fourth
     quarter of 1995.  The Partnership believes that expected future cash flows
     from the operations of its other hotel properties will be sufficient to
     recover their carrying values.  The Partnership has no current plans to
     sell any of its properties for less than their carrying values.

     OTHER EXPENSES

     Other expenses decreased $25,000 or .5% in 1996 as compared to an increase
     of $296,000 or 6.6% in 1995.  The decrease in 1996 is attributable to a
     decrease in interest expense of $79,000 due primarily to a lower average
     interest rate on the Partnership's first mortgage loan, net of a $54,000
     increase in amortization of debt issue costs.  The increase in 1995 is
     primarily attributable to an increase in interest expense of $191,000 due
     to higher levels of debt, net of a $123,000 decrease in amortization of
     debt issue costs.

     LIQUIDITY AND CAPITAL RESOURCES

     CASH FLOWS

     Net cash provided by operating activities was $5,071,000 in 1996, an
     increase of $1,928,000 from 1995.  This increase is the result of an
     increase in cash received from customers, due to increased hotel revenue,
     of $2,314,000, a decrease in interest paid of $885,000, offset by increases
     in cash paid to suppliers, vendors and employees of $829,000 and decrease
     in other cash receipts of $442,000.
<PAGE>
 
          Net cash provided by operating activities was $3,143,000 in 1995, a
     decrease of $2,425,000 from 1994. This decrease is the result of a decrease
     in cash received from customers, due to lower hotel revenues, of
     $1,132,000, an increase of $1,013,000 in interest paid, and an increase in
     cash paid to employees of $493,000, offset in part by decreases in cash
     paid to suppliers and vendors of $172,000 and increases in other cash
     receipts of $41,000.

     Net cash used in investing activities increased $541,000 in 1996 due to
     increases in capital expenditures.  Net cash used in investing activities
     increased $1,362,000 in 1995 due to increases in capital expenditures and
     cash paid for other assets.

     Net cash used in financing activities increased $2,008,000 in 1996 due to
     the closing of the new first mortgage loan in 1995 that generated loan
     proceeds.  Net cash generated by financing activities increased $6,297,000
     in 1995 also due to the closing of the new first mortgage loan.

     The Partnership anticipates funding its 1997 debt service obligations and
     capital expenditures through a combination of operating cash flows and
     draws on its line of credit, to handle seasonal demands, as necessary.  The
     Partnership has capital improvements of approximately $4,600,000 planned in
     1997.

     INDEBTEDNESS

     At December 31, 1996 the Partnership had a working capital deficit of
     $1,716,000.  The Partnership's working capital requirements are expected to
     be satisfied through the management of payables, collection of receivables,
     and use of the Partnership's revolving credit line.

     On June 8, 1995, the Partnership signed a credit agreement with a new
     lender to provide a new $45,000,000 first mortgage loan and a $1,000,000
     revolving credit line.  The proceeds of the $45,000,000 first mortgage loan
     were used to pay off the existing mortgage loan and the note payable to
     bank with the balance available for certain property renovations and the
     payment of a facility fee and closing costs.  Regal Hotels International
     Holdings Limited ("RHL"), an affiliate of the general partner, has provided
     a limited guarantee for the new first mortgage loan.  The Partnership paid
     loan guarantee fees of $225,000 and $230,000 in 1996 and 1995,
     respectively, to RHL.  This is an annual fee and is calculated as 0.5% of
     the outstanding loan balance at June 8 of each year.

     The new credit agreement includes a variety of interest rate options, the
     most favorable of which is the Eurodollar Rate plus 2%, which was 7.53% at
     December 31, 1996.  Repayment of the new first mortgage loan is based on a
     twenty-year amortization with a maturity date at June 2000, while the
     revolving credit line is renewable annually at the option of the lender.

     A condition of the credit agreement signed by the Partnership for the first
     mortgage loan and revolving credit line required the subordination of the
     $6,000,000 notes payable to AHS (the "Notes").  AHS agreed to this
     subordination, and as a result, on September 26, 1995, the Board of
     Directors of AHS, in its capacity as General Partner, and the Advisory
     Committee of AHP authorized the extension of the term and deferral of
     certain past-due interest on the Notes.

     Pursuant to this extension, the Notes, which originally matured in January
     1995 now become due on June 8, 2000, which is coterminous with the new
     mortgage loan.  Interest accrued on the Notes after December 31, 1994, was
     paid at closing.  Interest incurred subsequent to closing continues to be
     accrued at 12% per annum and is paid monthly.
<PAGE>
 
          The unpaid interest on the Notes accrued prior to January 1, 1995, in
     the amount of $2,100,000, was converted into debt pursuant to a new
     promissory note ("New Note") which will also mature on June 8, 2000 and is
     also subordinate to the first mortgage loan. The New Note accrues interest
     at the rate of 12% per annum, payable at maturity.

     The Notes and New Note are convertible into Class A Units of the
     Partnership at $16.60 per unit.  In addition, these notes stipulate that
     25% of any excess cashflow, as defined, will be applied against the
     principal portion of the notes outstanding.

     The new first mortgage loan contains numerous covenants requiring, among
     other matters, the maintenance of a minimum debt service coverage ratio
     including the deferral of management fees payable to an affiliate if this
     minimum debt service ratio is not achieved, restrictions on additional
     indebtedness, limitations on annual cash distributions to Class A
     Unitholders, limitations on the payment of principal on the affiliate notes
     payable, prepayment premiums during the first two years, and maintenance of
     minimum aggregate capital expenditures equal to 5% of revenue.

     PARTNERSHIP DISTRIBUTIONS AND UNIT CONVERSIONS

     The Partnership Agreement provides for periodic distribution of
     distributable cash flow, as defined, to the partners subject to any
     applicable restrictions and the discretion of the General Partner.
     Distributable cash flow is generally defined as cash flow from operations
     of the hotel properties.  Such cash is allocated and distributed (net of
     AHS's 1% general partnership interest in the Operating Partnerships) 99% to
     the Class A Unitholders and 1% to the General Partner until the Class A
     Unitholders have received defined Minimum Annual Distributions. The Minimum
     Annual Distribution is $2.16 per Class A Unit.  Any portion of the Minimum
     Annual Distribution that is not paid by the Partnership in any year is
     added to the cumulative unpaid Minimum Annual Distribution.  The
     Partnership has not made any distributions since 1990.  Prior to making
     future distributions, the Partnership will comply with its capital
     expenditure requirements as specified in its mortgage loan agreement and
     maintain sufficient working capital balances.  At December 31, 1996, the
     cumulative unpaid Minimum Annual Distribution per Class A Unit
     significantly exceeds the Partnership's net asset value per unit based on
     the appraised values of the hotel properties.  At this time it is unlikely
     there will be any excess cash flow to be available for distribution to the
     Class A unitholders in 1997.

     The Class B Units entitle each Unitholder to a limited partnership interest
     which is subordinated to the Class A Units.  The Class B Units are
     redeemable or convertible in certain circumstances.  The Class B Units do
     not receive distributions until the Class A Unitholders receive Minimum
     Annual Distributions which have not been made by the Partnership since
     1990.  Through 1996, the Class B Units are convertible into Class A Units
     only to the extent that distributable cash flow of the Partnership in the
     previous year would have been sufficient to pay Minimum Annual
     Distributions for the Class A Units, including the Class B Units to be
     converted. No Class B Units were converted in 1996. Beginning in 1997, in
     accordance with the terms of the Partnership Agreement, and each year
     thereafter through 2001, a minimum of 250,000 Class B Units are required to
     be converted at a redemption value of $20.00 per Class B Unit, by issuing
     Class A Units valued at the then current market price of a Class A Unit.
     Therefore, the number of Class A Units to be issued upon the conversion of
     a Class B Unit will be determined at the time of conversion by dividing
     $20.00 by the then current market price of a Class A Unit. Current market
     price for this calculation is the average market price for a Class A Unit
     during the last five trading days prior to conversion.
<PAGE>
 
     Based on current market prices of the Class A Units, such required
     conversion is expected to result in substantial dilution to the
     pre-conversion Class A Unitholders.  For example, based on the average
     closing month end market price of Class A Units during 1996 of
     approximately  $1.77, the  conversion  of  250,000  Class  B Units  in the
     first  year of the required conversion period would result in an
     approximate 35% dilution to the Class A Unitholders upon conversion.  The
     conversion of all 950,000 Class B Units would result in an approximate 67%
     dilution to the pre-conversion Class A Unitholders at the $1.77 per unit
     market price.  In addition, using the same per unit market price for a
     Class A Unit of $1.77, affiliate ownership of Class A Units would increase
     to approximately 81% and 90% upon conversion of the first 250,000 Class B
     Units and conversion of all 950,000 Class B Units, respectively.  Changes
     in the market price of Class A Units do not result in proportional changes
     in dilution.  The market price of the Partnership's Class A Units is
     subject to fluctuations and there is no assurance that such prices upon
     conversion will approximate the average per unit market price in 1996.

     On December 18, 1996, the Partnership received an offer from an affiliate
     to purchase all of the Class A and Class B Units not currently owned by the
     affiliate or any other affiliates of the Partnership (See Other Matters).

     Pursuant to the Partnership Agreement, the Class A Units to be issued upon
     conversion of the Class B Units must be identical to the Class A Units
     existing prior to the conversion date.  The General Partner has, on the
     advice of counsel, determined that the Class B Units convert into identical
     Class A Units because there are elective procedures, which are standard
     practice for publicly-traded partnerships, that make the Class A Units
     received upon conversion fungible for tax purposes with all pre-existing
     Class A Units.

     PROPERTY VALUES

     The appraised value of the Properties is $87,300,000 at December 31, 1996,
     which exceeds their carrying values of $62,676,000.  In accordance with
     Statement on Financial Accounting Standards on Accounting for the
     Impairment of Long-Lived Assets, which was issued in 1995, the Partnership
     recognized an impairment on the Lakeside property in 1995.  The Partnership
     has no current plans to sell any of its properties for less than their
     carrying values.

     INCOME TAXES

     In accordance with the Revenue Act of 1987, the Partnership will become a
     taxable entity in 1998.  As a result, the income of the Partnership will be
     taxable as a corporation and distributions from the Partnership will
     continue to be taxable to the individual partners.  The Partnership
     anticipates that it will have an excess of tax basis over book basis of the
     hotel properties at January 1, 1998 of  approximately $1,960,000, which
     will result in tax deductions in 1998 and later years. Therefore, the
     Partnership does not expect that the impact on net income in 1998 from
     becoming a taxable entity will be significant. The Partnership is
     continuing to evaluate various alternatives to minimize the impact on the
     Partnership as a result of these changes in tax laws.

     INFLATION

     The rate of inflation as measured by changes in the average consumer price
     index has not had a material impact on the revenue or net income of the
     Partnership in the three most recent years.
<PAGE>
 
     OTHER MATTERS

     Management of the Partnership, the Board of Directors of the General
     Partner and the Advisory Committee are seeking to increase the value of the
     Partnership for all of its Unitholders.  Management has been evaluating and
     will continue to evaluate different strategies for maximizing Unitholder
     value including;  (i) continued ownership and operation of the properties,
     (ii) liquidation, sale or other similar transactions, (iii) sales of one or
     more of the Partnership's properties in response to exceptional offers, and
     (iv) combining the Partnership or its assets with other hotel-owning
     entities.

     During 1996 and 1995, the General Partner received suggestions from certain
     Class A Unitholders regarding;  (i) the reconfiguration of the Partnership
     as a real estate investment trust ("REIT"), (ii) a reorganization of the
     Partnership involving the redemption of the interests of the General
     Partner and its affiliates (the "Majority Unitholders") and (iii) sales of
     one or more of the Partnership's properties.  The suggestions made
     concerning the reconfiguration of the Partnership as a REIT and the
     reorganization transaction were each rejected by the Partnership because
     they each called for the Majority Unitholders to surrender substantial
     economic entitlements in the Partnership without adequate compensation.
     The Partnership also rejected a purchase offer regarding the Durham 
     property for approximately three-quarters of its present appraised value.

     On December 18, 1996, the Partnership received a written proposal from an
     affiliate, Regal Hotel Management Inc. ("RHM"), to commence discussions
     with respect to the possible purchase of all of the Class A and Class B
     Units not currently owned by RHM or its affiliates for $2.35 per Class A
     Unit and $16.80 per Class B Unit. RHM's proposal suggests that the
     acquisition could be structured as a merger of a limited partnership owned
     by RHM with the Partnership. Consummation of any such merger would be
     subject, among other things, to the affirmative vote of the Partnership's
     unitholders, as provided in the Partnership Agreement. The General Partner
     has referred RHM's proposal to a special committee comprised of the
     independent members of the Partnership's Advisory Committee for
     consideration on behalf of the public unitholders. RHM's proposal does not
     represent a binding offer and could be withdrawn at any time, and there can
     be no certainty that any transaction will be entered into, or if one is
     entered into, at what price or prices.

     Unless and until such time as one or more preferable strategic alternatives
     is identified and adopted, the Partnership intends to pursue its current
     strategy of owning and operating its existing portfolio of properties.

Item 8.  Financial Statements and Supplementary Data
-------  -------------------------------------------

     The financial statements of AHP are filed under this Item, beginning on
     Page II-10.  The financial statement schedules required under Regulation S-
     X are filed pursuant to Item 14 of this report.

Item 9.  Changes in and Disagreements with Accountants on Accounting and
-------  ---------------------------------------------------------------
     Financial Disclosure
     --------------------

     None.
<PAGE>
 
                          INDEPENDENT AUDITORS' REPORT
                          ----------------------------


THE PARTNERS
AIRCOA HOTEL PARTNERS, L.P.:


We have audited the accompanying consolidated balance sheets of AIRCOA Hotel
Partners, L.P. and subsidiary operating partnerships as of December 31, 1996 and
1995, and the related consolidated statements of operations, partners' capital
and cash flows for each of the years in the three-year period ended December 31,
1996.  These consolidated financial statements are the responsibility of the
Partnership's management.  Our responsibility is to express an opinion on these
consolidated 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 consolidated financial statements referred to above present
fairly, in all material respects, the financial position of AIRCOA Hotel
Partners, L.P. and subsidiary operating partnerships as of December 31, 1996 and
1995, and the results of their operations and their cash flows for each of the
years in the three-year period ended December 31, 1996, in conformity with
generally accepted accounting principles.



          KPMG PEAT MARWICK LLP


Denver, Colorado
February 28, 1997

<PAGE>
 
AIRCOA HOTEL PARTNERS, L.P.
AND SUBSIDIARY OPERATING PARTNERSHIPS

CONSOLIDATED BALANCE SHEETS

DECEMBER 31, 1996 AND 1995

(IN THOUSANDS)
<TABLE>
<CAPTION>
 
 
ASSETS
------
<S>                                       <C>        <C>
                                            1996       1995
                                          --------   -------
Current assets:
     Cash and cash equivalents            $  2,350     2,116
     Accounts receivable:
          Trade                              3,305     2,479
          Affiliates                             -       143
     Inventory                                 373       339
     Prepaid expenses                          516       482
                                          --------   -------
           Total current assets              6,544     5,559
                                          --------   -------
 
Property and equipment, at cost:
     Land and leasehold improvements         9,427     8,914
     Buildings and leasehold                68,499    66,838
      improvements
     Furniture, fixtures and equipment      20,251    18,332
                                          --------   -------
                                            98,177    94,084
     Less accumulated depreciation and     
      amortization                         (35,501)  (31,329)
                                          --------   -------
           Net property and equipment       62,676    62,755
                                          --------   -------
Other assets, including debt issue
 costs, net of accumulated
 amortization of $408 in 1996 and         
 $237 in 1995                                  911     1,092
                                          --------   ------- 
                                          $ 70,131    69,406
                                          ========   =======
</TABLE>
          (Continued)

<PAGE>
 
AIRCOA HOTEL PARTNERS, L.P.
AND SUBSIDIARY OPERATING PARTNERSHIPS

CONSOLIDATED BALANCE SHEETS, CONTINUED
<TABLE>
<CAPTION>
 
 
LIABILITIES AND PARTNERS' CAPITAL           1996      1995
---------------------------------           ----      ----
<S>                                       <C>        <C>
Current liabilities:

          Current installments of          
           long-term debt                  $ 1,122    1,080
          Trade accounts payable             1,284    1,672
          Trade accounts payable to            
           affiliates                          444      715
          Accrued liabilities:
            Payroll and related                832      665
            Taxes, other than income           
             taxes                             513      507
            Other                            2,223    1,377
          Deferred revenue and advance       
           deposits                          1,842    1,995
                                           -------   ------
              Total current liabilities      8,260    8,011
 
Long-term debt, excluding current           
 installments                               42,504   43,290
 
Notes payable to affiliates                  8,100    8,100
 
Accrued administration fees, management
 fees and interest payable to affiliate        506      253
                                           -------   ------
              Total liabilities             59,370   59,654
                                           -------   ------
 
Partners' capital:
          General partner                      245      236
          Limited partners:
            Class A Unitholders             13,517   13,603
            Class B Unitholders             (3,001)  (4,087)
             (deficit)                     -------   ------
 
              Total partners' capital       10,761    9,752
                                           -------   ------

Commitments and contingencies
                                           $70,131   69,406
                                           =======   ======
 
</TABLE>

See accompanying notes to consolidated financial statements.

<PAGE>
 
AIRCOA HOTEL PARTNERS, L.P.
AND SUBSIDIARY OPERATING PARTNERSHIPS

CONSOLIDATED STATEMENTS OF OPERATIONS

YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994

(IN THOUSANDS, EXCEPT UNIT DATA)
<TABLE>
<CAPTION>
 
 
                                             1996         1995         1994
                                             ----         ----         ----
<S>                                       <C>          <C>          <C>
Revenue:
          Rooms                           $   29,038       26,810       26,863
          Food and beverage                   12,272       11,733       12,274
          Other property operations            7,243        6,856        7,020
                                          ----------   ----------   ----------
                                              48,553       45,399       46,157
                                          ----------   ----------   ----------
Costs and operating expenses:
          Rooms                                7,774        7,366        7,242
          Food and beverage                    8,790        8,577        8,769
          Other property operations            2,947        3,046        3,325
          Administrative and general           5,488        4,954        4,793
          Marketing                            4,184        3,944        4,025
          Energy                               2,416        2,365        2,307
          Property maintenance                 2,329        2,348        2,255
          Rent, taxes and insurance            2,753        2,743        2,540
          Management fees                      1,925        1,802        1,835
          Depreciation and amortization        4,172        4,095        3,944
          Impairment of property                   -        4,789            -
                                          ----------   ----------   ----------
                                              42,778       46,029       41,035
                                          ----------   ----------   ----------
                  Operating income (loss)      5,775         (630)       5,122
                                          ----------   ----------   ----------
Other income (expenses):
          Interest expense, including
           amortization of debt issue 
           costs of $402 in 1996, $348
           in 1995 and $471 in 1994           (4,766)      (4,791)      (4,600)
          Gain on insurance settlements            -            -          105
                                          ----------   ----------   ----------
                                              (4,766)      (4,791)      (4,495)
                                          ----------   ----------   ----------
Net income (loss)                         $    1,009       (5,421)         627
                                          ==========   ==========   ==========
 
Class A Unitholders:
          Loss per limited partnership    
           unit                                $(.02)       (1.50)        (.10)
          Weighted average number of      ==========   ==========   ==========
           units outstanding               5,340,214    5,340,214    5,340,214
Class B Unitholders:                      ==========   ==========   ==========
          Income per limited                                                  
           partnership unit                    $1.14         2.86         1.25
          Weighted average number of      ==========   ==========   ==========
           units outstanding                 950,000      950,000      950,000
                                          ==========   ==========   ========== 
</TABLE>
See accompanying notes to consolidated financial statements.

<PAGE>
 
AIRCOA HOTEL PARTNERS, L.P.
AND SUBSIDIARY OPERATING PARTNERSHIPS

CONSOLIDATED STATEMENTS OF PARTNERS' CAPITAL

YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994

(IN THOUSANDS, EXCEPT UNIT DATA)

<TABLE> 
<CAPTION> 
                                                           Limited Partners' Capital (Deficit)                      
                                                       ---------------------------------------------                
                                                       Class A Unitholders       Class B Unitholders           Total         
                                            General    -------------------       -------------------          partners      ' 
                                            partner    Units       Capital       Units       Capital          capital      
                                            -------    -----       -------       -----       -------          -------      
<S>                                         <C>      <C>           <C>          <C>          <C>              <C> 
BALANCES AT DECEMBER 31, 1993               $   375  5,340,214      22,157      950,000       (7,986)          14,546      
                                                                                                                           
Net income (loss)                                 1                   (552)                    1,178              627      
                                            -------  ---------      ------      -------       ------           ------      
                                                                                                                           
BALANCES AT DECEMBER 31, 1994                   376  5,340,214      21,605      950,000       (6,808)          15,173      
                                                                                                                           
Net income (loss)                              (140)                (8,002)                    2,721           (5,421)      
                                            -------  ---------      ------      -------       ------           ------      
                                                                                                                           
BALANCES AT DECEMBER 31, 1995                   236  5,340,214      13,603      950,000       (4,087)           9,752      
                                                                                                                           
Net income (loss)                                 9                    (86)                    1,086            1,009      
                                            -------  ---------      ------      -------       ------           ------      
                                                                                                                           
BALANCES AT DECEMBER 31, 1996               $   245  5,340,214      13,517      950,000       (3,001)          10,761      
                                            =======  =========      ======      =======       ======           ======       

See accompanying notes to consolidated financial statements.
</TABLE> 

<PAGE>
 
AIRCOA HOTEL PARTNERS, L.P.
AND SUBSIDIARY OPERATING PARTNERSHIPS

CONSOLIDATED STATEMENTS OF CASH FLOWS

YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994

(IN THOUSANDS)
<TABLE>
<CAPTION>
 
 
                                            1996       1995      1994
                                            ----       ----      ----
 
Cash flows from operating activities:
<S>                                       <C>        <C>       <C>
          Cash received from customers    $ 45,774    43,460    44,592
          Cash paid to suppliers and       
           vendors                         (25,868)  (25,054)  (25,226)
          Cash paid to employees           (12,931)  (12,916)  (12,423)
          Interest paid                     (3,558)   (4,443)   (3,430)
          Other cash receipts                1,654     2,096     2,055
                                          --------   -------   -------
               Net cash provided by
                operating activities         5,071     3,143     5,568
                                          --------   -------   -------
 
Cash flows from investing activities:
          Capital expenditures              (3,847)   (3,286)   (2,049)
          Proceeds from insurance for
           damaged property and              
           equipment                             -         -       105
 
          Payments for other assets              -       (20)        -
                                          --------   -------   -------
 
               Net cash used in             (3,847)   (3,306)   (1,944)
                investing activities      --------   -------   -------
 
Cash flows from financing activities:
          Proceeds from refinancing              -    45,000         -
          Principal payments on               
           long-term debt                     (990)  (42,995)   (4,950)
          Refinancing costs and other            -      (987)     (329)
                                          --------   -------   -------
               Net cash provided by
                (used in) financing 
                activities                    (990)    1,018    (5,279)
                                          --------   -------   -------
 
               Increase (decrease) in
                cash and cash equivalents      234       855    (1,655)
                    
 
Cash and cash equivalents, beginning of   
 year                                        2,116     1,261     2,916
                                          --------   -------   ------- 
Cash and cash equivalents, end of year    $  2,350     2,116     1,261
                                          ========   =======   =======
</TABLE>
(Continued)

<PAGE>
 
AIRCOA HOTEL PARTNERS, L.P.
AND SUBSIDIARY OPERATING PARTNERSHIPS

CONSOLIDATED STATEMENTS OF CASH FLOWS, CONTINUED
<TABLE>
<CAPTION>
 
 
                                            1996      1995     1994
                                            ----      ----     ----
 
Reconciliation of net income (loss) to
 net cash   provided by operating
 activities:
<S>                                       <C>        <C>      <C>
            Net income (loss)               $1,009   (5,421)    627
            Adjustments to reconcile
             net income (loss) to
             net cash provided by
             operating activities:
                Depreciation and amortiza-
                tion                         4,172    4,095   3,944
                Impairment of property           -    4,789       -
                Amortization of debt           
                 issue costs                   402      348     471
                Gain on insurance settlements    -        -    (105)
                Decrease (increase) in
                 accounts receivable relating 
                 to operations                (683)     (24)    284
                Decrease (increase) in         
                 inventory                     (34)      62     (25)
                Decrease (increase) in         
                 prepaid expenses              (34)      16    (124)
                Increase in other assets      (221)       -       -
                Increase (decrease) in
                 trade accounts payable, 
                 trade accounts payable to
                 affiliates, accrued
                 liabilities, accrued          
                 administrative fees,
                 management fees
                 and interest payable to
                 affiliate relating
                 to operations                 613     (903)    290
                Increase (decrease) in
                 deferred revenue         
                 and advance deposits         (153)     181     206
                                            ------   ------   -----
 
                    Net cash provided by
                     operating activities   $5,071    3,143   5,568
                                            ======   ======   =====
 
Non-cash investing and financing
 activities - the Partnership entered into
 capital lease obligations for equipment 
 of $246,000 in 1996.
 
</TABLE>
See accompanying notes to consolidated financial statements.

                
<PAGE>
 
AIRCOA HOTEL PARTNERS, L.P.
AND SUBSIDIARY OPERATING PARTNERSHIPS

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 1996 AND 1995
 

(1)  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

     BASIS OF PRESENTATION

     AIRCOA Hotel Partners, L.P. (the "Partnership") is a publicly traded
     limited partnership formed to acquire, own and operate hotel properties.
     The Partnership holds a 99% limited partner interest in six limited
     partnerships (the "Operating Partnerships").  Each of the Operating
     Partnerships owns and operates a hotel and resort property (the
     "Properties").  AIRCOA Hospitality Services, Inc. ("AHS"), a wholly-owned
     subsidiary of Richfield Hospitality Services, Inc. ("Richfield") holds a 1%
     General Partner interest in the Partnership and in each of the Operating
     Partnerships.

     PRINCIPLES OF CONSOLIDATION

     The accompanying consolidated financial statements include the accounts of
     the Partnership and the accounts of each of the Operating Partnerships.
     All significant interpartnership accounts and transactions have been
     eliminated.

     CASH AND CASH EQUIVALENTS

     Cash equivalents, representing money market accounts, overnight Eurodollar
     deposits and repurchase agreements, were $1,865,000 and $1,965,000 at
     December 31, 1996 and 1995, respectively.  For purposes of the consolidated
     statements of cash flows, the Partnership considers all highly liquid
     investments with original maturities of three months or less to be cash
     equivalents.

     OPERATING ASSETS

     The Partnership uses an inventory method of accounting for china,
     glassware, silver, linen, and uniforms.  Under the inventory method,
     operating assets are stated at amounts based upon the physical quantity of
     such assets on hand using average costs, less a valuation allowance to
     reflect deterioration from use.

     PROPERTY AND EQUIPMENT

     Property and equipment are stated at cost.  Hotel property renovations and
     improvements are capitalized.  Repairs, maintenance, and minor
     refurbishments are charged to expense as incurred.  Interest incurred
     during construction of facilities or major renovations is capitalized and
     amortized over the life of the related assets.  No interest was capitalized
     in 1996, 1995 or 1994.  Upon the retirement or sale of property and
     equipment, the cost and related accumulated depreciation are removed from
     the respective accounts, and the resulting gain or loss, if any, is
     included in operations.

          Property and equipment held under leaseholds is amortized over the
     shorter of the lease term or the estimated useful life of the asset.

<PAGE>
 
AIRCOA HOTEL PARTNERS, L.P.
AND SUBSIDIARY OPERATING PARTNERSHIPS

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED

 

(1)  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

     Depreciation and amortization are calculated using the straight-line method
     over the estimated useful lives of the assets, generally as follows:

 
Land improvements and leasehold improvements    15 years
Buildings and leasehold improvements            30 years
Furniture, fixtures and equipment               10 years


     The Partnership assesses the carrying value of its hotel properties for
     impairment when circumstances indicate such amounts may not be recoverable
     from future operations.  In the fourth quarter of 1995, the Partnership
     adopted the provisions of Statement of Financial Accounting Standards No.
     121, Accounting for the Impairment of Long-Lived Assets and Long-Lived
     Assets to be Disposed Of (SFAS No. 121).  SFAS No. 121, which was issued by
     the Financial Accounting Standards Board in March 1995, establishes
     recognition and measurement standards for the impairment of long-lived
     assets expected to be held and used and long-lived assets to be disposed.
     Generally, assets to be held and used in operations are considered impaired
     if the sum of expected future cash flows is less than the assets' carrying
     amount.  If an impairment is indicated, the loss is measured based on the
     amount by which the assets' carrying value exceeds its fair value.  Assets
     to be disposed of are reported at the lower of their carrying value or fair
     value less estimated selling costs.  In 1994, prior to the adoption of SFAS
     No. 121, the Partnership assessed impairment based on the expected future
     cash flows from operations of its hotel properties.

     OTHER ASSETS

     Other assets consist principally of debt issue costs, franchise license
     costs, and liquor license costs.  Debt issue and franchise license costs
     are amortized using the straight-line method over the term of the
     respective debt or license agreements.

     DEFERRED REVENUE AND ADVANCE DEPOSITS

     Deferred revenue for facility rentals and advance room deposits is
     recognized as revenue when services are provided.

     INCOME TAXES

     No current provision or benefit for income taxes is included in the
     accompanying consolidated financial statements since the taxable income or
     loss of the Partnership is included in the tax returns of the individual
     partners of the Partnership.

     Current federal income tax regulations will subject the Partnership to
     corporate taxation beginning in 1998.  Accordingly, the Partnership
     utilizes an asset and liability method of accounting for deferred income
     taxes.  Under the asset and liability method, deferred income taxes are
     recognized for the future tax consequences attributable to differences
     between the financial statement carrying amounts of existing assets and
     liabilities and their respective tax


<PAGE>
 
AIRCOA HOTEL PARTNERS, L.P.
AND SUBSIDIARY OPERATING PARTNERSHIPS

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED

 

     basis expected to be recovered or settled subsequent to 1997. Deferred tax
     assets and liabilities are measured using enacted tax rates expected to
     apply to taxable income in the years such temporary differences are
     expected to be recovered or settled. The effect on deferred taxes of a
     change in tax rates will be recognized in operations in the period of the
     enactment date.

     NET INCOME (LOSS) PER UNIT

     Net income (loss) per limited partnership unit is computed by dividing the
     net income (loss) attributable to each class of units by the weighted
     average number of units outstanding in each class during the period.
     Because of the loss attributable to Class A Unitholders in 1996, 1995 and
     1994, Class A Units issuable upon conversion of notes payable (see Note 5)
     and upon conversion of the Class B Units (see Note 2) were not considered
     in the computation, as such conversions would be anti-dilutive.

     RISKS AND UNCERTAINTIES

     The preparation of the Partnership's consolidated financial statements in
     conformity with generally accepted accounting principles necessarily
     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 balance sheet dates and the reported amounts
     of revenues and expenses during the reported periods.  Actual results could
     differ from those estimates.

     Certain of the Properties have agreements with various customers, including
     airline carriers and tour groups that require the Properties to provide
     rooms at specified rates.  The loss of such agreements and customers could
     adversely impact revenue.

     RECLASSIFICATIONS

     Certain amounts in the 1995 and 1994 consolidated financial statements have
     been reclassified to conform to the 1996 presentation.

 (2) PARTNERSHIP UNITS AND ALLOCATIONS

     LIMITED PARTNERSHIP UNITS

     The Class A Units entitle each Unitholder to a limited partnership interest
     in a percentage of the profits and losses, tax allocations, and
     distributions of the Partnership, as described below.

     The Class B Units entitle each Unitholder to a limited partnership interest
     which is subordinate to the Class A Units.  The Class B Units are
     redeemable by the Partnership or convertible into Class A Units, in certain
     circumstances.  The Class B Units do not receive distributions until the
     Class A Unitholders receive defined Minimum Annual Distributions.  Through
     1996, the Class B Units were convertible into Class A Units to the extent
     that distributable cash flow of the Partnership in the previous year would
     have been sufficient to pay Minimum Annual Distributions for the Class A
     Units, including the Class B Units to be

<PAGE>
 
AIRCOA HOTEL PARTNERS, L.P.
AND SUBSIDIARY OPERATING PARTNERSHIPS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
 

(2)  PARTNERSHIP UNITS AND ALLOCATIONS (CONTINUED)

     converted. Beginning in 1997, in accordance with the terms of the
     Partnership Agreement, and each year thereafter through 2001, a minimum of
     250,000 Class B Units are required to be converted into Class A Units
     annually through 2001 at a redemption value of $20.00 per Class B Unit, by
     issuing Class A Units valued at the then current market price of the Class
     A Units. Therefore, the number of Class A Units to be issued upon
     conversion of a Class B Unit will be determined at the time of conversion
     by dividing $20.00 by the then current market price of a Class A Unit.

     CASH DISTRIBUTIONS

     The Partnership agreement provides for periodic distribution of
     distributable cash flow, as defined, to the partners at the discretion of
     the General Partner.  Distributable cash flow is generally defined as cash
     flow from operations of the hotel properties. Such cash is allocated and
     distributed (net of AHS's 1% general partnership interest in the Operating
     Partnerships) 99% to the Class A Unitholders and 1% to the General Partner
     until the Class A Unitholders have received defined Minimum Annual
     Distributions.  The Minimum Annual Distribution is presently $2.16 per
     Class A Unit.  After payment of the Minimum Annual Distribution, additional
     cash distributions, if any, will be allocated 49.5% to the Class A
     Unitholders, 49.5% to the Class B Unitholders and 1% to the General
     Partner.

     Capital transaction proceeds generally consist of net proceeds from sales
     and refinancing of the Partnership's hotel properties.  Cash from capital
     transaction proceeds is allocated and distributed 99% to the Class A
     Unitholders and 1% to the General Partner until the Class A Unitholders
     have received any previously unpaid Minimum Annual Distributions, and the
     unrecovered capital preference amount, as defined.  Capital transaction
     proceeds are then allocated and distributed 99% to the Class B Unitholders
     and 1% to the General Partner until all the Class B Units have been
     redeemed.  Subsequent to the redemption of the Class B Units, capital
     transaction proceeds are allocated and distributed 75% to the Class A
     Unitholders and 25% to the General Partner.  The unrecovered capital
     preference amount of a Class A and a Class B Unit at December 31, 1996 is
     $16.60 and $20.00, respectively.

     The Minimum Annual Distribution amount attributable to Class A Unitholders
     and the Class B Unitholders sharing percentage in distributable cash flow
     are reduced proportionately based upon distributions of capital transaction
     proceeds.

     The Partnership has not made any distributions since 1990.  At December 31,
     1996, the cumulative unpaid Minimum Annual Distribution per Class A Unit
     significantly exceeds the Partnership's net asset value per unit based on
     the appraised values of the hotel properties.

     ALLOCATION OF INCOME AND LOSSES

     Partnership income and losses are allocated among the partners in
     accordance with federal income tax provisions based upon the partners
     ownership interests, adjusted to reflect original contribution values
     agreed upon by the partners and other basis differences at the inception of
     the Partnership. Income and losses are allocated among individual units on
     a pro

<PAGE>
 
AIRCOA HOTEL PARTNERS, L.P.
AND SUBSIDIARY OPERATING PARTNERSHIPS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
 

     rata basis within each class of units.  For financial reporting purposes,
     the net income or loss of the Partnership is generally allocated in
     accordance with the income tax allocation provisions described above.  In
     accordance with the Partnership agreement, deductions of approximately
     $1,036,000, $3,056,000 and $1,148,000 in 1996, 1995 and 1994, respectively,
     were transferred in the allocation of income (loss) from the Class B Units
     to the Class A Units and General Partner.  In 1995, such allocation
     includes the impact from the impairment of the Lakeside property (see Note
     3).

(3)  HOTEL PROPERTY VALUATIONS

     The Partnership periodically evaluates the carrying value of its hotel
     properties for impairment.  These evaluations are based upon management's
     estimate of future operating results considering recent performance and
     existing and expected local market conditions.  Based on these evaluations,
     the Partnership recognized an impairment of approximately $4,789,000
     relating to the Lakeside property in 1995.  The loss was determined based
     on the excess of the hotel property's carrying value over its fair value at
     December 31, 1995.  The fair value of the hotel property was determined
     through a third-party appraisal obtained in January 1996.  The impairment
     loss is included in costs and operating expenses in the accompanying
     consolidated statements of operations.

     The Partnership believes that the expected future cash flows from the
     operations of its other hotel properties will be sufficient to recover
     their carrying values.  The Partnership has no current plans to sell any of
     its properties for less than their carrying values.

(4)  LONG-TERM DEBT

     On June 8, 1995, the Partnership signed a credit agreement with a new
     lender which provided a $45,000,000 first mortgage loan and a $1,000,000
     revolving credit line. The proceeds of the $45,000,000 first mortgage loan
     were used to refinance, on a long-term basis, the Partnership's existing
     mortgage loan in the amount of $38,950,000 and the note payable to bank of
     $1,790,000 which were due July 31, 1995 and October 31, 1995, respectively,
     and to provide approximately $3,000,000 to fund hotel property renovations.
     At December 31, 1996 these amounts have been expended. The balance of the
     funds were used for the payment of a facility fee and closing costs.

     The first mortgage loan interest rate at December 31, 1996 of 7.53% was
     based on the current Eurodollar rate plus 2%. Repayment of the first
     mortgage loan is based on a twenty-year amortization with a final maturity
     date in June 2000. Payments under this loan consist of monthly installments
     of $90,000 plus interest on the unpaid balance. The revolving credit line
     is renewable annually at the option of the lender. No amounts have been
     drawn on the revolving credit line at December 31, 1996.

<PAGE>
 
AIRCOA HOTEL PARTNERS, L.P.
AND SUBSIDIARY OPERATING PARTNERSHIPS

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
 

     Long-term debt is summarized as follows (in thousands):

 
                                                 December 31,
                                               -----------------
                                                 1996     1995

Mortgage loan                                  $43,380   44,370
Capital lease obligation                           246        -
                                               -------   ------
                                                43,626   44,370
Less current installments                       (1,122)  (1,080)
                                               -------   ------
Long-term debt, excluding current              $42,504   43,290
 installments                                  =======   ======


  The first mortgage loan and revolving credit line contain various covenants
  including: minimum debt service ratios, restrictions on additional
  indebtedness, limitations on annual cash distributions to Class A Unitholders,
  limitations on the payment of principal on the affiliate notes payable,
  prepayment premiums during the first two years, deferral of management fees
  payable to Richfield if minimum debt service ratios are not achieved,
  maintenance of a capital expenditure reserve account equal to 5% of gross
  revenue, and a maximum loan-to-value ratio of 65% based on the aggregate
  appraised values of the Properties. The Partnership is in compliance with
  these covenants for the year ended December 31, 1996. The first mortgage loan
  and revolving credit line are subject to certain limited guarantees of an
  affiliate of the General Partner. The first mortgage loan also requires Bank
  approval of any dilution in the present ownership interests of affiliates of
  the General Partner in the Partnership.

  In accordance with the Partnership Agreement, the General Partner received a
  1% financing fee, reduced by the amount of the financing fee paid to the
  lender, for arranging the refinancing of the Partnership's indebtedness. In
  addition, the Partnership pays an annual guarantee fee calculated as .5% of
  the outstanding loan balance at June 8 of each year to an affiliate of the
  General Partner for the limited guarantee of the first mortgage loan and the
  revolving credit line.


     Maturities of long-term debt are summarized as follows (in thousands):
 
                  Year ending December 31,
                          1997                        $ 1,122
                          1998                          1,127
                          1999                          1,131
                          2000                         40,197
                          2001                             49
                                                      -------
                                                      $43,626
                                                      =======

(5)  NOTES PAYABLE TO AFFILIATES

     A condition of the credit agreement signed by the Partnership for the first
     mortgage loan and revolving credit line required the subordination of the
     $6,000,000 notes payable to AHS (the "Notes"), AHS has agreed to this
     subordination, and as a result, on September 26, 1995 the Board of
     Directors of AHS, in its capacity as General Partner, and the Advisory
     Committee of AHP authorized the extension of the term and deferral of
     certain past-due interest on the Notes.

<PAGE>
 
AIRCOA HOTEL PARTNERS, L.P.
AND SUBSIDIARY OPERATING PARTNERSHIPS

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED

 

     Pursuant to this extension, the Notes, which originally matured in January
     1995, are due on June 8, 2000, which is coterminous with the new mortgage
     loan.  The unpaid interest on the Notes accrued prior to January 1, 1995,
     in the amount of $2,100,000, were converted into a new promissory note
     ("New Note") which also matures on June 8, 2000.  The New Note accrues
     interest at the rate of 12% per annum and is payable at maturity.  Interest
     accrued on the Notes after December 31, 1994 was paid at closing.  Interest
     incurred on the Notes subsequent to closing continues to be accrued at 12%
     per annum and is paid monthly.  These notes are convertible into Class A
     Units of the Partnership at $16.60 per unit.  In addition, these notes
     stipulate that 25% of any excess cashflow, as defined in the new mortgage
     loan, will be applied against the principal of the notes outstanding.

(6)  INCOME TAXES

     The Partnership's only significant temporary difference (which will result
     in tax deductions in 1998 and later years) is an excess of the tax basis
     over the book basis of the Properties of approximately $4,900,000 and
     $6,500,000 at December 31, 1996 and 1995, respectively.  The Partnership's
     net deferred tax asset was approximately $1,960,000 and $2,600,000 at
     December 31, 1996 and 1995, respectively.  The Partnership has established
     a 100% valuation allowance on these net deferred tax assets.  The change in
     the valuation allowance in 1996 and 1995 was a decrease and an increase of
     approximately $640,000 and $1,660,000, respectively.

(7)  RELATED PARTY TRANSACTIONS AND COMMITMENTS

     PARTNERSHIP ADMINISTRATION

     AHS, as General Partner, is responsible for managing the business and
     affairs of the Partnership and the Operating Partnerships.  The General
     Partner is reimbursed monthly for all direct operating expenses incurred on
     behalf of the Partnership and Operating Partnerships.  In addition, the
     General Partner receives an annual partnership administration fee equal to
     .25% of the independently appraised value of the hotel properties of the
     Partnership.

     MANAGEMENT AGREEMENTS

     Richfield operates the hotel properties for the Partnership in exchange for
     a management fee equal to 4% of annual gross revenue from the hotel
     properties.  In addition, the hotel properties are obligated to reimburse
     Richfield for payroll, professional fees, and certain out-of-pocket
     expenses incurred by Richfield on their behalf.  The management agreements
     expire in 2012 and can be terminated by the Partnership prior to
     expiration, in certain circumstances, by the payment of a fee equal to
     three times the management fee paid for the preceding 12 months.

     Richfield also provides data processing services and obtains various types
     of insurance coverage, on an aggregate basis, for the hotel properties
     which it owns or manages. Such data processing and insurance costs are
     charged to the hotel properties.

<PAGE>
 
AIRCOA HOTEL PARTNERS, L.P.
AND SUBSIDIARY OPERATING PARTNERSHIPS

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED

 

(7)  RELATED PARTY TRANSACTIONS AND COMMITMENTS (CONTINUED)

     LICENSE AGREEMENTS

     Two of the hotel properties have license agreements with an affiliate to
     operate as Regal Hotels. The license agreements provide for fees of 2.0% to
     2.5% of total sales revenue, as defined, in 1996 and expire in 2012.  In
     December  1996 and February 1997, each of the agreements was amended to
     provide for a fee of 2.5% throughout the terms of the agreements.  The
     agreements can be terminated by the Partnership prior to expiration in
     certain circumstances, through payment of a termination fee.

     HOTEL PROPERTY ACQUISITIONS AND DISPOSITIONS AND PARTNERSHIP FINANCING

     The General Partner receives an acquisition fee equal to 1% of the purchase
     price of any hotel property acquired by the Partnership.  Upon the sale of
     a hotel property, the General Partner receives either a disposition fee
     equal to 1% of the sales price of the hotel property, or a reasonable
     brokerage fee, based upon fees for comparable properties in the area, less
     the amount of any such brokerage fees paid to third parties.  The General
     Partner receives a financing fee equal to 1% of the principal amount of any
     new Partnership loan, or refinancing of Partnership debt if the refinancing
     is completed with a lender other than the lender whose loan is being
     refinanced.  Such fee is required to be reduced by the amount of the
     financing fee paid to the lender.

     OTHER ARRANGEMENTS

     The General Partner and its affiliates are paid development, purchasing,
     and design fees for services performed in connection with the renovation or
     expansion of the Partnership's hotel properties.  In addition, an affiliate
     of AHS receives fees in connection with the bulk purchase of hotel
     furnishings, equipment, and supplies.

     The Partnership leases a private club and recreational facility from an
     affiliate of AHS, under an operating lease.  The Partnership receives 90%
     to 100% of the available cash flow from operations of the private club and
     recreational facility as lease income and management fees.  The lease
     expires in 2052 and may be terminated early by the Partnership.  The
     Partnership received lease income and management fees of $301,000, $256,000
     and $330,000 pursuant to these arrangements in 1996, 1995, and 1994,
     respectively.

     Subject to the terms of the lease agreement, an affiliate of the
     Partnership has an option to purchase 50 undeveloped acres from the private
     club for $10. The option is only exercisable if all the permits and
     consents from state and local authorities permit continued operation of the
     club after conveyance of the 50 acres to the affiliate. The affiliate pays
     a pro-rata share of the property taxes on the private club. The private
     club is located on a tract of land consisting of approximately 80 acres.

<PAGE>
 
AIRCOA HOTEL PARTNERS, L.P.
AND SUBSIDIARY OPERATING PARTNERSHIPS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
 

(7)  RELATED PARTY TRANSACTIONS AND COMMITMENTS (CONTINUED)

     The following amounts resulting from transactions with affiliates are
     included in the accompanying consolidated balance sheets (in thousands):


                                              December 31
                                             -------------
                                              1996    1995
                                             -------------
Fees and costs, included in property
     and equipment, net                      $1,121  1,123
                                             ======  =====
General Partner financing fee                $  112    144
                                             ======  =====
Guarantee fee                                $  112    115
                                             ======  =====


     The General Partner financing fee and the guarantee fee have been
     capitalized and are included in other assets. The financing fee is being
     amortized over the life of the first mortgage loan, and the annual
     guarantee fee is being amortized over twelve months. Amortization relating
     to the financing and guarantee fee of $145,000 and $131,000 is included in
     interest expense in 1996 and 1995, respectively.

     The following amounts resulting from transactions with affiliates are
     included in the accompanying consolidated statements of operations (in
     thousands):

 
                                     1996    1995   1994
                                   -------  -----  ----- 
Partnership administration fees     $  198    209    222
                                    ======  =====  =====
Management fees                     $1,925  1,802  1,835
                                    ======  =====  =====
Allocated insurance expense         $1,263  1,411  1,505
                                    ======  =====  =====
Allocated data processing costs     $   58     80     45
                                    ======  =====  =====
Interest expense                    $  972    851    720
                                    ======  =====  =====
Lease income                        $  301    256    330
                                    ======  =====  =====
License fees                        $  298    174    132
                                    ======  =====  =====

(8)       COMMITMENTS AND CONTINGENCIES

     Under terms of the Clarion and ITT Sheraton franchises, the Partnership is
     committed to make annual payments for franchise and licensing fees and
     reservation services.  The Clarion license agreement requires franchise
     fees equal to 3% of gross room revenue and expires in 2012.  The ITT
     Sheraton license agreements require franchise fees equal to 6% of gross
     room revenue and expire in 2002. The Sheraton agreements may be
     terminated by either party at specified dates. Total franchise fees on the
     Clarion and ITT Sheraton license agreements were $1,131,000, $1,650,000,
     and $1,677,000 for 1996, 1995 and 1994, respectively.

     Three of the hotel properties are subject to noncancelable operating land
     leases which expire between 2000 and 2033. The leases generally require
     annual rental payments of a fixed amount, ranging from $10,000 to $90,000,
     plus a contingent amount based upon a percentage of specified room revenue,
     food and beverage revenue, or gross revenue, as defined, ranging from 1% to
     8%. The accompanying consolidated statements of operations include land
     rent expense of $747,000, $799,000 and $803,000 for 1996, 1995 and 1994,
     respectively.

<PAGE>
 
AIRCOA HOTEL PARTNERS, L.P.
AND SUBSIDIARY OPERATING PARTNERSHIPS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
 

(8)  COMMITMENTS AND CONTINGENCIES (CONTINUED)

     The Class A Units issuable upon conversion of notes payable and upon
     conversion of the Class B Units, and the Class A Units issued pursuant to
     the General Partner's obligations regarding cash distributions have certain
     demand registration rights.

     The Partnership is involved in various claims and legal actions arising in
     the ordinary course of business.  In the opinion of management, the
     ultimate disposition of these matters will not have a material effect on
     the consolidated financial statements of the Partnership.

<PAGE>
 
                                   PART III

Item 10.  Directors and Executive Officers of the General Partner
--------  -------------------------------------------------------

          THE GENERAL PARTNER

          AHS is the General Partner of the Partnership and of each of the
          Operating Partnerships. From its formation in 1968 until November
          1993, AHS was engaged in the management of hotel and resort
          properties. Richfield assumed the management contracts for the
          properties effective November 1993 as a part of the integration by
          Richfield of its hotel management subsidiaries, including AHS.

          DIRECTORS AND EXECUTIVE OFFICERS OF AHS

          The directors and executive officers of AHS are listed below. The
          Advisory Committee of AHP consists of one member of the AHS Board of
          Directors, Anthony Williams. The other members of the Advisory
          Committee include Anthony Dimond and James Hire who do not serve in
          any other capacity with Richfield or its affiliates. The functions of
          the AHP Advisory Committee include, among other things, review of the
          policies and practices of the Partnership and AHS regarding various
          matters as to which potential conflicts of interest may arise and
          review of certain acquisitions and dispositions of hotel properties by
          AHP. The officers of AHS devote such time and effort as is necessary
          for AHS to perform its duties as General Partner of the Partnership.
          Each of the directors of AHS are elected to a one-year term at the
          annual meeting of the shareholder of AHS.

          IDENTIFICATION OF DIRECTORS

          Name and Year First            Principal Occupation
          Became a Director         Age  During the Past Five Years
          -----------------         ---  --------------------------

          Daniel Bong Shu Yin, 1995  57  Daniel Bong has served as a Director
                                         for Century City International Holdings
                                         Limited ("CCIHL"), a Bermuda
                                         corporation listed in Hong Kong and
                                         engaged in property development and
                                         hotel ownership and management since
                                         1989. He is also a Director of the
                                         subsidiary corporations of CCIHL,
                                         Paliburg International Holdings Limited
                                         ("PIHL") and Deputy Chairman of Regal
                                         Hotels International Holdings Limited
                                         ("RHIHL"). Mr. Bong is responsible for
                                         overseeing the hotel operations and is
                                         a qualified architect. Mr. Bong has
                                         served as President/Chief Executive
                                         Officer of Richfield Holdings, Inc.
                                         ("Holdings") since October 1995 and as
                                         a Director since May 1995.
<PAGE>
 
      Name and Year First                Principal Occupation
      Became a Director             Age  During the Past Five Years
      -----------------             ---  --------------------------

      Lawrence Lau Siu Keung, 1995   46  Lawrence Lau joined CCIHL in 1994 and
                                         has served as a Director since 1995. He
                                         also serves as a Director of PIHL and
                                         RHIHL. Mr. Lau is in charge of the
                                         overall financial and accounting
                                         functions of CCIHL and its
                                         subsidiaries. Mr. Lau served as Group
                                         Controller (Finance) for Shaw Brothers
                                         (H.K.) Ltd. from 1992 to 1994. From
                                         1989 to 1992 he was Financial
                                         Controller for Regal Pacific Holdings
                                         Limited. Mr. Lau has served as a
                                         Director of Holdings since May 1995.

      Sandy Leung Sun So, 1996       42  Sandy Leung served as Senior Vice
      (Resigned, December, 1996)         President of AHS and Holdings from
                                         February 1996 to December 1996. He
                                         joined CCIHL in November 1995 as
                                         General Manager-Corporate Finance.
                                         Prior to joining CCIHL, Mr. Leung
                                         served as a Director of Shanghai
                                         International Capital (H.K.) Limited
                                         from May 1994 to September 1995. Mr.
                                         Leung also served as an Executive
                                         Director of Seapower Corporate Finance
                                         Limited from May 1992 to April 1994.

      Douglas M. Pasquale, 1995      42  Douglas M. Pasquale has served as
                                         President/CEO of AHS since February
                                         1996. He previously served as an
                                         Executive Vice President since February
                                         1992 and was appointed Chief Financial
                                         Officer in August 1994. Mr. Pasquale
                                         joined AHS in 1986 as Vice President of
                                         Investor Services. Mr. Pasquale did not
                                         serve as an officer of AHS from August
                                         1989 to February 1992, but continued to
                                         serve as Vice President of Holdings
                                         during this time period. Mr. Pasquale
                                         became a Director of Holdings in
                                         February 1993.

      Michael Sheh, 1995             39  Michael Sheh has served as Executive
                                         Vice President since February 1997. He
                                         has served as Senior Vice
                                         President/Treasurer of AHS since June
                                         1995. Mr. Sheh served as Vice
                                         President/Treasurer of Holdings from
                                         1989 to 1995, and as Senior Vice
                                         President from 1995 to February 1997,
                                         when he was elected Executive Vice
                                         President. He became a Director of
                                         Holdings in May 1995.
<PAGE>
 
          Name and Year First            Principal Occupation
          Became a Director         Age  During the Past Five Years
          -----------------         ---  --------------------------

          Carol K. Werner, 1989      42  Carol K. Werner served as General
                                         Counsel, Secretary and Executive Vice
                                         President of AHS from 1989 to March
                                         1995. She also served as Director,
                                         Executive Vice President and Secretary
                                         of Holdings and certain affiliates from
                                         1989 to 1995. Since August 1995, Ms.
                                         Werner has been working with the
                                         Denver, Colorado office of Coudert
                                         Brothers, an international law firm.
                                         Ms. Werner was an associate of Coudert
                                         Brothers prior to her employment with
                                         AHS.


          Anthony Williams, 1989     51  Anthony Williams is the Chairman of the
                                         executive committee of Coudert
                                         Brothers, an international law firm,
                                         and has been a partner since 1981. He
                                         has served as a director of Holdings
                                         since 1989.

        There are no family relationships between any of the directors or the
        executive officers of AHS. Coudert Brothers, an international law firm
        of which Anthony Williams and Carol Werner are attorneys, has provided
        legal services for the Partnership and affiliates since the beginning of
        1989. CCIHL, PIHL, RHIHL are affiliates of AHP.

Item 11.  Payments and Compensation to General Partner and Affiliates
--------  -----------------------------------------------------------

        As set out in the Partnership Agreement various fees are payable to AHS,
        as General Partner, for services rendered to the Partnership. These fees
        include Partnership administration fees equal to .25% of the appraised
        value of the Properties determined as of December 31st of each year;
        acquisition fees equal to 1% of the purchase price of any additional
        hotel property purchased by the Partnership; mortgage or refinancing
        fees equal to 1% of the loan amount; annual guarantee fees equal to .5%
        of the outstanding loan balance to an affiliate of AHS; and brokerage
        and disposition fees equal to 1% of the total contract price of the
        property with respect to the sale of a Partnership property to a third
        party. Affiliates of AHS receive property management service fees, data
        processing and risk management fees pursuant to the hotel management
        agreements with the Operating Partnerships. The Properties may also
        reimburse AHS and its affiliates for certain costs paid by AHS and its
        affiliates on behalf of the Operating Partnerships including payroll,
        professional fees and certain out-of-pocket expenses. For a detailed
        description of amounts paid or owed to AHS and its affiliates by the
        Partnership or the Operating Partnerships for various services performed
        by AHS and its affiliates during 1996, see Item 8, Financial Statements
        and Supplementary Data. The McCormick Ranch and Durham properties have
        license agreements with Holdings for use of the Regal name. For a
        detailed description of amounts paid or owed to Holdings, see Item 8,
        Financial Statements and Supplementary Data.
<PAGE>
 
     Item 12.  Security Ownership of Certain Beneficial Owners and Management
     --------  --------------------------------------------------------------

    (a) The following table sets forth information as of March 3, 1997
        with respect to persons who are known to the Partnership (based on
        statements filed with the Securities and Exchange Commission pursuant to
        section 13(d) or 13(g) of the Securities Act of 1934) to be the
        beneficial owner of more than five percent of any class of the
        Partnership's voting securities.
<TABLE>
<CAPTION>
 
                              Name and address    Amount and nature    
                              of                  of beneficial       Percent
Title of Class                beneficial owner    ownership           of Class
---------------------------  ------------------   -----------------   ---------
                                                
 
<S>                          <C>                  <C>                 <C>
Class A Units                Century City         3,794,646 (1)       71.0%
                             International
                             Paliburg Plaza
                             68 Ye Woo Street     Indirect
                             Hong Kong            Ownership
 
Class A Units                Regal Hotel          1,825,065(1)        34.2%
                             Management, Inc.
                             5775 DTC Boulevard   Direct
                             Suite 300            Ownership
                             Englewood, Colorado
                             80111
 
Class A Units                Gateway Hotel        769,041(1)          14.4%
                             Holdings, Inc.
                             5775 DTC Boulevard   Direct
                             Suite 300            Ownership
                             Englewood, Colorado  
                             80111
 
Class A Units                AIRCOA Equity        650,000 (1)         12.2%
                             Interests, Inc.
                             5775 DTC Boulevard   Direct
                             Suite 300            Ownership
                             Englewood, Colorado  
                             80111
 
Class A Units                Richfield            546,740 (1)(2)      10.2%
                             Holdings, Inc.
                             5775 DTC Boulevard   Direct
                             Suite 300            Ownership
                             Englewood,
                             Colorado  80111
 
Class A Units                Investing Group:     409,000 (3)         7.65%
                                                  Direct
                                                  Ownership
 
                             Hatfield Family
                             Trust, UA
                             RR1, Box 162
                             Ridgeland, South
                             Carolina  29936
                             (108,700 units
                             2.03%)
 
</TABLE>
<PAGE>
 
<TABLE>
<CAPTION>
 
                             Name and address     Amount and nature   
                             of                   of beneficial      Percent
Title of Class               beneficial owner     ownership          of Class
---------------------------  -----------------    --------           ----------
                                                  
<S>                          <C>                  <C>                 <C> 
                             J. Mark Grosvenor
                             3145 Sports
                             Arena Boulevard
                             San Diego,
                             California  92110
                             (110,000 units 2.02%)
 
                             Gerald Loehr Trust
                             c/o Gerald G. Loehr
                             P.O. Box 675207
                             Rancho Santa Fe,
                             California  92067
                             (43,500 units .814%)
 
                             Gardner-Smith
                             Living Trust, UA
                             7825 Fay Avenue,
                             Suite 250
                             La Jolla, California  
                             92037
                             (43,200 units .81%)
 
                             Narans Investment
                             Management, Inc.
                             3440 South Vance
                             Avenue, Suite 700
                             Lakewood, Colorado  
                             80227
                             (32,200 units .60%)
 
                             Blacor, Inc.
                             8235 Douglas
                             Avenue, Suite
                             1300
                             Dallas, Texas
                             75225
                             (25,400 units .47%)
 
                             Lance T. Shaner
                             303 Science Park
                             Road
                             State College,
                             Pennsylvania
                             16803
                             (25,500 units .51%)
 
                             Don W. Cockroft
                             P. O. Box 770577
                             Memphis,
                             Tennessee  38177
                             (10,500 units .20%)
 
                             Michael McNulty
                             8235 Douglas
                             Avenue, Suite
                             1300
                             Dallas, Texas
                             75225
                             (10,000 units .20%)
 
Class B Units                Century City         950,000 (4)(5)     100.0%
                             International        Indirect
                             Holdings Limited     Ownership
                                                  
</TABLE>
<PAGE>
 
       (1) Each of Richfield Holdings, Inc. ("Holdings"), AIRCOA Equity
           Interests, Inc. ("AEI"), Regal Hotel Management, Inc. ("RHM") and
           Gateway Hotel Holdings, Inc. ("Gateway") share voting and investment
           power with Century City International Holdings Limited ("Century
           City").
       (2) Holdings has direct ownership of 546,740 Class A Units, an indirect
           ownership of 650,000 Class A Units through AEI, and indirect
           ownership of 3,800 Class A Units through Richfield Hospitality
           Services, Inc., for a total direct and indirect ownership of
           1,200,540, which represent 22.5% of the Class A Units.
       (3) Individuals or trusts listed have jointly filed a Schedule 13-D
           indicating that they are acting as a group.  Ownership information is
           based on Amendment No. 2 to the Schedule 13-D filed February 3, 1996.
       (4) Class B Units are not tradable securities however, they are
           convertible into Class A Units under certain conditions as set forth
           in the limited partnership agreement of the Partnership.  No
           conversion rights have been exercisable since the Partnership's
           inception through the date hereof.
       (5) Holdings directly owns 200,000 Class B Units.  RHM directly owns
           688,746 Class B Units of the Partnership.  Buffalo Hotel Investors,
           Ltd. ("BHI") directly owns 61,254 Class B Units. AEI is the managing
           general partner of BHI and therefore BHI is considered an affiliate.
           AEI and its affiliates directly and indirectly own 7.1% of the
           partnership interests of BHI.

        In addition to its direct interest in the Partnership's voting
        securities, Holdings indirectly owns 100% of the outstanding common
        shares of AHS.  In February, 1989 Novolane, B.V., a Netherlands company
        ("Novolane") and Kingsfield Investment B.V., a Netherlands company
        ("Kingsfield") together acquired 51% of the voting securities of
        Holdings.  Kingsfield sold the 5% interest it held in Holdings to an
        unaffiliated party during 1990. Novolane currently owns 49.77% of
        Holdings' outstanding voting securities and 100% of the voting
        securities of RHM. In December 1994, Regal International Limited
        purchased 45.58% of Holdings' outstanding voting securities from an
        unaffiliated entity. Century City, a Bermuda company, indirectly
        controls Novolane, Gateway and Regal International Limited. More than
        60% of the voting stock of Century City is beneficially owned by Mr. Lo
        Yuk Sui, a citizen of Hong Kong.

        The General Partner directly owns notes, with face values of $8,100,000,
        which are convertible into Class A Units at a price of $16.60 per Class
        A Unit.  Assuming that these were converted, the General Partner would
        directly own 8.4% of the Class A Units.  Century City International
        would then indirectly own 73.5% of the Class A Units.

    (b) Security Ownership of Management

        As of March 3, 1997, no officers or directors of AHS have beneficial
        ownership of any equity securities of the Partnership or AHS.

Item 13.  Certain Relationships and Related Transactions
--------  ----------------------------------------------

        (a) Transaction with Management and Others - See (b)

        (b) Certain Business Relationships

            The Partnership is provided services by, and engages in certain
            other transactions with AHS, its general partner, and other
            affiliates. See Item 11, Payments and Compensation to the General
            Partner and Affiliates and Item 8, Financial Statements and
            Supplementary Data.
<PAGE>
 
                                    PART IV



Item 14.  Exhibits, Financial Statement Schedules, and Reports on Form 8-K
--------  ----------------------------------------------------------------
<TABLE>
<CAPTION>

                                                                     Page
                                                                     Number 
                                                                     ------
 
<S>                                                                  <C>
(a) (1)  Financial Statements - Included in Part II of this Report:
 
         Independent Auditors' Report                                II-10
 
         Consolidated Balance Sheets, December 31,
          1996 and 1995                                              II-11
 
         Consolidated Statements of Operations                       II-13
          Years Ended December 31, 1996, 1995, and 1994
 
         Consolidated Statements of Partners' Capital                II-14
          Years Ended December 31, 1996, 1995, and 1994
 
         Consolidated Statements of Cash Flows                       II-15
          Years Ended December 31, 1996, 1995, and 1994
 
         Notes to Consolidated Financial Statements,
          December 31, 1996 and 1995                                 II-17
 
</TABLE> 
(a) (2)  Financial Statement Schedules

         The financial statement schedules are omitted as they are either not
         required or are not applicable or the required information is included
         in the financial statements or notes thereto.

(a) (3)  Exhibits

3.1      Agreement of Limited Partnership of the Partnership, as amended and
         restated, incorporated herein by reference to the Partnership's
         Registration Statement No. 33-13418, Exhibit 3.1, declared effective by
         the Securities and Exchange Commission on July 23, 1987.

3.3      Certificate of Limited Partnership for the Partnership, as amended,
         incorporated herein by reference to the Partnership's Registration
         Statement No. 33-13418, Exhibit 3.3, declared effective by the
         Securities and Exchange Commission on July 23, 1987.

3.4      Agreement of Limited Partnership for the Operating Partnerships,
         incorporated herein by reference to the Partnership's Registration
         Statement No. 33-13418, Exhibit 3.4, declared effective by the
         Securities and Exchange Commission on July 23, 1987.

3.5      Certificate of Limited Partnership for the Operating Partnerships,
         incorporated herein by reference to the Partnership's Registration
         Statement No. 33-13418, Exhibit 3.5, declared effective by the
         Securities and Exchange Commission on July 23, 1987.

4.1      Form of Deposit Agreement, incorporated herein by reference to the
         Partnership's Registration Statement No. 33-13418, Exhibit 4.1,
         declared effective by the Securities and Exchange Commission on July
         23, 1987.
<PAGE>
 
4.2      Form of Depository Receipt, incorporated herein by reference to the
         Partnership's Registration Statement No. 33-13418, Exhibit 4.2,
         declared effective by the Securities and Exchange Commission on July
         23, 1987.

4.3      The form of Transfer Application, incorporated herein by reference to
         the Partnership's Registration Statement No. 33-13418, Exhibit 4.3,
         declared effective by the Securities and Exchange Commission on July
         23, 1987.

10.1     Hotel Contribution Agreement for Sheraton Buffalo, dated December 30,
         1986, between the Partnership, Buffalo Inn Associates, a Colorado
         general partnership, Newpart, and ABI, Ltd., a Colorado limited
         partnership ("ABI"), as amended, incorporated herein by reference to
         the Partnership's Registration Statement No. 33-13418, Exhibit 10.1,
         declared effective by the Securities and Exchange Commission on July
         23, 1987.

10.2     Assignment, Assumption and Indemnification Agreement for Sheraton
         Buffalo, dated December 31, 1986, between Buffalo Inn Associates,
         Newpart, ABI and the Partnership, incorporated herein by reference to
         the Partnership's Registration Statement No. 33-13418, Exhibit 10.2,
         declared effective by the Securities and Exchange Commission on July
         23, 1987.

10.3     Assignment and Assumption Agreement between Sheraton Buffalo, dated
         February 20, 1987, between the Partnership and Buffalo Operating
         Partnership, L.P., a Delaware limited partnership, incorporated herein
         by reference to the Partnership's Registration Statement No. 33-13418,
         Exhibit 10.3, declared effective by the Securities and Exchange
         Commission on July 23, 1987.

10.4     Hotel Contribution Agreement for Sheraton University Center ("Sheraton
         University"), dated December 30, 1986, between the Partnership, Durham
         Joint Venture, a Florida joint venture ("Durham JV"), and Newpart, as
         amended, incorporated herein by reference to the Partnership's
         Registration Statement No. 33-13418, Exhibit 10.4, declared effective
         by the Securities and Exchange Commission on July 23, 1987.

10.5     Assignment, Assumption and Indemnification Agreement for Sheraton
         University, dated December 31, 1986, between Durham JV and the
         Partnership, incorporated herein by reference to the Partnership's
         Registration Statement No. 33-13418, Exhibit 10.5, declared effective
         by the Securities and Exchange Commission on July 23, 1987.

10.6     Assignment and Assumption Agreement for Sheraton University, dated
         February 20, 1987, between the Partnership and Durham Operating
         Partnership, L.P., a Delaware limited partnership, incorporated herein
         by reference to the Partnership's Registration Statement No. 33-13418,
         Exhibit 10.6, declared effective by the Securities and Exchange
         Commission on July 23, 1987.

10.7     Hotel Contribution Agreement for Fourwinds, Aurora Inn, Clarion
         McCormick, Sheraton Lakeside, dated December 30, 1986, between the
         Partnership and Newpart and Amendment thereto dated effective December
         30, 1986, between the same parties relating to The Pine Lake Trout Club
         ("Pine Lake"), as amended, incorporated herein by reference to the
         Partnership's Registration Statement No. 33-13418, Exhibit 10.7,
         declared effective by the Securities and Exchange Commission on July
         23, 1987.
<PAGE>
 
10.8     Assignment, Assumption and Indemnification Agreement for Fourwinds,
         dated December 31, 1986, between Newpart and the Partnership,
         incorporated herein by reference to the Partnership's Registration
         Statement No. 33-13418, Exhibit 10.8, declared effective by the
         Securities and Exchange Commission on July 23, 1987.

10.9     Assignment and Assumption Agreement for Fourwinds, dated February 20,
         1987, between the Partnership and Fourwinds Operating Partnership,
         L.P., a Delaware limited partnership, incorporated herein by reference
         to the Partnership's Registration Statement No. 33-13418, Exhibit 10.9,
         declared effective by the Securities and Exchange Commission on July
         23, 1987.

10.10    Assignment, Assumption and Indemnification Agreement for Aurora Inn,
         dated December 31, 1986, between Newpart and the Partnership,
         incorporated herein by reference to the Partnership's Registration
         Statement No. 33-13418, Exhibit 10.10, declared effective by the
         Securities and Exchange Commission on July 23, 1987.

10.11    Assignment and Assumption Agreement for Aurora Inn, dated February 20,
         1987, between the Partnership and Aurora Inn Operating Partnership,
         L.P., a Delaware limited partnership, incorporated herein by reference
         to the Partnership's Registration Statement No. 33-13418, Exhibit
         10.11, declared effective by the Securities and Exchange Commission on
         July 23, 1987.

10.12    Assignment, Assumption and Indemnification Agreement for Clarion
         McCormick, dated December 31, 1986, between Newpart and the
         Partnership, incorporated herein by reference to the Partnership's
         Registration Statement No. 33-13418, Exhibit 10.12, declared effective
         by the Securities and Exchange Commission on July 23, 1987.

10.13    Assignment and Assumption Agreement for Clarion McCormick, dated
         February 20, 1987, between the Partnership and McCormick Ranch
         Operating Partnership, L.P., a Delaware limited partnership,
         incorporated herein by reference to the Partnership's Registration
         Statement No. 33-13418, Exhibit 10.13, declared effective by the
         Securities and Exchange Commission on July 23, 1987.

10.14    Assignment, Assumption and Indemnification Agreement for Sheraton
         Lakeside, dated December 31, 1986, between Newpart and the Partnership,
         incorporated herein by reference to the Partnership's Registration
         Statement No. 33-13418, Exhibit 10.14, declared effective by the
         Securities and Exchange commission on July 23, 1987.

10.15    Agreement for the Purchase and Sale of Partnership Interest for
         Sheraton Lakeside, dated as of January 1, 1987, between Lakeside Inns
         Limited, a British Virgin Islands corporation, and Newpart; as amended,
         incorporated herein by reference to the Partnership's Registration
         Statement No. 33-13418, Exhibit 10.15, declared effective by the
         Securities and Exchange Commission on July 23, 1987.

10.16    Partnership Interest Purchase Agreement and Consent and Waiver for
         Sheraton Lakeside, dated December 30, 1986, between Newpart and the
         Orlando S.L. Ltd., an Ohio limited partnership, incorporated herein by
         reference to the Partnership's Registration Statement No. 33-13418,
         Exhibit 10.16, declared effective by the Securities and Exchange
         Commission on July 23, 1987.
<PAGE>
 
10.17    Confirmatory Assignment of Agreement for the Purchase and Sale of
         Partnership Interest for Sheraton Lakeside, dated as of February 20,
         1987, between Newpart and the Partnership, incorporated herein by
         reference to the Partnership's Registration Statement No. 33-13418,
         Exhibit 10.17, declared effective by the Securities and Exchange
         Commission on July 23, 1987.

10.18    Assignment for Sheraton Lakeside, dated February 20, 1987, by Orlando
         Lakeside Associates Limited, a Florida limited partnership, to the
         Partnership, incorporated herein by reference to the Partnership's
         Registration Statement No. 33-13418, Exhibit 10.18, declared effective
         by the Securities and Exchange Commission on July 23, 1987.

10.19    Assignment and Assumption Agreement for Sheraton Lakeside, dated
         February 20, 1987, between the Partnership and Lakeside Operating
         Partnership, L.P., a Delaware limited partnership, incorporated herein
         by reference to the Partnership's Registration Statement No. 33-13418,
         Exhibit 10.19, declared effective by the Securities and Exchange
         Commission on July 23, 1987.

10.20    Assignment, Assumption and Indemnification Agreement for Pine Lake,
         executed on January 31, 1987, to be effective as of December 31, 1986,
         between Newpart and the Partnership, incorporated herein by reference
         to the Partnership's Registration Statement No. 33-13418, Exhibit
         10.20, declared effective by the Securities and Exchange Commission on
         July 23, 1987.

10.21    Assignment and Assumption Agreement for Pine Lake, dated February 20,
         1987, between the Partnership and Aurora Inn Operating Partnership,
         L.P., incorporated herein by reference to the Partnership's
         Registration Statement No. 33-13418, Exhibit 10.21, declared effective
         by the Securities and Exchange Commission on July 23, 1987.

10.22    Option to Purchase, dated as of February 20, 1987, between the
         Partnership and Newpart, incorporated herein by reference to the
         Partnership's Registration Statement No. 33-13418, Exhibit 10.22a,
         declared effective by the Securities and Exchange Commission on July
         23, 1987.

10.22a   Lease, dated as of February 20, 1987, between the Partnership and MHM,
         Inc., a Delaware corporation d/b/a Motor Hotel Management, Inc.,
         incorporated herein by reference to the Partnership's Registration
         Statement No. 33-13418, Exhibit 10.22b, declared effective by the
         Securities and Exchange Commission on July 23, 1987.

10.22b   Agency Agreement, dated as of February 20, 1987, between the
         Partnership and MHM, Inc., incorporated herein by reference to Exhibit
         10.22b filed with the Registrant's annual report on Form 10-K filed
         with the Commission on March 31, 1989.

10.23    Form of Management Agreement between the Partnership and the General
         Partner, as assigned to the Operating Partnerships, incorporated herein
         by reference to the Partnership's Registration Statement No. 33-13418,
         Exhibit 10.26, declared effective by the Securities and Exchange
         Commission on July 23, 1987.

10.23a   Assignment and Assumption of Management Agreement for Aurora Inn
         Operating Partnership, L.P. to Richfield Hotel Management, Inc. dated
         November 5, 1993, incorporated herein by reference to Exhibit 10.23a
         filed with the Registrant's Annual Report on Form 10-K filed with the
         commission on April 8, 1994.
<PAGE>
 
10.23b   Assignment and Assumption of Management Agreement for Buffalo Operating
         Partnership, L.P. to Richfield Hotel Management, Inc. dated November 5,
         1993, incorporated herein by reference to Exhibit 10.23b filed with the
         Registrant's Annual Report on Form 10-K filed with the commission on
         April 8, 1994.

10.23c   Assignment and Assumption of Management Agreement for Durham Operating
         Partnership, L.P. to Richfield Hotel Management, Inc. dated November 5,
         1993, incorporated herein by reference to Exhibit 10.23c filed with the
         Registrant's Annual Report on Form 10-K filed with the commission on
         April 8, 1994.

10.23d   Assignment and Assumption of Management Agreement for Fourwinds
         Operating Partnership, L.P. to Richfield Hotel Management, Inc. dated
         November 5, 1993, incorporated herein by reference to Exhibit 10.23d
         filed with the Registrant's Annual Report on Form 10-K filed with the
         commission on April 8, 1994.

10.23e   Assignment and Assumption of Management Agreement for Lakeside
         Operating Partnership, L.P. to Richfield Hotel Management, Inc. dated
         November 5, 1993, incorporated herein by reference to Exhibit 10.23e
         filed with the Registrant's Annual Report on Form 10-K filed with the
         commission on April 8, 1994.

10.23f   Assignment and Assumption of Management Agreement for McCormick Ranch
         Operating Partnership, L.P. to Richfield Hotel Management, Inc. dated
         November 5, 1993, incorporated herein by reference to Exhibit 10.23f
         filed with the Registrant's Annual Report on Form 10-K filed with the
         commission on April 8, 1994.

10.24    Clarion License Agreement between the Clarion Hotel Corporation, a
         Colorado corporation, and the Partnership, as assigned to the Clarion
         Operating Partnerships, incorporated herein by reference to the
         Partnership's Registration Statement No. 33-13418, Exhibit 10.27,
         declared effective by the Securities and Exchange Commission on July
         23, 1987.

10.24a   Assignment and Consent to Assignment dated as of February 28, 1987,
         between The Clarion Hotel Corporation, a Colorado corporation, the
         Partnership, and Clarion Hotels and Resorts, a Maryland joint venture,
         assigning the Clarion License Agreement previously filed as Exhibit
         10.27, incorporated herein by reference to the Partnership's
         Registration Statement No. 33-13418, Exhibit 10.27a, declared effective
         by the Securities and Exchange Commission on July 23, 1987.

10.24b   Amendment between Clarion Hotels and Resorts, a Maryland joint venture
         and Fourwinds Operating Partnership L.P., a Delaware limited
         partnership dated August 3, 1989 amending certain provisions of the
         License Agreement incorporated herein by reference to Exhibit 10.24b
         filed with the Registrant's Annual Report on Form 10-K filed with the
         Commission on March 31, 1990.

10.25    Sheraton Lakeside License Agreement dated May 14, 1992, incorporated
         herein by reference to Exhibit 10.25 filed with the Registrant's Annual
         Report on Form 10-K filed with the commission on April 8, 1994.

10.25a   Sheraton Lakeside Amendment of License Agreement and License Fee
         Deferral Agreement dated November 5, 1993, incorporated herein by
         reference to Exhibit 10.25a filed with the Registrant's Annual Report
         on Form 10-K filed with the commission on April 8, 1994.
<PAGE>
 
10.25b   Sheraton Buffalo License Agreement dated November 2, 1991, incorporated
         herein by reference to Exhibit 10.25b filed with the Registrant's
         Annual Report on Form 10-K filed with the commission on April 8, 1994.

10.25c   Sheraton Buffalo Amendment of License Agreement and License Fee
         Deferral Agreement dated November 5, 1993, incorporated herein by
         reference to Exhibit 10.25c filed with the Registrant's Annual Report
         on Form 10-K filed with the commission on April 8, 1994.

10.25d   Regal McCormick Sublicense Agreement dated February 15, 1996
         incorporated herein by reference to Exhibit 10.25 filed with the
         Registrant's Annual Report on Form 10-K filed with the commission on
         March 29, 1996.

10.25e   Regal McCormick First Amendment to Regal Sublicense Agreement dated
         February 26, 1997. (1)

10.25f   Regal University Sublicense Agreement dated December 18, 1996. (1)

10.26    Credit Agreement dated June 8, 1995, between the Partnership and the
         Operating Partnerships as makers, to The HongKong and Shanghai Banking
         Corporation Limited as payee, incorporated herein by reference to
         Exhibit 10.40, filed with the Registrant's Quarterly Report on Form 10-
         Q filed with the Commission on August 14, 1995.

10.26a   Promissory Note dated June 8, 1995, by the Partnership and the
         Operating Partnerships as makers, to The HongKong Shanghai Banking
         Corporation Limited as payee in the principal amount of $18,085,000,
         incorporated herein by reference to Exhibit 10.40a, filed with the
         Registrant's Quarterly Report on Form 10-Q filed with the Commission on
         August 14, 1995.

10.26b   Promissory Note dated June 8, 1995, by the Partnership and the
         Operating Partnerships as makers, to The HongKong Shanghai Banking
         Corporation Limited as payee in the principal amount of $1,000,000,
         incorporated herein by reference to Exhibit 10.40b, filed with the
         Registrant's Quarterly Report on Form 10-Q filed with the Commission on
         August 14, 1995.

10.26c   Renewal Note dated June 8, 1995, by the Partnership and the Operating
         Partnerships as makers, to The HongKong Shanghai Banking Corporation
         Limited as payee in the principal amount of $17,690,000, incorporated
         herein by reference to Exhibit 10.40c, filed with the Registrant's
         Quarterly Report on Form 10-Q filed with the Commission on August 14,
         1995.

10.26d   Promissory Note dated June 8, 1995, by the Buffalo Operating
         Partnership, L.P. as maker, to The Hong Kong and Shanghai Banking
         Corporation Limited as payee in the principal amount of $9,225,000,
         incorporated herein by reference to Exhibit 10.40d, filed with the
         Registrant's Quarterly Report on Form 10-Q filed with the Commission on
         August 14, 1995.

10.27    Forwinds Ground Lease, incorporated herein by reference to the
         Partnership's Registration Statement No. 33-13418, Exhibit 10.36a,
         declared effective by the Securities and Exchange Commission on July
         23, 1987.

10.27a   Clarion McCormick Ground Lease, incorporated herein by reference to the
         Partnership's Registration Statement No. 33-13418, Exhibit 10.36b,
         declared effective by the Securities and Exchange Commission on July
         23, 1987.
<PAGE>
 
10.27b   Sheraton Buffalo Ground Lease, incorporated herein by reference to the
         Partnership's Registration Statement No. 33-13418, Exhibit 10.36d,
         declared effective by the Securities and Exchange Commission on July
         23, 1987.

10.27c   Amendment No. 4 to Sheraton Buffalo Ground Lease dated June 28, 1988
         incorporated herein by reference to Exhibit 10.34d filed with the
         Registrant's Annual Report on Form 10-K filed with the Commission on
         March 31, 1989.

10.27d   Fourwinds Amended and Restated Indenture of Ground Lease dated May 20,
         1991, incorporated herein by reference to Exhibit 10.25c filed with the
         Registrant's Annual Report on Form 10-K filed with the Commission on
         April 14, 1992.

10.29    Other material contracts, incorporated herein by reference to the
         Partnership's Registration Statement No. 33-13418, Exhibit 10.37,
         declared effective by the Securities and Exchange Commission on July
         23, 1987.

10.30    Management Contract for Clarion McCormick, dated as of October 23,
         1982, between ARI, Inc., an Ohio corporation and the Board of Directors
         of the Council of Co-owners of the Shores, as amended, incorporated
         herein by reference to the Partnership's Registration Statement No. 33-
         13418, Exhibit 10.37h, declared effective by the Securities and
         Exchange Commission on July 23, 1987.

10.31    Letter Agreement for Aurora Inn, dated December 23, 1986, between
         Aurora Inn Co., an Ohio limited partnership and Aurora Inn Operating
         Partnership, L.P., incorporated herein by reference to the
         Partnership's Registration Statement No. 33-13418, Exhibit 10.37l,
         declared effective by the Securities and Exchange Commission on July
         23, 1987.

10.31a   Sublease and License Agreement for Sheraton Buffalo, dated as of
         December 31, 1986 between the Partnership, Buffalo Inn Associates, a
         Colorado general partnership ("BIA"), and AEI, incorporated herein by
         reference to the Partnership's Registration Statement No. 33-13418,
         Exhibit 10.37m, declared effective by the Securities and Exchange
         Commission on January 23, 1987.

10.31b   Sublease and License Agreement for Sheraton Buffalo, dated February 20,
         1987, between Buffalo Operating Partnership, L.P., BIA and AEI,
         incorporated herein by reference to the Partnership's Registration
         Statement No. 33-13418, Exhibit 10.37n, declared effective by the
         Securities and Exchange Commission on July 23, 1987.

10.32    Subscription Agreement dated November 19, 1990 incorporated herein by
         reference to Exhibit 10.41 filed with the Registrant's Annual Report on
         Form 10-K filed with the Commission on April 26, 1991.

10.33    Subscription Agreement dated December 11, 1992 incorporated herein by
         reference to Exhibit 10.38 filed with the Registrant's Annual Report on
         Form 10-K filed with the Commission on April 15, 1993.

10.34    Promissory Note dated as of June 8, 1995 by AHP as maker, to AHS as
         payee in the principal amount of $6,000,000 incorporated herein by
         reference to Exhibit 10.34 filed with the Registrant's Annual Report on
         Form 10-K filed with the Commission on March 29, 1996.
<PAGE>
 
10.35    Promissory Note dated as of June 8, 1995 by AHP as maker, to AHS as
         payee in the principal amount of $2,100,000. See 10.34 above for
         additional language for 10.34 between the Partnership, AHS, and William
         R. Arthur and Frank A. Hughes incorporated herein by reference Exhibit
         10.36 filed with the Registrant's Quarterly Report on Form 10-Q filed
         with the Commission on November 12, 1996.

10.37    Indemnification Agreement dated January 14, 1997 between the
         Partnership, AHS, and James Hire and Anthony Dimond. (1)

22.      The Partnership holds a 99% limited partner interest in each of the
         following Delaware limited partnerships: Aurora Inn Operating
         Partnership, L.P.; Buffalo Operating Limited Partnership, L.P.; Durham
         Operating Partnership, L.P.; Fourwinds Operating Partnership, L.P.;
         Lakeside Operating Partnership, L.P.; and McCormick Ranch Operating
         Partnership, L.P.

27.      Financial Data Schedule  (1)

28.1     Certificate of Incorporation of AIRCOA Hospitality Services, Inc.
         (formerly Associated Inns & Restaurants Company of America), as
         amended, incorporated herein by reference to the Partnership's
         Registration Statement No. 33-13418, Exhibit 28.1, declared effective
         by the Securities and Exchange Commission on July 23, 1987.

28.2     By-laws of AIRCOA Hospitality Services, Inc. (formerly Associated Inns
         & Restaurants Company of America), as amended, incorporated herein by
         reference to the Partnership's Registration Statement No. 33-13418,
         Exhibit 28.2, declared effective by the Securities and Exchange
         Commission on July 23, 1987.

28.3     Appraisal of Fourwinds, incorporated herein by reference to the
         Partnership's Registration Statement No. 33-13418, Exhibit 28.3,
         declared effective by the Securities and Exchange Commission on July
         23, 1987.

28.4     Appraisal of Sheraton University, incorporated herein by reference to
         the Partnership's Registration Statement No. 33-13418, Exhibit 28.4,
         declared effective by the Securities and Exchange Commission on July
         23, 1987.

28.6     Appraisal of Sheraton Lakeside, incorporated herein by reference to the
         Partnership's Registration Statement No. 33-13418, Exhibit 28.6,
         declared effective by the Securities and Exchange Commission on July
         23, 1987.

28.7     Appraisal for Sheraton Buffalo, incorporated herein by reference to the
         Partnership's Registration Statement No. 33-13418, Exhibit 28.7,
         declared effective by the Securities and Exchange Commission on July
         23, 1987.

(b)      Form 8-K filed with the Securities and Exchange Commission on January
         15, 1997 announcing changes to the Advisory Committee.

(1)      Filed herewith
<PAGE>
 
                                 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 of the undersigned, thereunto duly authorized.

                     By: AIRCOA HOTEL PARTNERS, L.P.
                         a Delaware limited partnership


                     By: AIRCOA HOSPITALITY SERVICES, INC.
                         its General Partner


                     By: /S/ Douglas M. Pasquale
                         -----------------------
                             Douglas M. Pasquale, Chief Executive Officer,
                             President and Director
Dated:  March 28, 1997

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 date indicated.

     Signature                     Title                            Date
     ---------                     -----                           ------

/S/ Douglas M. Pasquale
-------------------------
Douglas M. Pasquale           Chief Executive Officer,             3/28/97
                              President and Director
                              (Principal Executive and 
                              Financial Officer)
                              of AIRCOA Hospitality Services, Inc.
 
/S/ David C. Ridgley
-------------------------
David C. Ridgley              Principal Accounting Officer         3/28/97
                              of AIRCOA Hospitality Services, Inc.
 
/S/ Daniel Bong Shu Yin
-------------------------
Daniel Bong Shu Yin           Director                             3/28/97
                              of AIRCOA Hospitality Services, Inc.
 

/S/ Lawrence Lau Siu Keung
--------------------------
Lawrence Lau Siu Keung        Director                             3/28/97
                              of AIRCOA Hospitality Services, Inc.
 
/S/ Michael Sheh
----------------
Michael Sheh                  Director                             3/28/97
                              of AIRCOA Hospitality Services, Inc.

/S/ Carol K. Werner
-------------------
Carol K. Werner               Director                             3/28/97
                              of AIRCOA Hospitality Services, Inc.
 

/S/ Anthony Williams
--------------------
Anthony Williams              Director                             3/28/97
                              of AIRCOA Hospitality Services, Inc.