EXHIBIT 99.12

INDEPENDENT AUDITORS' REPORT

The Partners
EquiStar Hotel Investors, L.P.:

We have audited the accompanying statements of operations and cash flows of
the Arlington Hilton (the "Hotel") for the period from January 1, 1996 to April
17, 1996 (date of acquisition by EquiStar Hotel Investors, L.P.) and the years
ended December 31, 1995, 1994 and 1993. These financial statements are the
responsibility of the Hotel's management. Our responsibility is to express an
opinion on these financial statements based on our audits.

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

In our opinion, the financial statements referred to above present fairly,
in all material respects, the results of the Arlington Hilton's operations and
its cash flows for the period from January 1, 1996 to April 17, 1996 and the
years ended December 31, 1995, 1994 and 1993, in conformity with generally
accepted accounting principles.

KPMG Peat Marwick LLP

Washington, D.C.
July 18, 1996

ARLINGTON HILTON
STATEMENTS OF OPERATIONS
FOR THE PERIOD FROM JANUARY 1, 1996 TO APRIL 17, 1996
(DATE OF ACQUISITION BY EQUISTAR HOTEL INVESTORS, L.P.) AND
THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993

1996 1995 1994 1993
------------ ---------- ---------- ----------

Revenue:
Rooms...................................................... $ 1,907,168 6,309,256 5,875,281 5,453,149
Food and beverage.......................................... 824,816 2,846,102 2,755,550 2,708,330
Other operating departments................................ 195,137 639,420 505,739 553,640
------------ ---------- ---------- ----------
2,927,121 9,794,778 9,136,570 8,715,119
------------ ---------- ---------- ----------
Operating costs and expenses:
Rooms...................................................... 420,844 1,526,054 1,361,027 1,342,080
Food and beverage.......................................... 654,451 2,225,510 2,072,864 2,137,821
Other operating departments................................ 115,854 351,577 301,793 276,276
Undistributed operating expenses:
Administrative and general................................. 250,896 1,044,680 1,347,488 1,252,493
Sales and marketing........................................ 195,671 646,496 510,261 501,991
Management fees............................................ 87,814 313,579 90,998 86,165
Property operating costs................................... 296,643 1,004,445 871,365 1,006,770
Property taxes, insurance and other........................ 160,884 645,504 479,755 475,144
Depreciation and amortization.............................. 242,528 823,414 794,256 794,600
Interest expense........................................... -- 257,494 927,325 337,114
------------ ---------- ---------- ----------
2,425,585 8,838,753 8,757,132 8,210,454
------------ ---------- ---------- ----------
Net income................................................... $ 501,536 956,025 379,438 504,665
------------ ---------- ---------- ----------
------------ ---------- ---------- ----------

See accompanying notes to financial statements.

ARLINGTON HILTON
STATEMENTS OF CASH FLOWS
FOR THE PERIOD FROM JANUARY 1, 1996 TO APRIL 17, 1996
(DATE OF ACQUISITION BY EQUISTAR HOTEL INVESTORS, L.P.)
AND THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993

1996 1995 1994 1993
------------ ------------ ---------- -----------

Cash flows from operating activities:
Net income............................................... $ 501,536 956,025 379,438 504,665
Adjustments to reconcile net income to cash provided by
operating activities:
Depreciation and amortization........................ 242,528 823,414 794,256 794,600
Interest added to loan payable to General Partner.... -- -- 18,777 13,482
Decrease (increase) in accounts receivable........... (107,923) 41,059 (9,969) 47,634
Decrease (increase) in inventory and other assets.... (90,676) 110,942 (17,697) 6,803
Decrease (increase) in restricted funds.............. -- 215,868 477,431 (44,462)
Increase (decrease) in accounts payable and accrued
expenses........................................... 120,770 (1,027,915) 284,120 231,758
------------ ------------ ---------- -----------
Total adjustments........................................ 164,699 163,368 1,546,918 1,049,815
------------ ------------ ---------- -----------
Net cash provided by operating activities.................. 666,235 1,119,393 1,926,356 1,554,480
------------ ------------ ---------- -----------
Cash flows used by investing activities--purchase of
furniture and equipment.................................. (15,499) (660,359) (232,583) (178,368)
------------ ------------ ---------- -----------
Cash flows from financing activities:
Principal payments on capital lease obligations.......... (13,442) (41,262) (36,415) (27,314)
Repayments of note payable............................... -- -- (357,390) (1,532,401)
Capital distribution..................................... -- (1,232,055) -- --
------------ ------------ ---------- -----------
Net cash used by financing activities...................... (13,442) (1,273,317) (393,805) (1,559,715)
------------ ------------ ---------- -----------
Net increase (decrease) in cash and cash equivalents....... 637,294 (814,283) 1,299,968 (183,603)
Cash and cash equivalents at beginning of period........... 946,895 1,761,178 461,210 644,813
------------ ------------ ---------- -----------
Cash and cash equivalents at end of period................. $ 1,584,189 946,895 1,761,178 461,210
------------ ------------ ---------- -----------
------------ ------------ ---------- -----------
Supplemental disclosure of cash flow information:
Cash paid for interest................................... $ 2,570 13,612 18,459 337,114
Additions to property and equipment through capital
leases................................................. -- -- -- 101,765
Conversion of notes payable to equity.................... -- 19,338,404 -- --
------------ ------------ ---------- -----------
------------ ------------ ---------- -----------

See accompanying notes to financial statements.

ARLINGTON HILTON
Notes to Financial Statements
For the period from January 1, 1996 to April 17, 1996 (date of acquisition by
EquiStar Hotel Investors, L.P.) and the years ended December 31, 1995, 1994 and
1993

(1) ORGANIZATION

The Arlington Hilton (the "Hotel") is located near the Dallas/Fort Worth
Airport, adjacent to Six Flags over Texas theme park. The Hotel opened in 1984.
The Hotel has 310 rooms, one restaurant, one nightclub/bar, meeting facilities
for up to 400, a business center, an indoor/outdoor pool and a fitness center.

Until March 7, 1995, the Hotel was owned by Hotel Associates of Arlington
Limited Partnership ("Hotel Associates"). On March 7, 1995, the Hotel was
conveyed through bankruptcy to the holders of the note, Arlington Hotel
Investors, LTD ("Arlington Investors").

The Hotel was sold on April 17, 1996 to EquiStar for a purchase price of
$18,200,000.

(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

BASIS OF PRESENTATION

The accounts of the Hotel were included in the financial records of its
various owners until the Hotel was sold to EquiStar. The accompanying statements
of operations and cash flows include the accounts of the Hotel only, as if it
were a separate legal entity, and have been prepared using the accrual basis of
accounting.

BAD DEBT EXPENSE

Bad debt expense is accounted for using the allowance method. Management
reviews the aging of accounts receivables and other current information on
debtors to establish an allowance for doubtful accounts. Write-offs occur when
management deems a receivable uncollectible.

REVENUE

Revenue is earned primarily through the operations of the Hotel and
recognized when earned.

INCOME TAXES

The financial statements contain no provision for federal income taxes since
the Hotel was owned by a partnership and, therefore, all federal income tax
liabilities were passed through to the individual partners in accordance with
the partnership agreement and the Internal Revenue Code.

USE OF ESTIMATES

Management has made a number of estimates and assumptions to prepare these
financial statements in conformity with generally accepted accounting
principles. Actual results could differ from those estimates.

DEPRECIATION

Depreciation is computed on the cost of the hotel property and equipment
using the straight-line method over 25 years for building and building
improvements, and five years for furniture and equipment.

ARLINGTON HILTON
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)

(3) RELATED-PARTY TRANSACTIONS

Prior to March 7, 1995 (the date the lenders took possession of the Hotel),
the Hotel was managed by Capitol Hotel Group, Inc. ("CHG"), an affiliate of the
owners, for a 1% management fee based on gross revenues. For the period from
March 7, 1995 through April 17, 1996 (date of acquisition by EquiStar), the
Hotel was managed by DePalma Hotel Corporation, an affiliate of the lenders, for
a 3% management fee based on gross revenues.

Upon foreclosure on the property, the loan and all related accrued interest
payable to the general partner of Hotel Associates were converted to equity in
the statement of partners' capital.