<PAGE>   1

                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, DC  20549

                                   FORM 10-K
<TABLE>
<S>      <C>
(MARK ONE)

[x]      ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
         SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED EFFECTIVE OCTOBER 7, 1996]

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

                                     OR

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

</TABLE>

For the transition period from __________ to __________

                        Commission file number[0-24568]
                              INNKEEPERS USA TRUST
             (Exact name of registrant as specified in its charter)
<TABLE>
<S>                                                                          <C>
         Maryland                                                             65-0503831
         ---------                                                           -----------
(State or other jurisdiction                                                 (I.R.S. employer
of incorporation or organization)                                            identification no.)
 306 Royal Poinciana Way, Palm Beach, Florida                                33480
---------------------------------------------                                ------
(Address of principal executive offices)                                     (Zip Code)
</TABLE>

REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE (561) 835-1800

SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:

<TABLE>
          <S>                              <C>
          Title of each class              Name of each exchange on which registered
          -------------------              -----------------------------------------
                 None                                               None
------------------------------------   -----------------------------------------------------
</TABLE>

SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:

                  COMMON SHARES, par value of $.01 per share
--------------------------------------------------------------------------------
                                (Title of Class)

   Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.  Yes   X   No
                                               -----   -----
   Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [  ]

   The number of shares outstanding of the registrant's only class of common
stock, $.01 par value per share, as of March 21, 1997, was 22,322,817.  The
aggregate market value of the common stock held by nonaffiliates of the
registrant as of March 21, 1997 was approximately $333,000,000.

                      Documents Incorporated by Reference
                      -----------------------------------

   Portions of the 1996 Innkeepers USA Trust Annual Report to Shareholders to
be filed with the Securities and Exchange Commission are incorporated by
reference into Parts I and II hereof.  Portions of the 1997 Innkeepers USA
Trust Proxy Statement to be filed with the Securities and Exchange Commission
within 120 days after the year covered by this Form 10-K with respect to the
Annual Meeting of Shareholders to be held on May 7, 1997 are incorporated by
reference into Part III hereof.  Certain Exhibits to the Company's Registration
Statements on Form S-11 (Registration Nos. 33- 81362 and 33-95622) and on Form
S-3 (Registration No. 333-12809) are incorporated by reference into Part IV
hereto.
<PAGE>   2

                               TABLE OF CONTENTS

<TABLE>
<CAPTION>
                                                                                                                 FORM 10-K
                                                                                                                   REPORT
   ITEM NO.                                                                                                         PAGE
   --------                                                                                                         ----
   <S>           <C>                                                                                                 <C>
                                                          PART I

   Item 1.       Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .   1
   Item 2.       Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  20
   Item 3.       Legal Proceedings  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  29
   Item 4.       Submission of Matters to a Vote of Security Holders  . . . . . . . . . . . . . . . . . . . . . . . .  29

                                                         PART II

   Item 5.       Market for the Registrant's Common Equity and Related Shareholder Matters  . . . . . . . . . . . . .  29
   Item 6.       Selected Financial Data  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  30
   Item 7.       Management's Discussion and Analysis of Financial Condition and Results of Operations  . . . . . . .  31
   Item 8.       Financial Statements and Supplementary Data  . . . . . . . . . . . . . . . . . . . . . . . . . . . .  32
   Item 9.       Changes in and Disagreements With Accountants on Accounting and Financial Disclosure . . . . . . . .  46

                                                         PART III

   Item 10.      Directors and Executive Officers of the Registrant . . . . . . . . . . . . . . . . . . . . . . . . .  46
   Item 11.      Executive Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  46
   Item 12.      Security Ownership of Certain Beneficial Owners and Management . . . . . . . . . . . . . . . . . . .  46
   Item 13.      Certain Relationships and Related Transactions . . . . . . . . . . . . . . . . . . . . . . . . . . .  46

                                                         PART IV

   Item 14.      Exhibits, Financial Statements, Schedules
                 and Reports on Form 8-K  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  46

</TABLE>
<PAGE>   3

         THIS REPORT CONTAINS AND INCORPORATES BY REFERENCE 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.  ATTENTION SHOULD BE PAID TO THE
VARIOUS FACTORS IDENTIFIED OR INCORPORATED BY REFERENCE IN THIS REPORT WHICH
COULD CAUSE ACTUAL RESULTS TO DIFFER, INCLUDING BUT NOT LIMITED TO THOSE
DISCUSSED IN THE SECTIONS ENTITLED "BUSINESS RISKS," "COMPETITION," "LEVERAGE,"
ENVIRONMENTAL MATTERS," TAX STATUS," "MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS," "INTERNAL GROWTH STRATEGY" AND
"ACQUISITION STRATEGY."  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.

                                     PART I

ITEM 1.  BUSINESS

(a)      GENERAL

         OVERVIEW

         Innkeepers USA Trust (the "Company") is a self-administered Maryland
real estate investment trust which specializes in the ownership of premier
upscale, extended-stay hotels.  The Company has elected to be taxed as a real
estate investment trust ("REIT").  The Company, through a wholly-owned
subsidiary, owns an approximate 81.9% interest in Innkeepers USA Limited
Partnership (together with its subsidiaries, the "Partnership").  At December
31, 1996, the Partnership owned 32 hotels ("Hotels") with an aggregate of 3,912
rooms or suites in fourteen states, as follows:

<TABLE>
<CAPTION>
                                        Number                  Number of              Percentage of
              State                   of Hotels               Suites/Rooms              Suites/Rooms
              -----                   ---------               ------------              ------------
          <S>                           <C>                        <C>                      <C>
          California                    6                          909                      23.2%
          Florida                       4                          475                      12.1
          Michigan                      4                          404                      10.3
          New York                      3                          319                       8.2
          Pennsylvania                  3                          357                       9.1
          Colorado                      2                          284                       7.3
          Georgia                       2                          310                       7.9
</TABLE>





                                       1
<PAGE>   4
<TABLE>
<CAPTION>
                                        Number                  Number of              Percentage of
              State                   of Hotels               Suites/Rooms              Suites/Rooms
              -----                   ---------               ------------              ------------
          <S>                              <C>                   <C>                      <C>
          Massachusetts                     2                      264                      6.8
          Connecticut                       1                       96                      2.5
          Kansas                            1                       64                      1.6
          Maine                             1                       78                      2.0
          Maryland                          1                      176                      4.5
          New Jersey                        1                       96                      2.5
          Virginia                          1                       80                      2.0
                                          ---                  -------                   ------
                                           32                    3,912                    100.0%
</TABLE>

         The Company is one of the largest owners of Residence Inn by Marriott
hotels, a premium upscale, extended-stay brand.  The following chart summarizes
information regarding the Hotels at December 31, 1996.

<TABLE>
<CAPTION>
                                                         Number of                      Number of
          Franchise Affiliation                       Hotel Properties                Suites/Rooms
          ---------------------                       ----------------                ------------
             <S>                                             <C>                         <C>
             Extended stay hotels:
                 Residence Inn                               20                          2,323
                                                             --                          -----

             Limited service hotels:
                 Hampton Inn                                  8                          1,059
                 Comfort Inn                                  2                            227
                 Holiday Inn Express                          1                            164
                                                            ---                         ------
                                                             11                          1,450
                                                             --                          -----
             Full service hotels:
                 Sheraton Inn                                 1                            139
                                                            ---                         ------

             Total                                           32                          3,912
                                                             ==                          =====
</TABLE>

         The Hotels are leased to JF Hotel, Inc. (or other entities under
common ownership, collectively, the "Lessee"), pursuant to leases which provide
for rent based, in substantial part, on the room revenues of the Hotels
("Percentage Leases").

         Of the 32 Hotels, the Company acquired the following 14 Hotels during
the year ended December 31, 1996:

<TABLE>
<CAPTION>
                          Hotel                                     Number of Suites/Rooms
                          -----                                     ----------------------
         <S>                                                             <C>
         Holiday Inn Express-Lexington, MA                               164
         Residence Inn-Cherry Hill, NJ                                    96
         Residence Inn-Harrisburg, PA                                     80
         Comfort Inn-Woburn, MA (A)                                      100
         Residence Inn-Atlanta (Downtown), GA                            160
         Hampton Inn-Norcross, GA                                        150
         Residence Inn-San Mateo, CA                                     159
         Residence Inn-Silicon Valley I, CA                              231
</TABLE>





                                       2
<PAGE>   5
<TABLE>
<CAPTION>
                          Hotel                                     Number of Suites/Rooms
                          -----                                     ----------------------
         <S>                                                              <C>
         Residence Inn-Silicon Valley II, CA                              247
         Residence Inn-Denver (Downtown), CO                              156
         Residence Inn-Wichita (East), KS                                  64
         Residence Inn-East Lansing, MI                                    60
         Residence Inn-Grand Rapids, MI                                    96
         Residence Inn-Portland, ME                                        78
                                                                      -------
                                                                        1,841
         -----------
</TABLE>
         (A)   To be converted to a Hampton Inn


         The Lessee operates 21 of the Hotels.  Residence Inn by Marriott, Inc.
("Marriott"), a wholly-owned subsidiary of Marriott International, Inc.,
operates nine of the Hotels under agreements with the Lessee ("Marriott
Management Agreements"), and another unaffiliated party operates two of the
Hotels.  The Hotels operated by the Lessee and the unaffiliated operator which
manages two Hotels are subject to franchise licenses ("Franchise Licenses").
The right to have the nine Marriott-managed Hotels operated as Residence Inn
hotels is contained in the Marriott Management Agreements.

         RECENT DEVELOPMENTS

         Acquisitions Completed in 1997-to-Date

         In January 1997, the Partnership acquired a 126-suite Residence Inn in
Eden Prairie, Minnesota from an unaffiliated seller for approximately (a)
$10,630,000 in cash and (b) common units of limited partnership interest in the
Partnership ("Common Units") with an aggregate deemed value at closing of
approximately $620,000, based on the then-trading price of the Company's common
shares of beneficial interest, par value $.01 per share ("Common Shares").  In
February 1997, the Partnership acquired the 114-suite Residence Inn - Arlington,
Texas for approximately $10,500,000 in cash and the newly-developed 150-suite
Residence Inn - Addison, Texas for approximately $10,200,000 in cash and Common
Units with a deemed value at closing of approximately $4,300,000.  All three of
these newly-acquired Residence Inn hotels are leased to the Lessee under
Percentage Leases and managed by Marriott under Marriott Management Agreements.

         1996 Common Share Offering and Related Acquisitions

         In October 1996, the Company completed an offering of 11.5 million
Common Shares and received net proceeds of approximately $117 million (the "1996
Offering").  The Company used a portion of the proceeds to complete the
acquisition of ten of the Hotels, including seven Residence Inn hotels (the
"DeBoer Hotels") acquired from affiliates of Jack P. DeBoer (the "DeBoer
Group").  The aggregate purchase prices for these ten Hotels was approximately
$142 million, paid with a combination of cash, Common Units, preferred units of
limited partnership interest in the Partnership ("Preferred Units"), and the
assumption of indebtedness (the "Assumed Indebtedness").





                                       3
<PAGE>   6


         DeBoer Hotels

         The DeBoer Hotels were acquired from the DeBoer Group for a total
purchase price of approximately $108.5 million, consisting of (i) approximately
4,063,329 Preferred Units, which were assumed to have a value of $11.00 per
Preferred Unit, (ii) the assumption and immediate repayment of approximately
$38.4 million of outstanding mortgage indebtedness and (iii) the assumption of
the approximately $24.9 million of Assumed Indebtedness.  Additionally, in
connection with the acquisition of the DeBoer Hotels by the Company, Marriott
received Common Units having a deemed value of $500,000 (the "Release Units")
in exchange for releasing the existing management contracts relating to such
Hotels.

         The Preferred Units are convertible at any time into Common Units on a
one-for-one basis and, beginning in November 1998, may be redeemed for an
amount of cash equal to the then-trading value of a Common Share or, at the
option of the Company, one Common Share.  Assuming full redemption of all
Common Units and Preferred Units and the issuance of Common Shares in exchange
therefor, the DeBoer Group would own approximately 14.1% of the Common Shares
currently outstanding.  Following the acquisition of the DeBoer Hotels, Jack P.
DeBoer joined the Company's Board of Trustees.  Marriott has the right, on or
after the first anniversary of the issuance of the Release Units, to redeem
each Release Unit for an amount of cash equal to the then-trading value of a
Common Share on the NYSE or, at the option of the Company, one Common Share.

         Annual preferred distributions of $1.10 are payable on each Preferred
Unit, which may increase to up to $1.155 for each Preferred Unit, based on
increases in dividends payable on the Common Shares.  Due to the potential
adverse tax consequences to members of the DeBoer Group that may result from a
sale of the DeBoer Hotels, the Company has agreed with the DeBoer Group that
for a period of up to ten years following the closing of the acquisition of the
DeBoer Hotels, (i) any taxable sale of a DeBoer Hotel will require the consent
of the applicable members of the DeBoer Group and (ii) the Company will
maintain at all times outstanding indebtedness of at least approximately $40
million, subject to reduction upon the occurrence of certain events, including
certain redemptions or taxable transfers of Preferred Units by the applicable
members of the DeBoer Group (the "Required Indebtedness").  In the event that
the Company fails to maintain the required level of indebtedness, the Company
will be liable for any resulting income tax liabilities incurred by the
applicable members of the DeBoer Group.

         Marriott Management

         At December 31, 1996, Marriott managed nine of the Company's Hotels,
including the DeBoer Hotels, the Residence Inn - Portland, Maine and the
Residence Inn - Atlanta (Downtown), Georgia under Marriott Management
Agreements.  Marriott also manages the three Residence Inn hotels acquired in
1997-to-date, and the Company expects that Marriott will manage certain
additional Residence Inn hotels that may be acquired from Marriott or others
in the future, although no assurances can be made in this regard.  Hotels
managed under Marriott Management





                                       4
<PAGE>   7

Agreements are not subject to separate franchise agreements.  The right to
operate these hotels as Residence Inn hotels is contained in the Marriott
Management Agreements.

         The Marriott Management Agreements allow the hotels subject thereto to
be operated as Residence Inn hotels for an initial term of 13 years, provided
that the hotels maintain the standards of the Residence Inn system.  The
Marriott Management Agreements may be extended by Marriott for an additional
term if the Company has achieved a specified return on its initial investment.
Marriott may terminate one or more of the Marriott Management Agreements upon
the occurrence of certain events, including the Lessee's failure to make any
payment or perform other covenants under the Marriott Management Agreements or
a bankruptcy of the Lessee or the Company.  If a Marriott Management Agreement
is terminated for any reason other than a default by Marriott, the hotel to
which the agreement relates will not be entitled to operate thereafter as a
Residence Inn.  Marriott may be terminated as manager of a hotel if certain
performance criteria set forth in the relevant Marriott Management Agreement
are not met in any two consecutive years beginning with the third anniversary
of the acquisition of the hotel, subject to certain exceptions and cure rights.
In that event, the Lessee may enter into a then-current form of Residence Inn
franchise license and, subject to Residence Inn system requirements and to the
Lessee being a then-approved franchisee, continue to operate the hotel as a
Residence Inn hotel.

         The Lessee is responsible for making all payments to Marriott under
the Marriott Management Agreements.  Under each Marriott Management Agreement,
the Lessee is required to pay to Marriott a base management fee, a system fee
and a marketing fee equal to specified percentages of certain revenues at the
relevant Hotel, and an incentive management fee equal to a specified percentage
of the Lessee's annual net operating income with respect to the Hotel, after
payment of Rent under the Percentage Lease for the Hotel.

         NYSE

         The Common Shares were listed for quotation on The Nasdaq Stock Market
until September 24, 1996 under the symbol "NKPR." The Company's Common Shares
were listed on the NYSE under the symbol "KPA" commencing September 25, 1996.


         Line of Credit

         In March 1996, the Company's collateralized line of credit ("Line of
Credit") with Nomura Asset Capital Corporation ("Lender") was increased to $70
million from $50 million.  Additionally, the interest rate on the line of
credit was reduced from 225 to 175 basis points over the 30 day LIBOR rate.
The Line of Credit matures in March 1997.  The Company has obtained a
commitment from the Lender to amend and expand the Line of Credit.  The maximum
amount available under the amended Line of Credit will be $190 million,
including a collateralized facility in the maximum principal amount of $150
million and an uncollateralized facility in the maximum principal amount of $40
million.  The maturity date on the amended Line of Credit would be extended to
March 2001.  The interest rate on the amended Line of





                                       5
<PAGE>   8

Credit would remain at 175 basis points over the 30 day LIBOR rate for the
collateralized facility and would be 195 basis points over the 30 day LIBOR
rate for the uncollateralized facility.  The interest rate on the
uncollateralized facility may be reduced to 185 basis points over 30 day LIBOR
if the Company completes in the future certain permanent financing with the
Lender in the minimum principal amount of $50 million.

         Investment Agreement of Lessee Shareholders.

         The shareholders of the Lessee, Jeffrey H. Fisher, Chairman of the
Company, and Frederic Shaw, President of the Lessee, have agreed that from and
after the closing of the 1996 Offering they or their Affiliates will invest 75%
of the Lessee's net income (after distributions to pay taxes, establishment of
necessary working capital reserves, the payment of rent under the Percentage
Leases for the Hotels and the payment of management and other fees payable
under management agreements) in Common Shares (or Common Units, if necessary to
preserve the Company's REIT status).  The Common Shares (or Common Units) will
be acquired either directly from the Company at the then-current market price
or in the open market, at the election of the Company's independent trustees
(the "Independent Trustees").  Messrs. Fisher and Shaw have agreed to hold any
such Common Shares (or Common Units) for at least one year after the date of
the applicable purchase.  At December 31, 1996, the Lessee owned a total of
83,050 Common Shares in addition to the 418,595 Common Shares and Common Units
and the 84,608 Common Shares and Common Units beneficially owned by Mr. Fisher
and Mr. Shaw, respectively.

         Second Permanent Loan

         In March 1997, the Company fixed the interest rate on $42,000,000 of
borrowings previously outstanding under the variable interest rate Line of
Credit, by refinancing such amounts as a permanent loan from the Lender
("Permanent Loan").  The Permanent Loan bears interest at an 8.15% fixed annual
rate.  Interest on the outstanding principal balance of the Permanent Loan will
begin to accrue at 13.15% if the outstanding principal balance is not paid in
full beginning after the 12th anniversary of the closing of the Permanent Loan.
The Permanent Loan may be prepaid in full without penalty on or after the 12th
anniversary of the closing of the loan, when the Company expects to pay off in
full any remaining principal balance and accrued interest on the Permanent
Loan.  The Permanent Loan has scheduled principal amortization over a
twenty-year term commencing on the second anniversary of the closing of the
loan.  The Permanent Loan is collateralized by mortgages on eight Hotels.

         Strategic Alliance

         The Company has entered into an alliance with Western International,
the nation's largest developer of Residence Inns and other Marriott brand
hotels.  In conjunction with the alliance, the Company may have the opportunity
to acquire certain properties developed by Western International.  The Company
acquired the Residence Inn-Addison, Texas and the Residence Inn-Arlington,
Texas in February 1997 from affiliates of Western International.





                                       6
<PAGE>   9


         Shelf Registration

         In January 1997, the Company filed a shelf registration with the
Securities and Exchange Commission that will enable the Company to offer up to
an aggregate $250 million of securities, including Common Stock and Preferred
Stock in the future.  The Company intends to use the net proceeds from the sale
of securities for general corporate purposes, which may include the acquisition
of additional hotel properties, making improvements to existing hotel
properties and the repayment of indebtedness.

(b)      FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENT

         The Company is in the business of acquiring equity interests in hotel
properties.  See the Consolidated Financial Statements and notes thereto
included in Item 8 on this Form 10-K for certain financial information required
to be included in response to this Item 1.

(c)      NARRATIVE DESCRIPTION OF BUSINESS

         GENERAL


         The Company is a self-administered Maryland REIT which owned equity
interests in the 32 Hotels with an aggregate of 3,912 rooms as of December 31,
1996.  Innkeepers Financial Corporation, a wholly-owned subsidiary of the
Company, owns an approximate 81.9% interest in and is the sole general partner
of Innkeepers USA Limited Partnership.  The Hotels are owned both by Innkeepers
USA Limited Partnership directly and, as required by lenders or necessary to
maintain financing flexibility, in various subsidiary partnerships ("Subsidiary
Partnerships").  The Subsidiary Partnerships are owned 1% by either the Company
directly (in the case of one Subsidiary Partnership) or wholly-owned
subsidiaries of the Company, which serve as the sole general partners, and 99%
by Innkeepers USA Limited Partnership, which serves as the sole limited
partner.  Innkeepers USA Limited Partnership and the Subsidiary Partnerships
are referred to herein collectively as the "Partnership."

         In order for the Company to qualify as a REIT, neither the Company nor
the Partnership can operate hotels.  Therefore, the Partnership leases the
Hotels to the Lessee pursuant to the Percentage Leases.  The Percentage Leases
are designed to allow the Company to participate in growth in room revenues by
providing that a portion (ranging from approximately 68% to 70%) of each
Hotel's room revenues in excess of specified amounts will be paid by Lessee as
percentage rent.

         INTERNAL GROWTH STRATEGY


         The Company seeks to enhance shareholder value through internal growth
(i.e., increasing average daily rate and/or occupancy at the Hotels) primarily
by seeking to increase Cash Available for Distribution resulting from increased
revenue generated by (i) the Lessee's direct marketing programs and sales
management policies and procedures pursuant to the





                                       7
<PAGE>   10

Percentage Leases, including its oversight of sales and marketing efforts at
Hotels by third-party operators, (ii) the management skill and broad-based
hotel operating experience of Marriott, (iii) selective renovation of the
Hotels, (iv) the possible development of new hotels on a selected basis in the
future and (v) the possible rebranding and repositioning of existing hotels on
a limited and selected basis.

         Percentage Leases

         The Percentage Leases are designed to allow the Company to participate
in growth in revenue at the Hotels.  Under the Percentage Leases, once
applicable room revenues reach certain specified levels ("Revenue Break
Points") (subject to annual inflation adjustments), the Company will receive
between approximately 68% to 70% of incremental room revenues at the Hotels
("Percentage Rent").  For the year ended December 31, 1996, room revenues from
each Hotel exceeded the Revenue Break Points for the payment of the higher tier
Percentage Rent under the applicable Percentage Lease.  The Percentage Leases
provide that annual Base Rent and the Revenue Break Points for the payment of
Percentage Rent will be adjusted annually based on changes in the CPI.

         Sales Management

         The Lessee uses market-oriented sales management programs to
coordinate, direct and manage the sales activities of personnel located at each
Hotel it operates or oversees.  Weekly sales reports are generated by each
salesperson through the daily input of data that identifies all sales related
activities which have taken place during the day (e.g., appointments, sales
calls, direct mailings, incoming calls) and the results of such actions (e.g.,
appointments made, literature sent, rooms reserved).  Each salesperson also
inputs any comments made by prospective or existing customers, the potential
for new or continued business and the timing of the follow-up action required.
Additionally, sales reports permit management to promptly evaluate a
salesperson's productivity as measured by the quantity of sales calls, sales
call results and number of group bookings.  These sales reports also allow
comparisons of the ongoing sales efforts at the applicable Hotel to the
marketing and business plan established for each Hotel and allow management to
adapt the marketing and business plan accordingly.  The third-party managers,
including Marriott, use focused, well-developed sales management programs at
the Hotels operated by those managers.  The Company employs three regional
managers to oversee sales and marketing efforts at the Lessee-operated Hotels,
and to review those efforts at Hotels managed by third-parties.

         Capital Improvements, Renovation and Refurbishment

         The Percentage Leases require the Lessee to maintain the Hotels in a
condition that complies with their respective Franchise Licenses and the
Marriott Management Agreements, among other requirements.  In addition, the
Company may upgrade the Hotels as needed to meet competitive conditions and
preserve asset quality and will renovate Hotels when the Company believes the
investment in renovations will provide an attractive return to the Company
through





                                       8
<PAGE>   11

increased revenue under the Percentage Leases or is otherwise in the best
interests of the Company.

         This strategy is designed to enhance internal revenue growth, to
preserve and increase the value of each Hotel and to maintain or increase each
Hotel's market share.  The Company will schedule renovations to the Hotels in
order to implement this strategy and as otherwise may be required by a
particular franchisor in accordance with the applicable Franchise License or by
Marriott pursuant to the Marriott Management Agreements.

         The Percentage Leases obligate the Partnership to make available to
the Lessee an amount equal to 4% of room revenue, per quarter, for use by the
Lessee (or Marriott, under the Marriott Management Agreements) to repair or
replace furniture, fixtures and equipment at the Hotels.  The Lender has
required that the amount made available for such purposes for the eight Hotels
securing the Permanent Loan be 5% of room revenue of such Hotels.  The
Partnership's obligation is cumulative and carries forward to the extent that
such amounts are not used by the Lessee (or Marriott).

         ACQUISITION STRATEGY

         The Company seeks to acquire additional hotels, primarily in the
premier upscale extended-stay segment and underperforming hotels that can be
renovated and converted to premium mid-price franchise brands.  In particular,
the Company has increasingly emphasized the acquisition of hotel portfolios in
order to capitalize on the Company's efficiency and experience in acquisition
analysis and transaction structuring and to enable the Company to more rapidly
expand its hotel portfolio.

         Target Markets.  In general, the Company focuses on acquisitions in
markets with the following characteristics:

         .  high barriers to entry, such as the scarcity or high cost of land
            for additional development, restrictive zoning, stringent local
            development laws, extended permit-approval processes, and a
            relatively low supply of competing hotels;

         .  historically stable demand generators, such as major corporate
            office or retail complexes, airports, major universities and
            medical centers with convenient access to major thoroughfares and
            airports; and

         .  proximity to the Company's existing Hotels, where the Company may
            draw upon its knowledge of local market conditions and develop
            certain economies of scale.

         Premier Upscale Extended-Stay Hotels.  The Company has focused and
will continue to focus its acquisition strategy on premier upscale
extended-stay hotels primarily as a result of the following factors:





                                       9
<PAGE>   12

         .  current social and economic changes resulting from the increased
            number of corporate reorganizations and trends toward downsizing
            and out-sourcing of various functions, the increased mobility of
            the workforce and technological improvements, which have allowed
            businesses to relocate outside of large metropolitan areas, all of
            which have increased the demand for extended-stay hotels;

         .  the demand for hotel rooms by guests who stay longer than five
            consecutive room nights has substantially exceeded the number of
            currently existing extended-stay hotel rooms, according to industry
            sources;

         .  extended-stay hotels offer a more consistent revenue stream due to
            generally higher average occupancy and longer average stays by
            guests than in traditional hotels; and

         .  the strong performance of the Company's existing portfolio of
            premier upscale extended-stay hotels, which generated revenue per
            available room for the applicable period, calculated by dividing
            room revenue by available rooms ("REVPAR") growth of 11.2% for the
            year ended December 31, 1996.

         Underperforming Hotels.  The Company will consider investments in
hotels with the potential for refurbishment and repositioning, on a limited and
selected basis, which meet the following criteria:

         .  poorly managed hotels which have the potential for increased
            performance after the implementation of quality management and
            association with a national franchisor;

         .  hotels in deteriorated physical condition which could benefit
            significantly from renovations; and

         .  hotels in attractive locations that the Company believes could
            benefit significantly by changing franchises to a brand the Company
            believes is superior, such as Hampton Inn and Courtyard by
            Marriott.

         Turnkey Development

         The Company may also seek to obtain certain of the benefits of
development without incurring certain of the risks of development, by (a)
acquiring newly-developed hotels or (b) contracting with developers to build
hotels that the Company will buy upon completion.  The Company has established
and is pursuing relationships with certain developers, such as Western
International, who have established good relationships with the owners of the
Company's preferred hotel brands, including Marriott.  The Company would seek
established developers who have demonstrated, among other things, the ability
to (a) find attractive sites which, when developed, would meet the Company's
acquisition criteria and (b) manage the franchise brand approval and
development processes.





                                       10
<PAGE>   13

         PROPERTY OPERATIONS

         The Lessee

         The Company believes that the quality of the on-site hotel operators
is important to the future growth in Percentage Lease revenue from the Hotels.
The Lessee leases all of the Hotels pursuant to the Percentage Leases and
operates 21 of the Hotels.  Marriott operates twelve Residence Inn Hotels
(including three Hotels purchased in 1997) pursuant to the Marriott Management
Agreements.  Marriott is the largest operator of upscale extended-stay hotels
in the U.S., with 108 extended-stay hotels under management as of August 9,
1996.  The Company believes that Marriott's management of Hotels will enable
the Company to realize the benefits of Marriott's resources and broad-based
hotel operations experience in order to enhance the Company's ability to grow.

         The Lessee is owned by Mr. Fisher and Mr. Shaw and employs currently
approximately 1,150 people.  Under the Percentage Leases, the Lessee generally
is required to perform or provide for all operational and management functions
necessary to operate the Hotels.  Such functions include accounting, periodic
reporting, ordering supplies, advertising and marketing, maid service, laundry,
and repair and maintenance.  The Lessee employs three regional managers who
oversee the operation of all of the Hotels.  The Lessee is entitled to all
revenue from the Hotels after payment of Rent under the Percentage Leases and
other operating expenses, including any management fees payable to third-party
managers.

         The Hotels not operated under Marriott Management Agreements are
operated under franchise agreements and are licensed as Hampton Inn, Residence
Inn, Sheraton Inn, Comfort Inn or Holiday Inn Express hotels.  The Partnership
has paid or will pay the cost of obtaining or transferring franchise license
agreements to the Lessee.  The franchise agreements require the payment of fees
based on a percentage of hotel room revenue.  These fees are paid by the
Lessee.  The franchisors periodically inspect their licensed hotels to confirm
adherence to their operating standards.  See "Properties -- The Percentage
Leases" for further information on the Percentage Leases.

         COMPETITION


         For Guests

         The hotel industry, and the upscale extended-stay and mid-price
segments of the lodging market in which the Company operates, is highly
competitive.  Competitive factors within the industry include room rates,
quality of accommodations, name recognition, service levels, reputation,
reservation systems, convenience of location and the supply and availability of
alternative lodging.  The Hotels compete with other existing and new hotels in
their geographic markets.  The extended-stay and mid-price segments of the
hotel industry have become more competitive recently, as several new
competitors have entered the market.  Many of the Company's competitors have
substantially greater marketing and financial resources than the





                                       11
<PAGE>   14

Company and the Lessee.  Each of the Hotels is located in a developed area that
includes other hotels, many of which are competitive with the Hotels in their
locality.  The number of competitive hotels in a particular area could have a
material adverse effect on the revenues derived from the Hotels or hotels
acquired in the future.  Further, there can be no assurance that new or
existing competitors will not significantly reduce their rates or offer greater
convenience, services or amenities or significantly expand or improve hotels in
the market in which the Company competes or markets in which it will compete,
thereby materially adversely affecting the Company's business and results of
operations.

         For Acquisitions

         Competition exists for investment opportunities in upscale
extended-stay and mid-price hotels from entities organized for purposes
substantially similar to the Company's objectives as well as other purchasers
of hotels.  The Company may be competing for such hotel investment
opportunities with entities that have substantially greater financial resources
than the Company or better relationships with franchisors, sellers or lenders.
These entities may also generally be able to accept more risk than the Company
prudently can manage.  Competition may generally reduce the number of suitable
hotel investment opportunities offered to the Company and increase the
bargaining power of property owners seeking to sell, thereby increasing prices.

         BUSINESS RISKS

         Dependence on Payments under Percentage Leases; Lack Of Control

         Certain rules relating to the qualification of a REIT prohibit a REIT
from operating hotels.   Therefore, the Company leases the Hotels to the Lessee
pursuant to the Percentage Leases.  The Company's primary source of revenue is
rent payments under the Percentage Leases.  The Company must rely on the Lessee
and any third-party managers retained by the Lessee, such as Marriott and TMH
Hotels, Inc. ("TMH"), an unaffiliated operator that manages two of the Hotels,
to operate effectively the Hotels in a manner that generates sufficient cash
flow to enable the Lessee to make the rent payments under the Percentage
Leases.  Ineffective operation of the Hotels may result in the Lessee being
unable to pay rent to the Company, including the higher tier percentage rent
necessary for the Company to fund its current level of distributions to
shareholders.

         The Company cannot operate the Hotels or participate in the decisions
affecting the daily operations of the Hotels.  Other than as set forth in the
applicable Percentage Lease, the Company does not have the authority to require
a Hotel to be operated in a particular manner, or to govern any particular
aspect of its operation (e.g., setting room rates).  Thus, even if the
Company's management believes a hotel is being operated inefficiently or in a
manner that does not result in a maximization of Rent to the Company, the
Company cannot require a change in the method of operation.  The Company is
limited to seeking redress only if the Lessee violates the terms of the
Percentage Leases, and then only to the extent of the remedies set forth
therein.





                                       12
<PAGE>   15

         Growth Risks - Availability of Capital; Risks of Rapid Growth;
Dependence on Third Party Managers

         The ability of the Company to implement its growth strategy depends on
access to capital necessary to invest in additional hotels through the use of
borrowings, subsequent issuances of Common Shares or other securities or
operating cash flow.  The Company currently has an arrangement with one lender
to provide debt financing.

         The Company's ability to grow is also dependent upon the ability of
the Lessee and any third-party manager retained by the Lessee, such as
Marriott, to manage effectively the Hotels, as well as any additional hotels in
which the Company invests.  The Lessee's or third-party managers' ability to
operate additional hotels under Percentage Leases and/or management agreements
with Marriott or other third parties including TMH, with current staffing
levels and office locations, may diminish as the Company acquires additional
hotels.  Such growth may require the Lessee to hire additional personnel,
engage additional third-party managers, and to operate in new geographic
locations.  There can be no assurance that the Lessee or its third-party
managers will effectively operate the Hotels.  In the event that the Lessee and
its third-party managers fail to effectively operate the Hotels, the Company's
internal growth strategy and acquisition strategy would be more difficult to
achieve and, therefore, Cash Available for Distribution to shareholders could
be adversely affected.

         Operating Costs and Capital Expenditures; Hotel Renovation

         Hotels in general, including the Hotels, have an ongoing need for
renovations and other capital improvements, particularly in older structures,
including periodic replacement of furniture, fixtures and equipment at the
hotels.  Under the terms of the Percentage Leases, the Company is obligated to
pay the cost of certain capital expenditures at the Hotels and pay for
furniture, fixtures and equipment.  If these expenses exceed the Company's
estimate, the additional cost could have an adverse effect on the cash
available for distribution to shareholders.  In addition, the Company may
acquire hotels in the future that require significant renovation.  Renovation
of hotels involves certain risks, including construction cost overruns and
delays, uncertainties as to market demand or deterioration in market demand
after commencement of renovation and the emergence of unanticipated competition
in the local geographic market.

         Operating Risks

         The Hotels are subject to all operating risks common to the hotel
industry.  The hotel industry has experienced volatility in the past, as have
the Hotels, and there can be no assurance that such volatility will not occur
in the future.  These risks include, among other things, economic recessions;
competition from other hotels; over-building in the hotel industry which has
adversely affected occupancy, ADR and REVPAR; increases in operating costs due
to inflation and other factors, which increases have not in recent years been,
and may not necessarily in the future be, offset by increased room rates;
dependence on business and commercial travelers and tourism; strikes and other
labor disturbances of hotel employees for





                                       13
<PAGE>   16

hotels acquired by the Company in the future; increases in energy costs and
other expenses of travel; and adverse effects of general and local economic
conditions.  These factors could decrease room revenue of the Hotels and
adversely affect the Lessee's ability to make payments of rent under the
Percentage Leases to the Company, including payments at the higher tier
percentage rent levels.

         Risks of Operating Hotels under Franchise Licenses and Marriott
Management Agreements

         The continuation of the franchise licenses under which certain of the
Hotels are operated is subject to specified operating standards and other terms
and conditions.  The franchisors that have issued or will issue the franchise
licenses periodically inspect their licensed hotels to confirm adherence to
their operating standards.  The failure of the Partnership or the Lessee to
maintain such standards respecting a Hotel or to adhere to such other terms and
conditions could result in the loss or cancellation of a franchise license.
The Marriott Management Agreements will allow the Hotels subject thereto to be
operated as Residence Inn hotels so long as the Company does not breach its
obligations under the Percentage Leases relating to such Hotels.  Continued
operation of such Hotels as Residence Inn hotels also requires the Company to
make capital improvements as required by Marriott to maintain the hotel in
accordance with system standards.  It is possible that a franchisor or
Marriott, as applicable, could condition the continuation of a franchise
license or a Marriott Management Agreement, as applicable, on the completion of
capital improvements which the Board of Trustees determines are too expensive
or otherwise not economically feasible in light of general economic conditions
or the operating results or prospects of the affected Hotel.  In that event,
the Board of Trustees may elect to allow the franchise license or Marriott
Management Agreement to lapse or be terminated.  In addition, when the term of
a franchise license or a Marriott Management Agreement expires, the franchisor
or Marriott has no obligation to issue a new franchise license or management
agreement, as applicable, for the Hotel.  The loss of a franchise license or a
Marriott Management Agreement could have a material adverse effect upon the
operations or the underlying value of the Hotel covered by the franchise
license or a Marriott Management Agreement because of the loss of associated
name recognition, marketing support and centralized reservation systems
provided by the franchisor or Marriott.  The loss of a franchise license or
Marriott Management Agreement for one or more of the Hotels could also have a
material adverse effect on rent under the Percentage Leases and Cash Available
for Distribution to shareholders.

         Investment Concentration in Single Industry; Emphasis on Upscale
Extended-Stay Market Segment; and Emphasis on Residence Inn and Hampton Inn
Hotels

         The Company's current growth strategy is to acquire operating hotels,
primarily premier upscale extended-stay hotels.  The Company will not seek to
invest in assets selected to reduce the risks associated with an investment in
the hotel industry, and is subject to risks inherent in concentrating
investments in a single industry and in a single market segment within that
industry.  The Company intends to emphasize the acquisition of Residence Inn
hotels in its





                                       14
<PAGE>   17

acquisition strategy.  The Company will be subject to risks inherent in
concentrating investments in any franchise brand, in particular the Residence
Inn and the Hampton Inn brands, such as a reduction in business following any
adverse publicity related to a brand, which could have an adverse effect on the
Company's Rent under the Percentage Leases and Cash Available for Distribution
to shareholders.

         Concentration of Investments in California, Florida and Michigan

         Six of the 32 Hotels are located in California, and four are located
in each of Florida and Michigan.  The concentration of the Company's
investments in California, Florida and Michigan could result in adverse events,
or conditions which affect those areas in particular, such as economic
recessions and natural disasters, having a more significant negative effect on
the operations of the combined Hotels, and ultimately cash distributions to
shareholders of the Company, than if the Company's investments were more
geographically diverse.

         Ownership Limitation

     In order for the Company to maintain its qualification as a REIT, not more
than 50% in value of its outstanding shares of beneficial interest may be owned,
directly or indirectly, by five or fewer individuals (as defined in the Code to
include certain entities).  Furthermore, if any shareholder or group of
shareholders of the Lessee owns, actually or constructively, 10% or more of the
shares of beneficial interest of the Company, the Lessee could become a
related-party tenant of the Company and the Partnership, which likely would
result in loss of REIT status for the Company.  For the purpose of preserving
the Company's REIT qualification, the Company's Declaration of Trust prohibits
direct or indirect ownership (taking into account applicable ownership
provisions of the Code) of more than 9.8% of the outstanding Common Shares or
any other class of outstanding shares of beneficial interest by any shareholder
or group (including affiliates of Mr. Fisher) subject to adjustment under
certain circumstances (the "Ownership Limitation").  Generally, the shares of
beneficial interest owned by related or affiliated owners will be aggregated for
purposes of the Ownership Limitation.  The Board of Trustees has waived the
Ownership Limitation in the case of a specific mutual fund investment family on
one occasion.  Any transfer of shares of beneficial interest that would prevent
the Company from continuing to qualify as a REIT under the Code will be void ab
initio, the intended transferee of such shares will be deemed never to have had
an interest in such shares, and such shares will be designated "Shares-in-
Trust."  Further, the Company shall be deemed to have been offered Shares-in-
Trust for purchase at the lesser of the market price (as defined in the
Declaration of Trust) on the date the Company accepts the offer and the price
per share in the transaction that created such Shares-in-Trust (or, in the case
of a gift, devise or non-transfer event (as defined in the Declaration of
Trust), the market price on the date of such gift, devise or non-transfer
event).  Therefore, the recordholder of shares of beneficial interest in excess
of the Ownership Limitation will experience a financial loss when such shares
are redeemed, if the market price falls between the date of purchase and the
date of redemption.





                                       15
<PAGE>   18

         General Risks of Investing in Real Estate

         The Hotels are subject to varying degrees of risk generally incident
to the ownership of real property.  Income from the Hotels may be adversely
affected by adverse changes in national economic conditions, adverse changes in
local market conditions due to changes in general or local economic conditions
and neighborhood characteristics, competition from other hotels, changes in
interest rates and in the availability, cost and terms of mortgage funds, the
impact of present or future environmental legislation and compliance with
environmental laws, the ongoing need for capital improvements, particularly in
older structures, changes in real estate tax rates and other operating
expenses, adverse changes in governmental rules and fiscal policies, civil
unrest, acts of God, including earthquakes, hurricanes and other natural
disasters (which may result in uninsured losses), acts of war, adverse changes
in zoning laws, and other factors which are beyond the control of the Company.

         Real estate investments are relatively illiquid.  The ability of the
Company to vary its portfolio in response to changes in economic and other
conditions is limited.  In particular, the Company may not sell any of the
DeBoer Hotels in a taxable transaction for a period of up to ten years
following the closing of the Offering, without the consent of the applicable
members of the DeBoer Group.  Ceratin provisions of the Marriott Management
Agreement may also limit or delay the Company's ability to sell or refinance
the Hotels subject to such agreement.

         Each Percentage Lease specifies comprehensive insurance to be
maintained on each of the Hotels, including liability, property and casualty
and extended coverage.  Management of the Company believes that such specified
coverage is of the type and amount customarily obtained by owners of hotels
similar to the Hotels.  Percentage Leases for subsequently acquired hotels will
contain similar provisions.  However, there are certain types of losses,
generally of a catastrophic nature, such as earthquakes, floods and hurricanes,
that may be uninsurable or not economically insurable and which may impact
certain of the Hotels.

         All six of the Hotels in California are located in areas that are
subject to earthquake activity.  These Hotels are located in areas of high
seismic risk and were constructed under pre-1985 building codes.  No assurance
can be given that an earthquake would not render significant damage to the
Hotels that have been constructed in compliance with more recent building
codes, or are in areas of lower seismic risk.  Additionally, areas in Florida
where four of the Hotels are located may experience hurricane or high-wind
activity.  The Company has earthquake insurance policies on the Hotels located
in California and hurricane insurance policies on the Hotels located in
Florida.  The Company's Board of Trustees has used and will use its discretion
in determining amounts, coverage limits and deductibility provisions for
insurance, with a view to maintaining appropriate insurance coverage on the
Company's investments at a reasonable cost and on suitable terms, and may from
time to time elect not to carry earthquake or hurricane insurance.  This may
result in insurance coverage that, in the event of a substantial loss, would
not be sufficient to pay the full current market value or current replacement
cost of the Company's lost investment.  Inflation, changes in building codes
and ordinances, environmental considerations, and other factors also might make
it not feasible to use insurance proceeds to





                                       16
<PAGE>   19

replace a hotel after it has been damaged or destroyed.  Under such
circumstances, the insurance proceeds received by the Company might not be
adequate to restore its economic position with respect to a Hotel.

         Conflicts of Interest

         Conflicts of interest exist between the Company, the Lessee and Mr.
Fisher (Chairman of the Board of Trustees and President of the Company and the
majority shareholder of the Lessee) with respect to the negotiation and
enforcement of the terms of the Percentage Leases.  Conflicts also exist
related to possible adverse tax consequences to Mr. Fisher and his affiliates
upon a sale, refinancing or prepayment of indebtedness secured by certain
Hotels contributed to the Company by his affiliates.  Additionally, the Company
relies substantially on Mr. Fisher and conflicting demands on his time occur,
which could lead to decisions which do not reflect solely the interests of the
Company's shareholders.  Mr. Fisher and his affiliates may develop new hotels,
subject to certain limitations, which may materially affect the amount of time
Mr. Fisher has available to devote to the affairs of the Company.  Hotels
developed by Mr. Fisher and his affiliates could compete with the Hotels or
hotels acquired in the future by the Company.

         Mr. DeBoer, who is the largest shareholder of the Company, on a fully
diluted basis, and who serves as a Trustee of the Company, and certain of his
affiliates have in the past, and continue to be, involved in the development of
hotels, including extended-stay hotels.  Mr. DeBoer is the President, Chairman
of the Board and a major shareholder of Candlewood Hotel Company, Inc.
("Candlewood"), a public hotel company that is the owner, operator and
franchisor of Candlewood hotels, an economy extended-stay hotel chain recently
founded by Mr. DeBoer.  Hotels developed by Mr. DeBoer and his affiliates,
including Candlewood hotels, may compete with the Company's hotels for guests,
and other hotel companies with which Mr. DeBoer is affiliated, including
Candlewood, may compete with the Company for acquisition opportunities.
Accordingly, the interests of the Company and Mr. DeBoer could be different in
connection with matters relating to the Company's Hotels or proposed
acquisitions that are competitive with hotels owned or being considered for
acquisition or development by Mr. Deboer and his Affiliates.

         Due to the potential adverse tax consequences to the DeBoer Group that
may result from the sale of or refinancing or prepayment of indebtedness
associated with the DeBoer Hotels, the Company has agreed with the DeBoer Group
that, for a period of up to ten years following the closing of the acquisition
of the DeBoer Hotels, (i) any taxable sale of a DeBoer Hotel will require the
consent of the applicable members of the DeBoer Group, which may cause the
Company to be unable to sell some or all of the DeBoer Hotels in circumstances
in which it would be advantageous to do so, and (ii) the Company will maintain
the Required Indebtedness.

         LEVERAGE

         To the extent the Company continues to incur debt, its debt service
requirements will reduce Cash Available for Distribution to shareholders.
Variable rate debt, such as the Line of





                                       17
<PAGE>   20

Credit, creates higher debt service requirements if interest rates increase,
which may decrease Cash Available for Distribution to shareholders.  There can
be no assurances that the Company will be able to meet its debt service
obligations and, to the extent that it cannot, the Company risks the loss of
some or all of its assets, including the Hotels securing such debt, to
foreclosure.  Changes in economic conditions could result in higher interest
rates on variable rate debt, including borrowings under the Line of Credit,
reduce the availability of debt financing generally or at rates deemed
favorable to the Company, reduce Cash Available for Distribution to
shareholders and increase the risk of loss upon a sale or foreclosure.  While
it has not done so to date, the Company also may obtain one or more forms of
interest rate protection on variable rate debt (e.g., swap agreements or
interest rate cap contracts) and will consider additional long-term fixed-rate
financing to further hedge against the possible adverse effects of interest
rate fluctuations.  Adverse economic conditions could cause the terms on which
borrowings become available to be less favorable than at present.  In such
circumstances, if the Company is in need of capital to repay indebtedness in
accordance with its terms or otherwise, it could be required to liquidate one
or more investments in Hotels or lose one or more Hotels to foreclosure, either
of which could result in a material financial loss to the Company.

         ENVIRONMENTAL MATTERS

         Under various federal, state and local laws and regulations, an owner
or operator of real estate may be liable for the costs of removal or
remediation of certain hazardous or toxic substances on such property.  Such
laws often impose such liability without regard to whether the owner knew of,
or was responsible for, the presence of hazardous or toxic substances.
Furthermore, a person that arranges for the disposal or transports for disposal
or treatment of a hazardous substance at a property owned by another may be
liable for the costs of removal or remediation of hazardous substances released
into the environment at that property.  The costs of remediation or removal of
such substances may be substantial, and the presence of such substances, or the
failure to promptly remediate such substances, may adversely affect the owner's
ability to sell real estate or to borrow using such real estate as collateral.
In connection with the ownership and operation of the Hotels, the Company, the
Partnership or the Lessee, as the case may be, may be potentially liable for
any such costs.

         Phase I environmental site assessments ("ESAs") were obtained on all
Hotels acquired by the Partnership.  The Company intends to obtain an ESA on
any other hotel acquired in the future.  The ESAs are and were intended to
identify potential environmental contamination for which the Hotels may be
responsible.  The ESAs included historical reviews of the Hotels, reviews of
certain public records, preliminary investigations of the sites and surrounding
properties, screening for the presence of hazardous substances, toxic
substances and underground storage tanks, and the preparation and issuance of a
written report.  The ESAs did not include invasive procedures, such as soil
sampling or ground water analysis.

         The ESAs have not revealed any environmental liability or compliance
concerns that the Company believes would have a material adverse effect on the
Company's business, assets, results of operations or liquidity, nor is the
Company aware of any such liability.  Nevertheless,





                                       18
<PAGE>   21

it is possible that these ESAs do not reveal all environmental liabilities or
that there are material environmental liabilities or compliance concerns of
which the Company is unaware.  Moreover, no assurances can be given that (i)
future laws, ordinances or regulations will not impose any material
environmental liability, or (ii) the current environmental condition of the
Hotels will not be affected by the condition of the properties in the vicinity
of the Hotels (such as the presence of leaking underground storage tanks) or by
third parties unrelated to the Partnership, the Lessee or the Company.

         TAX STATUS

         The Company has elected to be taxed as a REIT under Sections 856-860
of the Internal Revenue Code of 1986, as amended (the "Code"), commencing with
its short taxable year ended December 31, 1994.  If the Company qualifies for
taxation as a REIT, with certain exceptions, the Company will not be subject to
federal income tax at the Company level on its taxable income that is
distributed to its shareholders.  A REIT is subject to a number of
organizational and operational requirements, including a requirement that it
currently distribute at least 95% of its annual taxable income.  Failure to
qualify as a REIT will render the Company subject to federal income tax
(including any applicable minimum tax) on its taxable income at regular
corporate rates and distributions to the holders of Common Shares in any such
year will not be deductible by the Company.  If the Internal Revenue Service
were to challenge successfully the tax status of the Partnership or any
Subsidiary Partnership as a partnership for federal income tax purposes, the
Partnership or Subsidiary Partnership would be taxable as a corporation.  In
such event, the Company would likely cease to qualify as a REIT for a variety
of reasons.  Although the Company does not intend to request a ruling from the
Service as to its REIT status or the partnership status of the Partnership or
Subsidiary Partnerships, the Company has, in the past, obtained the opinion of
its legal counsel that, as of the date of the opinion, the Company qualifies as
a REIT.  The opinion was based on certain assumptions and representations and
is not binding on the Service or any court.  Even if the Company qualifies for
taxation as a REIT, the Company may be subject to certain federal, state and
local taxes on its income and property.





                                       19
<PAGE>   22

ITEM 2.  PROPERTIES

         The following tables set forth certain information with respect to the
Hotels that were owned by the Company as of December 31, 1996.

<TABLE>
<CAPTION>
                                                                      YEAR ENDED DECEMBER 31, 1996
                                                         ----------------------------------------------------
                                                NUMBER   PROFORMA     PROFORMA
                                         YEAR  OF SUITES/  ROOM         LEASE
                                        OPENED   ROOMS  REVENUE(1)   PAYMENT(1)  OCCUPANCY     ADR     REVPAR
                                        ------   -----  ----------   ----------  ---------     ---     ------
<S>                                      <C>      <C>  <C>         <C>              <C>     <C>        <C>
Residence Inn:
   Fremont, CA  . . . . . . . . . . . .  1985      80  $2,611,000  $1,205,000       85.95%  $103.74    $89.16
   Mountain View (Palo Alto), CA  . . .  1985     112   4,560,000   2,645,000       92.55    120.19    111.24
   San Jose, CA   . . . . . . . . . . .  1986      80   2,826,000   1,352,000       93.65    103.07     96.53
   San Mateo, CA  . . . . . . . . . . .  1985     159   5,716,000   2,956,000       92.64    106.02     98.22
   Silicon Valley I, CA   . . . . . . .  1983     231   7,711,000   4,313,000       91.74     99.42     91.21
   Silicon Valley II, CA  . . . . . . .  1985     247   8,254,000   4,587,000       91.28    100.02     91.30
   Denver (Downtown), CO  . . . . . . .  1982     156   4,027,000   1,693,000       86.29     81.73     70.52
   Denver (South), CO   . . . . . . . .  1981     128   3,623,000   1,779,000       91.33     84.67     77.33
   Windsor, CT  . . . . . . . . . . . .  1986      96   2,538,000   1,042,000       82.10     87.97     72.22
   Atlanta (Downtown), GA   . . . . . .  1996     160     (2)       1,260,000(2)    (2)       (2)       (2)
   Wichita East, KS   . . . . . . . . .  1981      64   1,506,000     578,000       81.10     79.30     64.31
   Portland, ME   . . . . . . . . . . .  1996      78     (2)         430,000(2)    (2)       (2)       (2)
   East Lansing, MI   . . . . . . . . .  1984      60   1,385,000     581,000       85.16     74.08     63.09
   Grand Rapids, MI   . . . . . . . . .  1984      96   2,113,000     924,000       84.13     71.47     60.13
   Troy (Central), MI   . . . . . . . .  1986     152   4,198,000   2,132,000       93.35     80.83     75.46
   Troy (Southeast), MI   . . . . . . .  1985      96   2,530,000   1,188,000       85.83     83.88     71.99
   Cherry Hill, NJ  . . . . . . . . . .  1989      96   2,884,000   1,315,000       89.15     92.07     82.07
   Binghamton, NY   . . . . . . . . . .  1987      72   1,848,000     835,000       82.94     84.55     70.13
   Harrisburg, PA   . . . . . . . . . .  1988      80   2,100,000     903,000       84.84     84.52     71.71
   Richmond, VA   . . . . . . . . . . .  1986      80   2,112,000     933,000       88.49     81.52     72.14

Hampton Inn:
   Naples, FL   . . . . . . . . . . . .  1990     107   1,867,000     819,000       71.74     66.47     47.68
   Tallahassee, FL  . . . . . . . . . .  1993      93   1,674,000     842,000       81.84     60.11     49.19
   West Palm Beach, FL  . . . . . . . .  1986     136   1,845,000     655,000       67.73     54.72     37.06
   Norcross, GA   . . . . . . . . . . .  1996     150      (2)        665,000(2)    (2)       (2)       (2)
   Germantown, MD   . . . . . . . . . .  1987     176   2,214,000     976,000       54.95     62.53     34.36
   Albany/Latham, NY  . . . . . . . . .  1990     126   2,040,000   1,005,000       72.38     61.12     44.23
   Islandia (Long Island), NY   . . . .  1988     121   2,588,000   1,232,000       76.45     76.45     58.44
   Willow Grove (Philadelphia), PA  . .  1991     150   3,245,000   1,743,000       82.22     71.90     58.12

Comfort Inn:
   Woburn, MA(3)  . . . . . . . . . . .  1981     100      (2)        210,000(2)    (2)       (2)       (2)
   Allentown, PA  . . . . . . . . . . .  1990     127   1,913,000     987,000       73.56     55.95     41.15

Holiday Inn Express:
   Lexington, MA(4)   . . . . . . . . .  1971     164   2,635,000     992,000       67.95     64.60     43.90

Sheraton Inn:
   Fort Lauderdale, FL  . . . . . . . .  1988     139   2,493,000   1,173,000       83.86     58.45     49.01

Consolidated Total/
Weighted average  . . . . . . . . . . .
                                           3,912      $85,056,000 $43,950,000       82.49%   $82.28    $67.87
------------------------                   =====      =========== ===========
</TABLE>
(1) Represents Percentage Lease payments of rent from the Lessee to the
    Partnership calculated on a proforma basis by applying the rent provisions
    in the Percentage Leases using historical room revenues from the hotels for
    the year ended December 31, 1996 as if the Partnership had owned the Hotels
    and the Percentage Leases had been in effect since January 1, 1996.





                                       20
<PAGE>   23

(2) Includes base rent of $2,565,000, but not percentage rent, under the
    percentages leases for three newly developed hotels and one hotel closed
    for a portion of 1996 due to renovation.
(3) The Company has received a commitment from Promus for a Hampton Inn
    Franchise License for the Comfort Inn-Woburn, Massachusetts Hotel, subject
    to the completion of certain renovations and improvements which are
    expected to be completed during May 1997.
(4) The Company has received a commitment from Holiday Inn Franchising for a
    Holiday Inn Express & Suites Franchise License for the Holiday Inn
    Express-Lexington, Massachusetts hotel, subject to the completion of
    certain renovations and improvements, which are expected to be completed in
    May of 1997.


    The following are more detailed descriptions of each of the Hotels:

<TABLE>
<CAPTION>
              Hotel                     Location                   Competition
              -----                     --------                   -----------
<S>                              <C>                   <C>
UPSCALE EXTENDED-STAY(1):
  1. Residence Inn  . . . . . .  Fremont, CA           Woodfin Suites-Fremont, Crown
                                                       Sterling Suites-Fremont, Marriott
                                                       Courtyard-Fremont and Hilton-
                                                       Fremont/Newark

  2. Residence Inn  . . . . . .  Mountain View         Woodfin Suites-Sunnyvale,
                                 (Palo Alto), CA       Summerfield Suites-Sunnyvale and
                                                       Hyatt Rickey's-Palo Alto

  3. Residence Inn  . . . . . .  San Jose, CA          Marriott Courtyard-San Jose,
                                                       Pruneyard, Summerfield Suites and
                                                       Campbell Inn

  4. Residence Inn  . . . . . .  San Mateo, CA         Summerfield Suites, Holiday Inn and
                                                       Hotel Sofitel

  5. Residence Inn-
     Silicon Valley I   . . . .  Sunnyvale, CA         Woodfin Suites-Sunnyvale,
                                                       Summerfield Suites-Sunnyvale,
                                                       Summerfield Suites-San Jose and
                                                       Homewood Suites
  6. Residence Inn-
     Silicon Valley II  . . . .  Sunnyvale, CA         Woodfin Suites-Sunnyvale,
                                                       Summerfield Suites-Sunnyvale,
                                                       Summerfield Suites-San Jose and
                                                       Homewood Suites

  7. Residence Inn  . . . . . .  Denver (Downtown), CO Holtz Suites, Embassy Suites and
                                                       Apartments, Holiday Inn, Oxford
                                                       Hotel and Burnsley

  8. Residence Inn  . . . . . .  Denver (South), CO    Woodfin Suites-Denver South, Holtz
                                                       Suites, Residence-Denver South,
                                                       Marriott Courtyard-Denver Tech
                                                       Center and Hyatt-Denver Tech Center
</TABLE>





                                       21
<PAGE>   24

<TABLE>
<CAPTION>
              Hotel                     Location                   Competition
              -----                     --------                   -----------
  <S>                            <C>                   <C>
  9.     Residence Inn  . . . .  Windsor, CT           Homewood Suites-Bradley Airport,
                                                       Marriott Courtyard-Windsor, Clarion
                                                       Suites-Manchester/Hartford,
                                                       Sheraton-Bradley Airport,
                                                       Centennial Inn Suites-Farmington
                                                       and Holiday Inn-Bradley Airport

  10.    Residence Inn  . . . .  Atlanta (Downtown),   Ritz Carlton, Marriott Marquis,
                                 GA                    Quality Suites and Westin

  11.    Residence Inn  . . . .  Wichita East, KS      Candlewood Suites, the Inn at
                                                       Tallgrass (country club), Club
                                                       House Inn, Marriott and North Rock
                                                       Inn

  12.    Residence Inn  . . . .  Portland, ME          Embassy Suites, Marriott, Radisson,
                                                       Regency, corporate apartments and
                                                       beach house rentals

  13.    Residence Inn  . . . .  East Lansing, MI      Clubhouse Inn, Comfort Inn,
                                                       Fairfield Inn, Quality Suites,
                                                       Marriott and Club Meridian
                                                       Apartments

  14.    Residence Inn  . . . .  Grand Rapids, MI      Holiday Inn-Crowne Plaza, Hilton
                                                       Inn, New England Suites and
                                                       Lexington Hotel

  15.    Residence Inn  . . . .  Troy (Central), MI    Hilton Suites-Auburn Hills, Hilton-
                                                       Northfield, Guest Quarters-Troy,
                                                       Marriott-Troy and Homewood Suites-
                                                       Warren

  16.    Residence Inn  . . . .  Troy (Southeast), MI  Homewood Suites-Warren, Hilton
                                                       Suites-Auburn Hills, Residence Inn-
                                                       Warren and Guest Quarters-Troy


  17.    Residence Inn  . . . .  Cherry Hill, NJ       Summerfield Suites-Mt. Laurel,
                                                       Clarion-Mt. Laurel, Travelodge-Mt.
                                                       Laurel and Hilton-Cherry Hill

</TABLE>





                                       22
<PAGE>   25

<TABLE>
<CAPTION>
              Hotel                     Location                   Competition
              -----                     --------                   -----------
  <S>                            <C>                   <C>
  18.    Residence Inn  . . . .  Binghamton, NY        Holiday Inn-Vestal, Holiday Inn-
                                                       Hawley and Best Western-Regency

  19.    Residence Inn  . . . .  Harrisburg, PA        Marriott-Harrisburg, Homewood
                                                       Suites-Mechanicsburg, Best Western
                                                       Crown-Harrisburg and Doubletree-
                                                       Harrisburg

  20.    Residence Inn  . . . .  Richmond, VA          Marriott Courtyard-Richmond West,
                                                       Embassy Suites-Richmond West and
                                                       Hyatt-Richmond West
  MID-PRICE:
  21.    Hampton Inn  . . . . .  Naples, FL            Inn of Naples-Naples, Best Western
                                                       Naples Inn-Naples, Quality Inn-
                                                       Gulfcoast, Comfort Inn-Naples Bay,
                                                       Wellesley Inn-Naples and Courtyard
                                                       by Marriott-Naples

  22.    Hampton Inn  . . . . .  Tallahassee, FL       Shoney's Inn-Tallahassee, La Quinta
                                                       Inn-Tallahassee, Cabot Lodge-
                                                       Tallahassee and Comfort Inn-
                                                       Tallahassee

  23.    Hampton Inn(3) . . . .  West Palm Beach, FL   Holiday Inn-Palm Beach
                                                       International Airport, Radisson
                                                       Suites-Palm Beach International
                                                       Airport, Wellesley Inn-West Palm
                                                       Beach, Comfort Inn-West Palm  Beach
                                                       Turnpike and Best Western-West Palm
                                                       Beach

  24.    Hampton Inn  . . . . .  Norcross, GA          Courtyard by Marriott-Norcross,
                                                       Holiday Inn Select-Norcross and
                                                       Marriott Hotel-Norcross

  25.    Hampton Inn(2) . . . .  Germantown, MD        Courtyard by Marriott-Gaithersburg,
                                                       Holiday Inn-Gaithersburg, Hilton-
                                                       Gaithersburg, Courtyard by
                                                       Marriott-Rockville and Woodfin
                                                       Suites-Rockville

  26.    Hampton Inn  . . . . .  Albany/Latham,NY      Holiday Inn Express-Albany Airport,
                                                       Hampton Inn-Albany/Wolf Rd., Red
                                                       Roof Inn-Albany Airport, Comfort
                                                       Albany Airport, Best Western-
                                                       Clifton Park and Courtyard by
                                                       Marriott-Albany
</TABLE>



                                       23
<PAGE>   26

<TABLE>
<CAPTION>
              Hotel                     Location                   Competition
              -----                     --------                   -----------
  <S>    <C>                     <C>                   <C>
  27.    Hampton Inn  . . . . .  Islandia (Long        Hampton Inn-Commack, Holiday Inn-
                                 Island), NY           Ronkonkoma, Sheraton-Smithtown,
                                                       Best Western-Patchogue and
                                                       Radisson-Islandia

  28.    Hampton Inn  . . . . .  Willow Grove          Courtyard by Marriott-Willow Grove,
                                 (Philadelphia), PA    Days Inn-Horsham, Residence Inn by
                                                       Marriott-Willow Grove and Holiday
                                                       Inn-Fort Washington

  29.    Comfort Inn(2)(3)  . .  Woburn, MA            Red Roof Inn-Woburn, Courtyard by
                                                       Marriott-Woburn and Suisse Chalet-
                                                       Woburn

  30.    Comfort Inn  . . . . .  Allentown, PA         Hampton Inn-Allentown, Holiday Inn-
                                                       Allentown, Comfort Suites-
                                                       Allentown/Bethlehem and Holiday
                                                       Express-Allentown

  31.    Holiday Inn Express(2)  Lexington, MA         Ramada Inn-Bedford, Howard Johnson-
                                                       Burlington and Travelodge-Bedford

  32.    Sheraton Inn(3)  . . .  Fort Lauderdale, FL   Guest Quarters-Cypress Creek,
                                                       Marriott-Cypress Creek, Best
                                                       Western-Cypress Creek, Hampton Inn-
                                                       Fort Lauderdale/Cypress Creek and
                                                       Westin-Cypress Creek
----------------
</TABLE>
(1)  Residence Inn hotels offer a standard amenities package that generally
     includes a gatehouse with fireplace lounge, laundry facility, one or more
     meeting rooms and kitchen facilities, a swimming pool, a whirlpool, a
     picnic area with gas grill and an all-purpose sports court.  Hampton Inn
     hotels, Comfort Inn hotels and Holiday Inn Express hotels offer standard
     amenities packages that generally include a complimentary continental
     breakfast, a swimming pool and a meeting room.  The Sheraton Inn-Fort
     Lauderdale, Florida hotel's amenities include an outdoor heated swimming
     pool, Tiki Bar, full service restaurant, exercise center and guest laundry
     facilities.
(2)  These Hotels were or are in the process of being renovated during the
     period noted:  the Hampton Inn-Germantown, Maryland hotel (1995), the
     Holiday Inn Express-Lexington, Massachusetts hotel (beginning November 1,
     1996) and the Comfort Inn-Woburn, Massachusetts hotel (beginning November
     1, 1996).  For the purposes of this footnote, a renovation is defined as a
     substantial upgrade of guest rooms and/or public areas.
(3)  Subject to long-term ground leases with third-party ground lessors.


THE PERCENTAGE LEASES

         Each Percentage Lease contains the provisions described below, and the
Company intends that future percentage leases with respect to additional hotels
it may acquire will contain substantially similar provisions, although the
independent Trustees may, in their discretion, alter any of these provisions
with respect to any proposed percentage lease, depending on the





                                       24
<PAGE>   27

purchase price paid, economic conditions and other factors deemed relevant at
the time.  The Lessee will not lease or manage any hotel other than those owned
by the Company, the Partnership, the Subsidiary Partnerships or a similarly
structured entity created by the Company for the purpose of owning hotels.

         Percentage Lease Terms.  Each Percentage Lease has a non-cancelable
term of at least ten years, subject to earlier termination upon the occurrence
of defaults thereunder and certain other events described in the Percentage
Lease.

         Amounts Payable Under the Percentage Leases.  During the term of each
Percentage Lease, the Lessee is obligated to pay to the Partnership (i) the
greater of a fixed annual Base Rent or Percentage Rent, and (ii) certain other
amounts, including interest accrued on any late payments or charges (the
"Additional Charges").  Percentage Rent is based on percentages of room
revenues for each of the Hotels.  For all Percentage Leases, both the Base Rent
and the Revenue Break Point in each Percentage Rent formula are (a) adjusted
annually for inflation and (b) in the case of the certain of the Hotels managed
by Marriott, increased to specified levels (not tied to inflation) in the first
years after execution.  With respect to adjustments for inflation, the
adjustment will be calculated at the beginning of each calendar year based upon
the change in the CPI during the prior calendar year.

         The following table sets forth the annual Base Rent and Percentage
Rent formulas for each Hotel under the Percentage Leases.


<TABLE>
<CAPTION>
                                                ANNUAL BASE             PERCENTAGE
                    HOTEL                          RENT                RENT FORMULA
                    -----                      ---------------  -----------------------------
                    <S>                        <C>                 <C>
                    RESIDENCE INN:
                     Fremont, CA . . . . . . . $    410,000        30.0% of room revenue up
                                                                    to $1,500,000, plus 68.0% of
                                                                    room revenue in excess of
                                                                    $1,500,000

                    Mountain View
                    (Palo Alto), CA. . . . . .    1,207,000        30.0% of room revenue up
                                                                    to $1,200,000, plus 68.0% of
                                                                    room revenue in excess of
                                                                    $1,200,000

                    San Jose, CA . . . . . . .      520,000        30.0% of room revenue up
                                                                    to $1,500,000, plus 68.0% of
                                                                    room revenue in excess of
                                                                    $1,500,000

                    San Mateo, CA  . . . . . .    1,427,000        30.0% of room revenue up
                                                                    to $2,450,000, plus 68.0% of
                                                                    room revenue in excess of
                                                                    $2,450,000


                    Silicon Valley I, CA . . .    2,154,000        30.0% of room revenue up
                                                                    to $2,450,000, plus 68.0% of
                                                                    room revenue in excess of
</TABLE>





                                       25
<PAGE>   28

<TABLE>
<CAPTION>
                                                 ANNUAL BASE             PERCENTAGE
                             HOTEL                   RENT                RENT FORMULA
                             -----             ---------------  -----------------------------
                            <S>                      <C>            <C>
                                                                    $2,450,000

                            Silicon Valley II, CA    2,244,000      30.0% of room revenue up
                                                                    to $2,700,000, plus 68.0% of
                                                                    room revenue in excess of
                                                                    $2,700,000

                            Denver (Downtown), CO    684,000        30.0% of room revenue up
                                                                    to $2,750,000, plus 68.0% of
                                                                    room revenue in excess of
                                                                    $2,750,000

                            Denver (South), CO       734,000        30.0% of room revenue up
                                                                    to $1,800,000, plus 68.0% of
                                                                    room revenue in excess of
                                                                    $1,800,000

                            Windsor, CT . . . .      459,000        30.0% of room revenue up
                                                                    to $1,800,000, plus 68.0% of
                                                                    room revenue in excess of
                                                                    $1,800,000

                            Atlanta (Downtown), GA   1,260,000      30.0% of room revenue up
                                                                    to $3,100,000, plus 68.0% of
                                                                    room revenue in excess of
                                                                    $3,100,000

                            Wichita East, KS  .      287,000        30.0% of room revenue up
                                                                    to $1,175,000, plus 68.0% of
                                                                    room revenue in excess of
                                                                    $1,175,000

                            Portland, ME  . . .      430,000        30.0% of room revenue up
                                                                    to $1,200,000, plus 68.0% of
                                                                    room revenue in excess of
                                                                    $1,200,000

                            East Lansing, MI  .      290,000        30.0% of room revenue up
                                                                    to $950,000, plus 68.0% of
                                                                    room revenue in excess of
                                                                    $950,000

                            Grand Rapids, MI  .      509,000        30.0% of room revenue up
                                                                    to $1,350,000, plus 68.0% of
                                                                    room revenue in excess of
                                                                    $1,350,000

                            Troy (Central), MI       931,000        30.0% of room revenue up
                                                                    to $1,900,000, plus 68.0% of
                                                                    room revenue in excess of
                                                                    $1,900,000

                            Troy (Southeast), MI     494,000        30.0% of room revenue up
                                                                    to $1,400,000, plus 68.0% of
                                                                    room revenue in excess of
                                                                    $1,400,000

                            Cherry Hill, NJ . .      774,000        30.0% of room revenue up
</TABLE>





                                       26
<PAGE>   29

<TABLE>
<CAPTION>
                                                 ANNUAL BASE                 PERCENTAGE
                             HOTEL                   RENT                   RENT FORMULA
                             -----             ---------------     -----------------------------
                            <S>                      <C>            <C>
                                                                    to $1,700,000, plus 68.0% of
                                                                    room revenue in excess of
                                                                    $1,700,000

                            Binghamton, NY  . .      455,000        32.0% of room revenue up
                                                                    to $1,207,900, plus 70.0% of
                                                                    room revenue in excess of
                                                                    $1,207,900

                            Harrisburg, PA  . .      554,000        30.0% of room revenue up
                                                                    to $1,380,000, plus 68.0% of
                                                                    room revenue in excess of
                                                                    $1,380,000

                            Richmond, VA  . . .      447,000        30.0% of room revenue up
                                                                    to $1,325,000, plus 68.0% of
                                                                    room revenue in excess of
                                                                    $1,325,000
                          HAMPTON INN:
                            Naples, FL  . . . .      410,000        33.5% of room revenue up
                                                                    to $1,336,400, plus 70.0% of
                                                                    room revenue in excess of
                                                                    $1,336,400

                            Tallahassee, FL . .      350,000        30.0% of room revenue up
                                                                    to $825,000, plus 70.0% of
                                                                    room revenue in excess of
                                                                    $825,000

                            West Palm Beach, FL      304,000        31.0% of room revenue up
                                                                    to $1,619,100, plus 68.0% of
                                                                    room revenue in excess of
                                                                    $1,619,100

                            Norcross, GA  . . .      665,000        30.0% of room revenue up
                                                                    to $1,500,000, plus 68.0% of
                                                                    room revenue in excess of
                                                                    $1,500,000

                            Germantown, MD  . .      490,000        32.0% of room revenue up
                                                                    to $1,500,000, plus 69.5% of
                                                                    room revenue in excess of
                                                                    $1,500,000

                            Albany/Latham, NY .      662,000        35.0% of room revenue up
                                                                    to $1,207,900, plus 70.0% of
                                                                    room revenue in excess of
                                                                    $1,207,900

                            Islandia
                            (Long Island), NY .      473,000        31.75% of room revenue up
                                                                    to $1,516,300, plus 70.0% of
                                                                    room revenue in excess of
                                                                    $1,516,300

                            Willow Grove
                            (Philadelphia), PA       735,000        31.45% of room revenue up
                                                                    to $1,372,380, plus 70.0% of
</TABLE>





                                       27
<PAGE>   30

<TABLE>
<CAPTION>
                                                 ANNUAL BASE              PERCENTAGE
                             HOTEL                   RENT                RENT FORMULA
                             -----             ---------------  -----------------------------
                          <S>                        <C>            <C>
                                                                    room revenue in excess of
                                                                    $1,372,380

                          COMFORT INN:
                            Woburn, MA
                                     (1)  . . .      210,000        30.0% of room revenue up
                                                                    to $1,350,000, plus 68.0% of
                                                                    room revenue in excess of
                                                                    $1,350,000

                            Allentown, PA . . .      497,000        36.5% of room revenue up
                                                                    to $1,050,000, plus 70.0% of
                                                                    room revenue in excess of
                                                                    $1,050,000
                          HOLIDAY INN EXPRESS:
                            Lexington, MA . . .      500,000        27.0% of room revenue up
                                                                    to $1,950,000, plus 68.0% of
                                                                    room revenue in excess of
                                                                    $1,950,000
                          SHERATON INN:
                            Fort Lauderdale, FL      359,000        31.0% of room revenue up
                                                                    to $1,413,500, plus 68.0% of
                                                                    room revenue in excess of
                                                                    $1,413,500
                                                 -----------
                                                 $21,925,000
                                                 ===========
</TABLE>

(1)      A renovation of the Comfort Inn-Woburn, Massachusetts hotel was begun
         in November 1996.  Until the renovation project has substantially
         commenced, the Percentage Rent will be fixed at $45,000 per month.
         From the date on which the renovation project substantially commences
         until the earlier of (i) April 1, 1997 or (ii) the first day of the
         month following the date of the completion of the renovation project
         (each a "Target Completion Date") no Base Rent is payable.  On the
         Target Completion Date, the Percentage Rent formula reverts to the
         terms set forth in the above table.

         Other than real estate and personal property taxes, ground lease rent
(where applicable), the cost of certain furniture, fixtures and equipment and
certain capital expenditures, and property and casualty insurance, which are
obligations of the Partnership, the Percentage Leases require the Lessee to pay
Base Rent, Percentage Rent, Additional Charges and the operating expenses of
the Hotels (including insurance, utility and other charges incurred in the
operation of the Hotels) during the terms of the Percentage Leases.  The
Percentage Leases also provide for rent reductions and abatements in the event
of damage or destruction or a partial taking of any Hotel.

         Maintenance and Modifications.  Under the Percentage Leases, the
Partnership is required to pay for capital improvements at each Hotel.  In
addition, the Percentage Leases obligate the Partnership to make available to
the Lessee for the repair, replacement and refurbishment of furniture, fixtures
and equipment in the Hotels, when and as deemed necessary by the Lessee, an
amount equal to 4% of room revenues, per quarter on a cumulative basis.  (The
lender is requiring the Partnership to make available for such purposes of the
eight Hotels collateralizing the Permanent Loan 5% of room revenues at such
Hotels.)  The Partnership's obligation is carried forward to the extent that
the Lessee has not expended such amount, and any unexpended amounts remain the
property of the Partnership upon termination of the Percentage Leases.  In
addition, the Company intends to cause the Partnership to spend amounts





                                       28
<PAGE>   31

in excess of the obligated amounts if necessary to comply with the reasonable
requirements of any franchise license or Marriott Management Agreement and
otherwise to the extent that the Company deems such expenditures to be in the
best interests of the Company.  Otherwise, the Lessee is required, at its
expense, to maintain the Hotels in good order and repair and to pay for all
operating expenses of the Hotels.

         The Lessee, at its expense, may make non-capital and capital
additions, modifications or improvements to the Hotels, provided that such
action does not significantly alter the character or purposes of the Hotels or
significantly detract from the value or operating efficiencies of the Hotels.
All such alterations, replacements and improvements shall be subject to all the
terms and provisions of the Percentage Leases and become the property of the
Partnership upon termination of the Percentage Leases.  The Partnership owns,
with respect to the Hotels, substantially all personal property (other than
inventory, linens and other nondepreciable personal property) not affixed to,
or deemed a part of, the real estate or improvements thereon, except to the
extent that ownership of such personal property would cause the rent under a
Percentage Lease not to qualify as "rents from real property" for REIT income
test purposes.


ITEM 3.  LEGAL PROCEEDINGS

         The Company is not presently involved in any material litigation, nor,
to its knowledge, is any material litigation threatened against the Company or
its properties, other than routine litigation arising in the ordinary course of
business and which is expected to be covered by the Company's liability
insurance.


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

         None.


                                    PART II

ITEM 5.  MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER
         MATTERS

         The information called for in this item is incorporated by reference
to the Company's 1996 Annual Report filed as Exhibit 13.1 to this Form 10-K.





                                       29
<PAGE>   32

ITEM 6.  SELECTED FINANCIAL DATA

         The information called for in this item with respect to the Company
and its predecessor is incorporated by reference to the 1996 Annual Report
filed as Exhibit 13.1 to this Form 10-K.

         With respect to the Lessee, the following tables set forth (i)
selected historical financial data for the period September 30, 1994
(inception) through December 31, 1994 and the years ended December 31, 1996 and
1995 and (ii) selected pro forma financial information for the years ended
December 31, 1996 and 1995.  The pro forma operating and other financial data
is presented as if the Hotels were owned as of the beginning of the periods
presented and, therefore, incorporates certain assumptions.  The pro forma
information does not purport to represent what the Lessee's results of
operations actually would have been, or to project the Lessee's financial
position or results of operations at any future date or for any future period.
The following selected financial information should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" included below and incorporated by reference herein.

                                     LESSEE
                SELECTED HISTORICAL AND PRO FORMA FINANCIAL DATA
                     (IN THOUSANDS, EXCEPT PER SHARE DATA)


<TABLE>
<CAPTION>
                                              Historical                                       Pro Forma(1)
                                          ------------------                                 ----------------

                                                 Year                                              Year
                                                Ended                 Period from                  Ended
                                             December 31,          September 30, 1994           December 31,
                                           ----------------           (Inception)             ----------------
                                           1996        1995        December 31, 1994          1996        1995
                                           ----        ----        -----------------          ----        ----
<S>                                      <C>         <C>                <C>                 <C>       <C>
OPERATING DATA:
Room revenue                              58,501      24,412              3,404             $87,796    $78,154
Other revenue                              4,222       1,895                372               6,052      5,304
                                         -------      ------              -----             -------    -------
Total revenue                             62,723      26,307              3,776              93,848     83,458
Hotel operating expenses                  32,274      13,696              2,041              48,863     44,437
                                         -------      ------              -----             -------    -------

Income before overhead expenses           30,449      12,611              1,735              44,985     39,021
   and Percentage Lease payments
Percentage Lease payments                 27,466      11,268              1,480              43,950     38,300
Overhead expenses                          2,273         952                132               2,273      1,252
                                         -------    --------            -------            --------    -------

Net income (loss)(2)                     $   710     $   391            $   123             $(1,238)  $  (531)
                                         =======     =======            =======             =======   =======
</TABLE>


(1)   The pro forma information does not purport to represent what the Lessee's
results of operations actually would have been if the Partnership had, in fact,
owned and leased to the Lessee the Hotels at the beginning of the periods
indicated, or to project the Lessee's results of operations for any future
period.
(2)   The Lessee has elected status as a Subchapter S corporation for federal
income tax purposes and pays no corporate level tax on its net income.





                                       30
<PAGE>   33


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

         The information called for in this item with respect to the Company
and its predecessor is incorporated by reference to the 1996 Annual Report
filed as Exhibit 13.1 to this Form 10-K.

         The following is a discussion of the results of operations for the
Lessee.  The Lessee commenced operations on September 30, 1994.  Consequently,
comparison of the actual results for the year ended December 31, 1995 to the
period September 30, 1994 (inception) through December 31, 1994 is not
meaningful.

         The Lessee -- Actual

         COMPARISON OF YEAR ENDED DECEMBER 31, 1996 ("1996") TO THE YEAR ENDED
         DECEMBER 31, 1995 ("1995")

         The Lessee had total revenue for 1996 of $62,723,000, consisting of
$58,501,000 of room revenue and $4,222,000 of other revenue.  Room revenue
increased by $34,089,000, or 139.6% from $24,412,000 for 1995.  This increase
was primarily due to the number of Hotels leased increasing from seven at
January 1, 1995 to 18 at January 1, 1996 and to 32 at December 31, 1996.

         Percentage Lease payments, hotel operating expenses and overhead
expenses for 1996 were $27,466,000, $32,274,000, and $2,273,000, respectively.
Percentage Lease payments, hotel operating expense and overhead expenses
increased by $16,198,000 or 143.8%, $18,578,000 or 135.7%, and $1,321,000 or
138.8%, respectively from $11,268,000, $13,696,000 and $952,000 for 1995,
respectively.  These increases were primarily due to the number of Hotels
leased increasing from seven at January 1, 1995 to 18 at January 1, 1996 and to
32 at December 31, 1996.  Net income for 1996 was $710,000.  Net income
increased $319,000, or 81.6%, from $391,000 for 1995.

         The gross margin percentage remained relatively constant at 77.2% and
76.2% for 1996 and 1995, respectively.  Net income as a percentage of gross
operating revenue remained relatively constant at 1.1% and 1.5% for 1996 and
1995, respectively.

         SEPTEMBER 30, 1994 (INCEPTION) THROUGH DECEMBER 31, 1994

         The Lessee had total revenue of $3,776,000, consisting of $3,404,000
of room revenue and $372,000 of other revenue.  Percentage Lease payments,
hotel operating expenses and overhead expenses were $1,480,000, $2,041,000 and
$132,000, respectively, resulting in net income of $123,000.

         The Lessee -- Pro Forma

         The following pro forma information is presented as if the acquisition
of the Hotels had occurred at the beginning of the periods presented.





                                       31
<PAGE>   34

         COMPARISON OF 1996 TO 1995

         The Lessee had total revenue for 1996 of $93,848,000 consisting of
$87,796,000 of room revenue and $6,052,000 of other revenue.  Room revenue
increased by $9,642,000, or 12.3%, from $78,154,000 for 1995.  Room revenue
increased 10.77% from 1996 to 1995 which excludes three newly developed hotels
and one hotel closed for a portion on 1996 due to renovation.  This increase
was primarily due to an ADR increase of 6.8% and an occupancy increase of 3.5%.

         Percentage Lease payments, hotel operating expenses and overhead
expenses for 1996 were $43,950,000, $48,863,000, $2,273,000, respectively.
Percentage Lease payments, hotel operating expenses and overhead expenses
increased by $5,650,000, or 14.8%, $4,426,000, or 10.0%, and $1,021,000, or
81.6%, respectively, from $38,300,000, $44,437,000 and $1,252,000, for 1995.
These increases were primarily due to increased REVPAR of 10.5% at the Hotels,
which excludes three newly developed hotels and one closed for a portion of
1996 due to renovation, which resulted in increased Percentage Lease payments
and increased variable expenses.  Net loss for 1996 and 1995 was $1,238,000 and
$531,000, respectively.

         The gross margin percentage remained relatively constant at 78.0% and
77.8% for 1996 and 1995, respectively.  Net loss as a percentage of gross
operating revenue was 1.3% and 0.6% for 1996 and 1995, respectively.

ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

         The following financial statements are incorporated by reference from
the 1996 Annual Report filed as Exhibit 13.1 to this Form 10-K.

INNKEEPERS USA TRUST

    Report of Independent Accountants

    Consolidated Balance Sheets at December 31, 1996
      and December 31, 1995

    Consolidated Statements of Income for the years ended
     December 31, 1996 and 1995 and the period September 30, 1994
     (inception) through December 31, 1994

    Consolidated Statements of Shareholders' Equity for
     the years ended December 31, 1996 and 1995 and the period
     September 30, 1994 (inception) through December 31, 1994

    Consolidated Statements of Cash Flows for the years ended
     December 31, 1996 and 1995 and the period September 30, 1994
     (inception) through December 31, 1994

    Notes to Consolidated Financial Statements





                                       32
<PAGE>   35



    The following financial statements are included herein on the pages
indicated.


JF HOTEL, INC., JF HOTEL II, INC. AND JF HOTEL III, INC.

<TABLE>
    <S>                                                                                                                <C>
    Report of Independent Accountants   . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  34

    Combined Balance Sheets at December 31, 1996 and
     December 31, 1995  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  35

    Combined Statements of Income for the years ended
     December 31, 1996 and 1995 and the period September 30, 1994
     (inception) through December 31, 1994    . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  36

    Combined Statements of Shareholders' Equity for the
     years ended December 31, 1996 and 1995 and the period
     September 30, 1994 (inception) through December 31,
     1994   . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  37

    Combined Statements of Cash Flows for the years ended
     December 31, 1996 and 1995 and the period September 30, 1994
     (inception) through December 31, 1994    . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  38

    Notes to Combined Financial Statements  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  39

FINANCIAL STATEMENT SCHEDULES
-----------------------------

    Report of Independent Accountants   . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  43

    Schedule 3 - Real Estate and Accumulated Depreciation
      at December 31, 1996  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  44
</TABLE>





                                       33
<PAGE>   36

REPORT OF INDEPENDENT ACCOUNTANTS


To the Board of Directors and Shareholders
JF Hotel

We  have  audited  the combined balance sheets  of  JF  Hotel  (as  described
in  Note  1)  as  of December 31, 1996 and 1995, and the related combined
statements of income, shareholders' equity and cash flows for the years ended
December 31, 1996 and 1995 and the period September 30, 1994 (inception)
through December 31, 1994.  These financial statements are the responsibility
of the Companies' management.  Our responsibility is to express an opinion on
these financial statements based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards.  Those standards require that we plan and perform the 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 combined financial position of JF Hotel as of
December 31, 1996 and 1995, and the results of their operations and their cash
flows for the years ended December 31, 1996 and 1995 and the period September
30, 1994 (inception) through December 31, 1994 in conformity with generally
accepted accounting principles.

                            Coopers & Lybrand L.L.P.

West Palm Beach, Florida
March 14, 1997





                                       34
<PAGE>   37

JF HOTEL
COMBINED BALANCE SHEETS
(in thousands, except share and per share data)




<TABLE>
<CAPTION>
                                                                        DECEMBER 31,             DECEMBER 31,
                                                                            1996                    1995
                                                                        ------------            ------------
<S>                                                                   <C>                     <C>
                                                          ASSETS

Current assets:
  Cash and cash equivalents                                           $      5,551            $      2,900
  Marketable securities                                                      1,161                     255
  Accounts receivable, net                                                   2,393                   1,540
  Due from affiliates                                                          298                      40
  Inventory                                                                     67                      27
  Prepaid expenses                                                             233                     219
                                                                       -----------             -----------

      Total current assets                                                   9,703                   4,981

Other assets                                                                   252                     154
                                                                       -----------             -----------

      Total assets                                                    $      9,955            $      5,135
                                                                       ===========             ===========

                                           LIABILITIES AND SHAREHOLDERS' EQUITY

Current Liabilities:
  Accounts payable                                                    $      2,150            $      2,023
  Accrued expenses                                                           1,545                   1,062
  Payable to Manager                                                         1,634
  Other liabilities                                                            785
  Due to Partnership                                                         3,541                   2,048
                                                                       -----------             -----------

      Total current liabilities                                              9,655                   5,133
                                                                       -----------             -----------

Commitments and contingencies (Note 4)

Shareholders' equity:

  Common shares, $1 par value, 3,000 shares authorized,
    3,000 and 2,000 shares issued and outstanding at
    December 31, 1996 and 1995, respectively                                     3                       2
  Unrealized gain on marketable securities                                     358
  Retained earnings (deficit)                                                 (61)
                                                                       -----------             -----------

      Total shareholders' equity                                               300                       2
                                                                       -----------             -----------

      Total liabilities and shareholders' equity                      $      9,955            $      5,135
                                                                       ===========             ===========
</TABLE>


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





                                       35
<PAGE>   38

JF HOTEL
COMBINED STATEMENTS OF INCOME
(IN THOUSANDS)



<TABLE>
<CAPTION>
                                                                                                 FOR THE PERIOD
                                                                                               SEPTEMBER 30, 1994
                                             YEAR ENDED                  YEAR ENDED            (INCEPTION)THROUGH
                                          DECEMBER 31, 1996          DECEMBER 31, 1995          DECEMBER 31, 1994
                                          -----------------          -----------------          -----------------
<S>                                          <C>                         <C>                         <C>
Gross operating revenue:
   Rooms                                     $  58,501                   $  24,412                   $  3,404
   Food and beverage                               687                         626                        156
   Telephone                                     2,231                         743                        112
   Other                                         1,304                         526                        104
                                               -------                     -------                   --------
      Gross operating revenue                   62,723                      26,307                      3,776

Departmental expenses:
   Rooms                                        12,404                       5,132                        752
   Food and beverage                               583                         596                        120
   Telephone                                       850                         381                         59
   Other                                           470                         166                         32
                                               -------                     -------                    -------
      Total departmental profit                 48,416                      20,032                      2,813
                                               -------                     -------                   --------

Unallocated operating expenses:
   General and administrative                    3,943                       1,598                        251
   Franchise and marketing fees                  4,492                       1,941                        269
   Advertising and promotions                    2,305                         894                        138
   Utilities                                     3,235                       1,505                        181
   Repairs and maintenance                       3,073                       1,195                        187
   Management fees                                 540                          49
                                               -------                     -------                   --------
      Total unallocated operating expenses      17,588                       7,182                      1,026
                                               -------                     -------                   --------

      Gross profit                              30,828                      12,850                      1,787

   Insurance                                     (379)                       (239)                       (52)
   Lessee overhead                             (2,273)                       (952)                      (132)
   Percentage lease expense                   (27,466)                    (11,268)                    (1,480)
                                              --------                    --------                   --------

      Net income                             $    710                    $    391                   $    123
                                              ========                    ========                   ========
</TABLE>


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





                                       36
<PAGE>   39

JF HOTEL
COMBINED STATEMENTS OF SHAREHOLDERS' EQUITY
for the years ended December 31, 1996 and 1995
  and the period September 30, 1994 (inception)
  through December 31, 1994
(in thousands, except share and per share data)




<TABLE>
<CAPTION>
                                                    Common Shares
                                                 ------------------  Unrealized
                                                                       Gain on    Retained         Total
                                                                     Marketable   Earnings     Shareholders'
                                                 Shares   Par Value  Securities  (Deficit)         Equity
                                                 ------   ---------  ---------- -----------     ------------
<S>                                              <C>      <C>        <C>         <C>            <C>
Balance at September 30, 1994                     1,000   $       1                             $          1

   Net income                                                                     $     123              123

   Dividends paid                                                                      (75)             (75)
                                                 ------   ---------  ----------   ---------     ------------

Balance at December 31, 1994                      1,000           1                      48               49
                                                 ------   ---------  ----------   ---------     ------------

   JF Hotel II, Inc. issuance of common shares    1,000           1                                        1

   Net income                                                                           391              391

   Dividends paid                                                                      (439)            (439)
                                                 ------   ---------  ----------  ----------        ---------

Balance at December 31, 1995                      2,000           2                                        2

   JF Hotel II, Inc. issuance of common shares    1,000           1                                        1

   Net income                                                                           710              710

   Change in unrealized gain on marketable
      securities                                                     $      358                          358

   Dividends paid                                                                     (771)            (771)
                                                 ------   ---------  ----------  ----------       ----------

Balance at December 31, 1996                      3,000   $       3  $      358  $     (61)       $      300
                                                 ======   =========  ==========  ==========       ==========
</TABLE>





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





                                       37
<PAGE>   40

JF HOTEL
COMBINED STATEMENTS OF CASH FLOWS
(in thousands)




<TABLE>
<CAPTION>
                                                                                           FOR THE PERIOD
                                                                                         SEPTEMBER 30, 1994
                                                  YEAR ENDED           YEAR ENDED        (INCEPTION) THROUGH
                                               DECEMBER 31, 1996    DECEMBER 31, 1995     DECEMBER 31, 1994
                                               -----------------    -----------------     -----------------
<S>                                              <C>                   <C>                  <C>
Cash flows from operating activities:
  Net income                                     $             710     $            391     $           123
  Adjustments to reconcile net income to
     net cash provided by operating activities:
     Depreciation                                               28
     Changes in operating assets and liabilities:
       Accounts receivable                                    (853)              (1,306)               (234)
       Inventory                                               (40)                 (11)                (16)
       Prepaid expenses                                        (14)                 (55)               (164)
       Other assets                                            (45)                 (91)                (63)
       Accounts payable                                        127                1,443                 580
       Accrued expenses                                        483                  758                 304
       Payable to Manager                                    1,634
       Other liabilities                                       785
       Due to Partnership                                    1,493                1,955                  93
                                                   ---------------      ---------------      --------------

     Net cash provided by operating activities               4,308                3,084                 623
                                                   ---------------      ---------------      --------------

Cash flows from investing activities:
  Advances to affiliates                                      (298)
  Purchase of equipment                                        (81)
  Purchase of marketable securities                           (548)                (255)
                                                   ---------------      ---------------      --------------

     Net cash used in investing activities                    (927)                (255)
                                                   ---------------      ---------------      --------------

Cash flows from financing activities:
  Dividends paid                                              (771)                (439)                (75)
  Advances (payments) to shareholders                           40                  (40)
  Issuance of common shares                                      1                    1
                                                   ---------------      ---------------      --------------

     Net cash used in financing activities                    (730)                (478)                (75)
                                                   ---------------      ---------------      --------------

  Net increase in cash and cash equivalents                  2,651                2,351                 548

  Cash and cash equivalents at beginning of period           2,900                  549                   1
                                                   ---------------      ---------------      --------------

  Cash and cash equivalents at end of period       $         5,551      $         2,900      $          549
                                                   ===============      ===============      ==============
</TABLE>




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





                                       38
<PAGE>   41

JF HOTEL
NOTES TO COMBINED FINANCIAL STATEMENTS

1.       SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

ORGANIZATION

JF Hotel, Inc., JF Hotel II, Inc. and JF Hotel III, Inc. (collectively "JF
Hotel" or the "Lessee") are under common control and were formed primarily to
lease and operate hotels owned by Innkeepers USA Trust (the "Company") through
Innkeepers USA Limited Partnership and its subsidiaries (collectively the
"Partnership").   As of December 31, 1996, approximately 81.9% of the
Partnership was owned by the Company.  The principal shareholder of the Lessee
is also the President and Chairman of the Company.  The Lessee commenced the
leasing and operation of seven hotels (the "Initial Hotels") on September 30,
1994 and at December 31, 1996 leases 32 hotels (the "Hotels") from the
Partnership.

The Lessee operates 21 of the Hotels, Residence Inn by Marriott, Inc. ("RIBM",
a wholly-owned subsidiary of Marriott International, Inc.) operates nine of the
Hotels, and an unaffiliated party ("TMH") operates two of the Hotels.  The
financial statements of  the nine hotels operated by RIBM are maintained on a
52/53 week period basis.  The 1996 fiscal year ended on January 3, 1997.

CASH AND CASH EQUIVALENTS

All highly liquid 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.

The carrying amount of cash and cash equivalents approximates fair value.

MARKETABLE SECURITIES

Marketable securities, which primarily consist of 83,050 and 28,000 shares of
the Company's common stock at December 31, 1996 and 1995, respectively, are
classified as available for sale and are carried at market value.  The
appreciation in value of the marketable securities, since purchase, is recorded
in shareholders' equity until realized.

INVENTORY

Inventory, consisting of food and beverage, is stated at the lower of cost
(generally, first-in, first-out) or market.  Linens and uniforms are expensed
as incurred.

PREPAID EXPENSES

Prepaid expenses consist primarily of prepaid insurance.

REVENUE RECOGNITION

Revenue is recognized as earned.  Credit evaluations are performed and an
allowance for doubtful accounts is provided against accounts receivable which
are estimated to be uncollectible.

FRANCHISE FEES

Each Hotel is operated under a franchise license which is held by the Lessee.
The cost of obtaining the franchise licenses is paid by the Partnership and the
continuing franchise fees (generally a percentage of room revenue) are paid by
the Lessee.


                                       39

<PAGE>   42

ADVERTISING COSTS

Advertising costs are expenses as incurred.  Included in franchise and
marketing fees are fees (generally a percentage of room revenue) payable to
marketing funds of the franchisors which were $1,728,000, $868,000 and $125,000
for the years ended December 31, 1996 and 1995 and the period ended December
31, 1994, respectively.

PERCENTAGE LEASE EXPENSE

Each Hotel is leased by the Partnership to the Lessee under a percentage lease
agreement ("Percentage Lease").  The Percentage Lease for each Hotel provides
for the payment to the Partnership of monthly percentage rent based on fixed
percentages of gross room revenue in excess of certain specified levels.  The
Percentage Lease for each Hotel provides for minimum base rents in the event
that percentage rents do not exceed base rents.

Percentage lease expense is recognized as due to the Partnership under the
Percentage Leases from lease inception.

INCOME TAXES

The Lessee has elected S corporation status under the Internal Revenue Code.
Accordingly, the shareholders of the Lessee are taxed on an individual basis on
their proportionate share of the Lessee's taxable income.  Consequently, no
provision for income taxes has been reflected in the financial statements.

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.

2.       DUE FROM AFFILIATES

At December 31, 1996, Due From Affiliates consists of unreimbursed capital
expenditures and principal payments due from the Partnership and amounts owed
to partnerships controlled by the shareholders of the Lessee.

At December 31, 1995, Due From Affiliates consists of notes receivable from the
two principal shareholders which were repaid in 1996.

3.       SHARE APPRECIATION RIGHTS

In 1994, the Lessee granted to certain officers an aggregate of 70,000 share
appreciation rights ("SAR") based on the performance of the Company's Common
Shares.  The SAR's vest over a four year period, have been granted at an
exercise price of $10.00 and have a maximum term of ten years.  No SAR's have
been exercised as of December 31, 1996.  At December 31, 1996, the Lessee has
recognized $234,000 in compensation cost related to the SAR which is included
in Lessee Overhead in the accompanying combined statements of income.

4.       COMMITMENTS AND RELATED PARTY TRANSACTIONS

The Lessee has future lease commitments for office space through 1998.  Minimum
future rental payments under those noncancelable operating leases are as
follows:

<TABLE>
<CAPTION>
         YEAR                                                    AMOUNT
         <S>                                                   <C>
         1997                                                  $131,000
         1998                                                   135,000
                                                               --------

                                                               $266,000
                                                               ========
</TABLE>





                                       40
<PAGE>   43


4.  COMMITMENTS AND RELATED PARTY TRANSACTIONS, CONTINUED

Rent expense, excluding Percentage Lease expense, was $219,000, $40,700 and
$7,100 for the years ended December 31, 1996 and 1995 and the period ended
December 31, 1994, respectively.

The Lessee has future minimum base lease commitments under the Percentage Lease
agreements to the Partnership through 2006.  Minimum future base lease payments
under the Percentage Lease agreements are as follows (in thousands):


<TABLE>
<CAPTION>
         YEAR                                                        AMOUNT
         <S>                                                      <C>
         1996                                                     $  21,925
         1997                                                        21,925
         1998                                                        21,925
         1999                                                        21,925
         2000                                                        21,925
         Thereafter                                                  92,000
</TABLE>

Inception dates for the Percentage Leases are as follows:  September 30, 1994
(7), January 1995, March 1995, May 1995, October 1995 (8), February 1996, May
1996, August 1996, October 1996 (2), November 1996 (7), and November 1996.

The Lessee paid base rents of $10,212,000 and $4,793,000, and percentage rent,
in excess of base rents of $17,254,000 and $6,475,000 for the years ended
December 31, 1996 and 1995, respectively.

RIBM operates nine of the Hotels under a management agreement with the Lessee
(the "RIBM Management Agreement").  The RIBM Management Agreement has an initial
term of 13 years and provides for a base fee of 2% of gross revenues at the
managed hotels and an incentive fee which is 50% of available cash flow, as
defined. For seven of the Hotels only, the RIBM Management Agreement provides
for an incentive fee of 65% of available cash flow up to 3.5% of gross revenue
and 50% of available cash flow thereafter. The agreement also contains penalties
for early termination.

The right to operate the nine hotels as Residence Inns is contained in the RIBM
Management Agreement.

TMH operates two of the Hotels under management agreements with the Lessee (the
"TMH Management Agreements").  The TMH Management Agreements have terms of 5
years and provide for a base fee of 2% of gross revenues and an incentive fee
based on the performance of the hotels managed.

The Company has reimbursed the Lessee $100,000, $40,000, and $10,000 for the
use of office facilities for the years ended December 31, 1996 and 1995 and the
period ended December 31, 1994, respectively.

5. EMPLOYEE BENEFIT PLAN

In July 1996, the Lessee began sponsoring a defined contribution employee
benefit plan (the "Plan").  Substantially all employees who are age 21 or older
and have at least one year of service, as defined, are eligible to participate
in the Plan.  Employees  may contribute up to 15% of their compensation to the
Plan, subject to certain annual limitations.  The Lessee currently does not
contribute to the Plan.  The Lessee absorbs certain administrative expenses of
the Plan.

6. SUBSEQUENT EVENTS

In January and February 1997, the Partnership acquired and leased to the Lessee
three hotels.





                                       41
<PAGE>   44


7. PRO FORMA FINANCIAL INFORMATION (UNAUDITED)

The unaudited pro forma combined statement of operations and financial
information of the Lessee is presented as if the acquisition of the Hotels had
occurred on January 1, 1995.  This unaudited pro forma statement of operations
and financial information is not necessarily indicative of the operating
results of the Lessee that would have occurred if the transactions had been
completed as of such dates, nor does it purport to represent the results of
operations for future periods.


<TABLE>
<CAPTION>
                                                                FOR THE YEARS ENDED DECEMBER 31,
                                                                      1996             1995
                                                               ---------------- ----------------
<S>                                                            <C>               <C>
Revenues:
  Rooms                                                         $        87,796  $        78,154
  Other                                                                   6,052            5,304
                                                                ---------------  ---------------
                                                                          93,84           83,458

Expenses:
  Property operating costs and expenses                                  20,633           18,494
  General and administrative                                              6,859            7,240
  Franchise and marketing fees                                            6,753            5,276
  Advertising and Promotions                                              3,092            3,152
  Utilities                                                               4,488            4,340
  Repairs and maintenance                                                 4,506            3,907
  Management fees                                                         1,968            1,242
  Insurance                                                                 564              786
  Lessee overhead                                                         2,273            1,252
  Percentage Lease payments(1)                                           43,950           38,300
                                                                ---------------    -------------

    Net Income (loss)                                          $         (1,238)  $         (531)
                                                               ================   ==============
</TABLE>

(1)  Includes base rent of $2,565,000, but not percentage rent, under the
Percentage Leases for three newly developed hotels, which had no substantive
operations for the periods presented, and one hotel closed for a portion of
1996 due to renovation.





                                       42
<PAGE>   45

REPORT OF INDEPENDENT ACCOUNTANTS


Our report on the consolidated financial statements of Innkeepers USA Trust is
included in Exhibit 13.1 of this Form 10-K.  In connection with our audits of
such financial statements, we have also audited the related financial statement
schedule on pages 44 and 45 of this Form 10-K.

In our opinion, the financial statement schedule referred to above, when
considered in relation to the basic financial statements taken as a whole,
present fairly, in all material respects, the information required to be
included therein.


                                        Coopers & Lybrand L.L.P.


West Palm Beach, Florida
March 14, 1997





                                       43
<PAGE>   46

                              INNKEEPERS USA TRUST
             SCHEDULE 3 - REAL ESTATE AND ACCUMULATED DEPRECIATION
                              AT DECEMBER 31, 1996
<TABLE>
<CAPTION>
                                                                   Cost Capitalized
                                                                     Subsequent to        Gross Amounts of Which
                                            Initial Cost              Acquisition       Carried at Close of Period
                                            ------------              -----------       --------------------------
                                                                           Buildings
                                                  Buildings and               and                     Buildings and
      Description        Encumbrances    Land      Improvement     Land   Improvement         Land     Improvement
      -----------        ------------    ----      -----------     ----   -----------         ----    ------------
<S>                           <C>      <C>           <C>           <C>        <C>          <C>          <C>
Residence Inn:

Fremont, CA                   3        $1,000,000   $ 4,675,247    $0        $  102,095    $1,000,000  $ 4,777,342
Mountain View                 3         3,700,000    12,283,463     0           104,469     3,700,000   12,387,932
  (Palo Alto), CA
San Jose, CA                  3         1,350,000     5,808,270     0            75,583     1,350,000    5,883,853
San Mateo, CA                           4,600,000    15,148,774     0                 0     4,600,000   15,148,774
Silicon Valley I, CA                    6,330,000    23,232,485     0                 0     6,330,000   23,232,485
Silicon Valley II, CA         4         5,450,000    25,292,711     0                 0     5,450,000   25,292,711
Denver (Downtown),                      1,210,000     7,989,641     0                 0     1,210,000    7,989,641
   CO
Denver (South), CO            3         1,105,000     7,714,756     0           308,774     1,105,000    8,023,530
Windsor, CT                   3         1,150,000     4,712,293     0           199,998     1,150,000    4,912,291
Atlanta (Downtown),                     1,550,000    15,063,629     0               325     1,550,000   15,063,954
   GA
Wichita East, KA                          525,000     3,429,683     0                 0       525,000    3,429,683
Portland, ME                              520,000     4,996,765     0                 0       520,000    4,996,765
East Lansing, MI              5           385,000     3,830,424     0                 0       385,000    3,830,424
Grand Rapids, MI              5           770,000     6,432,820     0                 0       770,000    6,432,820
Troy (Central), MI            3         1,290,000     4,891,360     0           245,682     1,290,000    5,137,042
Troy (Southeast), MI          3           760,000     7,245,716     0           174,357       760,000    7,420,073
Cherry Hill, NJ               1         1,000,000     7,998,153     0           131,600     1,000,000    8,129,753
Binghamton, NY                1           720,000     5,293,506     0            70,007       720,000    5,363,513
Harrisburg, PA                1           770,000     5,662,329     0            89,928       770,000    5,752,257
Richmond, VA                  3           600,000     5,154,740     0            44,615       600,000    5,199,355

Hampton Inn:

Naples, FL                    1           690,000     4,782,493     0           256,492       690,000    5,038,985
Tallahassee, FL               1           500,000     4,242,469     0             5,722       500,000    4,248,191
West Palm Beach, FL           2                 0     3,936,536     0           507,619             0    4,444,155
Norcross, GA                            1,200,000     7,804,463     0             1,186     1,200,000    7,805,649
Germantown, MD                1           920,000     4,811,562     0         1,877,276       920,000    6,688,838
Albany/Latham, NY             1           850,000     7,974,632     0           178,106       850,000    8,152,738
Islandia (Long Island),       1           920,000     4,854,980     0            67,302       920,000    4,922,282
  NY
Willow Grove                  1         1,110,000     8,375,236     0            35,926     1,110,000    8,411,162
   (Philadelphia), PA

Comfort Inn:

Woburn, MA                    1                 0     2,645,776     0           485,569             0    3,131,345
Allentown, PA                 1           715,000     6,045,158     0           123,615       715,000    6,168,773
</TABLE>



<TABLE>
<CAPTION>
                                                                                               Life Upon
                                                                                                 Which
                                                                                              Depreciation
                                      Accumulated        Net         Date of       Date of    In Statement
      Description         Total       Depreciation   Book Value    Construction  Acquisition  Is Computed
      -----------         -----       ------------   ----------    ------------  -----------  -----------
<S>                       <C>             <C>          <C>             <C>          <C>           <C>
Residence Inn:

Fremont, CA              $ 5,777,342      $ 153,433   $ 5,623,909      1985         1995          40
Mountain View             16,087,932        392,794    15,695,138      1985         1995          40
  (Palo Alto), CA
San Jose, CA               7,233,853        187,343     7,046,510      1986         1995          40
San Mateo, CA             19,748,774         62,825    19,685,949      1985         1996          40
Silicon Valley I, CA      29,562,485         96,872    29,465,613      1983         1996          40
Silicon Valley II, CA     30,742,711        103,453    30,639,258      1985         1996          40
Denver (Downtown),         9,199,641         33,037     9,166,604      1982         1996          40
   CO
Denver (South), CO         9,128,530        266,934     8,861,596      1981         1995          40
Windsor, CT                6,062,291        156,154     5,906,137      1986         1995          40
Atlanta (Downtown),       16,613,954         62,304    16,551,650      1996         1996          40
   GA
Wichita East, KA           3,954,683         14,003     3,940,680      1981         1996          40
Portland, ME               5,516,765         20,717     5,496,048      1996         1996          40
East Lansing, MI           4,215,424         15,673     4,199,751      1984         1996          40
Grand Rapids, MI           7,202,820         26,516     7,176,304      1984         1996          40
Troy (Central), MI         6,427,042        168,921     6,258,121      1986         1995          40
Troy (Southeast), MI       8,180,073        234,387     7,945,686      1985         1995          40
Cherry Hill, NJ            9,129,753        101,267     9,028,486      1989         1996          40
Binghamton, NY             6,083,513        299,553     5,783,960      1987         1994          40
Harrisburg, PA             6,522,257         71,680     6,450,577      1988         1996          40
Richmond, VA               5,799,355        162,795     5,636,560      1986         1995          40

Hampton Inn:

Naples, FL                 5,728,985        324,982     5,404,003      1990         1990          40
Tallahassee, FL            4,748,191        186,351     4,561,840      1993         1995          40
West Palm Beach, FL        4,444,155      1,072,761     3,371,394      1986         1986          40
Norcross, GA               9,005,649         32,177     8,973,472      1996         1996          40
Germantown, MD             7,608,838        506,851     7,101,987      1987         1995          40
Albany/Latham, NY          9,002,738        483,951     8,518,787      1990         1994          40
Islandia (Long Island),    5,842,282        423,826     5,418,456      1988         1992          40
  NY
Willow Grove               9,521,162        945,863     8,575,299      1991         1991          40
   (Philadelphia), PA

Comfort Inn:

Woburn, MA                 3,131,345         18,312     3,113,033      1981         1996          40
Allentown, PA              6,883,773        276,273     6,607,500      1989         1995          40
</TABLE>


                                       44
<PAGE>   47

<TABLE>
<CAPTION>
                                                                   Cost Capitalized
                                                                     Subsequent to        Gross Amounts of Which
                                            Initial Cost              Acquisition       Carried at Close of Period
                                         ----------------------   --------------------  --------------------------
                                                                            Buildings
                                                  Buildings and                and                   Buildings and
      Description        Encumbrances    Land      Improvement     Land    Improvement      Land      Improvement
      -----------        ------------    ----      -----------     ----    -----------      ----      -----------

<S>                          <C>      <C>          <C>             <C>     <C>            <C>         <C>
Holiday Inn Express:

Lexington, MA                 1       $   875,000  $  5,434,073     0        $  346,103   $   875,000 $  5,780,176

Sheraton Inn:

Fort Lauderdale, FL           1                 0     7,779,311     0           262,481             0    8,041,792

Corporate                                       0             0     0           172,386             0      172,386
                                      -----------  ------------    --       -----------   ----------- ------------

                                      $42,565,000  $245,543,454    $0        $5,867,216   $42,565,000 $251,410,670
                                      -----------  ------------    --       -----------   ----------- ------------
</TABLE>



<TABLE>
<CAPTION>

                                                                                                        Life Upon
                                                                                                          Which
                                                                                                       Depreciation
                                                Accumulated        Net         Date of       Date of   In Statement
      Description                   Total       Depreciation   Book Value    Construction  Acquisition Is Computed
      -----------                   -----       ------------   ----------    ------------  ----------- ------------

<S>                               <C>             <C>          <C>               <C>          <C>           <C>
Holiday Inn Express:

Lexington, MA                     $  6,655,176     $  103,805  $  6,551,371      1971         1996          40

Sheraton Inn:

Fort Lauderdale, FL                  8,041,792      1,569,450     6,472,342      1988         1988          40

Corporate                              172,386            375       172,011                                 40
                                  ------------    -----------  ------------

                                  $293,975,670     $8,575,638  $285,400,032
                                  ------------    -----------  ------------
</TABLE>


1.  Collateralized by a $70 million line of credit.
2.  Collateralized by Florida Mortgage Note.
3.  Collateralized by a $30 million Term Loan.
4.  Collateralized by California Mortgage Note.
5.  Collateralized by Michigan Mortgage Note.


                                       45
<PAGE>   48

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

         None.


                                    PART III

 ITEM 10.         DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

         Incorporated herein by reference from the Company's definitive pr
 statement to be filed with the Securities and Exchange Commission within 1
 says after the year covered by this Form 10-K with respect to its Annual
 meeting of Shareholders to be held on May 7, 1997.


 TEM 11.         EXECUTIVE COMPENSATION

         Incorporated herein by reference from the Company's definitive pr
 statement to be filed with the Securities and Exchange Commission within 1
 says after the year covered by this Form 10-K with respect to its Annual
 meeting of Shareholders to be held on May 7, 1997.


ITEM 12.         SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

         Incorporated herein by reference from the Company's definitive proxy
statement to be filed with the Securities and Exchange Commission within 120
says after the year covered by this Form 10-K with respect to its Annual
meeting of Shareholders to be held on May 7, 1997.


ITEM 13.         CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

         Incorporated herein by reference from the Company's definitive proxy
statement to be filed with the Securities and Exchange Commission within 120
says after the year covered by this Form 10-K with respect to its Annual
meeting of Shareholders to be held on May 7, 1997.


                                    PART IV

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

 a)      FINANCIAL STATEMENTS

         The following Financial Statements are included in this report on the
pages indicated.





                                       46
<PAGE>   49

                         INDEX TO FINANCIAL STATEMENTS


 JF HOTEL, INC., JF HOTEL II, INC. AND JF HOTEL III, INC.

<TABLE>
<S>                                                                                                                    <C>
    Report of Independent Accountants   . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  34

    Combined Balance Sheets at December 31, 1996 and
      December 31, 1995   . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  35

    Combined Statements of Income for the years ended
      December 31, 1996 and 1995 and the period September 30, 1994
      (inception) through December 31, 1994   . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  36

    Combined Statement of Shareholders' Equity for the years
      ended December 31, 1996 and 1995 and for the period September 30, 1994
      (inception) through December 31, 1994   . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  37

    Combined Statement of Cash Flows for the years ended
      December 31, 1996 and 1995 and for the period September 30, 1994
      (inception) through December 31, 1994   . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  38

    Notes to Combined Financial Statements  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  39

 FINANCIAL STATEMENT SCHEDULES
 ----------------------------

    Report of Independent Accountants   . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  43

    Schedule 3 - Real Estate and Accumulated Depreciation
      at December 31, 1996  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  44
 </TABLE>

 b)      REPORTS ON FORM 8-K

         On November 12, 1996, the Company filed a report with the Securities
 and Exchange Commission ("SEC") on Form 8- K, which was amended by Form 8-K-A
 filed under Item 5 of such form with the SEC on January 21, 1997, to report the
 acquisition, on October 25, 1996, of the Residence Inn - Atlanta (Downtown),
 Georgia and the Hampton Inn - Norcross, Georgia.

         On November 22, 1996, the Company filed a report on Form 8-K to report
 The acquisition, on November 7, 1996, of the seven DeBoer Hotels: Residence Inn
 San Mateo, California; Residence Inn - Silicon Valley I, California;
 Residence Inn - Silicon Valley II, California; Residence Inn - East Lansing,
 Michigan; Residence Inn - Grand Rapids, Michigan; Residence Inn - Wichita East,
 Kansas; and Residence Inn - Denver (Downtown), Colorado.  The following
 financial statements with respect to such Hotels were filed on Form 8-K-A on
 January 21, 1997 as an amendment to the November 22, 1996 Form 8-K:  (a) the
 combined balance sheet and statements of operations, partners' deficit and cash
 flows of the DeBoer Hotels as of December 31, 1994 and December 30, 1995 and
 for each of the three fiscal years in the period





                                       47
<PAGE>   50

 ended December 31, 1995; and (b) pro forma financial information (unaudited) as
 of September 30, 1996 and for the nine months ended September 30, 1996.

 c)      EXHIBITS

 <TABLE>
 <CAPTION>
 EXHIBIT
 NUMBER   DESCRIPTION OF EXHIBITS
 -----   -----------------------
 <S>             <C>
 3.1             Amended and Restated Declaration of Trust of the Registrant (previously filed as Exhibit 3.1 to the
                 Company's Registration Statement on Form S-11, Registration No. 33-81362 and incorporated herein by
                 reference)

 3.2             Bylaws of the Registrant (previously filed as Exhibit 3.2 to the Company's Registration Statement on
                 Form S-11, Registration No. 33-81362 and incorporated herein by reference)

 4.1             Form of Common Share Certificate (previously filed as Exhibit 4.1 to the Company's Registration
                 Statement on Form S-11, Registration No. 33-81362 and incorporated herein by reference)

10.1-A           Second Amended and Restated Agreement of Limited Partnership of Innkeepers USA Limited Partnership

10.11            Form of Percentage Lease (previously filed as Exhibit 10.11 to the Company's Registration Statement on
                 Form S-11, Registration No. 33-81362 and incorporated herein by reference)

10.12            Form of Right of First Refusal and Option to Purchase (previously filed as Exhibit 10.12 to the
                 Company's Registration Statement on Form S-11, Registration No. 33-81362 and incorporated herein by
                 reference)

10.14            Innkeepers USA Trust 1994 Share Incentive Plan (previously filed as Exhibit 10.14 to the Company's
                 registration statement on Form S-11, Registration No. 33-81362 and incorporated herein by reference)

10.15-A          Innkeepers USA Trust Non-Employee Trustees' Share Option Plan

10.16            Form of Employment Agreement (previously filed as Exhibit 10.16 to the Company's Registration Statement
                 on Form S-11, Registration No. 33-81362 and incorporated herein by reference)

10.17            Form of Exclusive Hotel Development Agreement and Covenant Not to Compete (previously filed as Exhibit
                 10.17 to the Company's Registration Statement on Form S-11, Registration No. 33-81362 and incorporated
                 herein by reference)

10.19            Agreement of Purchase and Sale dated July 24, 1995 between Liberty High Income Plus Limited Partnership
                 and Innkeepers USA Limited Partnership for seven of the Hotels (previously filed as Exhibit 10.2 to the
                 Company's
</TABLE>





                                       48
<PAGE>   51

 <TABLE>
<CAPTION>
EXHIBIT
NUMBER           DESCRIPTION OF EXHIBITS
 -----           -----------------------
<S>              <C>
                 registration statement on Form S-11, Registration No. 33-95622 and incorporated herein by reference).

10.20            Agreement of Purchase and Sale dated August 8, 1995 between TMH Windsor Limited Partnership and
                 Innkeepers USA Limited Partnership for the Residence Inn - Windsor Hotel (previously filed as
                 Exhibit 10.3 to the Company's registration statement on Form S-11, Registration No. 33-95622 and
                 incorporated herein by reference).

10.21            Percentage Lease Agreement between Innkeepers USA Limited Partnership and JF Hotel, Inc. for the
                 Hampton Inn - West Palm Beach, Florida (previously filed as Exhibit 10.4 to the Company's registration
                 statement on Form S-11, Registration No. 33-95622 and incorporated herein by reference).

10.22            Consolidated Percentage Lease Agreement between Innkeepers USA Limited Partnership and JF Hotel, Inc.
                 for certain hotels (previously filed as Exhibit 10.5 to the Company's registration statement on Form
                 S-11, Registration No. 33-95622 and incorporated herein by reference).

10.23            Assignment of the Liberty Purchase Agreement, dated October 6, 1995, between Innkeepers USA Limited
                 Partnership and Innkeepers Financing Partnership, L.P. (previously filed as Exhibit 10.2 to the
                 Company's Form 8-K filed on October 20 1995 and incorporated herein by reference).

10.24            Assignment of the Windsor Purchase Agreement, dated October 6, 1995, between Innkeepers USA Limited
                 Partnership and Innkeepers Financing Partnership II, L.P. (previously filed as Exhibit 10.4 to the
                 Company's Form 8-K filed on October 20, 1995 and incorporated herein by reference).

10.25            Loan Agreement, dated as of October 6, 1995, between the Partnership and Nomura Asset Capital
                 Corporation (previously filed as Exhibit 10.5 to the Company's Form 8-K filed on October 20, 1995 and
                 incorporated herein by reference).

10.26            Employment Agreement between David Bulger and the Company (previously filed as Exhibit 10.10 to the
                 Company's registration statement on Form S-11, Registration No. 33-95622 and incorporated herein by
                 reference).

10.27            Seven Contribution Agreements, each dated as of September 16, 1996, between various partnerships and
                 Innkeepers USA Limited Partnership for the seven DeBoer Hotels (previously filed as Exhibits 2.1 - 2.7
                 to the Company's Form 8-K filed on November 22, 1996 and incorporated herein by reference).

13.1             1996 Annual Report to Shareholders
</TABLE>





                                       49
<PAGE>   52

<TABLE>
<CAPTION>
EXHIBIT
NUMBER           DESCRIPTION OF EXHIBITS
------           -----------------------
<S>              <C>
21.1             List of Subsidiaries of the Registrant.

23.1             Consent of Coopers & Lybrand L.L.P.
</TABLE>

(d)      FINANCIAL STATEMENT SCHEDULES


      Schedule 3 - Real Estate and Accumulated Depreciation at December 31, 1996





                                       50
<PAGE>   53

                                   SIGNATURES

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

<TABLE>
                                                   <S><C>
                                                   INNKEEPERS USA TRUST


                                                     /s/ Jeffrey H. Fisher
                                                   ------------------------------------------------------------
                                                   Chairman of the Board and President


                                                     /s/ David Bulger
                                                   ------------------------------------------------------------
                                                   Treasurer and Secretary
                                                   (Principal Financial Officer)
</TABLE>

         Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and is the capacities and on the dates indicated.
<TABLE>
<CAPTION>
               SIGNATURE                                TITLE                              DATE
               ---------                                -----                              ----
  <S>                                     <C>                                         <C>
  /s/ Jeffrey H. Fisher                   Chairman of the Board and                   March 28, 1997
 -------------------------------------
          Jeffrey  H. Fisher              President (Principal Executive
                                          Officer)

  /s/ Miles Berger                        Trustee                                     March 28, 1997
 -------------------------------------
             Miles Berger


                                          Trustee                                     March __, 1997
 -------------------------------------
          C. Gerald Goldsmith


  /s/ Bruce Zenkel                        Trustee                                     March 28, 1997
 -------------------------------------
             Bruce Zenkel

  /s/ Jack P. DeBoer                      Trustee                                     March 28, 1997
 -------------------------------------
            Jack P. DeBoer


                                          Trustee                                     March __, 1997
 -------------------------------------
            Thomas Crocker

  /s/ David Bulger                        Treasurer and Secretary                     March 28, 1997
 -------------------------------------
             David Bulger                 (Principal Financial Officer)
</TABLE>





                                       51
<PAGE>   54

                                LIST OF EXHIBITS

<TABLE>
<CAPTION>
Exhibit
Number           Description of Exhibits
------           -----------------------
<S>              <C>
 3.1             Amended and Restated Declaration of Trust of the Registrant (previously filed as Exhibit 3.1 to the
                 Company's Registration Statement on Form S-11, Registration No. 33-81362 and incorporated herein by
                 reference)

 3.2             Bylaws of the Registrant (previously filed as Exhibit 3.2 to the Company's Registration Statement on
                 Form S-11, Registration No. 33-81362 and incorporated herein by reference)

 4.1             Form of Common Share Certificate (previously filed as Exhibit 4.1 to the Company's Registration
                 Statement on Form S-11, Registration No. 33-81362 and incorporated herein by reference)

10.1-A           Second Amended and Restated Agreement of Limited Partnership of Innkeepers USA Limited Partnership

10.11            Form of Percentage Lease (previously filed as Exhibit 10.11 to the Company's Registration Statement on
                 Form S-11, Registration No. 33-81362 and incorporated herein by reference)

10.12            Form of Right of First Refusal and Option to Purchase (previously filed as Exhibit 10.12 to the
                 Company's Registration Statement on Form S-11, Registration No. 33-81362 and incorporated herein by
                 reference)

10.14            Innkeepers USA Trust 1994 Share Incentive Plan (previously filed as Exhibit 10.14 to the Company's
                 registration statement on Form S-11, Registration No. 33-81362 and incorporated herein by reference)

10.15-A          Innkeepers USA Trust Non-Employee Trustees' Share Option Plan

10.16            Form of Employment Agreement (previously filed as Exhibit 10.16 to the Company's Registration Statement
                 on Form S-11, Registration No. 33-81362 and incorporated herein by reference)

10.17            Form of Exclusive Hotel Development Agreement and Covenant Not to Compete (previously filed as Exhibit
                 10.17 to the Company's Registration Statement on Form S-11, Registration No. 33-81362 and incorporated
                 herein by reference)

</TABLE>
<PAGE>   55

<TABLE>
<CAPTION>
Exhibit
Number           Description of Exhibits
------           -----------------------
 <S>              <C>
 10.19            Agreement of Purchase and Sale dated July 24, 1995 between Liberty High Income Plus Limited Partnership
                 and Innkeepers USA Limited Partnership for seven of the Hotels (previously filed as Exhibit 10.2 to the
                 Company's registration statement on Form S-11, Registration No. 33-95622 and incorporated herein by
                 reference).

10.20            Agreement of Purchase and Sale dated August 8, 1995 between TMH Windsor Limited Partnership and
                 Innkeepers USA Limited Partnership for the Residence Inn - Windsor Hotel (previously filed as
                 Exhibit 10.3 to the Company's registration statement on Form S-11, Registration No. 33-95622 and
                 incorporated herein by reference).

10.21            Percentage Lease Agreement between Innkeepers USA Limited Partnership and JF Hotel, Inc. for the
                 Hampton Inn - West Palm Beach, Florida (previously filed as Exhibit 10.4 to the Company's registration
                 statement on Form S-11, Registration No. 33-95622 and incorporated herein by reference).

10.22            Consolidated Percentage Lease Agreement between Innkeepers USA Limited Partnership and JF Hotel, Inc.
                 for certain hotels (previously filed as Exhibit 10.5 to the Company's registration statement on Form
                 S-11, Registration No. 33-95622 and incorporated herein by reference).

10.23            Assignment of the Liberty Purchase Agreement, dated October 6, 1995, between Innkeepers USA Limited
                 Partnership and Innkeepers Financing Partnership, L.P. (previously filed as Exhibit 10.2 to the
                 Company's Form 8-K filed on October 20 1995 and incorporated herein by reference).

10.24            Assignment of the Windsor Purchase Agreement, dated October 6, 1995, between Innkeepers USA Limited
                 Partnership and Innkeepers Financing Partnership II, L.P. (previously filed as Exhibit 10.4 to the
                 Company's Form 8-K filed on October 20, 1995 and incorporated herein by reference).

10.25            Loan Agreement, dated as of October 6, 1995, between the Partnership and Nomura Asset Capital
                 Corporation (previously filed as Exhibit 10.5 to the Company's Form 8-K filed on October 20, 1995 and
                 incorporated herein by reference).

10.26            Employment Agreement between David Bulger and the Company (previously filed as Exhibit 10.10 to the
                 Company's registration statement on Form S-11, Registration No. 33-95622 and incorporated herein by
                 reference).

10.27            Seven Contribution Agreements, each dated as of September 16, 1996, between various partnerships and
                 Innkeepers USA Limited Partnership for the seven

</TABLE>
<PAGE>   56

<TABLE>
<CAPTION>
Exhibit
Number           Description of Exhibits
------           -----------------------
<S>              <C>
                 DeBoer Hotels (previously filed as Exhibits 2.1 - 2.7 to the Company's Form 8-K filed on November 22,
                 1996 and incorporated herein by reference).

13.1             1996 Annual Report to Shareholders

21.1             List of Subsidiaries of the Registrant.

23.1             Consent of Coopers & Lybrand L.L.P.

</TABLE>