<PAGE>   1
                                                                    Exhibit 13.1


SELECTED FINANCIAL DATA

<TABLE>
<CAPTION>


                                                                                                                       Period from
                                                                                                                     September 30,
                                                                                                                              1994
                                                                                                                       (Inception)
                                                                                  Years ended December 31,                 through
(unaudited)                                                        --------------------------------------------------  December 31,
(in thousands, except per share data)                                    1997             1996              1995              1994
----------------------------------------------------------------------------------------------------------------------------------
<S>                                                                <C>               <C>                <C>                <C>
OPERATING DATA:
Total revenue                                                      $   66,813        $  28,377          $ 11,465           $ 1,519
Income before minority interest                                        29,213            9,749             3,864               420
Minority interest, common                                              (1,879)            (531)             (397)              (52)
Minority interest, preferred                                           (4,551)            (729)               --                --
Net income                                                         $   22,783        $   8,489          $  3,467           $   368
Basic earnings per share (1)                                       $     0.85        $    0.66          $   0.57           $  0.08
Diluted earnings per share (1)                                     $     0.85        $    0.66          $   0.57           $  0.08

OTHER DATA:
Funds from operations ("FFO") (2)                                  $   47,518        $  17,170          $  7,015           $   900
FFO per share (1) (2)                                              $     1.43        $    1.20          $   1.03           $  0.17
Cash provided by operating activities                                  49,203           17,194             4,925               670
Cash used by investing activities                                    (246,744)        (114,114)          (90,929)             (172)
Cash provided (used) by financing activities                          161,430          135,166            86,642            (1,764)

                                                                                            At December 31,
                                                                   ---------------------------------------------------------------
                                                                         1997             1996              1995              1994
-----------------------------------------------------------------------------------------------------------------------------------
BALANCE SHEET DATA:
Investment in hotels, at cost                                      $  601,508        $ 326,620          $146,524           $55,089
Total assets                                                          592,607          360,357           143,339            50,247
Long-term debt                                                        160,455          100,740            45,636             3,772
Minority interest in Partnership                                       74,552           45,880             6,124             5,462
Shareholder's equity                                                  342,638          207,605            88,246            38,895
</TABLE>



(1) The per share amounts prior to 1997 have been restated as required to comply
    with Statement of Financial Accounting Standards No. 128, "Earnings  Per
    Share." See notes to the consolidated financial statements.

(2) See "Funds From Operations" in management's discussion and analysis of
    financial condition and results of operations.

Information for five hotels (which are considered to be the predecessor of the
Company) is presented below.

<TABLE>
<CAPTION>
                                                                                                     Nine Months              Year
                                                                                                           Ended             Ended
                                                                                                   September 30,      December 31,
                                                                                                            1994              1993
-----------------------------------------------------------------------------------------------------------------------------------
<S>                                                                                                <C>                <C>
OPERATING DATA:
Total revenue                                                                                             $8,741           $10,653
Hotel operating expenses                                                                                   5,048             6,458
Depreciation and amortization                                                                                814             1,337
Interest expense                                                                                           1,435             2,204
Other corporate expenses                                                                                     948             1,177
-----------------------------------------------------------------------------------------------------------------------------------
Net income (loss)                                                                                         $  496           $  (523)
===================================================================================================================================
</TABLE>


                                                          Innkeepers USA Trust 9

<PAGE>   2

QUARTERLY RESULTS OF OPERATIONS AND OTHER DATA

<TABLE>
<CAPTION>

(unaudited)                                  First          Second         Third         Fourth
(in thousands, except per share data)       Quarter        Quarter        Quarter        Quarter         Total
---------------------------------------------------------------------------------------------------------------
<S>                                         <C>            <C>            <C>            <C>            <C>
1997
OPERATING DATA:
Total revenue                               $12,725        $15,144        $20,831        $18,113        $66,813
Income before minority interest               5,581          6,902          9,248          7,482         29,213
Net income                                  $ 4,230        $ 5,439        $ 7,353        $ 5,761        $22,783
Basic earnings per share (1)                $  0.19        $  0.24        $  0.25        $  0.18        $  0.85
Diluted earnings per share (1)              $  0.19        $  0.24        $  0.25        $  0.17        $  0.85
OTHER DATA:
FFO (2)                                       8,798         10,684         14,856         13,180         47,518
FFO per share (1) (2) (3)                   $  0.32        $  0.38        $  0.41        $  0.33        $  1.43
---------------------------------------------------------------------------------------------------------------
1996
OPERATING DATA:
Total revenue                               $ 5,790        $ 6,507        $ 6,999        $ 9,081        $28,377
Income before minority interest               2,262          2,214          2,350          2,923          9,749
Net income                                  $ 2,115        $ 2,070        $ 2,197        $ 2,107        $ 8,489
Basic earnings per share (1)                $  0.20        $  0.19        $  0.20        $  0.11        $  0.66
Diluted earnings per share (1)              $  0.20        $  0.19        $  0.20        $  0.11        $  0.66
OTHER DATA:
FFO (2)                                       3,717          3,773          4,080          5,600         17,170
FFO per share (1) (2) (3)                   $  0.32        $  0.33        $  0.35        $  0.25        $  1.20
---------------------------------------------------------------------------------------------------------------
1995
OPERATING DATA:
Total revenue                               $ 2,312        $ 2,289        $ 2,418        $ 4,446        $11,465
Income before minority interest               1,159            700            668          1,337          3,864
Net income                                  $ 1,016        $   614        $   586        $ 1,251        $ 3,467
Basic earnings per share (1)                $  0.22        $  0.13        $  0.12        $  0.12        $  0.57
Diluted earnings per share (1)              $  0.22        $  0.13        $  0.12        $  0.12        $  0.57
OTHER DATA:
FFO (2)                                       1,679          1,309          1,340          2,687          7,015
FFO per share (1) (2)                       $  0.31        $  0.24        $  0.25        $  0.24        $  1.03
---------------------------------------------------------------------------------------------------------------
</TABLE>

(1) The per share amounts prior to 1997 have been restated as required to comply
    with Statement of Financial Accounting Standards No. 128, "Earnings Per
    Share." See notes to the consolidated financial statements.
(2) See "Funds From Operations" in management's discussion and analysis of
    financial condition and results of operations.
(3) Due to the common share issuances in 1996 and 1997, the sum of the quarters
    do not equal the weighted average for the year.


10 Innkeepers USA Trust
<PAGE>   3


MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS


  The following discussion and analysis should be read in conjunction with the
consolidated financial statements and related notes thereto.

GENERAL

  Note 1 of the Consolidated Financial Statements of Innkeepers USA Trust
included herein contains essential information relating to the Company and the
definitions of certain capitalized terms used herein. For additional information
relating to the JF Lessee, reference is made to the Combined Financial
Statements of the JF Lessee included in the Company's Annual Report on Form
10-K.

  The Company acquired the following hotel properties during the year ended
December 31, 1997:

<TABLE>
<CAPTION>
                                              Number of            Date           Purchase
Hotel                                      Suites/Rooms        Acquired              Price
-----                                      -----------------------------------------------
<S>                                        <C>                 <C>             <C>
Residence Inn-Eden Prairie, MN                      126          1/4/97        $11,250,000
Residence Inn-Addison, TX                           150          2/1/97         14,500,000
Residence Inn-Arlington, TX                         114          2/1/97         10,500,000
Summerfield Suites-Belmont, CA                      132          6/20/97           (a)
Summerfield Suites-El Segundo, CA                   122          6/20/97           (a)
Summerfield Suites-West Hollywood, CA               109          6/20/97           (a)
Summerfield Suites-Mount Laurel, NJ                 116          6/20/97           (a)
Summerfield Suites-Addison, TX                      132          6/20/97           (a)
Summerfield Suites-Irving (Las Colinas), TX         148          6/20/97           (a)
Sunrise Suites-Eatontown (Tinton Falls), NJ          96          6/20/97           (a)
Sierra Suites-Phoenix (Camelback), AZ               113          6/20/97           (a)
Sierra Suites-Atlanta (Cumberland), GA               89          6/20/97           (a)
Hampton Inn-Schaumburg (Chicago), IL                128          6/26/97           (b)
Hampton Inn-Westchester (Chicago), IL               112          6/26/97           (b)
Hampton Inn-Lombard (Chicago), IL                   128          6/26/97           (b)
Residence Inn-Shelton, CT                            96         10/31/97        11,150,000
Residence Inn-Ontario, CA                           200         12/30/97           (c)
Residence Inn-Altamonte Springs, FL                 128         12/30/97           (c)
Residence Inn-Fort Wayne, IN                         80         12/30/97           (c)
Residence Inn-Indianapolis, IN                       88         12/30/97           (c)
Residence Inn-Lexington, KY                          80         12/30/97           (c)
Residence Inn-Louisville, KY                         96         12/30/97           (c)
Residence Inn-Columbus, OH                           80         12/30/97           (c)
Residence Inn-Winston-Salem, NC                      88         12/30/97           (c)
</TABLE>


(a) Aggregate purchase price of $118,547,000
(b) Aggregate purchase price of $19,100,000
(c) Aggregate purchase price of $59,500,000


THE HOTELS

  The following chart summarizes information regarding the Hotels at December
31, 1997.

<TABLE>
<CAPTION>
                                     Number of       Number of
                                         Hotel          Rooms/
Franchise Affiliation               Properties          Suites
--------------------------------------------------------------
<S>                                 <C>              <C>
Upscale, extended-stay hotels:
  Residence Inn                             32           3,649
  Summerfield Suites                         6             759*
  Sunrise Suites                             1              96
--------------------------------------------------------------
                                            39           4,504
Mid-priced extended-stay hotels:
  Sierra Suites                              2             202
--------------------------------------------------------------

Limited service hotels:
  Hampton Inn                               12           1,527
  Comfort Inn                                1             127
  Holiday Inn Express                        1             204
--------------------------------------------------------------
                                            14           1,858
Full service hotels:
  Sheraton Inn                               1             139
--------------------------------------------------------------
Total                                       56           6,703
==============================================================
* contains a total of 1,057 bedrooms
</TABLE>



  Average daily rate ("ADR"), occupancy and revenue per available room
("RevPAR") for 46 of the Hotels are presented in the following table. Results
were excluded for such comparison for two newly developed hotels and the eight
Residence Inn hotels that were purchased on December 30, 1997. Management
believes that growth in RevPAR at the Hotels reflects the results of the
Company's focused acquisition strategy, the continued implementation of
professional management techniques by the Lessee and third party management and
improving industry conditions. No assurance can be given that the trends
reflected in the following table will continue or that occupancy, ADR and RevPAR
will not decrease due to changes in national or local economic, hospitality or
other industry conditions.



                                                         Innkeepers USA Trust 11
<PAGE>   4




<TABLE>
<CAPTION>
                                     Year ended
                                    December 31,           Percentage
                                  ----------------          increase
                                  1997        1996         (decrease)
---------------------------------------------------------------------
<S>                              <C>          <C>          <C>
The Hotels (1):
  Occupancy                        79.60%      79.90%         (0.4)%
  Average Daily Rate             $ 93.74      $83.87          11.8
  RevPAR                         $ 74.60      $66.97          11.4

Upscale, Extended-Stay
 Hotels (2):
  Occupancy                        85.10%      84.50%          0.7%
  Average Daily Rate             $104.02      $93.14          11.7
  RevPAR                         $ 88.47      $78.70          12.4

Limited Service Hotels (3):
  Occupancy                        69.70%      71.40%         (2.4)%
  Average Daily Rate             $ 70.98      $63.92          11.1
  RevPAR                         $ 49.47      $45.64           8.4
</TABLE>


(1) Excludes two newly developed hotels and eight Residence Inn hotels purchased
    on December 30, 1997
(2) 31 hotels, excludes eight Residence Inn hotels purchased on December 30,
    1997
(3) 15 hotels

RESULTS OF OPERATIONS

  The following paragraphs discuss the results of operations for the Company.

Comparison of the Year Ended December 31, 1997 ("1997") to the Year Ended
December 31, 1996 ("1996")

  The Company had revenues for 1997 of $66,813,000, consisting of $65,433,000 of
Percentage Lease revenue from the Lessee and $1,380,000 of other revenue,
compared with $28,377,000, $27,466,000 and $911,000, respectively, for 1996. The
increase in Percentage Lease revenue is due, primarily, to the strong RevPAR
growth at the Company's Hotels and the number of hotels owned increasing from 18
at January 1, 1996, to 32 at December 31, 1996 and to 56 at December 31, 1997.

  Depreciation, amortization of franchise costs, amortization of loan
origination fees, and amortization of unearned compensation ("Depreciation and
Amortization") were $19,951,000 in the aggregate for 1997 compared with
$8,424,000 for 1996. The increase in Depreciation and Amortization was primarily
due to the increase in the number of hotels owned as discussed previously. Also
contributing to the increase in Depreciation and Amortization was the
depreciation of renovations completed at the Hotels, amortization of loan
origination costs and fees for the Line of Credit, the Interim Loan and the
Second Term Loan and amortization of the restricted share awards in 1997.

  Real estate and personal property taxes and property insurance were $5,645,000
for 1997 compared with $2,803,000 for 1996. This increase was primarily due to
the increase in the number of hotels owned as discussed previously and the
reassessment of the taxable value of certain Hotels for real estate tax
assessment purposes.

  Interest expense for 1997 was $9,255,000 compared with $5,839,000 for 1996.
Interest expense for 1997 consisted primarily of interest incurred on borrowings
outstanding under the Company's Line of Credit, the First Term Loan, the Second
Term Loan and borrowings under various mortgage notes. Interest expense for 1996
consisted primarily of interest incurred on borrowings outstanding under the
Line of Credit, the First Term Loan and borrowings under a mortgage note.

  General and administrative expenses for 1997 was $2,347,000 compared with
$1,186,000 for 1996. This increase is due primarily to increases in certain
expenses as a result of the increase in the number of hotels owned, the addition
of new employees and increases in the salaries of existing employees.

  Net income for 1997 was $22,783,000, or $0.85 per share, compared with
$8,489,000, or $0.66 per share, for 1996.

Comparison of the Year Ended December 31, 1996 ("1996") to the Year Ended
December 31, 1995 ("1995")

  The Company had revenues for 1996 of $28,377,000, consisting of $27,466,000 of
Percentage Lease revenue from the Lessee and $911,000 of other revenue, compared
with $11,465,000, $11,268,000, and $197,000, respectively, for 1995.
Depreciation and Amortization were $8,424,000 in the aggregate for 1996 compared
with $3,661,000 for 1995. Real estate and personal property taxes and property
insurance were $2,803,000 for 1996 compared with $1,105,000 for 1995. Interest
expense for 1996 was $5,839,000 compared with $1,989,000 for 1995. Interest
expense for 1996 consisted primarily of interest incurred on borrowings
outstanding under the Line of Credit, the First Term Loan and a mortgage note.
Interest expense for 1995 consisted primarily of interest incurred on borrowings
outstanding under the Line of Credit and a mortgage note. Net income was
$8,489,000, or $0.66 per share, for 1996 compared with $3,467,000, or $0.57 per
share, for 1995.

  Percentage Lease revenue, Depreciation and Amortization, interest expense and
real estate and personal property taxes and property insurance increased
substantially for 1996 compared with 1995, primarily due to the number of hotels
owned increasing from seven at January 1, 1995 to 18 at January 1, 1996 and to
32 at December 31, 1996.

LIQUIDITY AND CAPITAL RESOURCES

  The Company's principal source of liquidity is rent payments from the Lessee
under the Percentage Leases, and the Company is dependent on the Lessee to make
such payments to provide cash for debt service, distributions, capital
expenditures on the Hotels, and working capital. The Company believes that its
cash provided by operating activities will be adequate to meet some of its
liquidity needs, which primarily include distributions, debt service and
operating expenses. The Company currently expects to fund its growth objectives
primarily by accessing the capital markets, borrowing on its Line of Credit or
other facilities, and exchanging equity for hotel properties.


12 Innkeepers USA Trust
<PAGE>   5



  Cash and cash equivalents at December 31, 1997, were $10,976,000, including
approximately $1,925,000 which the Company is required, under the Percentage
Leases, to make available to the Lessee for the replacement and refurbishment of
furniture and equipment. Additionally, restricted cash and cash equivalents
includes approximately $4,823,000 that is held in escrow to pay for insurance,
real estate taxes, and certain capital expenditures for certain Hotels.

  Net cash provided by operating activities for the year ended December 31, 1997
was $49,203,000.

  Net cash used in investing activities was $246,744,000 for the year ended
December 31, 1997. This was comprised primarily of the Company (a) acquiring a
Residence Inn hotel in Eden Prairie, Minnesota for approximately $10,630,000,
(b) acquiring a Residence Inn hotel in Arlington, Texas for $10,500,000, (c)
acquiring a Residence Inn hotel in Addison, Texas for approximately $10,194,000,
(d) acquiring three Hampton Inn hotels in Schaumburg, Westchester and Lombard,
Illinois for approximately $19,100,000, (e) acquiring six Summerfield Suites
hotels located in Belmont, California, El Segundo, California, West Hollywood,
California, Mount Laurel, New Jersey, Addison, Texas, Irving (Las Colinas),
Texas, two Sierra Suites hotels located in Phoenix (Camelback), Arizona and
Atlanta (Cumberland), Georgia, and one Sunrise Suite hotel located in Eatontown
(Tinton Falls), New Jersey for approximately $89,478,000, (f) acquiring a
Residence Inn hotel in Shelton, Connecticut for approximately $11,150,000 and
(g) acquiring eight Residence Inn hotels located in Ontario, California,
Altamonte Springs, Florida, Fort Wayne, Indiana, Indianapolis, Indiana,
Lexington, Kentucky, Louisville, Kentucky, Columbus, Ohio and Winston-Salem,
North Carolina for approximately $59,500,000. The purchase prices of certain
hotels also included the issuance of Common Units in addition to the cash
portion described above.

  Net cash provided by financing activities was $161,430,000 for the year ended
December 31, 1997 consisting primarily of net proceeds from the issuance of
10,285,421 Common Shares for $135,305,000, borrowings under the Line of Credit
of $60,300,000 and distributions paid of $29,860,000.

  In March of 1997, the Company declared an increase in its quarterly
distribution to $0.25 per Common Share from $0.225 per Common Share and, in
September 1997, declared another increase in the quarterly distribution to $0.26
per Common Share. Quarterly preferred distributions of $0.285 are payable on
each Preferred Unit, which may increase up to $0.28875 for each Preferred Unit,
based on increases in distributions payable on the Common Shares. On or after
November 1, 1998, the holders of the Preferred Units may redeem their Units for
cash or, at the election of Innkeepers, Common Shares on a one-for-one basis.
Under federal income tax law provisions applicable to REITs, the Company is
required to distribute at least 95% of its taxable income to maintain its REIT
status.

  The Company's consolidated indebtedness was 26.7% of its investment in hotels,
at cost, at December 31, 1997. At December 31, 1997, the Company had outstanding
indebtedness of approximately $160,455,000, of which approximately 56% bore
interest at a fixed rate. In making future investments in hotel properties, the
Company may incur additional indebtedness. The Company may also incur
indebtedness to meet distribution requirements imposed on a REIT under the
Internal Revenue Code to the extent that working capital and cash flow from the
Company's investments are insufficient to make such distributions. The Company's
Declaration of Trust limits aggregate indebtedness to 50% of the Company's
investment in hotel properties, at cost, after giving effect to the Company's
use of proceeds from any indebtedness.

  The Company's Line of Credit bears interest based on the 30-day LIBOR rate and
increases or decreases in the LIBOR rate will increase or decrease the Company's
cost of borrowings outstanding under the Line of Credit. Based on the borrowings
outstanding under the Line of Credit at December 31, 1997, a one percent
increase in the LIBOR rate would increase annual interest charges $603,000.

  The Company, in the future, may seek to increase the amount of its credit
facilities, negotiate additional credit facilities, or issue corporate debt
instruments, all in compliance with the Debt Limitation. Any debt incurred or
issued by the Company may be secured or unsecured, short-term or long-term,
fixed or variable interest rate and may be subject to such other terms as
management or the Board of Trustees of the Company deems prudent.

  The Company has a shelf registration statement for $250,000,000 of common
stock, preferred stock or warrants to purchase stock of the Company. The shelf
registration statement was declared effective by the Securities and Exchange
Commission on April 11, 1997. The terms and conditions of the securities issued
thereunder are determined by the Company based on market conditions at the time
of issuance. In July and August of 1997, the Company issued 10,284,000 Common
Shares raising gross proceeds of $143,976,000, leaving $106,024,000 available
under the shelf registration statement.

  The Percentage Leases require the Company to make available to the Lessee an
amount equal to 4.0% of room revenues from the Hotels, on a monthly basis, for
the periodic replacement or refurbishment of furniture and equipment at the
Hotels. The Second Term Loan requires that the Company make available for such
purposes, at the eight Hotels collateralizing that loan, an additional 1.0% (for
a total of 5%) of room revenues from such Hotels. The Company intends to cause
the expenditure of amounts in excess of such obligated amounts if necessary to
comply with the reasonable requirements of any franchise agreement and otherwise
to the extent that the Company deems such expenditures to be in the best
interest of the Company.

  Management believes that the amounts required to be made available by the
Company will be sufficient to meet required expenditures for furniture and
equipment at the Hotels. The Company currently intends to pay for the cost of
capital improvements and any additional furniture and equipment requirements
from undistributed cash or, to the extent that undistributed cash is
insufficient to pay such costs, the Line of Credit.


                                                         Innkeepers USA Trust 13

<PAGE>   6
SEASONALITY OF HOTEL BUSINESS

  The hotel industry is seasonal in nature. Historically, the Hotels' operations
have generally reflected higher occupancy rates and ADR during the second and
third quarters. To the extent that cash flow from the Percentage Leases for a
quarter is insufficient to fund all of the distributions for such quarter due to
seasonal and other factors, the Company may maintain the annual distribution
rate by funding quarterly distributions with available cash or borrowings under
the Line of Credit.

INFLATION

  Operators of hotels, including the Lessee and any third-party managers
retained by the Lessee, in general possess the ability to adjust room rates
quickly. However, competitive pressures have limited and may in the future limit
the ability of the Lessee and any third-party manager retained by the Lessee to
raise room rates in response to inflation.

IMPACT OF YEAR 2000

  The year 2000 issue is the result of computer programs being written using two
digits rather than four to define the applicable year. Any computer program that
has date sensitive software may recognize a date using "00" as the year 1900
rather than as the year 2000. This could result in a system failure or
miscalculations causing disruptions of operations, including, among other
things, a temporary inability to process transactions, send invoices, or engage
in similar normal business activities.

  The Company has recently assessed its internal computer systems and believes
that the current systems used will properly utilize dates beyond December 31,
1999. The Company has been informed that companies that manage the Hotels are in
the process of studying the year 2000 issue, including inquiries of their
vendors. Upon completion of the management companies' studies, which is expected
in late 1998, the Company will determine the extent to which it is vulnerable to
the third parties' failure to remediate their own year 2000 issues and the costs
associated with resolving this issue.

FORWARD-LOOKING STATEMENTS

  This report contains forward-looking statements within the meaning of Section
27A of the Securities Act of 1933, as amended, and Section 21E of the Securities
Exchange Act of 1934, as amended, including, without limitation, statements
containing the words "believes," "anticipates," "expects" and words of similar
import. Such forward-looking statements relate to future events and the future
financial performance of the Company, and involve known and unknown risks,
uncertainties and other factors which may cause the actual results, performance
or achievements of the Company to be materially different from the results or
achievements expressed or implied by such forward-looking statements. The
Company is not obligated to update any such factors or to reflect the impact of
actual future events or developments on such forward-looking statements.

FUNDS FROM OPERATIONS

  The Company considers Funds From Operations ("FFO") a widely used and
appropriate measure of performance for an equity REIT. FFO, as defined by the
National Association of Real Estate Investment Trusts ("NAREIT"), is income
(loss) before minority interest (determined in accordance with generally
accepted accounting principles), excluding gains (losses) from debt
restructuring and sales of property, plus real estate related depreciation and
amortization and after adjustments for unconsolidated partnerships and joint
ventures. FFO is presented to assist investors in analyzing the performance of
the Company. The Company's method of calculating FFO may be different from
methods used by other REITs and, accordingly, may not be comparable to such
other REITs. FFO (i) does not represent cash flows from operating activities as
defined by generally accepted accounting principles, (ii) is not indicative of
cash available to fund all cash flow and liquidity needs, including its ability
to make distributions, and (iii) should not be considered as an alternative to
net income (as determined in accordance with generally accepted accounting
principles) for purposes of evaluating the Company's operating performance.

  The following presents the Company's calculation of FFO and FFO per share (in
thousands, except share and per share data):

<TABLE>
<CAPTION>
                                      1997            1996           1995
-------------------------------------------------------------------------
<S>                            <C>             <C>             <C>
Net income                     $    22,783     $     8,489     $    3,467
Minority interest,
  common                             1,879             531            397
Minority interest,
  preferred                          4,551             729             --
Depreciation                        18,305           7,421          3,151
-------------------------------------------------------------------------
FFO                            $    47,518     $    17,170     $    7,015
=========================================================================

Denominator for diluted
  earnings per share            26,933,351      12,931,327      6,135,957
Weighted average
  Common Units                   2,207,155         766,945        680,392
Weighted average
  Preferred Units                4,063,329         666,119             --
-------------------------------------------------------------------------
Denominator for
  FFO per share                 33,203,835      14,364,391      6,816,349
=========================================================================
FFO per share                  $      1.43     $      1.20     $     1.03
=========================================================================
</TABLE>



14 Innkeepers USA Trust
<PAGE>   7


CONSOLIDATED BALANCE SHEETS
December 31, 1997 and 1996
(in thousands, except share and per share data)

<TABLE>
<CAPTION>
                                                               1997         1996
--------------------------------------------------------------------------------
<S>                                                       <C>          <C>
ASSETS
Investment in hotel properties:
  Land                                                    $  71,508    $  42,565
  Buildings and improvements                                449,813      246,274
  Furniture and equipment                                    63,439       32,644
  Renovations in process                                     14,837        5,137
  Hotels under development                                    1,911           --
--------------------------------------------------------------------------------
                                                            601,508      326,620
  Accumulated depreciation                                  (35,865)     (17,560)
--------------------------------------------------------------------------------
  Net investment in hotel properties                        565,643      309,060

Cash and cash equivalents                                     4,228       40,339
Restricted cash and cash equivalents                          6,748        4,400
Due from Lessee                                               4,417        3,541
Deferred expenses, net                                        5,235        2,718
Deposits under purchase agreements                            5,050           --
Other assets                                                  1,286          299
--------------------------------------------------------------------------------
     Total assets                                         $ 592,607    $ 360,357
================================================================================

LIABILITIES AND SHAREHOLDERS' EQUITY
Long-term debt                                            $ 160,455    $ 100,740
Accounts payable and other accrued expenses                   4,461          915
Distributions payable                                        10,501        5,217
Minority interest in Partnership                             74,552       45,880
--------------------------------------------------------------------------------
     Total liabilities                                      249,969      152,752
--------------------------------------------------------------------------------

Commitments and contingencies (Note 6)

Shareholders' equity:
  Preferred shares, $0.01 par value, 20,000,000
     shares authorized, no shares issued or outstanding
  Common shares, $0.01 par value, 100,000,000
     shares authorized, 32,848,608 and 22,322,498
     shares issued and outstanding at
     December 31, 1997 and 1996, respectively                   328          223
  Additional paid-in capital                                355,828      213,692
  Unearned compensation                                      (1,812)        (138)
  Distributions in excess of net earnings                   (11,706)      (6,172)
--------------------------------------------------------------------------------
     Total shareholders' equity                             342,638      207,605
--------------------------------------------------------------------------------
     Total liabilities and shareholders' equity           $ 592,607    $ 360,357
================================================================================
</TABLE>

The accompanying notes are an integral part of these consolidated financial
statements.


                                                         Innkeepers USA Trust 15

<PAGE>   8





CONSOLIDATED STATEMENTS OF INCOME
for the years ended December 31, 1997, 1996 and 1995
(in thousands, except per share data)

<TABLE>
<CAPTION>
                                                                       1997        1996        1995
---------------------------------------------------------------------------------------------------
<S>                                                                <C>         <C>         <C>
Revenue:
  Percentage Lease revenue                                         $ 65,433    $ 27,466    $ 11,268
  Other revenue                                                       1,380         911         197
---------------------------------------------------------------------------------------------------
     Total revenue                                                   66,813      28,377      11,465
---------------------------------------------------------------------------------------------------

Expenses:
  Depreciation                                                       18,305       7,421       3,151
  Amortization of franchise costs                                        37          89          31
  Ground rent                                                           402         376         336
  Interest expense                                                    9,255       5,839       1,989
  Amortization of loan origination fees                               1,185         867         439
  Real estate and personal property taxes and property insurance      5,645       2,803       1,105
  General and administrative                                          2,347       1,186         510
  Amortization of unearned compensation                                 424          47          40
---------------------------------------------------------------------------------------------------
     Total expenses                                                  37,600      18,628       7,601
---------------------------------------------------------------------------------------------------

Income before minority interest                                      29,213       9,749       3,864
Minority interest, common                                            (1,879)       (531)       (397)
Minority interest, preferred                                         (4,551)       (729)         --
---------------------------------------------------------------------------------------------------
Net income                                                         $ 22,783    $  8,489    $  3,467
===================================================================================================
Basic earnings per share                                           $   0.85    $   0.66    $   0.57
===================================================================================================
Diluted earnings per share                                         $   0.85    $   0.66    $   0.57
===================================================================================================
</TABLE>


The accompanying notes are an integral part of these consolidated financial
statements.


16 Innkeepers USA Trust
<PAGE>   9



CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
for the years ended December 31, 1997, 1996, and 1995
(in thousands, except share data)

<TABLE>
<CAPTION>
                                                  Common Shares
                                                  -------------       Additional                     Distributions           Total
                                                               Par       Paid-In           Unearned   in Excess of   Shareholders'
                                               Shares        Value       Capital       Compensation   Net Earnings          Equity
----------------------------------------------------------------------------------------------------------------------------------
<S>                                         <C>              <C>      <C>               <C>          <C>                <C>
Balance at December 31, 1994                4,717,883        $  47    $   39,620           $   (225)    $     (547)     $   38,895
Amortization of
  unearned compensation                            --           --            --                 40             --              40
Distributions declared                             --           --            --                 --         (5,256)         (5,256)
Common share offering, net                  6,100,000           61        51,039                 --             --          51,100
Net income                                         --           --            --                 --          3,467           3,467
----------------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1995               10,817,883          108        90,659               (185)        (2,336)         88,246
==================================================================================================================================

Amortization of
  unearned compensation                            --           --            --                 47             --              47
Distributions declared                             --           --            --                 --        (12,325)        (12,325)
Common share offering, net                 11,500,000          115       116,905                 --             --         117,020
Dividend reinvestment and

  share purchase plan, net                        804           --           (38)                --             --             (38)
Conversion of common units                      3,811           --            38                 --             --              38
Allocation from minority interest                  --           --         6,128                 --             --           6,128
Net income                                         --           --            --                 --          8,489           8,489
----------------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1996               22,322,498          223       213,692               (138)        (6,172)        207,605
==================================================================================================================================

Issuance of restricted shares                 150,964            1         2,097             (2,098)            --              --
Amortization of
  unearned compensation                            --           --            --                424             --             424
Distributions declared                             --           --            --                 --        (28,317)        (28,317)
Common share offering, net                 10,284,000          103       135,183                 --             --         135,286
Dividend reinvestment and
  share purchase plan, net                      1,421           --            19                 --             --              19
Shelf registration statement costs                 --           --           (88)                --             --             (88)
Conversion of common units                     89,725            1         1,190                 --             --           1,191
Allocation from minority interest                  --           --         3,735                 --             --           3,735
Net income                                         --           --            --                 --         22,783          22,783
----------------------------------------------------------------------------------------------------------------------------------
BALANCE AT DECEMBER 31, 1997               32,848,608        $ 328    $  355,828           $ (1,812)    $ (11,706)       $ 342,638
==================================================================================================================================
</TABLE>

The accompanying notes are an integral part of these consolidated financial
statements.

                                                         Innkeepers USA Trust 17

<PAGE>   10


CONSOLIDATED STATEMENTS OF CASH FLOWS
for the years ended December 31, 1997, 1996 and 1995
(in thousands, except supplemental non-cash financing activities)

<TABLE>
<CAPTION>
                                                                       1997        1996        1995
---------------------------------------------------------------------------------------------------
<S>                                                                <C>         <C>         <C>
Cash flows from operating activities:
  Net income                                                       $ 22,783    $  8,489    $  3,467
  Adjustments to reconcile net income to net
     cash provided by operating activities:
       Depreciation and amortization                                 19,951       8,424       3,661
       Minority interest                                              6,430       1,260         397
  Changes in operating assets and liabilities:
     Due from Lessee                                                   (876)     (1,493)     (1,955)
     Deferred expenses, net                                              --        (182)         49
     Other assets                                                      (632)        212         (75)
     Accounts payable and other accrued expenses                      1,547         484        (619)
---------------------------------------------------------------------------------------------------
       Net cash provided by operating activities                     49,203      17,194       4,925
---------------------------------------------------------------------------------------------------

Cash flows from investing activities:
  Investment in hotel properties                                   (239,180)   (109,104)    (90,485)
  Net deposits into restricted cash accounts                         (2,348)     (4,400)         --
  Payments for franchise fees                                          (166)       (610)       (344)
  Deposits under purchase agreements                                 (5,050)         --        (100)
---------------------------------------------------------------------------------------------------
     Net cash used in investing activities                         (246,744)   (114,114)    (90,929)
---------------------------------------------------------------------------------------------------

Cash flows from financing activities:
  Proceeds from long-term debt                                      221,628      46,307      53,842
  Payments on long-term debt                                       (161,913)    (16,139)    (11,978)
  Dividend reinvestment plan and
     shelf registration costs paid                                      (88)        (38)         --
  Distributions paid to unit holders                                 (5,062)     (1,395)       (539)
  Distributions paid to common shareholders                         (24,798)     (9,630)     (3,858)
  Proceeds from issuance of common shares, net                      135,305     116,641      51,490
  Loan origination fees and costs paid                               (3,642)       (580)     (2,315)
---------------------------------------------------------------------------------------------------
     Net cash provided by financing activities                      161,430     135,166      86,642
---------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents                (36,111)     38,246         638
Cash and cash equivalents at beginning of year                       40,339       2,093       1,455
---------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of year                           $  4,228    $ 40,339    $  2,093
===================================================================================================
Supplemental cash flow information:
  Interest paid                                                    $  9,256    $  5,704    $  1,884
===================================================================================================
</TABLE>

SUPPLEMENTAL NON-CASH FINANCING ACTIVITIES:

  The Company issued 91,991 Common Units, with a value at the time of issuance
of $850,000, for the acquisition of a hotel property during the year ended
December 31, 1995.

  The Company issued 119,473 of Common Units, with a value at the time of
issuance of $1,359,000, and 4,063,329 of Preferred Units, with a value at the
time of issuance of $44,697,000, for the acquisition of eight hotel properties
during the year ended December 31, 1996.

  The Company assumed $24,936,000 of long-term indebtedness in connection with
the acquisition of three hotel properties during the year ended December 31,
1996.

  The Company issued 2,307,763 Common Units, with a value at the time of
issuance of $33,995,000, for the acquisition of 11 hotel properties during the
year ended December 31, 1997.


The accompanying notes are an integral part of these consolidated financial
statements.

18 Innkeepers USA Trust
<PAGE>   11
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


1. ORGANIZATION AND SUMMARY OF SIGNIFICANT
   ACCOUNTING POLICIES

ORGANIZATION

  Innkeepers USA Trust ("Innkeepers") is a self-administered real estate
investment trust ("REIT"), which commenced operations on September 30, 1994.
Innkeepers initially acquired an 87.7% equity interest in Innkeepers USA Limited
Partnership (with its subsidiary partnerships, the "Partnership" and
collectively with Innkeepers, the "Company") which owned seven hotels with an
aggregate of 851 rooms. At December 31, 1997, Innkeepers owned interests in 56
hotels with an aggregate of 6,703 rooms (the "Hotels") through its 82.1%
interest in the Partnership. The Hotels are comprised of 32 Residence Inn by
Marriott hotels, 12 Hampton Inn hotels, 6 Summerfield Suites hotels, 2 Sierra
Suites hotels, 1 Comfort Inn hotel, 1 Sheraton Inn hotel, 1 Holiday Inn Express
hotel and 1 Sunrise Suites hotel. The Hotels are located in 22 states, with ten
hotels located in California.

  The Company leases 47 of the Hotels to JF Hotel, Inc. (or other entities under
common ownership, collectively the "JF Lessee") and nine of the Hotels to
affiliates of Summerfield Hotel Corporation (the "Summerfield Lessee" and
collectively with the JF Lessee, the "Lessee") pursuant to leases which provide
for rent based on the room revenues of the Hotels ("Percentage Leases"). Two
officers of the Company are the shareholders of the JF Lessee. A trustee of the
Company is a principal owner of the Summerfield Lessee.

PRINCIPLES OF CONSOLIDATION

  The consolidated financial statements include the accounts of Innkeepers and
the Partnership after elimination of all significant intercompany accounts and
transactions.

INVESTMENT IN HOTEL PROPERTIES

  Hotel properties are recorded at cost and are depreciated using the
straight-line method over the estimated useful lives of the assets (5 years for
furniture and equipment and 40 years for buildings and improvements). The
Company periodically evaluates the carrying value of hotel properties to measure
and recognize the possible impairment of these assets. The Company believes that
no such impairment existed at December 31, 1997.

  Costs directly related to the acquisition and development of hotels are
capitalized. Real estate taxes, insurance and interest incurred during the
development period are also capitalized.

  Routine repairs and maintenance at the Hotels are the responsibility of the
Lessee and are charged to expense as incurred; major renewals and betterments
are capitalized. Upon sale or disposition, the asset and related accumulated
depreciation are removed from the accounts, and the gain or loss is included in
operations.

CASH AND CASH EQUIVALENTS

  All highly liquid debt investments with a maturity of three months or less
when purchased are considered to be cash equivalents. Cash equivalents are
placed with reputable institutions and the balances may at times exceed federal
depository insurance limits.

  Restricted cash and cash equivalents include amounts the Company must make
available to the Lessee for the replacement and refurbishment of furniture and
equipment and amounts held in escrow by certain lenders for the payment of
insurance, real estate taxes and certain capital expenditures.

DEFERRED EXPENSES

  Deferred expenses are recorded at cost and consist primarily of loan
origination fees and costs and franchise fees. Amortization of franchise fees is
computed using the straight-line method over the original lives of the franchise
agreements which range from approximately 3 to 13 years. Loan origination fees
and costs are amortized using the interest method over the original terms of the
related indebtedness, which is 3 to 12 years.

DEPOSITS UNDER PURCHASE AGREEMENTS

  Deposits under purchase agreements represent payments made by the Company to
the sellers of certain hotels under purchase and sale agreements. Generally,
these amounts are held in escrow until the closing of the purchase of the hotel
properties.

MINORITY INTEREST

  Minority interest represents the limited partners' proportionate share in the
equity of the Partnership. Income is allocated to the preferred unit holders
based on their priority in net income of the Partnership; then, income is
allocated to the common unit holders based on their weighted average percentage
ownership in the Partnership.

REVENUE RECOGNITION

  Percentage Lease revenue is recognized as earned from the Lessee under each
Percentage Lease agreement. The Company must rely on the Lessee to generate
sufficient cash flow from the operation of the Hotels to enable the Lessee to
meet the rent obligations under the Percentage Leases. The obligations of the
Lessee under the Percentage Leases are unsecured. The Lessee has only nominal
assets, other than working capital, and has met all rent obligations under the
Percentage Leases.



                                                         Innkeepers USA Trust 19
<PAGE>   12


EARNINGS PER SHARE

  In 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 128, "Earnings per Share" ("SFAS 128"). SFAS
128 replaced the calculation of primary and fully diluted earnings per share
with basic and diluted earnings per share. Unlike primary earnings per share,
basic earnings per share excludes any dilutive effects of options, warrants and
convertible securities. Diluted earnings per share is very similar to the
previously reported fully diluted earnings per share. All earnings per share
amounts for all periods have been presented, and where appropriate, restated to
conform to the SFAS 128 requirements.

DISTRIBUTIONS

  The Company intends to pay regular quarterly distributions which, at a
minimum, will be sufficient for the Company to maintain its REIT status.

INCOME TAXES

  The Company has elected to be taxed as a real estate investment trust under
the Internal Revenue Code. Accordingly, no provision for federal income taxes
has been reflected in the financial statements. Earnings and profits, which
determine the taxability of distributions to shareholders, will differ from net
income reported for financial reporting purposes primarily due to the
differences in the estimated useful lives and methods used to compute
depreciation for federal tax purposes.

  The following table sets forth certain per share information regarding its
distributions for the years ended December 31, 1997, 1996 and 1995:

<TABLE>
<CAPTION>
                                 1997         1996         1995
---------------------------------------------------------------
<S>                             <C>          <C>          <C>
Total distribution              $1.02        $0.90        $0.84
Ordinary income                 $0.88        $0.71        $0.69
Return of capital               $0.14        $0.19        $0.15
</TABLE>


USE OF ESTIMATES

  The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.

FAIR VALUE OF FINANCIAL INSTRUMENTS

  The carrying amount of cash and cash equivalents approximates fair value due
to the short maturity of these instruments.

  The fair value of long-term debt approximates the carrying amount and is
estimated based on current rates offered to the Company for similar debt.

RECLASSIFICATIONS

  Certain reclassifications have been made to the prior year financial
statements to conform to the current year presentation. The reclassifications
had no effect on reported net income or total assets, liabilities or
shareholder's equity.

2. ACQUISITIONS
  The Company acquired the following hotel properties during the year ended
December 31, 1997:

<TABLE>
<CAPTION>
                                               Number of             Date          Purchase
Hotel                                       Suites/Rooms         Acquired             Price
-------------------------------------------------------------------------------------------
<S>                                         <C>            <C>                  <C>
Residence Inn-Eden Prairie, MN                       126           1/4/97       $11,250,000
Residence Inn-Addison, TX                            150           2/1/97        14,500,000
Residence Inn-Arlington, TX                          114           2/1/97        10,500,000
Summerfield Suites-Belmont, CA                       132          6/20/97            (a)
Summerfield Suites-El Segundo, CA                    122          6/20/97            (a)
Summerfield Suites-West Hollywood, CA                109          6/20/97            (a)
Summerfield Suites-Mount Laurel, NJ                  116          6/20/97            (a)
Summerfield Suites-Addison, TX                       132          6/20/97            (a)
Summerfield Suites-Irving (Las Colinas), TX          148          6/20/97            (a)
Sunrise Suites-Eatontown (Tinton Falls), NJ           96          6/20/97            (a)
Sierra Suites-Phoenix (Camelback), AZ                113          6/20/97            (a)
Sierra Suites-Atlanta (Cumberland), GA                89          6/20/97            (a)
Hampton Inn-Schaumburg (Chicago), IL                 128          6/26/97            (b)
Hampton Inn-Westchester (Chicago), IL                112          6/26/97            (b)
Hampton Inn-Lombard (Chicago), IL                    128          6/26/97            (b)
Residence Inn-Shelton, CT                             96         10/31/97        11,150,000
Residence Inn-Ontario, CA                            200         12/30/97            (c)
Residence Inn-Altamonte Springs, FL                  128         12/30/97            (c)
Residence Inn-Fort Wayne, IN                          80         12/30/97            (c)
Residence Inn-Indianapolis, IN                        88         12/30/97            (c)
Residence Inn-Lexington, KY                           80         12/30/97            (c)
Residence Inn-Louisville, KY                          96         12/30/97            (c)
Residence Inn-Columbus, OH                            80         12/30/97            (c)
Residence Inn-Winston-Salem, NC                       88         12/30/97            (c)
</TABLE>

(a) Aggregate purchase price of $118,547,000
(b) Aggregate purchase price of $19,100,000
(c) Aggregate purchase price of $59,500,000

  These acquisitions have been accounted for under the purchase method of
accounting. The results of operations have been included in the accompanying
financial statements since the date of acquisition.

3. LONG-TERM DEBT

  Long-term debt at December 31, 1997 consists of (a) mortgage notes
collateralized by the Hampton Inn hotel located in West Palm Beach, Florida (the
"Florida Mortgage Note"), a Residence Inn hotel located in Sunnyvale, California
(the "California Mortgage Note") and two Residence Inn hotels located in East
Lansing and Grand Rapids, Michigan (the "Michigan Mortgage Note"), (b)
outstanding borrowings under the Company's $190 million line of credit (the
"Line of Credit"), and (c) outstanding borrowings under two term loans (the
"First Term Loan" and "Second Term Loan").

  The Florida Mortgage Note is payable in equal monthly installments of $23,526,
including interest at a fixed rate of 5.0% per annum through January 2002, at
which time all outstanding principal and interest is due. The outstanding
principal balance on the Florida Mortgage Note was approximately $3.5 million
and $3.6 million at December 31, 1997 and 1996, respectively.

  The California Mortgage Note is payable in equal monthly installments of
$141,331, including interest at a fixed rate of 10.35% per annum through June
2010, at which time all outstanding principal and interest is due. The
outstanding principal balance on the California Mortgage Note was approximately
$14.8 million and $14.9 million at December 31, 1997 and 1996, respectively.



20 Innkeepers USA Trust
<PAGE>   13



  The Michigan Mortgage Note is payable in monthly interest only payments, at a
variable interest rate (3.8% and 3.9% at December 31, 1997 and 1996,
respectively), which is based upon the 30-day yield of a group of tax exempt
securities selected by an independent party, through December 2014, at which
time all outstanding principal and interest is due. The Michigan Mortgage Note
is also collateralized by irrevocable letters of credit. The outstanding
principal balance on the Michigan Mortgage Note was $10.0 million at December
31, 1997 and 1996.

  Outstanding borrowings under the Line of Credit bear interest at the 30-day
LIBOR rate plus 175 basis points for collateralized borrowings and at the 30-day
LIBOR rate plus 195 basis points for uncollateralized borrowings. The Line of
Credit has $40.0 million available on an uncollateralized basis. The interest
rate on borrowings under the Line of Credit at December 31, 1997 and 1996 was
7.34% and 7.1%, respectively. The Line of Credit expires in May 2000. The
Company has the option to extend the term of the Line of Credit for an
additional one year period upon the satisfaction of certain conditions and the
payment of an extension fee. The outstanding principal balance on the Line of
Credit was approximately $60.3 million and $42.2 million at December 31, 1997
and 1996, respectively.

  The First Term Loan, in the principal amount of $30.0 million, bears interest
at an 8.17% fixed annual rate. The First Term Loan has scheduled principal
amortization over a twenty-year term, with equal monthly payments of $256,250
commencing on November 11, 1997. Interest on the outstanding principal balance
of the First Term Loan will accrue at 13.17% if the outstanding principal
balance is not paid in full by October 11, 2007. The Company anticipates
repaying the remaining principal balance of the First Term Loan on or before
October 11, 2007. The outstanding principal balance on the First Term Loan was
$29.9 million and $30.0 million at December 31, 1997 and 1996, respectively.

  In March 1997, $42.0 million of the outstanding principal balance on the Line
of Credit was refinanced with the Second Term Loan, which bears interest at an
8.15% fixed annual rate. The Second Term Loan has scheduled principal
amortization over a twenty-year term, with equal monthly payments of $355,236
commencing on April 11, 1999. Interest on the outstanding principal balance of
the Second Term Loan will accrue at 13.15% if the outstanding principal balance
is not paid in full by March 11, 2009. The Company anticipates repaying the
remaining principal balance of the Second Term Loan on or before March 11, 2009.
The outstanding principal balance on the Second Term Loan was $42.0 million at
December 31, 1997.

  In June 1997, the Company borrowed approximately $89,380,000 on an interim
loan (the "Interim Loan") to partially finance the purchase of nine existing
Hotels from affiliates of Summerfield Hotel Corporation. The Interim Loan bore
interest at the 30-day LIBOR rate plus 171 basis points (which was 7.4%). The
Interim Loan was repaid in July 1997 from the proceeds of the common share
offering completed on July 29, 1997.

  At December 31, 1997, 40 of the Company's hotel properties collateralized the
long-term debt described previously. Under the loan agreements relating to that
long-term debt, the Company is required to satisfy various affirmative and
negative covenants. The Company was in compliance with these covenants at
December 31, 1997 and 1996.

  Aggregate annual principal payments for the Company's long-term debt at
December 31, 1997 are due as follows (in thousands):

<TABLE>
<S>                                                    <C>
1998                                                   $    942
1999                                                      1,596
2000                                                     62,330
2001                                                      2,203
2002                                                      5,255
Thereafter                                               88,129
---------------------------------------------------------------
                                                       $160,455
===============================================================
</TABLE>


4. SHARE OPTION AND RESTRICTED COMMON SHARE PLAN

  In May 1997, the Company's shareholders approved an amended share incentive
plan (the "Amended 1994 Plan") which covers employees and officers of the
Company. The Amended 1994 Plan increased from 800,000 to 2,700,000 the number of
Common Shares reserved for issuance (a) upon the exercise of incentive share
options and non-qualified options or (b) as restricted shares and performance
shares. Options granted under the Amended 1994 Plan expire not more than ten
years from the date of grant. The Company may grant up to 900,000 restricted
shares and performance shares under the Amended 1994 Plan.

  The exercise price of common share options may not be less than fair market
value of the common shares at the date of grant. The table below delineates
information concerning outstanding common share options granted under the
Amended 1994 Plan.

<TABLE>
<CAPTION>
Granted              Common Shares       Option Price Per Share
--------------------------------------------------------------------------------
<S>                  <C>                 <C>
1994                       250,000               $10.00
1995                        20,000                8.875
1996                       156,000                 9.75
1997                     1,192,500                13.25
1997                       100,000              14.0625
</TABLE>


  Of the 1,718,500 common share options granted, 242,310 are incentive share
options and 1,476,190 are non-qualified options. As of December 31, 1997,
727,250 common share options were vested and no common share options have been
exercised. The incentive share options and non-qualified options vest over
varying periods, not exceeding ten and five years, respectively.

  The Company granted 116,250 restricted shares which vest equally over a
seven-year period commencing February 1997. Common share dividends are payable
on the restricted shares. The Company has also issued 116,250 performance
shares, of which 29,063 shares were earned in January 1998 based on the
achievement of a shareholder total return target for 1997. Additional
performance shares will be earned in January 1999 if a total shareholder return
target is met for 1998. Performance shares that were eligible to be earned, but
that were not earned in January 1998, may be earned in January 1999 if a total
shareholder return target is met for the two-year period 1997/1998. Restricted
shares will be issued

                                                         Innkeepers USA Trust 21
<PAGE>   14


equal to the number of performance shares earned, and will vest equally over six
years commencing January 1998 for the shares earned in 1998 and five years
commencing January 1999 for the shares earned in 1999.

  In August 1997, the Company granted an additional 2,500 restricted shares and
2,500 performance shares with vesting and other provisions similar to the
previously described grants. In January 1998, 625 performance shares were
earned.

  In May 1997, the Company's shareholders approved an amended non-employee
trustees share incentive plan which provides for the granting of incentive share
options and restricted shares. The amended trustees plan provides for awards
beyond the year 2000 and increased awards to its non-employee trustees. Options
granted under the amended trustees plan expire not more than ten years from the
date of grant.

  The Company has granted an aggregate of 26,000 non-qualified options to
non-employee trustees. The table below delineates information concerning
outstanding common share options granted under its amended trustees plan.

<TABLE>
<CAPTION>
Granted              Common Shares       Option Price Per Share
--------------------------------------------------------------------------------
<C>                  <C>                 <C>
1994                        15,000                $10.00
1996                         3,000                 11.75
1997                         8,000            13.25 - 16.69
</TABLE>

  The non-qualified options vest over varying periods not to exceed five years.
As of December 31, 1997, 14,000 common share options were vested and no common
share options have been exercised.

  The Company has also granted 56,214 restricted shares to its non-employee
trustees, which vest over varying periods not to exceed five years. Common share
dividends are payable on the restricted shares.

  The following unaudited pro forma net income and net income per share of the
Company are presented as if compensation cost for the Company's share option
grants were recorded in the statements of income. The pro forma net income and
net income per share are not necessarily indicative of the operating results of
the Company, nor do they purport to represent the results of operations of
future periods.

  The fair value of each share option granted in 1997 is estimated on the date
of grant using the Black-Scholes Option-Pricing Model with the following
assumptions: (1) dividend of 7.0% on the common shares, (2) expected volatility
of approximately 25% in the Company's common share price, (3) a risk-free
interest rate of 5.9% to 6.4%, and (4) an expected option life of the vesting
period plus three years. Compensation cost, on a pro forma basis, was
$1,416,000, $60,000 and $6,000 for the years ended December 31, 1997, 1996 and
1995, respectively.

<TABLE>
<CAPTION>
                          For the Years Ended December 31,
             -----------------------------------------------------
                      1997              1996              1995
------------------------------------------------------------------
                   AS      PRO        As     Pro        As     Pro
             REPORTED    FORMA  Reported   Forma  Reported   Forma
------------------------------------------------------------------
<S>          <C>       <C>      <C>       <C>     <C>       <C>
Net income    $22,783  $21,458    $8,489  $8,432    $3,467  $3,462
Diluted
  earnings
  per share   $  0.85  $  0.80    $ 0.66  $ 0.65    $ 0.57  $ 0.56
</TABLE>


5. EARNINGS PER SHARE

  The following table sets forth the computation of basic and diluted earnings
per share for the years ended December 31, 1997, 1996 and 1995 (in thousands,
except share and per share data):

<TABLE>
<CAPTION>
                                          1997          1996         1995
-------------------------------------------------------------------------
<S>                                <C>           <C>           <C>
Numerator:
  Net income    Numerator
     for basic and diluted
     earnings per share            $    22,783   $     8,489   $    3,467

Denominator:
  Denominator for basic
     earnings per share
     weighted-average shares        26,653,835    12,891,993    6,135,643
  Effect of dilutive securities:
     Stock options                     260,318        37,696          176
     Restricted shares                  19,198         1,638          138
-------------------------------------------------------------------------
  Denominator for diluted
     earnings per share --
     adjusted weighted-
     average shares and
     assumed conversions            26,933,351    12,931,327    6,135,957
=========================================================================
Basic earnings per share           $      0.85   $      0.66   $     0.57
=========================================================================
Diluted earnings per share         $      0.85   $      0.66   $     0.57
=========================================================================
</TABLE>


6. COMMITMENTS, CONTINGENCIES AND
   RELATED PARTY TRANSACTIONS

  Pursuant to the partnership agreement, limited partners who hold common units
of limited partnership interest in the Partnership ("Common Units") have
redemption rights ("Redemption Rights") which enable them to redeem their Common
Units for cash or, at Innkeeper's option, common shares on a one-for-one basis.
The Redemption Rights become effective as follows:

<TABLE>
<CAPTION>
         Number of Common Units          Effective Date
         ----------------------------------------------
         <S>                         <C>
           654,906                   September 30, 1995
           280,091                        July 31, 1997
            91,991                      October 7, 1997
           119,474                     November 1, 1997
         1,572,861                        June 20, 1998
           365,086                        June 20, 1999
         ----------------------------------------------
         3,084,409
         ==============================================
</TABLE>

  Additionally, limited partners who hold preferred units of limited partnership
interest in the Partnership ("Preferred Units" and collectively with the Common
Units, "Units") at December 31, 1997 have Redemption Rights which enable them to
redeem their Preferred Units for cash or, at Innkeeper's option, common shares
on a one-for-one basis at any time after November 1, 1998. The aggregate number
of Preferred Units outstanding was 4,063,329 at December 31, 1997 and 1996.

  Minimum annual preferred distributions of $1.10 are payable on each Preferred
Unit, which may increase up to $1.155 for each Preferred Unit, based on
increases in dividends payable on the common shares. At December 31, 1997, the
quarterly preferred distribution rate is $0.285 for


22 Innkeepers USA Trust
<PAGE>   15



each Preferred Unit ($1.14 on an annualized basis). The Preferred Units have a
preference value of $11.00 per unit, may be converted into Common Units at any
time on a one-for-one basis and will be converted into Common Units on November
1, 2006 unless previously converted or redeemed.

  The Hotels are operated under franchise or management agreements as Residence
Inn by Marriott, Summerfield Suites, Sierra Suites, Sunrise Suites, Hampton Inn,
Sheraton Inn, Holiday Inn Express or Comfort Inn hotels. The Company has paid
the cost of obtaining or transferring certain franchise license agreements to
the JF Lessee. For hotels which do not require a franchise transfer fee, the
Company has advanced to the JF Lessee the working capital deposit required under
the JF Lessee's management agreements with Residence Inn by Marriott. The
franchise and management agreements require the payment of fees based on a
percentage of hotel revenue. These fees are paid by the Lessee, which holds the
franchise licenses. The Company has guaranteed the JF Lessee's payments under
the franchise licenses, generally, in exchange for certain rights to substitute
replacement lessees as the franchisees if the Company terminates the related
Percentage Lease.

  The Company has a Sierra Suites hotel in Westborough, Massachusetts under
development. The Company has committed to fund the development costs of this
hotel which are approximately $7,900,000.

  Under the Percentage Leases, the Company generally is obligated to pay the
costs of certain capital improvements, real estate and personal property taxes
and property insurance. Additionally, the Company must make available to the
Lessee an amount equal to 4.0% of room revenues from the Hotels, on a monthly
basis, for the periodic replacement or refurbishment of furniture and equipment
at the Hotels. The Second Term Loan requires that the Company make available for
such purposes, at the eight Hotels collateralizing that loan, an additional 1.0%
(for a total of 5%) of room revenues from such Hotels.

  The Lessee has future minimum base rent commitments under the Percentage Lease
agreements to the Company. Minimum future base rent revenue, under the
Percentage Lease agreements, are as follows through the year 2012 (in
thousands):

<TABLE>
<CAPTION>
Year                                                     Amount
---------------------------------------------------------------
<S>                                                    <C>
1998                                                   $ 47,581
1999                                                     42,583
2000                                                     42,583
2001                                                     42,583
2002                                                     42,583
Thereafter                                              261,279
---------------------------------------------------------------
                                                       $479,192
===============================================================
</TABLE>

  The Company's Declaration of Trust limits the consolidated indebtedness of the
Company to 50.0% of the Company's investment in hotels, at cost, after giving
effect to the Company's use of proceeds from any indebtedness. The Company's
consolidated indebtedness was approximately $160,455,000, or 26.7% of its
investment in hotels, at cost, at December 31, 1997.

  The Company has two fifty-year term ground leases expiring July 2034 and May
2035, respectively, and a 98-year term ground lease expiring October 2083, on
the land underlying three of its hotel properties. Minimum annual rent payable
under these leases is approximately $455,000 in the aggregate.

  The Company has paid $100,000, $100,000 and $40,000 to the Lessee for usage of
office facilities for the years ended December 31, 1997, 1996 and 1995,
respectively. This amount has been recorded in general and administrative
expense in the statements of income.

7. PRO FORMA FINANCIAL INFORMATION (UNAUDITED)

  The unaudited pro forma statements of income of the Company are presented as
if the acquisition of the Hotels and the hotels acquired in January 1998, as
described in Note 8, and the equity offerings in 1996 and 1997 had occurred at
the beginning of the periods presented and all of the Hotels had been leased to
the Lessee pursuant to Percentage Leases throughout the periods presented. Such
pro forma information is based in part on the consolidated statements of income
of the Company and the JF Lessee. In management's opinion, all adjustments
necessary to reflect the effects of these transactions have been made.

  The unaudited pro forma statements of income of the Company for the periods
presented are not necessarily indicative of what the results of the operations
of the Company would have been assuming such transactions had been completed as
of the beginning of the periods presented, nor does it purport to represent the
results of operations for future periods.

PRO FORMA CONSOLIDATED STATEMENT OF INCOME
(in thousands, except per share data)
<TABLE>
<CAPTION>
                                                  Year ended
                                                 December 31,
                                            -------------------
                                               1997        1996
---------------------------------------------------------------
<S>                                         <C>         <C>
Revenue:
  Percentage lease revenue                  $93,551     $83,556
  Other revenue                               1,380         916
---------------------------------------------------------------
     Total revenue                           94,931      84,472
---------------------------------------------------------------
Expenses:
  Depreciation                               26,878      24,762
  Amortization of franchise costs                70          89
  Ground rent                                   402         397
  Interest expense                           19,303      19,005
  Amortization of loan
     origination fees                         1,185       1,375
  Real estate and personal
     property taxes and
     property insurance                       8,192       8,045
  General and administrative                  2,347       2,250
  Amortization of
     unearned compensation                      424          47
---------------------------------------------------------------
     Total expenses                          58,801      55,970
---------------------------------------------------------------
Income before minority interest              36,130      28,502
Minority interest, common                    (2,716)     (2,067)
Minority interest, preferred                 (4,551)     (4,470)
---------------------------------------------------------------
     Net income                             $28,863     $21,965
===============================================================
Diluted earnings per share                  $  0.87     $  0.67
===============================================================
</TABLE>


                                                         Innkeepers USA Trust 23
<PAGE>   16




  The following unaudited pro forma consolidated balance sheet is presented as
if the acquisition of the hotels described in Note 8 had occurred on December
31, 1997. Such pro forma information is based on, and should be read in
conjunction with the financial statements contained herein. In management's
opinion, all adjustments necessary to reflect the effects of these transactions
have been made.

  The following pro forma consolidated balance sheet is not necessarily
indicative of what the actual financial position would have been, assuming such
transactions had been completed as of December 31, 1997, nor does it purport to
represent the future financial position of the Company.


PRO FORMA CONSOLIDATED BALANCE SHEET
(in thousands)

<TABLE>
<CAPTION>
                                    Historical    Adjustments    Pro Forma
--------------------------------------------------------------------------
<S>                                <C>           <C>           <C>
ASSETS
Net investment in
  hotel properties                 $   565,643   $    97,092   $  662,735
Cash and
  cash equivalents                       4,228            --        4,228
Restricted cash
  and cash equivalents                   6,748            --        6,748
Due from Lessee                          4,417            --        4,417
Deferred expenses, net                   5,235            --        5,235
Deposits under
  purchase agreements                    5,050        (5,050)          --
Other assets                             1,286            --        1,286
-------------------------------------------------------------------------
     Total assets                  $   592,607   $    92,042   $  684,649
=========================================================================

LIABILITIES AND SHAREHOLDERS' EQUITY
Long-term debt                     $   160,455   $    92,042   $  252,497
Accounts payable
  and other
  accrued expenses                       4,461            --        4,461
Distributions payable                   10,501                     10,501
Minority interest
  in Partnership                        74,552            --       74,552
-------------------------------------------------------------------------
     Total liabilities                 249,969        92,042      342,011
-------------------------------------------------------------------------
Shareholders' equity:
  Preferred shares
  Common shares                            328            --          328
  Additional paid-in capital           355,828            --      355,828
  Unearned compensation                 (1,812)           --       (1,812)
  Distributions in excess
     of net earnings                   (11,706)           --      (11,706)
-------------------------------------------------------------------------
     Total shareholders' equity        342,638            --      342,638
-------------------------------------------------------------------------
     Total liabilities and
       shareholders' equity        $   592,607   $    92,042   $  684,649
=========================================================================
</TABLE>


8. SUBSEQUENT EVENTS

  On January 11, 1998, the Company purchased a 120-room Residence Inn hotel
located in Bothell (Seattle Northeast), Washington for a cash price of
$11,750,000. The purchase price was funded through the Line of Credit.

  On January 14, 1998, the Company purchased five Residence Inn hotels located
in Lynnwood (Seattle North), Washington, Vancouver (Portland North), Washington,
Bellevue (Seattle East), Washington, Lake Oswego (Portland South), Oregon and
Tukwila (Seattle South), Washington with an aggregate of 616 rooms for a cash
price of approximately $83,000,000. The purchase price was funded through the
Line of Credit and the assumption of a $59,320,000 loan. On February 19, 1998,
the Company obtained a new line of credit (the "New Line of Credit"). The New
Line of Credit is uncollateralized and has a maximum borrowing amount of
$250,000,000. The interest rate was reduced from LIBOR plus 175 basis points to
LIBOR plus 122.5 to 162.5 basis points. The Company utilized the New Line of
Credit to repay the $59,320,000 loan assumed described previously. The Line of
Credit was extinguished. The Company was amortizing loan origination fees and
costs incurred in connection with the Line of Credit over its original
three-year term. When the Line of Credit was extinguished and replaced with the
New Line of Credit, those loan origination fees and costs were expensed
immediately and recognized as an extraordinary loss of approximately $2,750,000
in February 1998.

  On February 19, 1998, the Company refinanced $40,000,000 of borrowings
outstanding under the Line of Credit with a new term loan (the "Third Term
Loan"). The terms of the Third Term Loan are similar to the First and Second
Term Loans, except that the interest rate is fixed at 7.02%. At February 19,
1998, 28 of the Company's hotel properties collateralize the long-term debt.


REPORT OF
INDEPENDENT ACCOUNTANTS

To the Board of Directors and Shareholders
Innkeepers USA Trust

  We have audited the accompanying consolidated balance sheets of Innkeepers USA
Trust as of December 31, 1997 and 1996, and the related consolidated statements
of income, shareholders' equity and cash flows for the three years in the period
ended December 31, 1997. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.

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

  In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Innkeepers USA
Trust as of December 31, 1997 and 1996, and the consolidated results of their
operations and their cash flows for the three years in the period ended December
31, 1997, in conformity with generally accepted accounting principles.


/s/ Coopers & Lybrand L.L.P.
----------------------------
Memphis, Tennessee
February 20, 1998


24 Innkeepers USA Trust
<PAGE>   17


CORPORATE INFORMATION

<TABLE>
<CAPTION>
                Board of Directors                            Executive Officers

<S>             <C>                           <C>             <C>
[PICTURE]       JEFFREY H. FISHER             [PICTURE]       FREDERIC M. SHAW
                Chairman of the Board,                        Chief Operating Officer and
                Chief Executive Officer                       Executive Vice President
                and President
                Innkeepers USA Trust


[PICTURE]       MILES BERGER                  [PICTURE]       DAVID BULGER
                Vice Chairman of the Board                    Chief Financial Officer and
                Heitman Financial                             Treasurer
                Services, Ltd.


[PICTURE]       THOMAS J. CROCKER             [PICTURE]       MARK A. MURPHY
                Chairman                                      General Counsel and
                Crocker Realty Trust                          Secretary



[PICTURE]       JACK P. DEBOER                [PICTURE]      GREGORY M. FAY
                Chief Executive Officer                      Vice President of Accounting
                Candlewood Hotel
                Company, Inc.



[PICTURE]       C. GERALD GOLDSMITH
                Chairman
                Property Corp. International

[PICTURE]       ROLF E. RUHFUS
                Chairman and
                Chief Executive Officer
                Summerfield Hotel
                Corporation

[PICTURE]       BRUCE ZENKEL
                Principal
                Zenkel Schoenfeld

<CAPTION>
                                              Shareholder and
                                              Investor Information
<S>                                           <C>

                                              ANNUAL MEETING OF SHAREHOLDERS
                                              The Annual Meeting of Shareholders
                                              will be held on Wednesday,
                                              May 6, 1998 at 9 a.m. EDT at:
                                              Hampton Inn West Palm Beach
                                              1505 Belvedere Road
                                              West Palm Beach, Florida 33406

                                              INDEPENDENT PUBLIC ACCOUNTANTS
                                              Coopers & Lybrand L.L.P.
                                              50 North Front Street, Suite 1000
                                              Memphis, Tennessee 38103
                                              (901) 529-1100

                                              TRANSFER AGENT AND REGISTRAR
                                              Harris Trust and Savings Bank
                                              311 West Monroe, 11th Floor
                                              Chicago, Illinois 60690
                                              (312) 461-6001

                                              STOCK LISTING
                                              Innkeepers USA Trust is traded on the
                                              New York Stock Exchange under the symbol
                                              KPA. The number of shareholders on
                                              March 2, 1998 was approximately 7,292.


                                              STOCK PRICE
                                              1997                  High      Low     Dividend
                                              ------------------------------------------------

                                              Fourth Quarter     $17.500   $ 14.125     $0.260
                                              Third Quarter       17.188     13.625      0.260
Corporate Address                             Second Quarter      15.000     12.875      0.250
Innkeepers USA Trust                          First Quarter       15.500     13.000      0.250
306 Royal Poinciana Plaza
Palm Beach, Florida 33480                     1996
(561) 835-1800                                ------------------------------------------------
(561) 835-0457 FAX                            Fourth Quarter     $13.875   $ 10.500     $0.225
                                              Third Quarter       11.250      9.500      0.225
www.innkeepersusa.com                         Second Quarter      10.250      9.000      0.225
                                              First Quarter       10.250      8.875      0.225
For faxed information call
1-800 PRO-INFO and enter                      1995
the ticker symbol KPA.                        ------------------------------------------------
                                              Fourth Quarter     $9.625    $  8.625     $0.215
                                              Third Quarter       9.500       8.375      0.215
                                              Second Quarter      9.125       8.000      0.215
                                              First Quarter       8.625       7.125      0.194

                                              1994                 High       Low     Dividend
                                              ------------------------------------------------
                                              Fourth Quarter     $ 9.750   $  7.125     $0.194
                                              Sept. 23, 1994 to
                                              Sept. 30, 1994      10.125      9.625         --

                                              Residence Inn by Marriott is a registered
                                              trademark of Marriott International Inc.

                                                    Printed on Recycled Paper.
</TABLE>
<PAGE>   18



[INNKEEPERS USA LOGO]
306 Royal Poinciana Plaza
Palm Beach, Florida 33480
Tel: (561) 835-1800
Fax: (561) 835-0457
www.innkeepersusa.com