WINSTON HOTELS, INC.

    Winston Hotels, Inc. ("WHI ")operates so as to qualify as a real estate investment trust ("REIT ")for federal income tax purposes. During 1994,WHI completed an initial public offering of $0.01 par value common stock ("Common Stock "), utilizing the majority of the proceeds to acquire one hotel and a general partnership interest (as the sole general partner) in WINN Limited Partnership (the "Partnership ").The Partnership used a substantial portion of the proceeds to acquire an additional nine hotel properties. These 10 hotels were acquired from affiliates of WHI. WHI and the Partnership (collectively the "Company ")began operations as a REIT on June 2,1994.As of December 31,2000,WHI ’s ownership in the Partnership was 92.86% (see Note 6).

    During 1995 and 1996,WHI completed follow-on Common Stock offerings, as well as a Preferred Stock offering in September 1997,and invested the net proceeds from these offerings in the Partnership. The Partnership utilized the proceeds to acquire 28 additional hotel properties. During 1998,the Company added 13 additional hotels to its portfolio, five of which were internally developed. During 2000,the Company sold two hotels. As of December 31,2000,the Company owned 49 hotel properties (the "Current Hotels "), in 12 states, having an aggregate of 6,723 rooms.

    The Company also owns a 49% ownership interest in three joint ventures, two of which each own an operating hotel and a third which owns a hotel under development and expected to open in July 2001, collectively (the "Joint Venture Hotels"). The Joint Venture Hotels consist of a Hilton Garden Inn located in Windsor, CT, a Hampton Inn located in Ponte Vedra, FL and a Hilton Garden Inn, currently under construction, located in Evanston, IL. Additionally, the Company has provided mezzanine financing to two unrelated parties for two other hotels in which the Company will have no ownership interest.

   As of December 31, 2000, the Company leased 47 of the 49 Current Hotels to CapStar Winston Company, L.L.C. ("CapStar Winston"), a wholly owned subsidiary of MeriStar Hotels and Resorts, Inc. ("MeriStar"), one of the Current Hotels to Bristol Hotel Tenant Company, a wholly owned subsidiary of Bass PLC of London ("Bass") and one of the Current Hotels to Secaucus Holding Corporation, a wholly owned subsidiary of Prime Hospitality Corp. ("Prime "). CapStar Winston also currently leases one Joint Venture Hotel located in Ponte Vedra, FL and has signed a lease agreement to lease the Joint Venture Hotel located in Evanston, IL, to be opened in July 2001. Bass also currently leases the Joint Venture Hotel located in Windsor, CT. All 49 of the Current Hotels were leased pursuant to separate percentage operating lease agreements that provide for rent payments based, in part, on revenues from the Current Hotels (the "Percentage Leases").