As Filed with the Securities and Exchange Commission on March 31, 1998
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-K
-----------------------
(Mark One)

/x/ Annual report pursuant to section 13 or 15(d) of the Securities
Exchange Act of 1934 for the fiscal year ended DECEMBER 31, 1997.

/ / Transition report pursuant to section 13 or 15(d) of the Securities
Exchange Act of 1934 for the transition period from ________ to
________.

-----------------------

Commission File Number 000-22091

GOLF TRUST OF AMERICA, INC.
(Exact name of registrant as specified in its charter)

Maryland 33-0724736
(State or other jurisdiction (I.R.S. Employer Identification Number)
of incorporation or organization)

14 North Adger's Wharf, Charleston, South Carolina 29401; (843) 723-4653
(Address of principal executive offices) (Zip Code) (Telephone number)

- --------------------------------------------------------------------------------

Securities registered pursuant to Section 12(b) of the Act:

Common Stock, $0.01 par value American Stock Exchange
(Title of each class) (Name of each exchange on which registered)

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

- --------------------------------------------------------------------------------

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports) and (2) has been subject to such filing
requirements for the past 90 days. Yes /X/ No / /

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K 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. /X/

On March 15, 1998 there were 7,631,694 common shares outstanding of the
registrant's only class of common stock. Based on the March 25, 1998 closing
price of $31.625 per share, the aggregate market value of the voting stock held
by nonaffiliates of the registrant was $237,193,983.

DOCUMENTS INCORPORATED BY REFERENCE

Certain portions of the Registrant's definitive Proxy Statement, to be filed
with the Securities and Exchange Commission pursuant to Regulation 14A not later
than 120 days after the close of the Registrant's 1997 fiscal year, are
incorporated by reference in Part III of this Form 10-K; and certain exhibits to
the Company's prior reports on Forms 10-Q and 8-K, Registration Statements of
Employee Stock Purchase Plan and Employee Stock Option Plans on Forms S-8 (nos.
333-46659 and 333-46657), and Registration Statements on Form S-11 (nos.
333-15965 and 333-36847) are incorporated by reference in Part IV hereof.

TABLE OF CONTENTS

PART I . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1

Item 1. BUSINESS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
(a) General Development of Business . . . . . . . . . . . . . . . 1
Company Overview. . . . . . . . . . . . . . . . . . . . . 1
Developments in Early 1997. . . . . . . . . . . . . . . . 4
Initial Public Offering and the Formation
Transactions . . . . . . . . . . . . . . . . . . 4
Recent Developments . . . . . . . . . . . . . . . . . . . 5
Participating Mortgage . . . . . . . . . . . . . . 5
Acquisitions . . . . . . . . . . . . . . . . . . . 6
Line of Credit . . . . . . . . . . . . . . . . . . 7
Loans to Officers. . . . . . . . . . . . . . . . . 8
Follow-On Public Offering. . . . . . . . . . . . . 8
(b) Financial Information About Industry Segment. . . . . . . . . 8
(c) Narrative Description of Business . . . . . . . . . . . . . . 8
Business Objective and Strategy . . . . . . . . . . . . . 8
Investment Criteria. . . . . . . . . . . . . . . . 9
Acquisition Strategy . . . . . . . . . . . . . . . 10
Internal Growth. . . . . . . . . . . . . . . . . . 12
Employees . . . . . . . . . . . . . . . . . . . . . . . . 13
Environmental Matters . . . . . . . . . . . . . . . . . 13
Tax Status . . . . . . . . . . . . . . . . . . . . . . . 14
Government Regulation . . . . . . . . . . . . . . . . . . 14
Software Deficiencies Could Adversely Affect the Company. 15
Competition . . . . . . . . . . . . . . . . . . . . . . . 15
The Golf Industry . . . . . . . . . . . . . . . . . . . . 15
Competitive Conditions . . . . . . . . . . . . . . 15
Demographics . . . . . . . . . . . . . . . . . . . 17
Seasonality. . . . . . . . . . . . . . . . . . . . 17
(d) Foreign Operations . . . . . . . . . . . . . . . . . . . . . 18

Item 2. PROPERTIES. . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Resort Courses . . . . . . . . . . . . . . . . . . 22
High-End Daily Fee Courses . . . . . . . . . . . . 24
Private Club Courses . . . . . . . . . . . . . . . 25
The Participating Leases. . . . . . . . . . . . . . . . . 26
The Participating Mortgage. . . . . . . . . . . . . . . . 34

Item 3. LEGAL PROCEEDINGS . . . . . . . . . . . . . . . . . . . . . . . . 38

Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS . . . . . . . 38

PART II. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39

Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
Market Information. . . . . . . . . . . . . . . . . . . . 39
Shareholder Information . . . . . . . . . . . . . . . . . 39
Dividends . . . . . . . . . . . . . . . . . . . . . . . . 39

Recent Sales of Unregistered Securities . . . . . . . . . . . . . 40

Item 6. SELECTED FINANCIAL DATA. . . . . . . . . . . . . . . . . . . . . . 41

Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS . . . . . . . . . . . . . . . . . . . . . . 43

Overview. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
Results of Operations of the Company . . . . . . . . . . . . 45
Liquidity and Capital Resources of the Company . . . . . . . 45
Pro Forma Results of Operations of the Company . . . . . . . 46
Funds from Operations and Cash Available for Distribution. . 47

Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA . . . . . . . . . . . 48

Item 9. CHANGES IN THE COMPANY'S CERTIFYING PUBLIC ACCOUNTANT. . . . . . . 48

PART III . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49

Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT . . . . . . . 49

Item 11. EXECUTIVE COMPENSATION . . . . . . . . . . . . . . . . . . . . . 49

Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . 49

Item 13. CERTAIN RELATIONSHIPS AND TRANSACTIONS . . . . . . . . . . . . . 49

PART IV. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50

Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM
8-K. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
Financial Statements. . . . . . . . . . . . . . . . . . . . 50
Reports on Form 8-K . . . . . . . . . . . . . . . . . . . . 50
Exhibits. . . . . . . . . . . . . . . . . . . . . . . . . . 50

PART I

ITEM 1. BUSINESS

(a) GENERAL DEVELOPMENT OF BUSINESS

COMPANY OVERVIEW

Golf Trust of America, Inc. ("GTA") is a self-administered real estate
investment trust ("REIT") formed to capitalize upon consolidation
opportunities in the ownership of upscale golf courses throughout the United
States. GTA was incorporated in Maryland on November 8, 1996. GTA holds its
golf course interests through Golf Trust of America, L.P., a Delaware limited
partnership and in one instance, through a wholly-owned affiliate of Golf
Trust of America, L.P. (collectively, the "Operating Partnership"), controlled
by GTA. (In this Annual Report, the term "Company" generally includes GTA,
the Operating Partnership, and GTA's two wholly-owned subsidiaries.) As of
March 15, 1998, the Company holds participating interests in 28 golf courses
(the "Golf Courses"), 24 of which are owned and four of which serve as
collateral for a 30-year participating mortgage loan made by the Company to
the owner of the Westin Innisbrook Resort ("Participating Mortgage"). The
Golf Courses are located in Florida (9), South Carolina (6), Georgia (2),
Virginia (2), Alabama, California, Kansas, Kentucky, Michigan, Nebraska,
North Carolina, Ohio and Texas.

The Company's goal is to increase cash available for distribution per
share and to enhance stockholder value by becoming a leading owner of, and
participating in increased revenue from, nationally or regionally recognized
golf courses. The Company's principal business strategy is to acquire upscale
golf courses and thereafter lease the golf courses to qualified third party
operators, including affiliates of the sellers. The Company believes the
continuity of management provided by these experienced operators facilitates
the Company's growth and profitability.

In addition to the Company's ability to acquire golf courses for cash
and/or the assumption of indebtedness, the Company may acquire golf courses
through the issuance of units of limited partnership interest in the
Operating Partnership ("OP Units") which are redeemable for cash or, at the
Company's option, shares of the Company's common stock ("Common Stock") on a
one-for-one basis. When the Company acquires a golf course in exchange for
OP Units, the golf course seller generally may defer tax recognition of the
gain on the exchange until the seller redeems its OP Units.

The Company believes it holds a distinct competitive advantage in the
acquisition of upscale golf courses, including those which might not
otherwise be available for purchase, because of (i) its utilization of the
multiple independent lessee structure, (ii) management's substantial industry
knowledge, experience and relationships within the golf community, (iii) the
Company's strategic alliances with prominent golf course operators and (iv)
its ability to issue OP Units to golf course owners on a tax-deferred basis.

In February 1997, the Company raised net proceeds of approximately $73.0
million in its initial public offering of Common Stock (the"IPO") and
acquired ten Courses (the "Initial Courses") from their prior owners
(together with the prior owners of the Golf Courses acquired since the IPO,
the "Prior Owners"). Each of the Initial Courses was leased-back to an
affiliate of its Prior Owner. In November 1997, the Company raised net
proceeds of approximately $83.0 million in a follow-on public offering of
Common Stock. Since the IPO, the Company has acquired an interest in an
additional 18 Golf Courses.

The Golf Courses which the Company owns are leased to multiple
independent third party lessees (the "Lessees") pursuant to leases
("Participating Leases") which provide for payments ("Lease Payments") of
fixed base rent ("Base Rent") and participating rent ("Participating Rent")
based on growth in revenue at the Golf Courses. The interest payment under
the Participating Mortgage is structured similarly to the Participating
Leases to provide the Company with base interest payments and additional
interest payments based on growth in revenue at the Westin Innisbrook Resort.
Neither the Company nor its executive officers owns any interest in, or
participates in the management of, the Lessees or the owner of the Westin
Innisbrook Resort, Golf Host Resorts, Inc. (the "Westin Innisbrook Resort
Owner").

The Company believes the Initial Courses and its investments since the
IPO are consistent with its goal of becoming a leading owner of, and
participating in increased revenue from, nationally or regionally recognized
upscale golf courses. The Golf Courses include a number of nationally
recognized golf courses. Legends of Stonehouse and Royal New Kent, each of
which was named the "Best New Upscale Course" by GOLF DIGEST in 1996 and
1997, respectively, and Oyster Bay Golf Links, which was named Best New
Resort Course in the United States in 1983 by GOLF DIGEST. The Copperhead
Course at the Westin Innisbrook Resort was ranked 43rd and the Emerald Dunes
Golf Course ("Emerald Dunes") was ranked 63rd in the 1996 survey by GOLF
MAGAZINE of the "Top 100 Courses You Can Play." The Island Course at the
Westin Innisbrook Resort was ranked as one of the "Top 75 Resort Courses" by
GOLF DIGEST in 1992. Heritage Golf Club was ranked in the Top 50 Public Golf
Courses by GOLF DIGEST and Sandpiper Golf Course was included in the "Top 75
Upscale Golf Courses" in the United States by GOLF DIGEST. See "The Golf
Courses." The Company believes that the quality of the Golf Courses is
further reflected in the average green fees at the Golf Courses, which
significantly exceed national industry averages.

The Company's executive offices are located at 14 North Adger's Wharf,
Charleston, South Carolina 29401 and its telephone number is (843) 723-GOLF
(4653).

SUBSIDIARIES AND THE OPERATING PARTNERSHIP

GTA has two wholly-owned subsidiaries, GTA GP, Inc. ("GTA GP") and GTA
LP, Inc. ("GTA LP"), each of which is a Maryland corporation (collectively,
the "Subsidiaries"). The Subsidiaries exist solely to hold the Company's
general and limited partnership interests in the Operating Partnership. The
board of directors of each Subsidiary is comprised of the executive officers
of GTA. The Operating Partnership was formed in Delaware in November 1996.

The Operating Partnership owns the Golf Courses that are subject to the
Participating Leases and holds the Participating Mortgage. In addition, the
Operating Partnership owns approximately 95% of the economic interest in a
taxable subsidiary formed to hold title to a 14-acre development site
adjacent to the Sandpiper Golf Course, with the balance owned by Mr. Blair,
President and Mr. Young, a director of the Company. GTA currently holds a
60.0% interest in the Operating Partnership, through its Subsidiaries. GTA
GP is the sole general partner of the Operating Partnership and GTA LP is a
limited partner of the Operating Partnership. The other limited partners
include the Westin Innisbrook Resort Owner and those Prior Owners who
received OP Units in exchange for the contribution of their Golf Courses.
The limited partners do not have day-to-day control over the Operating
Partnership. However, the limited partners are entitled to vote on certain
matters, including the sale of all or substantially all the Company's assets
or the merger or consolidation of the Operating Partnership, which decisions
require the approval of the holders of at least 66.7% of the interests in the
Operating Partnership (including GTA LP). Each of the limited partners
(other than GTA LP) may exercise Redemption Rights (as herein defined) for up
to 50% of its OP Units beginning one year after transfer of their property to
the

Operating Partnership and the remaining 50% beginning two years after
completion of such transfer for cash or, at the election of the Company, for
shares of Common Stock on a one-for-one basis.

On February 1, 1998 the Partnership Agreement was amended in order to
(i) streamline the administrative process of creating additional classes or
series of OP Units; (ii) streamline the administrative process by which the
Operating Partnership commits to maintain indebtedness for the benefit of a
limited partner; (iii) clarify that the Subsidiaries receive a full
distribution on OP Units issued during the subject quarter (in order to
enable GTA to pay dividends on the corresponding shares of Common Stock);
(iv) clarify that the Redemption Right for newly-issued OP Units is not
exercisable until one year from the date of issuance; (v) create and
designate the terms and conditions of Class B Limited Partnership Interests;
(vi) commit the Partnership to maintaining certain indebtedness for the
benefit of the Prior Owner of Emerald Dunes; and (vii) provide a schedule of
the dates on which the limited partners' OP Units may first be redeemed.
Such amendment is filed as an exhibit to this Annual Report.

The current relationship among GTA, its subsidiaries, the Operating
Partnership (including its wholly-owned affiliate), the limited partners
(including many Prior Owners and the Westin Innisbrook Resort Owner) and the
Operators is described in the following chart:

DEVELOPMENTS IN EARLY 1997

INITIAL PUBLIC OFFERING AND THE FORMATION TRANSACTIONS

Upon completion of the IPO, the Company, the Operating Partnership, the
Prior Owners and the initial Lessees completed the transactions (the
"Formation Transactions") described below.

- On February 12, 1997 the Company, which was incorporated in Maryland in
November 1996, sold 3,910,000 shares of Common Stock in its initial
public offering and contributed all of the net proceeds thereof,
approximately $73.0 million, to the Operating Partnership in exchange
for an aggregate of 3,910,000 OP Units.

- The Prior Owners of the Initial Golf Courses contributed each of the
Initial Courses to the Company in exchange for an aggregate of 4,106,606
OP Units, approximately $6.2 million in cash and the repayment of
approximately $47.5 million of existing mortgages and other indebtedness
at the Golf Courses as follows:

- The Company acquired seven Golf Courses from Legends Golf for an
aggregate of 3,738,556 OP Units, the assumption and repayment of
approximately $34.8 million in existing indebtedness and the
reimbursement of approximately $522,500 of out-of-pocket expenses
incurred in connection with the Formation Transactions.

- The Company acquired three Golf Courses from parties unaffiliated
with the Company or Legends Golf for an aggregate amount of 368,050
OP Units, $6.2 million in cash and the repayment of approximately
$12.7 million in existing indebtedness.

- The Company, as lessor, leased the Initial Courses to the initial
Lessees, which were newly-formed entities affiliated with the Prior
Owners, pursuant to Participating Leases for initial terms of 10 years
each, with each Lessee having the right to extend the term of its
Participating Lease for up to six renewal terms of five years each.

- Each initial Prior Owner was granted the right to receive additional OP
Units pursuant to the Lessee Performance Option. See "Narrative
Description of Business -- Business Objective and Strategy -- Internal
Growth." OP Units may be redeemed for cash or, at the Company's
election, Common Stock on a one-for-one basis, beginning one year after
the completion of the IPO.

- The Company entered into employment agreements with its executive
officers.

- The Company entered into the Option Agreement with Legends Golf pursuant
to which the Company was granted the option and right of first refusal
to acquire golf courses currently owned or subsequently acquired or
developed by Legends Golf.

RECENT DEVELOPMENTS

Since March 31, 1997, the filing date of the Company's annual report on
Form 10-K for the year ended December 31, 1996, the following developments
have occurred:

PARTICIPATING MORTGAGE

WESTIN INNISBROOK RESORT. On June 20, 1997, the Company entered into
and made an initial advance of $69.975 million under the $78.975 million
Participating Mortgage to Golf Host Resorts, Inc. (the "Westin Innisbrook
Resort Owner"), an affiliate of Starwood Capital Group LLC ("Starwood"). The
loan is secured by a first lien on the Westin Innisbrook Resort, located near
Tampa, Florida, and all other assets of the Westin Innisbrook Resort Owner.
The Westin Innisbrook Resort is a destination golf resort with 63 holes (plus
an additional nine holes currently under construction). The four Golf Courses
at the Westin Innisbrook Resort are operated by Troon Management Company, LLC
("Troon Golf"), an affiliate of Starwood. The Westin Innisbrook Resort also
features one of the largest hotel and conference facilities in Florida, which
facilities are operated by an affiliate of Westin Hotel Company ("Westin"),
an affiliate of Starwood, pursuant to a long-term management agreement.
Westin has agreed to pay up to $2.5 million per year to the Westin Innisbrook
Resort Owner to supplement results of operations with respect to the
operations at the Westin Innisbrook Resort for up to five years (the "Westin
Guaranty"). The

Westin Innisbrook Resort Owner used a portion of the proceeds of the
Participating Mortgage to acquire from the Company 274,039 newly issued OP
Units and 159,326 newly issued shares of Common Stock, representing a current
combined ownership interest in GTA and the Operating Partnership of 3.41%.

ACQUISITIONS

TIBURON GOLF CLUB. On August 18, 1997, the Company acquired the 27-hole
Tiburon Golf Club ("Tiburon"), an upscale semi-private golf course in Omaha,
Nebraska, for an aggregate price of $6.0 million, including the issuance of
21,429 shares of Common Stock (valued at approximately $600,000 on such
date). Tiburon is leased to Granite Golf Group, Inc. (together with its
affiliates, "Granite Golf") under a Participating Lease. Granite Golf
currently manages over 25 golf courses throughout the United States.

RAINTREE COUNTRY CLUB. On September 2, 1997, the Company acquired the
Raintree Country Club ("Raintree"), an 18-hole upscale daily fee golf course
located near Akron, Ohio, for an aggregate price of $4.6 million, including
the issuance of 121,529 OP Units (valued at approximately $3.4 million based
on the price of the Common Stock on such date). Raintree is leased to its
Prior Owner, who has continuously managed the course since its construction
in 1991, under a Participating Lease.

EAGLE WATCH GOLF CLUB. On September 30, 1997, the Company acquired
Eagle Watch Golf Club ("Eagle Watch"), an 18-hole upscale daily fee golf
course located in Atlanta, Georgia, for an aggregate price of $6.4 million,
including the issuance of 70,158 OP Units (valued at approximately $1.9
million based on the price of the Common Stock on such date). The Prior
Owner of Eagle Watch is an affiliate of the Prior Owner of Olde Atlanta Golf
Club, a course that was acquired by the Company at the IPO. Eagle Watch is
leased to an affiliate of the Lessee of Olde Atlanta Golf Club under a
Participating Lease.

LOST OAKS OF INNISBROOK GOLF COURSE. On October 3, 1997, the Company
acquired the Lost Oaks of Innisbrook Golf Course ("Lost Oaks of Innisbrook"),
in Tampa, Florida located near the Westin Innisbrook Resort, for
approximately $5.9 million, including closing costs. Lost Oaks of Innisbrook
is leased to an affiliate of Starwood under a Participating Lease. The
Company has agreed to fund certain improvements at Lost Oaks of Innisbrook in
an amount not to exceed $1.25 million in exchange for an increased Lease
Payment.

THE CLUB OF THE COUNTRY. On October 17, 1997, the Company acquired The
Club of the Country, a private country club located in Louisburg, Kansas, for
an aggregate price of approximately $3.1 million, including the issuance of
approximately 19,231 OP Units (valued at approximately $500,000 based on the
price of the Common Stock on such date). The Club of the Country is leased
to an affiliate of its Prior Owner and managed by Granite Golf.

BLACK BEAR GOLF CLUB. On November 24, 1997, the Company acquired Black
Bear Golf Club ("Black Bear"), an 18-hole upscale golf course located near
Orlando, Florida, for an aggregate price of $4.75 million, including the
issuance of 24,424 OP Units (valued at approximately $650,000 based on the
price of the Common Stock on such date). The Company leases the golf course
to Granite Golf under a Participating Lease.

WILDEWOOD GOLF CLUB AND COUNTRY CLUB AT WOODCREEK FARMS. On December
19, 1997, the Company acquired Wildewood Golf Club ("Wildewood") and the
Country Club at Woodcreek Farms ("Woodcreek" and collectively, "Stonehenge
Golf") from Lyndell L. Young, Larry D. Young's brother, two 18-hole upscale
private golf facilities located near Columbia, South Carolina, for an
aggregate price

of $10.5 million, including the issuance of 69,811 OP Units (valued at
approximately $4.5 million based on the price of the Common Stock on such
date). Each course is leased to the Prior Owner under a Participating Lease.

BONAVENTURE GOLF COURSE. On January 2, 1998, Company acquired the
Bonaventure Golf Course ("Bonaventure"), an upscale 36-hole resort golf
facility located near Fort Lauderdale, Florida for approximately $23.7
million, including closing costs. The course is leased to an affiliate of
the Prior Owner of Emerald Dunes under a Participating Lease.

MYSTIC CREEK GOLF COURSE. On January 19, 1998, the Company acquired
Mystic Creek Golf Course ("Mystic Creek"), an upscale 27-hole daily fee golf
facility located near Dearborn, Michigan for an aggregate price of $10
million, including the issuance of 52,724 OP Units (valued at approximately
$1.5 million based on the price of the Common Stock on such date). The
Company is a lessee under a long term ground lease expiring in 2046. The
course is subleased to an affiliate of its prior owner under a Participating
Lease.

EMERALD DUNES GOLF COURSE. Effective February 1, 1998, the Company
acquired Emerald Dunes ("Emerald Dunes"), an upscale daily fee 18-hole golf
course located in West Palm Beach, Florida for an aggregate price of
$22.4 million, including the issuance 227,347 OP Units (valued at approximately
$6.1 million based on the price of the Common Stock on such date). The
Company acquired Emerald Dunes subject to approximately $13.0 million of
mortgage indebtedness. The course is leased to an affiliate of its Prior
Owner under a Participating Lease.

SANDPIPER GOLF COURSE. On March 6, 1998, the Company acquired Sandpiper
Golf Course ("Sandpiper"), an upscale 18-hole daily fee golf course located
near Santa Barbara, California for $32.0 million and an adjacent 14-acre
development site valued at $4.5 million. The course is leased to a joint
venture consisting of one of the West Coast's largest golf course
contractors, Environmental Golf, and the owner of a planned 400 room,
five-star luxury hotel adjacent to the golf course. Mr. Blair and Mr. Young
hold an approximate 5% interest in the taxable subsidiary which holds the
development site.

PERSIMMON RIDGE GOLF COURSE. On March 9, 1998, the Company acquired
Persimmon Ridge Golf Course ("Persimmon Ridge"), an upscale 18-hole private
golf club located in Louisville, Kentucky for $7.5 million. The course is
leased to Granite Golf.

LETTERS OF INTENT. The Company has recently submitted non-binding
offers to acquire additional golf courses and is in various stages of
discussions to acquire additional golf courses. The Company is in various
stages of negotiation and due diligence review for each of these golf
courses. Completion of these transactions is subject to negotiation and
execution of definitive purchase and sale agreements, satisfactory completion
of the Company's due diligence review and certain other customary closing
conditions. No assurances can be given that the Company will continue to
pursue or complete the acquisition of any of these golf courses.

LINE OF CREDIT

On June 20, 1997, the Company closed a two-year, $100 million secured
revolving credit facility (the "Line of Credit") with a group of four
commercial banks led by NationsBank, N.A. On September 24, 1997, the Company
negotiated a reduction in the interest rate from LIBOR plus 2.0% to LIBOR
plus 1.75% (7.72% on December 31, 1997.)

On February 27, 1998, NationsBank, N.A. and Bank of America NT & SA,
with a group of three commercial banks, amended and restated the Credit
Facility to increase the Credit Facility to $125 million on an unsecured
basis. Up to 20% of the Credit Facility may be used for working capital
needs. The Credit Facility availability is limited to an "unencumbered pool
calculation" as defined in the Credit Facility. Financial covenants include
minimum requirement for net worth, liquidity and cash flow. Non-financial
covenants include among others, restrictions on loans outstanding,
construction in progress, loans to officers and changes to the Board of
Directors. These covenants have been met.

The Company intends to draw upon the Line of Credit, or any successor
line of credit, to fund future acquisitions of additional golf courses.
There can be no assurance, however, that the Company will close any future
acquisitions or that the Company will continue to have access to sufficient
debt and equity financing to allow it successfully to pursue its acquisition
strategy.

LOANS TO OFFICERS

On September 19, 1997, the Company issued 70,000 restricted common
shares to officers of the Company under the 1997 Stock-Based Incentive Plan.
These shares were issued for $.01 when the market price was $26.1875. On
January 2, 1998, loans of approximately $525,000 were made to W. Bradley
Blair, II and David J. Dick, for the partial payment of related taxes. Mr.
Blair borrowed $286,000 at 6.02% interest per annum and Mr. Dick borrowed
$239,000 at 6.02% per annum. In addition, the Company has agreed to fund up
to approximately $937,000 over the next five years to pay additional taxes
related to the issuance of such shares. Such loans are secured by OP Units
and/or shares of Common Stock and are payable in full by December 31, 2002
with interest payable annually.

FOLLOW-ON PUBLIC OFFERING

On November 10, 1997, the Company raised net proceeds of approximately
$82.7 million in its follow-on public offering of 3,450,000 shares of Common
Stock underwritten by BancAmerica Robertson Stephens, A.G. Edwards & Sons,
Inc., Raymond James & Associates, Inc. and Wheat First Butcher Singer. The
proceeds were contributed to the Operating Partnership and used to repay
advances under the Line of Credit and for general corporate purposes,
including certain of the acquisitions described above.

(b) FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENT.

The Company's principal business strategy is to acquire upscale golf
courses and thereafter lease the golf courses to qualified third party
operators, including affiliates of sellers. 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.

BUSINESS OBJECTIVE AND STRATEGY

The Company's primary objectives are to increase its cash available for
distribution per share to stockholders and to enhance stockholder value. The
Company's main strategies for such growth are to acquire additional golf
courses that meet the Company's investment criteria and to participate in
increased revenues at its Golf Courses (internal growth). The Company
believes market conditions today are favorable for the acquisition of golf
courses at attractive returns.

When the Company acquires a golf course, the course is either leased
back to its prior owner or leased to another qualified operator. Under the
Company's standard Participating Lease, the Company receives fixed Base Rent
and Participating Rent based on increases in Gross Golf Revenues (as herein
defined) if any, at such Golf Course. Each Lessee joins the Company's Lessee
Advisory Association ("Advisory Association"), which provides marketing
information and opportunities and potential economic benefits to the Lessees,
such as bulk purchasing power for certain golf course supplies and equipment.

In certain instances, state and federal tax laws make purchase-leaseback
transactions prohibitively expensive. Accordingly, in such cases the Company
may provide financing to a particular golf course, provided the Company
receives a participating interest in revenues at the golf course on a basis
comparable to the Company's standard Participating Lease. The Company expects
that the Company's loan would be secured by a first-lien on the underlying
golf course asset and would include an option to purchase the course at the
end of the loan's term. In considering any financing transactions, including
the Participating Mortgage, the Company seeks to obtain economic terms
similar to the standard Participating Lease.

To fund acquisitions, the Company has access to a variety of debt and
equity financing sources, including the Line of Credit and the ability to
issue OP Units.

Described below are the Company's (i) investment criteria, (ii)
acquisition strategy and (iii) internal growth strategy.

INVESTMENT CRITERIA

The Company intends to concentrate its investment activities on golf
courses, including multi-course portfolios, available at attractive prices
that meet one or more of the following criteria:

- upscale Daily Fee (as herein defined) courses that target avid golfers,
who the Company believes are generally willing to pay the higher green
fees associated with upscale golf courses;

- private or semi-private golf courses with proven operating histories
that the Company believes have the potential for significant cash flow
growth;

- courses that offer superior facilities and service and attract a
relatively high number of affluent destination golfers;

- courses owned by multi-course owners and operators who have a strong
regional presence and afford the Company the opportunity to expand in a
particular region;

- newly developed, well-designed courses with high growth potential; and

- upscale, well-maintained golf courses with proven operating histories
located in areas where significant barriers to entry exist.

The Company will undertake an analysis with respect to golf courses to
be considered for acquisition, including an evaluation of the following:

- product and service differentiation;

- competitive position in market;

- barriers to entry in development of new golf courses such as scarcity of
land and long lead-times for course development;

- condition of the golf course and agronomy review;

- quantity, quality and cost of irrigation; and

- strength of the lodging industry, including hotels and condominiums, in
destination golf areas.

ACQUISITION STRATEGY

The Company believes it has a distinct competitive advantage in the
acquisition of upscale golf courses, including those which might not
otherwise be available for purchase, because of (i) management's substantial
industry knowledge, experience and relationships within the golf community,
(ii) the Company's ability to issue OP Units to golf course owners on a
tax-deferred basis, (iii) the Company's utilization of the multiple
independent lessee structure, and (iv) the Company's strategic alliances with
prominent golf course operators. Besides acquiring new courses, the Company
may also acquire expansion facilities at its existing courses.

MANAGEMENT'S KNOWLEDGE, EXPERIENCE AND RELATIONSHIPS. Prior to joining
the Company as its President, Chairman and Chief Executive Officer, W.
Bradley Blair, II served as Executive Vice President, Chief Operating Officer
and General Counsel of Legends Group, Ltd., a leading golf course owner,
developer and operator in the southeast and Mid-Atlantic regions of the
United States. As an officer of Legends Group Ltd., Mr. Blair was responsible
for all aspects of operations, including acquisitions, development and
marketing. Prior to joining the Legends Group Ltd., Mr. Blair had extensive
experience in the acquisition, disposition, development and financing of golf
courses and golf course development in his role as Managing Partner of
Blair, Conaway, Bograd and Martin, PA, attorneys at law. Prior to the IPO,
David J. Dick, the Company's Executive Vice President, worked with the Inland
Group, Inc. as a consultant specializing in real estate investment banking
and golf course finance. From 1983 to 1992 Mr. Dick served as Vice President
of Development and Asset/Portfolio Management for Thoner & Birmingham
Development Corporation, a golf and country club community developer. Larry
D. Young, a director of the Company, is the founder of Legends Golf.
Mr. Young has been involved in the golf business for more than 25 years and
has developed 10 golf courses during that time, four of which were rated the
best new course in their respective category in the year developed by GOLF
DIGEST.

ISSUANCE OF OP UNITS. The Company has the ability to issue units of
limited partnership interest in the Operating Partnership ("OP Units"). OP
Units may be issued to a prospective golf course seller in exchange for his
golf course. Holders of OP Units generally have the right (the "Redemption
Right") to cause the Company to redeem their OP Units after certain holding
periods for cash or, at the Company's option, for Common Stock on a
one-for-one basis. When the Company acquires a golf course in exchange for
OP Units, the golf course seller generally will not recognize taxable income
until it exercises the Redemption Right. Thus, the issuance of OP Units can
provide an attractive tax-deferred transaction for sellers of golf courses.

MULTIPLE INDEPENDENT LESSEE STRUCTURE. The Company believes many golf
course owners are single-business entrepreneurs who could benefit from
diversification but desire to remain involved in the

day-to-day operation of their courses. The Company believes such golf course
owners will continue to be attracted to the Company's multiple independent
lessee structure, in which the Company acquires a course and then leases it
back to an affiliate of the seller. Such structure satisfies the owner's
desire to remain involved in the day-to-day operation of his course, while
also satisfying his desire to obtain liquidity. Specifically the structure
offers prospective sellers: (i) the ability to retain control over the
operations of the golf course by leasing it back; (ii) the tax deferral and
increased liquidity associated with owning OP Units; (iii) the ability to
obtain additional OP Units through the Lessee Performance Option (as
described below); (iv) the marketing and purchasing economies of scale gained
from participation in the Lessee Advisory Association; and (v) the ability to
diversify the seller's investment by participating as an equity owner in the
Company's portfolio of golf courses.

RELATIONSHIPS WITH STARWOOD, TROON GOLF, GRANITE GOLF AND ENVIRONMENTAL
GOLF. Since its IPO, the Company has formed business relationships with
prominent golf and hospitality entities, including Starwood, Troon Golf,
Granite Golf and Environmental Golf. The Company believes Starwood is one of
the United States' leading golf course management, development and consulting
companies. Starwood operates or leases the Golf Courses at the Westin
Innisbrook Resort and Lost Oaks of Innisbrook. In addition, the golf and
conference facilities of the Westin Innisbrook Resort are owned by a Starwood
affiliate and the hotel and conference facilities are managed by Westin,
another Starwood affiliate. Troon Golf, an affiliate of Starwood, has the
exclusive right to operate golf courses at hotels owned by Westin. Troon
Golf leases or manages over 15 courses throughout the United States and is
recognized as one of the premier upscale golf course operators.

Tiburon Golf Course, Black Bear, The Club of the Country and Persimmon
Ridge are leased to or operated by affiliates of Granite Golf. Granite Golf
and its affiliates currently manage over 25 golf courses throughout the
United States.

An affiliate of Environmental Golf is managing Sandpiper Golf Course and
will be responsible for the planned redesign and renovation of the course.
Environmental Golf and its affiliates have been in the golf business for over
40 years, have built over 400 golf courses, and maintain over 25 golf
courses.

The Company believes that its existing relationships with Starwood,
Granite Golf and Environmental Golf will provide the Company with additional
acquisition opportunities throughout the United States.

EXPANSIONS, IMPROVEMENTS AND WORKING CAPITAL LINES. Under certain
circumstances, the Company agrees to make funds available to the Lessees to
fund significant capital improvements, to expand the existing golf facilities
and in limited circumstances to provide working capital. When significent
capital improvements are funded, the underlying Base Rent is increased.
Working capital lines are evidenced by promissory notes or set forth in the
lease agreement.

Currently, the Company has agreed to fund the construction of an
additional nine holes at Northgate Country Club ("Northgate") ($3.0 million),
purchase a clubhouse being constructed at The Woodlands ($750,000), fund the
construction at Lost Oaks of Innisbrook for renovations to the clubhouse and
golf course ($1.25 million), fund a working capital line at Tiburon
($150,000), fund the renovations to the conference facilities and
construction of an additional nine holes at the Westin Innisbrook Resort
($9.0 million), fund a working capital line at Bonaventure Golf Course
($750,000) and pay for renovations at that course ($3.15 million) and to fund
a working capital line at Sandpiper Golf Course ($5.0 million) and pay for
renovations at that course ($6.0 million).

INTERNAL GROWTH

In addition to acquiring new golf courses and new participating
interests, the Company seeks to increase revenue from its current assets
through internal growth.

Based on the experience of its management, the Company believes the Golf
Courses offer opportunities for revenue growth through effective marketing
and efficient operations. The Participating Leases and the Participating
Mortgage have been structured to provide the operators with incentives to
manage and maintain the Golf Courses in a manner designed to increase revenue
and, as a result, increase payments to the Company under the Participating
Leases and the Participating Mortgage. The Company believes that management
of the Lessees, as well as Troon Golf and Granite Golf, have demonstrated
expertise in the operation of the Golf Courses and that the Golf Courses are
positioned to benefit from favorable trends in the golf industry.

PARTICIPATING LEASES. The Participating Leases generally provide that
for any year, the Company will receive with respect to each leased Golf
Course, the greater of (a) Base Rent (as adjusted by the Base Rent Escalator
described below) or (b) Participating Rent. Participating Rent is generally
established to be an amount equal to the original (unescalated) Base Rent
plus 33 1/3% of the difference between that year's Gross Golf Revenue and
Gross Golf Revenue at the Golf Course in the year prior to the course's
acquisition, as adjusted in determining the original Base Rent. Base Rent
under each Participating Lease generally increases annually by the lesser of
(i) 3% or (ii) 200% of the change in the Consumer Price Index ("CPI") for the
prior year (the "Base Rent Escalator") during each of the first five years of
the Participating Lease and, if the Lessee Performance Option is exercised,
for an additional five years thereafter. Annual increases in Lease Payments
are generally limited to 5% during the first five years of the lease terms.
"Gross Golf Revenue" is generally defined as all revenues from a Golf Course
including green fees, golf cart rentals, range fees, membership dues, member
initiation fees and transfer fees, excluding, however, food and beverage and
merchandise revenue. In certain circumstances, the Company participates in
food and beverage revenue and merchandise revenue. In the acquisition of
golf courses that are not leased-back to affiliates of the Prior Owner, the
Company generally structures the Participating Rent component in a manner
which it believes maximizes the Participating Rent payable to the Company.
In these instances, the Company may establish different thresholds such that
Participating Rent increases as Gross Golf Revenue increases at a given
course, with the initial tier as low as 5% and the maximum tier at 50%, as
was done at Sandpiper Golf Course.

PARTICIPATING MORTGAGE. The $78.975 million Participating Mortgage is
structured similarly to the Participating Leases. The Company anticipates
that it will receive a return similar to the return it anticipates on the
Participating Leases. Under the Participating Mortgage, the Company has made
an initial advance of $69.975 million, which will be followed by additional
advances of up to $9.0 million to be used for a nine-hole expansion and other
improvements to the Westin Innisbrook Resort facilities currently underway.
The loan term is 30 years, with an initial Base Interest rate of 9.63% per
annum ("Base Interest") and an interest rate of 9.75% per annum on the amount
of the loan in excess of $69.975 million. The loan provides for minimum
increases in the aggregate annual payment of Base Interest of 5% per year for
the first five years and a participating interest feature throughout the term
based upon the growth in Gross Golf Revenues, as well as in other revenues,
at the Westin Innisbrook Resort over a 1996 base year. The annual increases
in the Mortgage Payment are limited to 7% during the first five years. Westin
has agreed to pay up to $2.5 million per year to the Westin Innisbrook Resort
Owner to supplement results of operations with respect to the operations at
the Westin Innisbrook Resort for up to five years.

LESSEE PERFORMANCE OPTION. The Participating Leases generally utilize
an incentive-based performance structure. This Performance Option structure
is designed to encourage the operators to seek aggressive growth in revenue
at the Golf Courses. The structure also is designed to attract potential
sellers of golf courses that the Company believes have high growth potential
and that might not otherwise be available for purchase. Generally leases
with third party operators do not contain a Lessee Performance Option. Under
the Performance Option for the Participating Leases, during years three
through five of each Participating Lease, the operator or its affiliate,
subject to certain qualifications and restrictions, may elect one time to
increase the Base Rent in order to receive additional OP Units or Common
Stock. The Prior Owner of Northgate will have an additional two-year period
to exercise the Performance Option upon completion of the planned nine-hole
expansion. The Performance Option for the Participating Leases may only be
exercised if the current-year net operating income of the operator of the
applicable Golf Course, inclusive of a capital replacement reserve, exceeds
113.5% of such Lessee's Lease Payment after taking into account the increased
amount of Base Rent. If the Performance Option is exercised, the Base Rent is
increased by an amount calculated to be accretive to the Company's Funds From
Operations on a per share basis. Following exercise of the Lessee Performance
Option, the adjusted Base Rent will be increased by the Base Rent Escalator
each year for a period of five years. An operator's ability to exercise the
Performance Option and the number of OP Units or Common Stock issuable to
such Prior Owner in connection therewith, will depend on future operating
results at the applicable Golf Course and therefore cannot be determined in
advance.

PERFORMANCE OPTION FOR THE PARTICIPATING MORTGAGE. The structure of the
Performance Option for the Participating Mortgage is similar to the
Performance Option for the Participating Leases. Under the Performance Option
for the Participating Mortgage, during years three and five of the
Participating Mortgage, the Westin Innisbrook Resort Owner, subject to
certain qualifications and restrictions, may elect one time to require the
Company to make an additional advance under the Participating Mortgage and
the Westin Innisbrook Resort Owner will be required to purchase additional OP
Units with that advance. The Performance Option for the Participating
Mortgage may be exercised only if the current-year net operating income of
the Westin Innisbrook Resort, inclusive of a capital replacement reserve,
exceeds 113.5% of such operator's Participating Mortgage obligation after
taking into account the increased amount of Base Interest. If the Performance
Advance is made, interest on the Performance Advance will be calculated to be
accretive to the Company's Funds From Operations on a per share basis.
Following exercise of the Performance Option for the Participating Mortgage,
the adjusted Base Interest will be increased by 3% per year for five years.
The Westin Innisbrook Resort Owner's ability to exercise the Performance
Option will depend on future operating results and therefore cannot be
determined in advance.

EMPLOYEES

The Company is self-administered and has 11 full-time employees, 5 of
which are devoted primarily to acquisitions.

ENVIRONMENTAL MATTERS

Operations of the Golf Courses involve the use and storage of various
hazardous materials such as herbicides, pesticides, fertilizers, motor oils
and gasoline. Under various federal, state and local laws, ordinances and
regulations, an owner or operator of real property may become liable for the
costs of removal or remediation of certain hazardous substances released on
or in its property. Such laws often impose such liability without regard to
whether the owner or operator knew of, or was responsible for, the release of
such hazardous substances. The presence of such substances, or the failure to
remediate

such substances properly when released, may adversely affect the owner's
ability to sell such real estate or to borrow using such real estate as
collateral. The Company has not been notified by any governmental authority
of any material non-compliance, liability or other claim in connection with
any of the Golf Courses. All of the Golf Courses have been subjected to a
Phase I environmental audit (which does not involve invasive procedures, such
as soil sampling or ground water analysis) by an independent environmental
consultant.

Based on the results of the Phase I environmental audits, the Company is
not aware of any existing environmental liabilities 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. No assurance, however, can be given that these reports reveal all
potential environmental liabilities, that no prior or adjacent owner created
any material environmental condition not known to the Company or the
independent consultant or that future uses or conditions (including, without
limitation, changes in applicable environmental laws and regulations) will
not result in imposition of environmental liability. The Participating Leases
provide that the Lessees will indemnify the Company for certain potential
environmental liabilities at the Golf Courses.

At Bonaventure Country Club, there was remediation work performed
respecting maintenance and facilities operations, including the construction
of a new maintenance area to remedy prior practices that resulted in low
level soils contamination at the property. In addition, underground storage
tanks at the property, which have subsequently been abandoned, have leaked,
resulting in localized soil contamination. The Company believes that the
completed remedial work and soil contamination will not have a material
adverse effect on the operation of the Company.

In addition, a significant portion of the Sandpiper Golf Course was
previously an operating oil field and there is significant residual oil
contamination on the property. In connection with the acquisition of the
property, the Company obtained an indemnification from Atlantic Richfield
Company ("ARCO") in a form and in an amount which the Company believes is
adequate to protect the Company from liability for such contamination.
Certain circumstances may require ARCO to enter the property and perform
remediation actions.

TAX STATUS

The Company intends to make an election to be taxed as a REIT under
Section 856 through 860 of the Internal Revenue Code of 1986, as amended (the
"Code"), for its taxable year ended December 31, 1997. If the Company
qualifies for taxation as a REIT, the Company generally will not be subject
to federal income tax to the extent it distributes at least 95% of its REIT
taxable income to its shareholders. If the Company fails to qualify as a
REIT in any taxable year, the Company will be subject to federal income tax
(including any applicable alternative minimum tax) on its taxable income at
regular corporate tax rates. Even if the Company qualifies for taxation as a
REIT, the Company may be subject to certain state and local taxes on its
income and property and to federal income and excise taxes on its
undistributed income.

GOVERNMENT REGULATION

The Golf Courses are subject to the Americans with Disabilities Act of
1990, as amended (the "ADA"). The ADA has separate compliance requirements
for "public accommodations" and "commercial facilities" but generally
requires that public facilities such as clubhouses and recreation areas be
made accessible to people with disabilities. These requirements became
effective in 1992. Compliance with the

ADA requirements could require removal of access barriers and other capital
improvements at the Golf Courses.

Noncompliance could result in imposition of fines or an award of damages
to private litigants. Under the Participating Leases, the Lessees are
responsible for any costs associated with ADA compliance.

SOFTWARE DEFICIENCIES COULD ADVERSELY AFFECT THE COMPANY

The Company and the Lessees will rely upon a significant number of
computer software programs and operating systems in conducting their
operations. To the extent that these software applications contain source
code that is unable to appropriately interpret the upcoming calendar year
"2000," some level of modification or even possibly replacement of such
source code or applications will be necessary. Pursuant to the Leases, the
Lessees will bear the costs associated with determining whether their systems
are "Year 2000" compliant and the costs of any necessary modifying or
replacing its source code or application. Given the information known at
this time, the Company believes its systems are Year 2000 compliant.
However, the Company will be dependent upon the Lessees and other parties to
determine that their systems and applications are Year 2000 compliant.

COMPETITION

The Golf Courses are, and any additional golf courses and related
facilities acquired by the Company will be, subject to competition for
players and members from other golf courses located in the same geographic
areas. Changes in the number and quality of golf courses in a particular area
could have a material effect on the revenues of the Golf Courses. In
addition, the Company will be subject to competition for the acquisition of
golf courses and related facilities with other purchasers of golf courses,
including other golf course acquisition companies. See "--The Golf
Industry--Competitive Conditions" below.

THE GOLF INDUSTRY

UNLESS OTHERWISE NOTED, REFERENCES HEREIN TO NATIONAL INDUSTRY
STATISTICS AND AVERAGES ARE BASED ON REPORTS OF THE NATIONAL GOLF FOUNDATION
("NGF"), AN INDUSTRY TRADE ASSOCIATION NOT AFFILIATED WITH THE COMPANY.

The Company believes the United States golf industry is entering a
period of significant growth. This belief is based, in part, on the fact that
people over the age of 50 play more golf than younger people, and the
expectation that over the next several years the number of people age 50 and
older will increase significantly as the "baby boomers" age. The Company
expects that the aging population will contribute to an increase in the
number of rounds played and Gross Golf Revenues at the Golf Courses and any
golf courses subsequently acquired by the Company.

COMPETITIVE CONDITIONS

To its knowledge, the Company is one of two publicly traded REITs in the
United States focused exclusively on owning and acquiring golf courses.

Golf course ownership in the United States is highly fragmented. There
are approximately 16,000 golf courses (approximately 13,000 eighteen-hole
equivalents) in the United States that the Company

believes are owned by approximately 13,000 different entities. The Company
believes there are relatively few owners of more than one course. The Company
believes that the 15 largest golf course owners in the United States
collectively own fewer than 5% of the total number of golf courses and that
fewer than 10 golf course owners own more than 10 golf courses. The Company
believes that this fragmented ownership provides it with an excellent
opportunity for consolidation of the ownership of upscale golf courses.

The Company believes the current fragmentation of golf course ownership
is a result of a variety of factors, including a scarcity of capital, the
entrepreneurial nature of many golf course owners and operators and their
associated pride of ownership. The Company believes that the economies of
scale in owning and operating multiple golf courses, the growing significance
of professional financial management in the operation of golf courses and the
desire for liquidity by golf course owners could lead to consolidation of
golf course ownership. In particular, the Company believes golf course owners
will be attracted to the Company's multiple independent lessee structure,
which permits the Company to acquire a course and then lease it back to an
affiliate of the seller. Such structure satisfies the owner's desire to
remain involved in the day-to-day operation of his course, while also
satisfying his desire to obtain liquidity. The Company further believes its
ability to issue OP Units in exchange for a golf course will attract
potential sellers, who generally can defer recognition of taxable gain on the
exchange until they exercise their Redemption Right. By offering golf course
owners the tax planning benefit of OP Units and the economic benefit of
participating in the independent lessee structure, including resulting
economies of scale in operating golf courses, the Company believes it is able
to acquire desirable upscale courses that may not otherwise be available for
purchase.

Largely in response to the popularity of golf, the construction of golf
courses in the United States has increased significantly in recent years. New
golf course openings from the mid-1970's through 1987 averaged approximately
150 golf courses per year. For the period 1987 through 1996 an average of
approximately 240 new golf courses were opened each year, with a high of 336
new golf course openings in 1995.

The emergence and popularity of younger professional golfers, including
Tiger Woods, Justin Leonard, Phil Mickelson and Karrie Webb, have increased
awareness and interest in golf. According to industry statistics, 19.4
million homes watched the final round of the four major golf championships in
1996. In 1997, television viewership of the final four rounds of the four
major golf championships increased 56 percent to 30.3 million. The Company
believes this resurgent interest will result in increasing golf
participation, including increasing participation by women and younger
golfers.

The golf industry generated approximately $15 billion in revenues in the
United States in 1996. The Company believes the game of golf has exhibited
strong growth in popularity in the past 16 years as illustrated below:

1980 1996 % Change
---- ---- --------

(millions)
Number of Golfers . . . . 15.0 24.7 65%
Rounds Played . . . . . . 358 477 33%

The following table illustrates the growth in demand in the United
States at Daily Fee and private country clubs, as compared to municipal
courses, which tend to be of lesser quality.

Rounds Played (in Millions)
-----------------------------------
1986 1996 Percent Change
--------------- --------------- --------------

Daily Fee . . . . 192.4 156.4 38.9% 40.3% 23.0%
Municipal . . . . 110.4 27.5% 121.3 25.4% 9.9%
Private . . . . . 135.1 33.6% 163.7 34.3% 21.2%
Total . . . . . . 401.9 100.0% 477.4 100.0% 18.8%

The Company believes that upscale Daily Fee courses (including Resort
Courses), similar to those owned and targeted by the Company, are well
situated to take advantage of the changing demographics. As shown below, the
top 5% of Daily Fee golf courses were able to increase weekend green fees by
an annual rate in excess of 10% from 1993 to 1995.

Daily Fee
Green Fees - Weekend
--------------------
Percent Annual
1993 1995 Change Change
---- ---- ------ ------

Median. . . . . . . . . . $18 $21 16.7% 8.0%
Top 25% . . . . . . . . . $25 $30 20.0% 9.5%
Top 5%. . . . . . . . . . $53 $65 22.6% 10.7%

DEMOGRAPHICS

The Company believes the game of golf will benefit from favorable
demographic trends. The United States Census Bureau estimates that the
population age 50 and over will increase by 39% between 1996 and 2010, from
69.3 million to 96.3 million. The average number of rounds played per golfer
on an annual basis increases significantly as the golfer ages. Golfers in
their 50's play nearly twice as many rounds annually as golfers in their
30's, and golfers age 65 and older generally play three times as many rounds
annually as golfers in their 30's. The Company believes that the number of
golfers as well as the total number of rounds played will increase
significantly as the average age of the population continues to increase. The
Company believes that "baby boomers," the oldest of whom are now in their
early 50's, will contribute to the growth in total rounds played due to
growing wealth and leisure time as well as the suitability of golf as a sport
for an aging population. Since 1991, the number of senior golfers (golfers
age 50 and over) has grown 16%, or by nearly 1 million golfers.

SEASONALITY

The golf industry is seasonal in nature because of weather conditions
and the fewer available tee times during the rainy season and the winter
months. Each of the Lessees operating a daily fee course may vary green fees
based on changes in demand. The Company does not expect seasonal fluctations
in Lessee revenues to have a significant impact on the Company's operating
results. The Company's Leases require Base Rent to be paid ratably throughout
the year. The Company participates in the growth of Gross Golf Revenues at
the courses.

(d) FOREIGN OPERATIONS

The Company does not engage in any foreign operations or derive any
revenue directly from foreign sources.

ITEM 2. PROPERTIES

The Company believes the Initial Courses and its investments since the
IPO are consistent with its goal of becoming a leading owner of, and
participating in increased revenue from, nationally or regionally recognized
upscale golf courses. The Golf Courses include a number of nationally
recognized golf courses. Legends of Stonehouse and Royal New Kent, each of
which was named the "Best New Upscale Course" by GOLF DIGEST in 1996 and
1997, respectively, and Oyster Bay, which was named Best New Resort Course in
the United States in 1983 by GOLF DIGEST. The Copperhead Course at the Westin
Innisbrook Resort was ranked 43rd and the Emerald Dunes Golf Course was
ranked 63rd in the 1996 survey by GOLF MAGAZINE of the "Top 100 Courses You
Can Play." The Island Course at the Westin Innisbrook Resort was ranked as
one of the "Top 75 Resort Courses" by GOLF DIGEST in 1992. Heritage Golf Club
was ranked in the Top 50 Public Golf Courses by GOLF DIGEST and Sandpiper
Golf Course was included in the "Top 75 Upscale Golf Courses" in the United
States by GOLF DIGEST. See "The Golf Courses." The Company believes that the
quality of the Golf Courses is further reflected in the average green fees at
the Golf Courses, which significantly exceed national industry averages.

The Golf Courses include 23 upscale Daily Fee courses (including 12
Resort Courses) and five private country clubs. "Daily Fee" courses are open
to the public and generate revenues principally through green fees, golf cart
rentals, food and beverage operations, merchandise sales and driving range
charges. "Resort Courses" are Daily Fee golf courses that attract a
significant percentage of players from outside the immediate area in which
the golf course is located and generate a significant amount of revenue from
golf vacation packages. The Company considers its Daily Fee and Resort
Courses to be high-end golf courses because of the quality and maintenance of
each golf course. Private country clubs generally are closed to the public
and derive revenues principally from membership dues, initiation fees,
transfer fees, golf cart rentals, guest fees, food and beverage operations
and merchandise sales.

The Company believes that the overall quality of the Golf Courses is
reflected in the green fees charged at each Golf Course, which significantly
exceed national averages. The Company believes its focus on upscale Daily Fee
golf courses and private country clubs, which attract golfers with attractive
demographic and economic profiles, will result in stronger and less cyclical
revenue growth in comparison to golf courses with lower green fees.

Five of the Golf Courses are located in the Myrtle Beach, South Carolina
vicinity, a popular year-round golf destination area. Myrtle Beach is
considered one of the nation's premier golf resort locations with nearly 100
golf courses and approximately 3.9 million rounds played in 1996, according
to the MYRTLE BEACH GOLF HOLIDAY.-TM- In addition to golf courses, Myrtle
Beach offers a mix of entertainment, shopping and dining, as well as
proximity to beaches. All of the Golf Courses located in the Myrtle Beach
vicinity were developed and contributed to the Company by Legends Golf, a
leading golf course owner, developer and operator in the southeast and
mid-Atlantic regions of the United States.

Five of the Golf Courses are located near Tampa, Florida. Of these, four
are located at the Westin Innisbrook Resort, a destination golf resort that
includes one of the largest hotel and conference facilities in the state. The
fifth course, Lost Oaks of Innisbrook, is located near the Westin Innisbrook

Resort, and all five courses are near the Gulf of Mexico. Additionally, the
courses benefit from the millions of tourists annually that visit
Disneyworld-TM-, Busch Gardens-TM- and other regional recreational
attractions.

The Company owns a fee simple interest in each of the Golf Courses it
owns with the exception of Oyster Bay and Mystic Creek, which are subject to
long-term ground leases, and the four Golf Courses at the Westin Innisbrook
Resort, where the Company holds a first lien on the Golf Courses and all of
the related facilities (other than the separately-owned condominium units
comprising the hotel). The Company additionally holds an option to purchase
the Westin Innisbrook Resort and such facilities at the expiration of the
Participating Mortgage for the lesser of its fair market value or a
pre-determined number of shares of Common Stock.

Certain unaudited information regarding each of the Golf Courses owned
by the Company as of December 31, 1997, is set forth on the following page:

THE GOLF COURSES AS OF DECEMBER 31, 1997

Rounds
------

Name Location 1995 1996 1997
---- -------- ---- ---- ----

INITIAL COURSES:

Heritage Club Pawleys Island, SC 55,094 52,382 53,054

Legends Resort (5) Myrtle Beach, SC 145,466 148,727 145,193
Heathland
Moorland
Parkland

Oyster Bay (6) Sunset Beach, NC 62,141 57,856 60,208

Woodlands Gulf Shores, AL 43,464 41,744 47,004

Royal New Kent (7) Providence Forge, VA -- 5,743 14,984

Legends of Stonehouse (8) Williamsburg, VA -- 5,686 21,900

Olde Atlanta Atlanta, GA 41,195 41,053 47,004

Northgate Country Club (9) Houston, TX 46,6000 45,400 48,459

SUBSEQUENT ACQUISITIONS:

Tiburon Golf Club (10) Omaha, NE 56,496 53,160 56,817

Raintree Country Club Akron, OH 44,000 40,000 35,000

Eagle Watch Atlanta, GA 36,484 36,332 43,237

Lost Oaks of Innisbrook Tampa, FL 40,072 52,760 60,840

The Club of the Country Louisburg, KS 15,747 17,575 18,050

Stonehenge Golf (12) Columbia, SC N/A 25,755 27,863
-Wildewood
-Woodcreek(13)

Black Bear Golf Club (14) Orlando, FL 6,172 45,923 45,156

Westin Innisbrook Resort (6)(15) Tampa, FL 148,294 140,922 136,327
Copperhead
Island
Eagle's Watch (16)
Hawk's Run(16)

TOTAL

Revenue per Player (2)
----------------------

Name Location 1995 1996 1997
---- -------- ---- ---- ----

INITIAL COURSES:

Heritage Club Pawleys Island, SC $57.28 $59.96 $60.75

Legends Resort (5) Myrtle Beach, SC 165.05 162.92 55.95
Heathland
Moorland
Parkland

Oyster Bay (6) Sunset Beach, NC 55.66 56.83 56.64

Woodlands Gulf Shores, AL 32.88 34.86 36.62

Royal New Kent (7) Providence Forge, VA -- 60.60 74.35

Legends of Stonehouse (8) Williamsburg, VA -- 60.50 77.45

Olde Atlanta Atlanta, GA 37.53 41.39 41.47

Northgate Country Club (9) Houston, TX 59.40 64.27 66.14

SUBSEQUENT ACQUISITIONS:

Tiburon Golf Club (10) Omaha, NE 21.33 23.19 25.51

Raintree Country Club Akron, OH 19.25 20.38 25.15

Eagle Watch Atlanta, GA 38.67 39.23 34.49

Lost Oaks of Innisbrook Tampa, FL 31.87 29.64 27.04

The Club of the Country Louisburg, KS 43.69 43.93 40.84

Stonehenge Golf (12) Columbia, SC N/A 64.69 74.30
-Wildewood
-Woodcreek(13)

Black Bear Golf Club (14) Orlando, FL 36.98 33.71 34.15

Westin Innisbrook Resort (6)(15) Tampa, FL 95.35 101.23 83.76
Copperhead
Island
Eagle's Watch (16)
Hawk's Run(16)

TOTAL

Gross Golf Revenue (3)
----------------------
Initial Base
Name Location 1995 1996 1997 Rent (4)
---- -------- ---- ---- ---- --------

INITIAL COURSES:

Heritage Club Pawleys Island, SC $3,156,000 $3,141,000 $3,223,000 $1,825,000

Legends Resort (5) Myrtle Beach, SC 8,003,000 8,078,000 8,123,000 1,556,000(5)
Heathland
Moorland
Parkland

Oyster Bay (6) Sunset Beach, NC 3,459,000 3,288,000 3,410,000 1,856,000

Woodlands Gulf Shores, AL 1,429,000 1,455,000 1,721,000 679,000

Royal New Kent (7) Providence Forge, VA -- 348,000 1,114,000 1,817,000

Legends of Stonehouse (8) Williamsburg, VA -- 344,000 1,696,000 1,890,000

Olde Atlanta Atlanta, GA 1,546,000 1,699,000 1,949,000 845,000

Northgate Country Club (9) Houston, TX 2,768,000 2,918,000 3,205,000 1,407,000

SUBSEQUENT ACQUISITIONS:

Tiburon Golf Club (10) Omaha, NE 1,205,000 1,233,000 1,449,000 682,000

Raintree Country Club Akron, OH 847,000 815,000 880,000 520,000

Eagle Watch Atlanta, GA 1,411,000 1,425,000 1,491,000 703,000

Lost Oaks of Innisbrook Tampa, FL 1,277,000 1,564,000 1,645,000 625,000(11)

The Club of the Country Louisburg, KS 668,000 772,000 737,000 330,000

Stonehenge Golf (12) Columbia, SC N/A 1,666,000 2,070,000 1,196,000
-Wildewood
-Woodcreek(13)

Black Bear Golf Club (14) Orlando, FL 228,000 1,548,000 1,542,000 542,000

Westin Innisbrook Resort Tampa, FL 14,140,000 14,265,000 11,418,000 6,739,000
(6)(15)
Copperhead
Island
Eagle's Watch (16)
Hawk's Run(16)

TOTAL $39,909,000 $44,559,094 $45,673,000 $26,325,000

- -------------------------------------------------

(1) Yardage is calculated from the championship tees.

(2) "Revenue Per Player" is calculated by dividing Gross Golf Revenue at the
applicable Golf Course by the number of rounds played at the applicable
Golf Course.

(3) Gross Golf Revenue is defined as all revenues from a golf course,
including green fees, golf cart rentals, range fees, membership dues,
member initiation fees and transfer fees, but excluding food and
beverage and merchandise revenue. In the case of the Westin Innisbrook
Resort the amounts shown in the table include all revenue at the Westin
Innisbrook Resort, including golf and hotel revenue, and food, beverage
and merchandise sales, but exclude various taxes and net of rental
payments to individual condominium owners.

(4) In addition to Base Rent and Base Interest, Participating Rent may be
payable by the Lessees and Participating Interest may be payable by the
Westin Innisbrook Resort Owner. Participating Rent and Participating
Interest is generally calculated based on increases in the Gross Golf
Revenue from a base year, as adjusted. For the Westin Innisbrook Resort,
Base Rent shown corresponds to the Base Interest payment.

(5) Heathland, Moorland and Parkland are subject to a single Participating
Lease.

(6) The Company acquired or has a contract to acquire the fee simple
interest in each of the Golf Courses except Oyster Bay, which is subject
to a long-term ground lease with a lessor not affiliated with the Prior
Owner thereof, and the Westin Innisbrook Resort, which serves as
collateral under the Participating Mortgage.

(7) Opened in August 1996.

(8) Opened in June 1996.

(9) The Company has agreed to fund up to $3.0 million to construct an
additional nine holes located on land adjacent to this Golf Course. The
Company expects to acquire, upon completion, the additional nine holes.
Amounts shown for Northgate Country Club are for its fiscal year ended
December 20, 1995, 1996 and year ended December 31, 1997.

(10) Tiburon Golf Club consists of 27 holes. Eighteen holes were built in
1989 with an additional nine holes built in 1994. With the exception of
Initial Base Rent, numbers are 18-hole equivalents. Yardage and year
opened is for the White/Blue course.

(11) The Company has agreed to fund up to $1.25 million to pay for additional
improvements of the Lost Oaks of Innisbrook course. If this amount is
fully advanced, the Base Rent will be increased to $740,930.

(12) Information not available for 1995.

(13) Opened in 4th Quarter of 1997.

(14) Opened in 4th Quarter of 1995.

(15) The Company has a participating mortgage interest in the Westin
Innisbrook Resort. The facility currently has 63 holes with an
additional nine holes under construction. Under the terms of the
Participating Mortgage, the Company initially funded $69.975 million and
has agreed to fund an additional $9 million to fund certain improvements
at the Westin Innisbrook Resort, including the construction of the
additional nine holes. Upon funding of the entire $9 million, the Base
Interest will be increased to approximately $7.6 million.

(16) Eagle's Watch and Hawk's Run currently comprise the 27-hole Sandpiper
course at the Westin Innisbrook Resort. An additional nine holes are
under construction, which is scheduled for completion in 1998. Yardage
shown reflects 18-hole equivalents for Sandpiper.

RESORT COURSES

Resort Courses are Daily Fee golf courses that draw a high percentage of
players from outside the immediate area in which the course is located and
generate a significant amount of revenue from golf vacation packages. Some
Resort Courses are semi-private, in that they offer membership packages that
allow members special privileges at the golf course, but also allow public
play.

THE GOLF COURSES -- RESORT COURSES

No. of Year
Course Name City, State Holes Yardage Opened
----------- ----------- ----- ------- ------

Heathland. . . . . . . . . . . . . Myrtle Beach, South Carolina 18 6,785 1990
Parkland . . . . . . . . . . . . . Myrtle Beach, South Carolina 18 7,170 1992
Moorland . . . . . . . . . . . . . Myrtle Beach, South Carolina 18 6,799 1990

Heritage Golf Club . . . . . . . . Pawleys Island, South Carolina 18 7,040 1986

Oyster Bay . . . . . . . . . . . . Sunset Beach, North Carolina 18 6,685 1983

Woodlands . . . . . . . . . . . . Gulf Shores, Alabama 18 6,584 1994

Copperhead Course. . . . . . . . . Tampa, Florida 18 7,087 1972

Island Course . . . . . . . . . . Tampa, Florida 18 6,999 1970

Eagle's Watch (2). . . . . . . . . Tampa, Florida 18 6,245 1971

Hawk's Run (2) . . . . . . . . . . Tampa, Florida 18 6,245 1971

Emerald Dunes Golf Course (3). . . West Palm Beach, Florida 18 7,006 1990

Lost Oaks of Innisbrook . . . . . Tampa, Florida 18 6,450 1977

Bonaventure Golf Course. . . . . . Fort Lauderdale, Florida
East 18 7011 1970
West 18 6189 1978

Facilities and Services
-----------------------

Practice Cart Food & Pro
Course Name City, State Facilities Rental Clubhouse Beverage Shop
----------- ----------- ---------- ------ --------- -------- ----

Heathland. . . . . . . . . Myrtle Beach, South Carolina Yes Yes Yes Yes Yes
Parkland . . . . . . . . . Myrtle Beach, South Carolina Yes Yes Yes Yes Yes
Moorland . . . . . . . . . Myrtle Beach, South Carolina Yes Yes Yes Yes Yes

Heritage Golf Club . . . . Pawleys Island, South Carolina Yes Yes Yes Yes Yes

Oyster Bay . . . . . . . . Sunset Beach, North Carolina Yes Yes Yes Yes Yes

Woodlands . . . . . . . . Gulf Shores, Alabama Yes Yes Yes(1) Yes Yes

Copperhead Course. . . . . Tampa, Florida Yes Yes Yes Yes Yes

Island Course . . . . . . Tampa, Florida Yes Yes Yes Yes Yes

Eagle's Watch (2). . . . . Tampa, Florida Yes Yes Yes Yes Yes

Hawk's Run (2) . . . . . . Tampa, Florida Yes Yes Yes Yes Yes

Emerald Dunes Golf Course West Palm Beach, Florida Yes Yes Yes Yes Yes
(3) . . . . . . . . . . .

Lost Oaks of Innisbrook. . Tampa, Florida Yes Yes Yes(4) Yes Yes

Bonaventure Golf Course. . Fort Lauderdale, Florida
East Yes Yes Yes Yes Yes
West Yes Yes Yes Yes Yes

(1) Woodlands has a temporary clubhouse and a permanent facility is under
construction.

(2) Eagle's Watch and Hawk's Run currently comprise the 27-hole Sandpiper
Course. An additional nine holes are under construction, which is
scheduled for completion in 1998. Numbers shown are 18-hole equivalents
for Sandpiper.

(3) Emerald Dunes Golf Course is subject to a mortgage of approximately
$12.9 million.

(4) The Company has agreed to fund up to $1.25 million for improvements,
including the reconstruction and renovation of the existing clubhouse
after which the Base Rent payable by the Lessee will be increased.

HIGH-END DAILY FEE COURSES

The Company considers its Daily Fee courses to be high-end courses,
reflected in the quality and maintenance standards of the golf courses, and
the green fees, which are generally higher than other golf courses in their
respective markets. Some high-end daily fee courses are semi-private, in that
they offer membership packages but also allow public play.

THE GOLF COURSES -- HIGH-END DAILY FEE COURSES

Facilities and Services
----------------------------------------------

No. of Year Practice Cart Food & Pro
Course Name Location, City, State Holes Yardage Opened Facilities Rental Clubhouse Beverage Shop
----------- --------------------- ----- ------- ------ ---------- ------ --------- -------- ----

Royal New Kent . . . . . Providence Forge, Virginia 18 7,291 1996 Yes Yes Yes(1) Yes Yes

Legends of Stonehouse Williamsburg, Virginia 18 6,963 1996 Yes Yes Yes(1) Yes Yes

Olde Atlanta. . . . . . . Atlanta, Georgia 18 6,789 1993 Yes Yes Yes Yes Yes

Tiburon . . . . . . . . . Omaha, Nebraska 27 7,005 1989 Yes Yes Yes Yes Yes

Raintree. . . . . . . . . Akron, Ohio 18 6,886 1992 Yes Yes Yes Yes Yes

Eagle Watch . . . . . . . Atlanta, Georgia 18 6,896 1989 Yes Yes Yes(1) Yes Yes

Black Bear Golf Club. . . Orlando, Florida 18 7,002 1995 Yes Yes Yes Yes Yes

Mystic Creek Golf Course Dearborn, Michigan 27 6,802 1996 Yes Yes Yes Yes Yes

Sandpiper Golf Course (2) Santa Barbara, California 18 7,068 1972 Yes Yes Yes Yes Yes

(1) These courses each have a temporary clubhouse and a permanent facility
under construction at the sole cost and expense of the applicable
Lessee.

(2) Concurrent with the acquisition of Sandpiper Golf Course, the Company
formed a taxable subsidiary to hold title to a 14-acre development site
adjacent to Sandpiper Golf Course. See the Company's 1998 Proxy
Statement -- Certain Relationships and Transactions -- Sandpiper
Transaction.

PRIVATE CLUB COURSES

Private clubs are generally closed to the public and generate revenue
principally through initiation fees and membership dues, golf cart rentals
and guest green fees. Initiation fees and membership dues are determined
according to the particular market segment in which the club operates.

Revenue and cash flows of private country clubs generally are more
stable and predictable than those of public courses because the receipt of
membership dues generally is independent of the level of course utilization.

THE GOLF COURSES -- PRIVATE COUNTRY CLUB COURSES

Facilities and Services
-----------------------------------------------

Northgate Country Houston, Texas 18(1) 6,540 1984 Yes Yes Yes Yes Yes
Club. . . . . . . .
The Club of the Louisburg, Kansas 18 6,357 1979 Yes Yes Yes Yes Yes
Country . . . . . .

Stonehenge Golf

Wildewood
Country Club. . . Columbia, South Carolina 18 6,751 1974 Yes Yes Yes Yes Yes
Country Club at
Woodcreek Farms . Columbia, South Carolina 18 7,002 1997 Yes Yes Yes Yes Yes

Persimmon Ridge . . Louisville, Kentucky 18 7,129 1989 Yes Yes Yes Yes Yes

(1) Nine additional holes are expected to open in 1998. The Company has
agreed to fund up to $3.0 million to construct an additional nine holes
located on land adjacent to this Golf Course. The Company has agreed to
acquire such additional holes subject to certain conditions, after which
the Base Rent payable by the Lessee will be increased.

THE PARTICIPATING LEASES

THE FOLLOWING SUMMARY OF THE PARTICIPATING LEASES IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO THE PARTICIPATING LEASES, A FORM OF WHICH IS FILED
AS AN EXHIBIT. THE FOLLOWING DESCRIPTION OF THE PARTICIPATING LEASES DOES NOT
PURPORT TO BE COMPLETE BUT CONTAINS A SUMMARY OF THE MATERIAL PROVISIONS
THEREOF. PURSUANT TO THE COMPANY'S MULTIPLE INDEPENDENT LESSEE STRUCTURE,
LEASES ARE INDIVIDUALLY NEGOTIATED AND CONSEQUENTLY VARY FROM ONE ANOTHER, AT
TIMES IN MATERIAL WAYS.

All of the Participating Leases contain the same basic provisions
described below. The leases for any golf course properties acquired by the
Company in the future will contain such terms and conditions as are agreed
upon between the Lessee and the Company at the time of such acquisitions, and
such terms and conditions may vary from the terms and conditions described
below with respect to the Participating Leases. The Company anticipates that
each new lease will be with an existing Lessee, with an affiliate of the
seller or with an unaffiliated third party experienced in the operation of
similar courses.

LEASE TERM. Each Participating Lease was entered into upon the
conveyance to the Company of the underlying Golf Course. The Company's
interest in each leased Golf Course includes the land, buildings and
improvements, related easements and rights, and fixtures (collectively, the
"Leased Property"). Each Leased Property is leased to the respective Lessee
under a Participating Lease which has a primary term of 10 years (the "Fixed
Term"). The Fixed Terms for the Golf Courses acquired at the IPO end on
December 31, 2006 and the Fixed Terms for the Golf Courses acquired since the
IPO generally and 10 years after the Lease commenced. In addition, each
Lessee has an option to extend the term of its Participating Lease for up to
six terms of five years each (the "Extended Terms") subject to earlier
termination upon the occurrence of certain contingencies described in the
Participating Lease.

In addition, at the expiration of the Fixed Term and the Extended Terms,
the Lessee will have a right of first offer to continue to lease the Golf
Course on the terms and conditions pursuant to which the Company intends to
lease the Golf Course to a third party.

USE OF THE GOLF COURSES. Each Participating Lease permits the Lessee to
operate the Leased Property as a golf course, along with a clubhouse and
other activities customarily associated with or incidental to the operation
of a golf course and other facilities located at the golf course, including,
where applicable, swim and tennis operations. Operations may include sale or
rental of golf-related merchandise, sale of memberships, furnishing of
lessons, operation of practice facilities and sales of food and beverages.

Base Rent; Participating Rent. The initial Base Rent for the 24 Golf
Courses that the Company owns is set forth below:

Initial Base
Rent
Golf Course Per Year Percentage Rent
----------- -------- ---------------

Legends Resort $4,669,000 33 1/3% of the increase in Gross Golf
Revenue over the Base Year, as adjusted,
Heathland less increases attributable to the Base
Parkland Escalator.(1)(2)
Moorland

Heritage Golf Club $1,825,000 33 1/3% of the increase in Gross Golf
Revenue over the Base Year, as adjusted,
less increases attributable to the Base
Escalator.(1)(2)

Oyster Bay $1,856,000 33 1/3% of the increase in Gross Golf
Revenue over the Base Year, as adjusted,
less increases attributable to the Base
Escalator.(1)(2)

Royal New Kent $1,817,000 33 1/3% of the increase in Gross Golf
Revenue over the Base Year, as adjusted,
less increases attributable to the Base
Escalator.(1)(2)

Legends of $1,890,000 33 1/3% of the increase in Gross Golf
Stonehouse Revenue over the Base Year, as adjusted,
less increases attributable to the Base
Escalator.(1)(2)

Olde Atlanta Golf $ 845,000 33 1/3% of the increase in Gross Golf
Club Revenue over the Base Year, as adjusted,
less increases attributable to the Base
Escalator.(1)(2)

Northgate Country $1,407,000 33 1/3% of the increase in Gross Golf
Club Revenue over the Base Year, as adjusted,
less increases attributable to the Base
Escalator.(1)(2)

The Woodlands $ 679,000 33 1/3% of the increase in Gross Golf
Revenue over the Base Year, as adjusted,
less increases attributable to the Base
Escalator.(1)

Tiburon Golf Club $631,000 33 1/3% of the increase in Gross Golf
Revenue over the Base Year, as adjusted,
less increases attributable to the Base
Escalator.(1)

Raintree Country $447,000 33 1/3% of the increase in Gross Golf
Club Revenue over the Base Year, as adjusted,
less increases attributable to the Base
Escalator.(1)

Initial Base
Rent
Golf Course Per Year Percentage Rent
----------- -------- ---------------

Eagle Watch Golf $653,000 33 1/3% of the increase in Gross Golf
Club Revenue over the Base Year, as adjusted,
less increases attributable to the Base
Escalator.(1)

Lost Oaks of $573,000 33 1/3% of the increase in Gross Golf
Innisbrook Golf Revenue over the Base Year, as adjusted,
Course less increases attributable to the Base
Escalator.(1)

The Club of the $315,000 33 1/3% of the increase in Gross Golf
Country Revenue over the Base Year, as adjusted,
less increases attributable to the Base
Escalator.(1)

Black Bear Golf $500,000 33 1/3% of the increase in Gross Golf
Club Revenue over the Base Year, as adjusted,
less increases attributable to the Base
Escalator.(1)

Stonehenge Golf $1,103,000 33 1/3% of the increase in Gross Golf
Revenue over the Base Year, as adjusted,
Wildewood less increases attributable to the Base
Country Club Escalator.(1)

The Country
Club at
Woodcreek
Farms

Bonaventure Golf $2,332,000 (i) The difference between (x) the sum
Course of 47.5% of Gross Golf Revenue, 12.5% of
Merchandise Revenue and 15% of Food and
East Beverage Revenue and (y) the Annual Base
Rent and (ii) for any Fiscal Year during
West the Extended Term, the difference
between (x) 50% of the Gross Golf
Revenue, 12.5% of the Merchandise
Revenue and 15% of Food and Beverage
Revenue for such Fiscal Year and (y) the
Annual Base Rent for such Fiscal Year.

Mystic Creek Golf $1,000,000 33 1/3% of the increase in Gross Golf
Club Revenue over the Base Year, as adjusted,
less increases attributable to the Base
Escalator.(1)

Emerald Dunes Golf $2,240,000 33 1/3% of the increase in Gross Golf
Course Revenue over the Base Year, as adjusted,
less increases attributable to the Base
Escalator.(1)

Sandpiper Golf $2,970,000 The sum of Gross Golf Percentage Rent(3),
Course Food and Beverage Rent(4) and Merchandise
Percentage Rent.(5)

Persimmon Ridge $ 733,000 40% of the increase in Gross Golf
Golf Course ---------- Revenue over the Base Year, as adjusted,
less increases attributable to the Base
Escalator.

TOTAL $28,485,000

(1) Base Escalator generally means the amount Base Rent will increase, which
is the lesser of (i) three percent (3.0%) of the Annual Base Rent
payable for the immediately preceding year, or (ii) two hundred percent
(200%) of the change in CPI from the immediately preceding fiscal year.

(2) For the initial ten courses, the initial base rent includes the capital
expenditure reserve (generally 2%-5% of the base year's gross golf
revenue).

(3) Gross Golf Percentage Rent accrues after Gross Golf Revenue exceeds
$5,000,000 in a fiscal year. If Gross Golf Revenue for a fiscal year is
between $5,000,000 and $6,000,000, then Gross Golf Percentage Rent is 5%
of the positive difference between Gross Golf Revenue and $5,000,000.
If Gross Golf Revenue for a fiscal year is between $6,000,000 and
$7,000,000, then Gross Golf Percentage Rent is the sum of 20% of the
positive difference between Gross Golf Revenue and $6,000,000 plus
$50,000. If Gross Golf Revenue for a fiscal year is between $7,000,000
and $8,000,000, then Gross Golf Percentage Rent is the sum of 40% of the
positive difference between Gross Golf Revenue and $7,000,000 plus
$250,000. If Gross Golf Revenue for a fiscal year is above $8,000,000,
then Gross Golf Percentage Rent is the sum of 50% of the positive
difference between Gross Golf Revenue and $8,000,000 plus $650,000. For
example, if Gross Golf Revenue for a fiscal year was $8,500,000, Gross
Golf Percentage Rent would be $900,000.

(4) Food and Beverage percentage rent is derived from Food and Beverage
revenue. Food and Beverage Revenue is revenue received relating to the
operation of snack bars, restaurants, bars and catering functions. Food
and Beverage Percentage Rent is 10% of the positive difference between
Food and Beverage revenue for the year and $375,000.

(5) Merchandise Rent is derived from Merchandise Revenue. Merchandise
Revenue is all revenue received from the property relating to the sale
of merchandise and inventory on the property. Merchandise Percentage
Rent is 10% of the positive difference between Merchandise Revenue for
the year and $475,000.

The Participating Leases provide for the Company to receive, with
respect to each Golf Course, the greater of Base Rent or an amount equal to
Participating Rent plus the initial Base Rent payable under each
Participating Lease. Participating Rent is equal to 33 1/3% of any increase
in Gross Golf Revenue over Gross Golf Revenue for the base year, as adjusted
in determining the initial Base Rent, which base year will be reset to the
year immediately preceding the date on which the Prior Owner exercises the
Lessee Performance Option, if applicable. The base year is 1996 for the
courses acquired at the IPO and for Golf Courses acquired since the IPO is
either 1996 or the trailing 12-month period prior to the determination of the
Base Rent. Base Rent will generally be increased annually by the Base Rent
Escalator (generally, the lesser of (i) 3% or (ii) 200% of the change in CPI
for the prior year) during the first five years of each Participating Lease
term and, if the Lessee Performance Option is exercised, an additional five
years thereafter from the date of exercise. Annual increases in Lease
Payments are limited to 5% during the first five years of the initial lease
terms. "Gross Golf Revenue" generally is defined as all revenues from a Golf
Course including green fees, golf cart rentals, range fees, membership dues,
membership initiation fees and transfer fees, excluding, however, food and
beverage and merchandise revenue. For the two Virginia Golf Courses, which
recently opened, the base year Gross Golf Revenue is based on an estimate by
the Company and the Lessee of such courses, which estimate was also the basis
for the valuation of those Golf Courses. Base Rent is required to be paid in
twelve equal monthly installments in arrears on the first day of each
calendar month. Participating Rent is payable either monthly or quarterly in
arrears.

The Company believes that Gross Golf Revenue, and hence the amount of any
Participating Rent, will be favorably impacted by any significant capital
improvements undertaken by a Lessee, such as the planned clubhouses at
Woodlands, Legends of Stonehouse and Royal New Kent and the planned
renovations and improvements at Lost Oaks of Innisbrook, Eagle Watch and
Sandpiper.

TRIPLE NET LEASES. The Participating Leases are structured as triple
net leases under which each Lessee is required to pay all real estate and
personal property taxes, insurance, utilities and services, golf course
maintenance and other operating expenses.

SECURITY DEPOSIT. As security for its affiliated Lessee's obligations
under its Participating Leases, each prior owner of each Golf Course
generally is obligated to pledge OP Units (or cash or other collateral
acceptable to the Company) with a value initially equal to 15% of the
purchase price for the applicable Golf Course. The security deposit generally
will not be released for two years. Beginning in the third year and any time
thereafter, one-third of pledged collateral will be released if the net
operating income to lease payment coverage ratio (the "Coverage Ratio") of
the Lessee for the two prior fiscal years equals or exceeds 120%, 130% and
140%, respectively. If the Coverage Ratio falls below 120% at any time
following the release of pledged collateral, then the Lessee shall be
required to retain and not distribute profits until such time as the Lessee
has retained cash equal to at least six-months of then-current Base Rent. In
addition, the Participating Leases with the Legends Lessees are
cross-collateralized and cross-defaulted.

The security deposit will be increased following the exercise of any
Lessee Performance Option to equal approximately 15% of the sum of the
initial purchase price of such Golf Course and the value of any additional OP
Units issued in connection with the exercise of the Lessee Performance
Option. If the Company acquires any Expansion Facility, the security deposit
also will be increased by an amount equal to approximately 15% of the
purchase price of the Expansion Facility.

In connection with the lease of Tiburon, Granite Golf pledged to the
Company Common Stock of the Company with a value equal to approximately
$600,000 and Common Stock of Granite Golf with a value equal to approximately
$1.2 million, each value determined at the time of the pledge. The Company's
Common Stock is released 50% upon attaining a 130% Coverage Ratio and 50%
upon attaining a 140% Coverage Ratio. The Granite Golf stock is released 50%
when certain post-closing payments totaling up to $600,000 are made by
Granite Golf to the Prior Owner, which payment is guaranteed by the Company
and 50% when a 120% Coverage Ratio is obtained. The three courses leased to
Granite Golf are cross collateralized.

The collateral for Lost Oaks of Innisbrook consists primarily of 70,980
shares of Common Stock of the Company valued at approximately $1.9 million on
the date of the pledge. It is anticipated that 59,302 of the shares will be
released when the Coverage Ratio reaches 113.5%, and the balance will be
released in three equal installments when the Coverage Ratio reaches 120%,
130%, and 140%, respectively. The collateral also includes a pledge of the
proceeds of the Option Shares (as defined herein), which will be released
when the Coverage Ratio reaches 113.5%.

The collateral for The Club of the Country lease, 19,231 OP Units and
$250,000 of value at the time of the pledge of pledged shares of common stock
of Granite Golf.

The collateral for Emerald Dunes Golf Course consists of 115,812 OP
Units (the "Minimum Pledged Units") and 90,823 additional OP Units (the
"Additional Pledged Units") valued collectively at approximately $5,995,000
on the date of the pledge. The collateral will not be released for two years.
Beginning in the third year and at any time thereafter, one-third of the
Minimum Pledged Units will be released if the Coverage Ratio for the Emerald
Dunes lessee equals or exceeds 120%, 130% and 140% respectively. The
Additional Pledged Units will be released if such lessee achieves net
operating income of $2,240,000 in any fiscal year. If the net operating
income of the property is between $2,240,000 and $1,930,000, a pro-rata
amount of the Additional Pledged Units shall be released.

The collateral for Bonaventure Golf Course which is leased to an
affiliate of the Lessee of Emerald Dunes, consists of 17,234 Class B OP Units
with a value of $500,000 on the date of the pledge. Class B OP Units have
the same Redemption Rights as other OP Units but do not receive any
distributions or have any profit or loss allocated to their holders. These
units may be released after two consecutive fiscal years where the Coverage
Ratio equals or exceeds 140%.

The collateral for Sandpiper Golf Course consists of a payment guarantee
(the "Payment Guarantee") by Great Universal Capital Associates, L.P. in the
amount of $1,485,000 and a letter of credit (the "Letter of Credit") from
EGSB, LLC in the amount of $1,485,000. Both Great Universal Capital
Associates, L.P. and EGSB, LLC are affiliates of Environmental Golf.
Beginning in the third year and at any time thereafter, the amount of the
Payment Guarantee will be reduced by a third if the Coverage Ratio for the
Sandpiper Lessee equals or exceeds 120%, 130% and 140% respectively.
Beginning in the third year and at any time thereafter, the amount of the
Letter of Credit will be reduced by a third if the Coverage Ratio equals or
exceeds 120%, by one-half if the Coverage Ratio equals or exceeds 130% or
completely if the Coverage Ratio equals or exceeds 140%.

ADVISORY ASSOCIATION. Each Lessee is a member of the Advisory
Association, which participates in cross-marketing of the Golf Courses and
identified each Golf Course as owned by the Company, thereby increasing the
golfing consumer's brand name awareness of the Company. Membership in the
Advisory Association is designed to provide the Lessees, collectively,
greater purchasing power with vendors than each would have individually. The
Advisory Association attempts to ensure a consistent, high-quality product at
each member Golf Course. In conjunction with management of the Company, the
Advisory Association will review and analyze any disputes between the Company
and a Lessee concerning annual capital and operating budgets and in
conjunction with the Company also will confirm each Lessee's compliance with
its repair and maintenance obligations under each Participating Lease.

MAINTENANCE AND MODIFICATIONS. Each Lessee at its sole cost and
expense, is required, to maintain and operate its respective Leased Property
in good order, repair and appearance and to make such structural and
non-structural, interior and exterior foreseen and unforeseen, and ordinary
and extraordinary repairs as are necessary and appropriate to keep such
Leased Property in good order, repair and appearance. Each Lessee also must
maintain each Golf Course it leases in substantially the same condition it
was in at the commencement of the Participating Lease and otherwise in a
condition comparable to other comparable golf courses in its vicinity. If the
Company, in consultation with the Advisory Association, determines that a
Lessee has failed to comply with its maintenance and operation obligations,
then the Company shall provide a written list to the Lessee of remedial work
and/or steps to be performed. If the Lessee disputes the Company's
assertions, then the matter shall be handled by a committee composed of
members of the Advisory Association and representatives of the Company.

The Company has generally established and will maintain, through the
payment of additional rent, with respect to each Golf Course, a capital
replacement reserve (a "Capital Replacement Fund") in an amount equal to
between 2% and 5% of Gross Golf Revenue at such Golf Course, depending on
certain factors, including the condition of the structures and the age and
condition of the Golf Course. The Company and each Lessee will agree on the
use of funds in these reserves and the Company has the right to approve each
Lessee's annual and long-term capital expenditure budgets. Funds in the
Capital Replacement Fund shall be paid to a Lessee to reimburse such Lessee
for expenditures made in connection with approved capital replacements. The
Lessees generally are obligated to increase their lease payment each year in
an amount equal to the increase in the Capital Replacement Fund from the
prior year. Amounts in the Capital Replacement Fund will be deemed to accrue
interest at a money market

rate. Any amounts in the Capital Replacement Fund at the expiration of the
applicable Participating Lease will be retained by the Company.

Except for its obligation to fund the Capital Replacement Fund and
except for certain improvements the Company has agreed to fund at Lost Oaks
of Innisbrook and Eagle Watch in exchange for an increase in the Base Rent,
the funding of the construction of a clubhouse at Woodlands and the funding
of renovations at Sandpiper, the Company is not required to build or rebuild
any improvements on any Leased Property, or to make any repairs,
replacements, alterations, restorations or renewals of any nature or
description to any Leased Property, whether ordinary or extraordinary,
structural or non-structural, foreseen or unforeseen, or to make any
expenditure whatsoever with respect thereto, in connection with any
Participating Lease, or to maintain any Leased Property in any way. In the
event that the Company elects to fund additional capital improvements on a
Golf Course, the Company generally will condition such election on an
increase in minimum rent under the Participating Lease with respect to such
Golf Course to reflect such expenditures.

During the Fixed Term and each Extended Term, each Lessee, at its sole
cost and expense, may make alterations, additions, changes and/or
improvements ("Lessee Improvements") to each Leased Property, without the
Company's prior written consent, provided such alterations do not diminish
the value or appearance of the Golf Course. All such Lessee Improvements will
be subject to all the terms and provisions of each applicable Participating
Lease and will become the property of the Company upon termination of such
Participating Lease.

At the end of the Participating Lease, all remaining personal property
at each Leased Property will become the property of the Company.

INSURANCE. Each Lessee is required to maintain insurance on its Leased
Property under insurance policies providing for all-risk, liability, flood
(if carried by comparable golf course facilities in the area and otherwise
available at commercially reasonable rates) and worker's compensation
coverage, which at the time is usual and commonly obtained in connection with
properties similar in type of building size and use to the Leased Property
located in the geographic area where the Leased Property is located. Each
insurance policy names the Company as additional insured or loss payee, as
applicable.

ASSIGNMENT AND SUBLETTING. A Lessee, without the prior written consent
of the Company (which consent may generally be withheld by the Company in its
sole discretion, except in limited instances), may not assign, mortgage,
pledge, hypothecate, encumber or otherwise transfer any Participating Lease
or any interest therein, all or any part of the Leased Property or suffer or
permit any lease or the leasehold estate created thereby or any other rights
arising under any Participating Lease to be assigned, transferred, mortgaged,
pledged, hypothecated or encumbered, in whole or in part, whether
voluntarily, involuntarily or by operation of law. An assignment of a
Participating Lease will be deemed to include any change of control of such
Lessee, as if such change of control were an assignment of the Participating
Lease. However, each Lessee has the right to assign its Participating Lease
to its affiliates.

Each Prior Owner has retained the right to use the existing office
facilities in any clubhouse or other improvements on a Golf Course for its
continued business operations not associated with the Golf Course.

Each Lessee, with the Company's prior approval, which approval the
Company may withhold in its discretion, may be permitted to sublease portions
of any Leased Property to sublessees to operate

portions (but not the entirety of the operations customarily associated with
or incidental to the operation of a golf course (e.g., driving range,
restaurant, etc.).

COMPANY'S RIGHT OF FIRST OFFER. In the event a Lessee desires to sell
its interest in its Participating Lease to an unaffiliated third party, it
must first offer the Company or its designee the right to purchase such
interest. The Lessee must give the Company written notice of its intent to
sell, which shall indicate the terms and conditions upon which such Lessee
intends to sell its interest in the Participating Lease. The Company or its
designee shall thereafter have a period of 60 days to elect to purchase the
leasehold interest on the terms and conditions at which such Lessee proposes
to sell its interest. If the Company or its designee elects not to purchase
the interest of the Lessee, then such Lessee shall be free to sell its
interest to a third party, subject to the Company's approval as described
above (see "-- Assignment and Subletting"). However, if the terms on which
the Lessee intends to sell its interest are reduced by 5% or more, then such
Lessee shall again offer the Company the right to acquire its interest,
provided the Company shall have only 15 days to accept such offer.

LESSEE'S RIGHT OF FIRST OFFER. The Company may sell a Golf Course, but
must first offer the Lessee of such course the right to purchase the Golf
Course. The Company must give the relevant Lessee written notice of its
intent to sell, which shall indicate the terms and conditions upon which the
Company intends to sell such Golf Course. Such Lessee shall thereafter have a
period of 60 days to elect to purchase the Golf Course on the terms and
conditions at which the Company proposes to sell the Golf Course. If such
Lessee elects not to purchase the Golf Course, then the Company shall be free
to sell the Golf Course to a third party. However, if the price at which the
Company intends to sell the Golf Course is reduced by 5% or more from the
price offered to the Lessee, then the Company again shall offer such Lessee
the right to acquire the Golf Course at the reduced price provided that such
Lessee shall have only 15 days to accept such offer.

DAMAGE TO, OR CONDEMNATION OF, A LEASED PROPERTY. In the event of
damage to or destruction of any Leased Property caused by an insured risk,
the Lessee will be obligated to diligently restore the Leased Property to
substantially the same condition as existed immediately prior to such damage
or destruction and, to the extent the insurance proceeds and the Capital
Replacement Fund are insufficient to do so, such Lessee will be obligated to
contribute the excess funds needed to restore the Leased Property. Any excess
insurance proceeds will be paid to the Company. Notwithstanding the
foregoing, in the event the damage or destruction of the Leased Property
renders the Leased Property unsuitable for use as a golf course for a period
of 12 months or more, the Lessee may terminate the Participating Lease.

INDEMNIFICATION GENERALLY. Under each Participating Lease, the Lessee
has agreed to indemnify, and hold harmless, the Company from and against all
liabilities, obligations, claims, actual or consequential damages, penalties,
causes of action, costs and expenses (including reasonable attorneys' fees
and expenses) imposed upon or asserted against the Company as owner of the
applicable Leased Property on account of, among other things, (i) any
accident, injury to or death of a person or loss of or damage to property on
or about the Leased Property, (ii) any use, non-use or misuse by such Lessee
of the Leased Property, (iii) any impositions (which are the obligations of
the relevant Lessee to pay pursuant to the applicable provisions of such
Participating Lease) or the operations thereon, (iv) any failure on the part
of the Lessee to perform or comply with any of the terms of the Participating
Lease or any sublease, (v) any taxes levied against the Leased Property and
(vi) any liability the Company may incur or suffer as a result of any
permitted contest by the Lessee under any Participating Lease.

EVENTS OF DEFAULT. Events of Default are defined in each Participating
Lease generally to include, among others, the following:

(i) if a Lessee fails to make a rent payment when such payment
becomes due and payable and such failure is not cured by such Lessee
within a period of 10 days after receipt of written notice thereof from
the Company;

(ii) if a Lessee fails to observe or perform any material term,
covenant or condition of a Participating Lease and such failure is not
cured by such Lessee within a period of 30 days after receipt by such
Lessee of written notice thereof from the Company, unless such failure
cannot be cured with due diligence within a period of 30 days, in which
case such failure will not constitute an Event of Default if such Lessee
proceeds promptly and with due diligence to cure the failure and
diligently completes the curing thereof within 120 days;

(iii) if a Lessee: (a) admits in writing its inability to pay its
debts generally as they become due, (b) files a petition in bankruptcy
or a petition to take advantage of any insolvency act, (c) makes an
assignment for the benefit of its creditors, (d) is unable to pay its
debts as they mature, (e) consents to the appointment of a receiver for
itself or of the whole or any substantial part of its property or (f)
files a petition or answer seeking reorganization or arrangement under
the federal bankruptcy laws or any other applicable law or statute of
the United States of America or any state thereof;

(iv) if the Lessee is liquidated or dissolved;

(v) if the Lessee voluntarily ceases operations on the Leased
Property, except as a result of damage, destruction or a partial or
complete condemnation or other unavoidable delays; or

(vi) if the Lessee or an affiliate thereof is in default under
any other Participating Lease with the Company.

If an Event of Default occurs and is continuing under a Participating
Lease, then the Company may terminate the Participating Lease by giving the
Lessee not less than 10 days notice (only if required by the Participating
Lease) of such termination and upon the expiration of such time, the Fixed or
Extended Term, as the case may be, will terminate and all rights of the
Lessee under the Participating Lease shall cease.

GOVERNING LAW. The Participating Leases will be governed by and
construed in accordance with the law of the state where the Golf Course is
located. Because the Golf Courses are located in various states, the
Participating Leases may be subject to restrictions imposed by applicable
local law.

THE PARTICIPATING MORTGAGE

THE FOLLOWING SUMMARY OF THE PARTICIPATING MORTGAGE BETWEEN THE COMPANY
AND THE WESTIN INNISBROOK RESORT OWNER IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO THE PARTICIPATING MORTGAGE, A COPY OF WHICH IS FILED AS AN
EXHIBIT. THE WESTIN INNISBROOK RESORT OWNER CURRENTLY IS REQUIRED TO FILE
REPORTS AND OTHER INFORMATION WITH THE COMMISSION PURSUANT TO THE EXCHANGE
ACT.

The Participating Mortgage transaction was structured in a manner that
the Company believes provides the Company with returns similar to those from
the Participating Leases used in the Company's standard purchase/ leaseback
structure. Through the Participating Mortgage, the Company will participate

in the growth in revenues at the Westin Innisbrook Resort through a
participating interest feature and will have the right to purchase the Westin
Innisbrook Resort at the expiration of the loan term.

AMOUNT. The maximum principal amount of the Participating Mortgage is
$78.975 million, $69.975 million of which has been funded. The Company is
obligated to make additional advances up to $9 million available to the
Westin Innisbrook Resort Owner to fund the construction of an additional
nine-holes and renovation of the conference and resort facility. The advance
for construction purposes is subject to review and approval rights
customarily granted to construction lenders, including review and approval of
plans and specifications.

In addition, the principal amount of the Participating Mortgage may be
increased by an amount calculated in a manner similar to the procedures for
the Lessee Performance Option. During years three through five of the
Participating Mortgage, the Westin Innisbrook Resort Owner has the one-time
right to require the Company to advance an additional amount under the
Participating Mortgage, subject to certain qualifications and requirements,
including attaining a coverage ratio of 113.5%, after taking into account the
increased amount of interest. If such Performance Advance is made, interest
on the Performance Advance will be calculated to be accretive to the
Company's Funds From Operations on a per share basis, and the Westin
Innisbrook Resort Owner will be required to purchase additional OP Units with
that advance.

MORTGAGE TERM. The Participating Mortgage has a term of 30 years. The
Westin Innisbrook Resort Owner has no right to prepay the Participating
Mortgage for the first 10 years of the Participating Mortgage, except upon a
Transfer Triggering Event (as herein defined). The Participating Mortgage is
prepayable on the tenth anniversary and thereafter at the end of each
five-year period. There are no extension rights associated with the
Participating Mortgage. Any prepayment will require a prepayment based on the
discounted value of payments under the Participating Mortgage, but in no
event less than 10% of the outstanding principal balance of the Participating
Mortgage. In addition, the Company will have the right to purchase the Westin
Innisbrook Resort upon a prepayment.

USE OF THE WESTIN INNISBROOK RESORT. The Westin Innisbrook Resort Owner
is obligated to use the Westin Innisbrook Resort for the operation of a golf
course and related hotel and conference facilities, and other uses incidental
or related thereto.

BASE INTEREST; PARTICIPATING INTEREST. Annual Base interest payable on
the Participating Mortgage on the initial $69,975,000 of principal is equal
to $6,739,063, or 9.63% per annum. Advances on the remaining $9 million bear
interest at 9.75% per annum. Base Interest is payable monthly in arrears.

Base Interest is subject to annual increases of 5% per year for five
years and, if the Performance Advance is funded, 3% a year for an additional
five years.

The Participating Mortgage provides for the Company to receive, in
addition to Base Interest, Participating Interest. Participating Interest is
equal to a percentage of gross revenues at the Westin Innisbrook Resort,
including golf, food, beverage and hotel room receipts, but excluding various
taxes and net of payments made to the condominium owners at the Westin
Innisbrook Resort, over a base year revenue of $40.0 million in 1996.
Participating Interest is payable in an amount equal to 17% of gross revenue
in excess of the base year's gross revenues up to $43 million, 20% of gross
revenue between $43 million and $50 million and 25% of gross revenue over $50
million (with the latter two thresholds subject to annual CPI increases).
Total annual increases in interest payments under the Participating Mortgage
are limited to of 7% for the first five years.

PURCHASE OF STOCK, OP UNITS AND WARRANTS. The Westin Innisbrook Resort
Owner used $8,975,000 of the proceeds of the Participating Mortgage to
purchase 274,039 newly issued OP Units, 159,326 newly issued shares of Common
Stock and an option to purchase up to 150,000 shares of Common Stock at a
price of $26.00 per share (the "Option Shares").

The right to purchase the Option Shares is exercisable at any time until
December 31, 1998. If at the time of exercise the Company does not then have
an effective shelf registration statement, the Westin Innisbrook Resort Owner
can defer the date it purchases the Option Shares until the date 90 days
following the date the Company has an effective shelf registration statement.
If the Westin Innisbrook Resort Owner elects to defer such purchase, then (i)
it shall have the continuing right to rescind its exercise, in which case its
right to purchase the Option Shares shall terminate, and (ii) the purchase
price for the Option Shares shall be increased to reflect the increase in the
stock price of the Company from the date the Westin Innisbrook Resort Owner
exercises its right to purchase the Option Shares and the five-day average
trading price of the Company's stock for the period immediately preceding the
date the Option Shares are acquired.

COLLATERAL. Security for the Participating Mortgage consists of
"Primary Collateral" and "Additional Collateral." Primary Collateral is not
released and remains collateral for the Participating Mortgage throughout its
terms. Additional Collateral is subject to certain release provisions upon
the attainment of certain coverage ratios based on the net operating income
of the Westin Innisbrook Resort compared to the payments under the
Participating Mortgage.

The Primary Collateral consists of the Westin Innisbrook Resort which is
owned by the Westin Innisbrook Resort Owner. The hotel and conference
facilities at the Westin Innisbrook Resort consists of common areas
(generally the conference and restaurant areas) and the hotel rooms. The
hotel rooms are condominium units that are individually owned by third
parties (with the exception of three units owned by the Westin Innisbrook
Resort Owner). The third party owners participate in a rental pool program
whereby they lease their units to the hotel operator in return for a
percentage of the room revenues. As a result, the Company will not have any
direct security interest in the lodging facilities located at the Westin
Innisbrook Resort. The primary collateral will consist of the Golf Courses at
the Westin Innisbrook Resort and the common area facilities.

In addition to the Primary Collateral, the Company has a security
interest in the Additional Collateral, namely (i) excess land at the Westin
Innisbrook Resort which is used for residential and commercial development,
(ii) 79,663 shares of Common Stock and 274,039 OP Units owned by the Westin
Innisbrook Resort Owner (an approximate value of $9.1 million at the time of
the transaction) and (iii) a first mortgage and a third mortgage on the
Tamarron Golf Course and related facilities, an 18-hole destination golf and
resort facility owned by the Westin Innisbrook Resort Owner, located near
Durango, Colorado.

The security interest of the Company in the excess land at the Westin
Innisbrook Resort will be released by the Company at such time as the net
operating income for the Westin Innisbrook Resort equals or exceeds 113.5% of
the payment obligation (the "Participating Mortgage Coverage Ratio") under
the Participating Mortgage for any 12-month period.

The shares of Common Stock and OP Units pledged to the Company as
collateral for the Participating Mortgage will not be released for two years,
and in no event until the Westin Innisbrook Resort Owner's right to receive
the Performance Advance has terminated. Beginning in the third year and any
time thereafter, one-third of the pledged OP Units and Common Stock will be
released at such time

as the Participating Mortgage Coverage Ratio exceeds 120%, 130% and 140%,
respectively, for the prior two fiscal years. If the Participating Mortgage
Coverage Ratio falls below 120% at any time following the release of such
pledged shares of Common Stock and OP Units, then the Westin Innisbrook
Resort Owner shall be required to retain and not distribute profits until
such time as the Westin Innisbrook Resort Owner has retained cash equal to
six-months of the then-current Base Interest.

PURCHASE OPTION. The Company shall have the right to purchase the
Westin Innisbrook Resort that is the collateral for the Participating
Mortgage at the expiration of the term of the Participating Mortgage,
including any early expiration resulting from a default by the borrower
thereunder. The purchase price shall equal the lesser of (i) the fair market
value of the Westin Innisbrook Resort (but in no event less than the
outstanding principal balance of the Participating Mortgage), as determined
by third party appraisal, or (ii) 400,000 shares (125,000 shares if a
"Transfer Triggering Event" has occurred) of the Company's Common Stock and
cancellation of the outstanding principal balance of the Participating
Mortgage.

A "Transfer Triggering Event" is (i) issuance of an interest in the
Westin Innisbrook Resort Owner, (ii) sale of all or substantially all of the
assets of the Westin Innisbrook Resort Owner, (iii) any transaction pursuant
to which the Westin Innisbrook Resort Owner is merged or consolidated into
another entity or (iv) any event that directly or indirectly results in the
transfer of 5% of the equity interest in the Westin Innisbrook Resort Owner
to a third party during the term of the Participating Mortgage, whether
voluntary or involuntary. Upon a Transfer Triggering Event, the Company will
accrue an additional amount of interest equal to $19 million, discounted to
present value on the date of the Transfer Triggering Event, using a discount
rate of 11.5% (the "Additional Interest Amount"). The Company will lend such
amount to the Borrower. As a result, the Company will be required to
recognize income equal to the Additional Interest Amount, but will not
receive any additional cash. Interest then accrues on such Additional
Interest Amount, but is not paid by the Borrower until the maturity of the
Participating Mortgage.

FIXED INTEREST RATE ESCALATION. The Company is required under GAAP to
report interest income from the Participating Mortgage on a straight-line
basis over the life of the Participating Mortgage. Based on the Company's
estimate of future revenue, the Company will report for GAAP purposes
interest revenue exclusive of the Participating Interest equal to
approximately 11.5% per year, which initially will exceed cash payments to
the Company under the Participating Mortgage.

TRANSFER RESTRICTIONS. Subject to the Company's purchase option and
right of first offer, the Westin Innisbrook Resort Owner generally has the
right to transfer the Westin Innisbrook Resort to a third party provided such
third party has the financial resources to permit it to satisfy the
obligations of the borrower under the Participating Mortgage.

CAPITAL EXPENDITURE RESERVE. The Westin Innisbrook Resort Owner is
obligated to maintain a capital replacement reserve which provides additional
collateral for the performance of the Westin Innisbrook Resort Owner's
obligations under the Participating Mortgage. The capital replacement reserve
is equal to $1,076,850 for 1997 (pro rated for the period the Participating
Mortgage is outstanding in 1997), $2 million in 1998, with such amount
increased by 3% per annum through 2001 and 4% per annum thereafter. The
Westin Innisbrook Resort Owner may use funds in such capital replacement
reserve to make capital repairs and improvements at the Westin Innisbrook
Resort, subject to certain review and approval rights of the Company. The
capital expenditure reserve will be held by Westin.

WESTIN GUARANTY. Westin currently operates the Westin Innisbrook Resort
pursuant to a long-term management agreement. Westin has agreed to pay up to
$2.5 million per year to the Westin Innisbrook Resort Owner to supplement
results of operations with respect to the operations at the Westin Innisbrook
Resort. The Westin Guaranty, which is for a period of up to five years, is
released at such time as the operating payments to the Westin Innisbrook
Resort Owner exceed 1.14 times the minimum guaranteed payments. The Company
has agreed with Westin that in the event the Company forecloses its lien on
the Westin Innisbrook Resort, and provided Westin is not in default of its
obligations under the Westin management agreement, the Company will permit
Westin to continue to manage the Westin Innisbrook Resort.

RECIPROCAL RIGHT OF FIRST OFFER. The Company has a right of first offer
to acquire the Westin Innisbrook Resort if the Westin Innisbrook Resort Owner
elects to sell the same on generally the same terms and conditions as granted
the Company in connection with a transfer by any lessee of its rights under a
Participating Lease. In addition, the Westin Innisbrook Resort Owner has the
right of first offer to acquire the Participating Mortgage if the Company
elects to sell the same, generally on the same terms and conditions as the
right of first offer granted to the Lessees upon a sale by the Company of one
of the Golf Courses.

INSURANCE. The Westin Innisbrook Resort Owner is obligated to carry
comparable insurance to the insurance required to be carried by the Lessees
under the Participating Leases.

NON-RECOURSE. The Participating Mortgage is non-recourse to other
assets of the Westin Innisbrook Resort Owner and in general may only be
satisfied by the Company foreclosing its lien on the Westin Innisbrook Resort
and any other collateral then held by the Company.

RIGHT OF FIRST OFFER TO LEASE ADDITIONAL GOLF COURSES PROXIMATE TO THE
WESTIN INNISBROOK RESORT. While the Participating Mortgage is outstanding,
the Company may not own or finance any existing golf course located within a
25 mile radius of the Westin Innisbrook Resort without giving the Westin
Innisbrook Resort Owner a right of first offer to lease such golf course.

ITEM 3. LEGAL PROCEEDINGS

Owners and operators of golf courses are subject to a variety of legal
proceedings arising in the ordinary course of operating a golf course,
including proceedings relating to personal injury and property damage. Such
proceedings are generally brought against the operator of a golf course, but
may also be brought against the owner. The Participating Leases provide that
each Lessee is responsible for claims based on personal injury and property
damage at the Golf Courses which are leased and require each Lessee to
maintain insurance for such purposes.

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

No matters were submitted to the shareholders in the fourth quarter of
1997.

PART II

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

MARKET INFORMATION

The Company's sole class of common stock is traded on the American Stock
Exchange (the "AMEX"). Trading of the Company's stock commenced on the AMEX
on February 7, 1997. Since then, and through March 25, 1998, the highest
reported sale price was $32.375, on March 20, 1998, and the lowest reported
sale price was $22.750, on February 7, 1997.

The following table sets forth for periods shown the high and low sales
price for the Company's Common Stock on AMEX and distributions declared.

1997 High Low Distributions
---- ---- --- -------------

Fourth Quarter 29 3/8 25 1/4 $0.41
Third Quarter 28 11/16 26 $0.41
Second Quarter 28 3/4 23 5/8 $0.41
First Quarter 26 1/8 22 3/4 $0.41

SHAREHOLDER INFORMATION

As of March 15, 1998, the number of holders of record of Common Stock of
the Company was approximately 87 and there were 7,631,694 shares outstanding.
On that date a total of 12,726,313 OP Units were held by 21 entities,
including the Company's two subsidiaries.

DIVIDENDS

The Company intends to continue to make regular quarterly distributions
to its stockholders. The Board of Directors, in its sole discretion, will
determine the actual distribution rate based on the Company's actual results
of operations, economic conditions, tax considerations (including those
related to REITs) and other factors. The Company's distributions, for the
period from the completion of the IPO to December 31, 1997, was to equal
distribution of $1.03 per share of Common Stock, which, on an annualized
basis, represents a distribution rate of $1.64 per share. On January 26,
1998, the Board of Directors declared a quarterly dividend distribution of
$.41 per share for the quarter ended December 31, 1997 to stockholders of
record on February 8, 1998 which was paid on February 10, 1998. For the
period ended December 31, 1997, and including payments made for fourth
quarter, the distributions represent 88.0% of cash available for distribution.
Holders of OP Units will receive distributions on a per unit basis equal to
the per share distributions to owners of Common Stock, except that OP Units
issued since the prior record date to partners other that GTA GP or GTA LP
will receive a pro rata distribution based on duration of ownership.

The Company expects to maintain its initial distribution rate unless
actual results of operations, economic conditions or other factors differ
from the results for the twelve months ended December 31, 1997. The Company's
actual cash available for distribution will be affected by a number of
factors, including Gross Golf Revenues generated at the Golf Courses. The
Company anticipates that cash available for distribution will exceed earnings
and profits due to non-cash expenses, primarily depreciation and
amortization, to be incurred by the Company. Distributions by the Company to
the extent of its current or accumulated earnings and profits for federal
income tax purposes, other than capital gain dividends, will be taxable to
stockholders as ordinary dividend income. Any dividends designated by the
Company as capital gain dividends generally will give rise to capital gain
for stockholders. Distributions in excess of the Company's current or
accumulated earnings and profits generally will be treated as a non-taxable
reduction of a stockholder's basis in the Common Stock to the extent thereof,
and thereafter as capital gain. Distributions treated as non-taxable
reduction in basis will have the effect of deferring taxation until the sale
of a stockholder's Common Stock or future distributions in excess of the
stockholder's basis in the Common Stock. Based upon the total estimated cash
available for distribution, the Company estimates that none of the Company's
expected annual distribution would represent a return

of capital for federal income tax purposes. If actual cash available for
distribution or taxable income vary from these amounts, or if the Company is
not treated as the owner of one or more of the Initial Courses, the
percentage of distributions which represents a return of capital may be
materially different.

In order to maintain its qualification as a REIT, the Company must make
annual distributions to its stockholders of at least 95 percent of its
taxable income (excluding net capital gains). Based on the Company's results
of operations for the period from February 12, 1997 through December 31,
1997, the Company was required to distribute approximately $5.2 million in
order to maintain its status as a REIT. Since the dividends paid during the
Company's fiscal year were less than the required distributions, the Company
is permitted to elect and will elect to treat approximately $1.0 million of
its fourth quarter 1997 distribution, which was paid in 1998, as having been
paid in 1997. Although the Company will claim a deduction for such amounts
in determining its 1997 taxable income, the Company's shareholders will not
be taxable on such amounts until 1998. Under certain circumstances, the
Company may be required to make distributions in excess of cash available in
order to meet such distribution requirements.

The Board of Directors, in its sole discretion, will determine the
actual distribution rate based on a number of factors, including the amount
of cash available for distribution, the Company's financial condition,
capital expenditure requirements for the Company's properties, the annual
distribution requirements under the REIT Provisions of the Code and such
other factors as the Board of Directors deems relevant.

RECENT SALES OF UNREGISTERED SECURITIES

On November 11, 1996, 1 share of Common Stock was issued by the Company
to C.A. Hooks, Jr. This issuance of Common Stock was effected in reliance
upon an exemption from registration under Section 4(2) of the Securities Act
as a transaction not involving a public offering. On November 11, 1996 (i)
12,500 OP Units were issued by the Operating Partnership to W. Bradley Blair,
II, (ii) 12,500 OP Units were issued to David J. Dick and (iii) 3,750 OP
Units were issued to James Hoppenrath. On February 12, 1997 the Operating
Partnership issued 4,135,356 OP Units to the Prior Owners in exchange for
their interests in the Initial Golf Courses. On June 23, 1997 the Company
sold 159,326 shares of Common Stock and the Operating Partnership sold
274,039 OP Units to Golf Hosts, Inc. On August 18, 1997 the company issued
21,429 shares of Common Stock to Granite Golf in connection with the
acquisition of Tiburon Golf Club. On September 2, 1997 the Operating
Partnership issued 121,529 OP Units to the Prior Owner of Raintree Country
Club in exchange for its interest in the Raintree Country Club. On October
17, 1997, the Operating Partnership issued 19,231 OP Units to the Prior Owner
of The Club of the Country in exchange for its interest in The Club of the
Country. On November 25, 1997, the Operating Partnership issued 24,424 OP
Units to the Prior Owner of Black Bear Golf Club for its interest in Black
Bear Golf Club. On December 19, 1997, the Operating Partnership issued
169,811 OP Units to the Prior Owner of Wildewood Golf Club and Country Club
at Woodcreek Farms for its interest in Wildewood Golf Club and Country Club
at Woodcreek Farms. On January 16, 1998, the Operating Partnership issued
52,724 OP Units to the Prior Owner of Mystic Creek Golf Club for its interest
in Mystic Creek Golf Club. On February 1, 1998, the Operating Partnership
issued 227,347 OP Units to the Prior Owner of Emerald Dunes Golf Course for
its interest in Emerald Dunes Golf Course. These issuances were effected in
reliance upon an exemption from registration under Section 4(2) of the
Securities Act as a transaction not involving a public offering.

ITEM 6. SELECTED FINANCIAL DATA

The following tables set forth unaudited selected consolidated pro forma
financial information for the Company. The pro forma year ended December 31,
1997 is based on actual results of operations for February 12 through
December 31, 1997 and pro forma results of operations for January 1 through
February 11, 1997. The pro forma operating information for 1996 and 1995 is
presented as if the transactions completed at the IPO (the "Formation
Transactions") had occurred as of January 1, 1995, except for the Legends of
Stonehouse and Royal New Kent which are reflected for those periods in which
they were in operation. The pro forma information does not purport to
represent what the Company's or Initial Lessees' financial position or
results of operations actually would have been had the Formation
Transactions, in fact, occurred on such date or at the beginning of the
period indicated, or to project the Company's or the Initial Lessees'
financial position or results of operation at any future date or any future
period.

SELECTED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)

For the period from For the year ended For the year ended For the year ended
February 12 to December 31, 1997 December 31, 1996 December 31, 1995
December 31, 1997

(Pro forma) (Pro forma) (Pro forma)
(Unaudited) (Unaudited) (Unaudited)

Participating lease revenue $ 14,409 $ 16,152 $ 13,142 $ 11,282
Participating mortgage interest 4,318 4,318 - -
------------------------------------------------------------------------
18,727 20,470 13,142 11,282

Depreciation and amortization 3,173 3,621 3,080 2,536
General and administrative 2,532 2,743 1,639 1,639
Interest income (624) (624) -- --
Interest expense 1,879 1,931 366 366
------------------------------------------------------------------------
Total expenses 6,960 7,671 5,085 4,541

Net income before minority interest 11,767 12,799 8,057 6,741
Income applicable to minority interest 5,798 6,328 3,988 3,202
------------------------------------------------------------------------

Net income applicable to common 5,969 6,471 4,069 3,539
shareholders
Earnings per common share - basic 1.32 1.47 1.04 0.91
Weighted average number of common shares - 4,535 4,401 3,910 3,910
basic

Earnings per common share - diluted 1.29 1.44 1.04 0.91
Weighted average number of common shares - 4,626 4,492 3,910 3,910
diluted

Distribution declared per share and unit 1.44 1.64 1.64 1.64

Funds from operations (1) 14,899 16,379 11,137 9,277
Funds from operations per share (1) 1.65 1.85 1.44 1.25

For the period from For the year ended For the year ended For the year ended
February 12 to December 31, 1997 December 31, 1996 December 31, 1995
December 31, 1997
-----------------------------------------------------------------------------------

(Pro forma) (Pro forma) (Pro forma)
(Unaudited) (Unaudited) (Unaudited)

Cash flows provided by operating 13,644 16,379 11,137 9,277
activities
Cash flows used in investing activities 148,738 148,738 609 479
Cash flows provided by financing 15,062 15,062 13,074 8,821
activities

Cash available for distribution 13,652 15,012 10,528 8,798
Weighted average common stock and OP Units 9,030 8,842 7,746 7,447

BALANCE SHEET
(IN THOUSANDS)

Year Ended
December 31

1997 1996
(Pro Forma)
-----------------------------------

Investments in Golf Courses $101,044 $62,876
Mortgage Notes Receivable $ 65,129 $ --
Total Assets $186,306 $86,684
-------- -------
Mortgages and Notes Payable $ 4,325 $ 4,325
Total Liabilities $ 7,354 $ 4,325
Minority Interest $ 54,625 $42,333
Stockholders' Equity $124,327 $40,126
Total Liabilities and Stockholders' Equity $186,306 $86,684
-------- -------

(1) In accordance with the resolution adopted by the Board of Governors of
the National Association of Real Estate Investment Trusts, Inc.
("NAREIT"), Funds From Operations represents net income (loss) (computed
in accordance with generally accepted accounting principles), excluding
gains of real property, and after adjustments or unconsolidated
partnerships and joint ventures. Funds From Operations should not be
considered as an alternative to net income or other measurements under
generally accepted accounting principles as an indicator of operating
performance or to cash flows from operating, investing or financial
activities as a measure of liquidity. Funds From Operation does not
reflect working capital changes, cash expenditures for capital
improvements or principal payments on indebtedness. The Company
believes that Funds From Operations is helpful to investors as a measure
of the performance of an equity REIT, because, along with cash flows
from operating activities, financing activities and investing
activities, it provides investors with an understanding of the ability
of the Company to incur and service debt and make capital expenditures.
Compliance with the NAREIT definition of Funds From Operations is
voluntary. Accordingly, the Company's calculation of Funds From
Operations in accordance with NAREIT definition may be different that
similarly titled measures used by other REITs.

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

"Management's Discussion and Analysis of Financial Condition and Results
of Operations," and other sections of this report contain various
"forward-looking statements" which represent the Company's expectations
concerning future events including the following: statements regarding the
Company's continuing ability to target and acquire high quality golf courses;
the expected availability of the Line-of-Credit ("Credit Facility") and other
debt and equity financing; the Lessees' future cash flows, results of
operations and overall financial performance; the expected tax treatment of
the Company's operations; the Company's beliefs about continued growth in the
golf industry. Because of the foregoing factors, the actual results achieved
by the Company in the future may differ materially from the expected results
described in the forward-looking statements. The following discussion should
be read in conjunction with the accompanying Consolidated Financial
Statements appearing elsewhere herein.

OVERVIEW

Golf Trust of America, Inc. (the "Company") conducts business through
Golf Trust of America, LP (the "Operating Partnership"), of which the Company
owns a 61.3 percent interest through its two wholly owned subsidiaries and is
the general partner. Larry D. Young, a director of the Company, along with
his affiliates owns 30.1 percent of the Operating Partnership and is a
significant lessee. The remaining interest is the Operating Partnership is
held by operators of the golf courses, their affiliates and officers of the
Company.

The Company was formed to capitalize upon consolidation opportunities in
the ownership of upscale golf courses in the United States. The Company's
principal business strategy is to acquire upscale golf courses and then lease
the golf courses to qualified third party operators, including affiliates of
the sellers. In addition to the ability to acquire golf course(s) for cash
and/or the assumption of indebtedness, the Company has the ability to issue
units of limited partnership interest ("OP Units") in the Operating
Partnership. OP Units are redeemable by their holder for cash or, at the
election of the Company, for shares of Common Stock on a one-for-one basis
(their "Redemption Right"). When the Company acquires a golf course in
exchange for OP Units, in most instances the seller of the course does not
recognize taxable income gain until it exercises the Redemption Right. OP
Units can thus provide an attractive tax-deferred sale structure for golf
course sellers. The Company believes its has a distinct competitive
advantage in the acquisition of upscale golf courses, including those which
might not otherwise be available for purchases, because of (i) its
utilization of a multiple independent lessee structure (ii) management's
substantial industry knowledge, experience, and relationships within the golf
community, (iii) the Company's strategic alliances with prominent golf course
operators and (iv) its ability to issue OP Units to golf course owners on a
tax-deferred basis.

The Company commenced operations on February 12, 1997 with the
completion of its initial public stock offering (IPO) which raised net
proceeds of approximately $73.0 million through the sale of 3,910,000 shares
of common stock. The Company contributed the net proceeds in exchange for OP
Units representing a then 49 percent interest. Concurrent with the closing
of the IPO, the Operating Partnership acquired ten golf courses from their
prior owners for an aggregate of approximately $6.2

million in cash, $47.5 million in repayment of mortgage and other
indebtedness, and 4.1 million Operating Partnership units representing
another 51.1 percent interest.

In November 1997, the Company completed a follow-on offering of
3,450,000 shares of common stock. The Company contributed the net proceeds
of approximately $82.7 million to the Operating Partnership in exchange for
additional OP Units. The Operating Partnership used the net proceeds to
repay approximately $60.6 million outstanding under the Credit Facility which
had been used primarily for golf course acquisitions.

Between the IPO and December 31, 1997, the Operating Partnership has
acquired an additional participating interest in 12 golf courses. Eight of
the courses were acquired for an aggregate of approximately $29.7 million in
cash and in repayment of mortgage indebtedness, and $11.5 million in OP Units
(approximately 679,000 Units) and shares (approximately 21,000 shares) of the
Company's common stock. The participating interest in the other four courses
was obtained through a participating mortgage agreement of approximately
$69.975 million.

Subsequent to December 31, 1997, the Company has acquired interests in
an additional six courses for an aggregate of approximately $79.6 million in
cash and in repayment of indebtedness and the assumption of $12.9 million in
mortgage indebtedness and $7.6 million in OP Units (approximately 280,000
Units).

The Company's primary sources of revenue are Lease Payments under the
Participating Leases and mortgage payments under the Participating Mortgage.
The Company generally participates in the increase in gross golf revenues
over the base year. Base Rent will increase each year by the Base Rent
Escalator during the first five years of the lease term. The Base Rent
Escalator generally equals the lesser of (i) 3% or (ii) 200% of the change in
the CPI over the prior year. Annual increases in Lease Payments are
generally limited to a maximum of 5% for the first five years of the lease
term.

Management believes the principal source of growth in Gross Golf
Revenues at the Golf Courses will be increased green fees, cart fees, and
other related fees (due to increases in rounds and/or rates). In order to
achieve higher revenues, management believes the Lessees will need to
continue to offer golfers a high quality golf experience as it relates to the
pace of play, condition of the Golf Course and overall quality of the
facilities and services.

RESULTS OF OPERATIONS OF THE COMPANY

FOR THE PERIOD FROM FEBRUARY 12 TO DECEMBER 31, 1997

For the period from February 12 to December 31, 1997, the Company
received $18,727,000 in revenue from the Participating Leases and the
Mortgage Note Receivable. Included in revenue was $280,000 in Participating
Rent.

Expenses before minority interest, totaled $6,960,000 for the period
from February 12 to December 31, 1997, reflect depreciation and amortization,
general and administrative expenses, interest income and expense.

For the period from February 12 to December 31, 1997, net income before
minority interest was $11,767,000 and net income was $5,969,000.

LIQUIDITY AND CAPITAL RESOURCES OF THE COMPANY

Cash flow from operating activities for the period from February 12 to
December 31, 1997, was $13,644,000. This reflects net income before minority
interest, plus noncash charges to income for depreciation, loan cost
amortization and working capital changes. Cash flows used in investing
activities reflect increases in the mortgage receivable related to the
Innisbrook facility of $64,406,000 and golf course acquisitions of
$84,332,000. Cash flows provided by financing activities, totaling
$150,062,000 represents the borrowing net of loan costs of $2,877,000 under
the Credit Facility (discussed below) and offering proceeds of $150,720,000
less dividends and partner distributions totalling $8,535,000.

Concurrent with the closing of the IPO, the Company borrowed
approximately $4,325,000 that, together with the net proceeds of the IPO, was
used to retire mortgage indebtedness and other debt of the Prior Owners, to
fund the cash portion of the purchase of the Initial Courses and to provide
initial working capital. The Company has agreed to maintain approximately
$18,000,000 of indebtedness for up to 10 years to accommodate two Prior
Owners' efforts to seek to minimize certain adverse tax consequences from
their contribution of two courses to the Company.

On June 20, 1997, the Company entered into the Credit Facility to be
used primarily for the acquisition of additional golf courses, but a portion
of which may also be used for acquisition of expansion facilities, for
capital expenditures or for general working capital purposes. On February 27,
1998, the Company amended and restated the Credit Facility to increase the
amount available to $125 million on an unsecured basis. Up to 20% of the
Credit Facility may be used for working capital needs. The Credit Facility
availability is limited to "unencumbered pool calculation" as defined in the
Credit Facility. Financial covenants include, among others, net worth,
liquidity and cash flow covenants. Non-financial covenants include
restrictions on loans outstanding, construction in progress, loans to
officers and changes to Board of Directors. At the present time, these
covenants have

been met. Prior to amendment, the Company had a $100 million secured
revolving Credit Facility carried a floating interest rate of LIBOR plus
1.75% (7.72% at December 31, 1997.)

The Company intends to invest in additional golf courses as suitable
opportunities arise, but the Company will not undertake investments unless
adequate sources of financing are available. The Company anticipates that
future acquisitions would be funded with debt financing provided by the
Credit Facility, the issuance of OP Units or with proceeds of additional
equity offerings. In the future, the Company may negotiate additional credit
facilities or issue corporate debt instruments. Any debt issued or incurred
by the Company may be secured or unsecured, long-term or short-term, fixed or
variable interest rate and may be subject to such other terms, as the Board
of Directors deems prudent. The Company currently has no binding agreement
to acquire any additional golf courses. The Company is in active
negotiations regarding the acquisition of additional golf courses, although
there can be no assurance that the Company will acquire any of these golf
courses.

The Company's acquisition capabilities are enhanced by its existing
capital structure. The Company intends to maintain a capital structure with
consolidated indebtedness representing no more than 50% of its total market
capitalization.

Except for the courses where the Company has agreed in advance to expand
or improve the course, the Participating Leases generally require the Company
to reserve annually between 2.0% and 5.0% of the Gross Golf Revenues of the
Golf Courses in the Capital Replacement Fund. The Capital Replacement Fund
is funded by the payment of additional rent from the Lessees. The Lessees
will fund any capital expenditures in excess of such amounts. For the year
ended December 31, 1997, the Company had reserved $524,000.

Currently, the Company has agreed to fund the construction of an
additional nine holes at Northgate Country Club ("Northgate") ($3.0 million),
purchase a clubhouse being constructed at Woodlands ($750,000), fund the
construction at Lost Oaks of Innisbrook for renovations to the clubhouse and
golf course ($1.25 million), fund a working capital line at Tiburon Golf
Course ($150,000), fund the renovations to the conference facilities and
construction of an additional nine holes at the Westin Innisbrook Resort
($9.0 million), fund a working capital line at Bonaventure Golf Course
($750,000) and pay for renovations at that course ($3.15 million) and to fund
a working capital line at Sandpiper Golf Course ($5.0 million) and pay for
renovations at that course ($6.0 million).

PRO FORMA RESULTS OF OPERATIONS OF THE COMPANY

FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996

On a pro forma basis for the years ended December 31, 1997 and 1996, the
Company would have received $20,470,000 and $13,142,000 in revenue from the
Participating Leases and the Mortgage Note Receivable. Included in revenue
was $280,000 in Participating Rent for 1997. The 1997 pro forma results have
been computed using actual results for 1997 and projected results for the
period from January

1 to February 12, while the 1996 pro forma results have been computed as if
the initial ten courses were purchased on January 1, 1996.

Pro forma expenses before minority interest, would have totaled
$7,671,000 and $5,085,000 for the years ended December 31, 1997 and 1996.
The $2,586,000 increase is due primarily to additional depreciation
($541,000), additional general and administrative costs ($1,104,000 - the
majority of which is related to salary and bonus amounts), interest income
($624,000 resulting from investment of temporary cash balances) and
additional interest expense ($1,565,000 for the purchase of golf courses).

Pro forma net income for the years ended December 31, 1997 and 1996
would have been $6,471,000 and $4,069,000.

FUNDS FROM OPERATIONS AND CASH AVAILABLE FOR DISTRIBUTION

Funds From Operations and Cash Available for Distribution are calculated
as follows:

Period From
February 12, Year Ended Year Ended
1997 December 31, December 31,
(Inception of 1997 (Pro 1996 (Pro
Operations) forma) forma)
through Dec.
31, 1997

Income before minority interest. . $ 11,767 $ 12,799 $ 8,057
Depreciation and amortization
for real estate assets . . . . . . 3,132 3,580 3,080
-------- -------- --------

Funds From Operations. . . . . . . 14,899 16,379 11,137
-------- -------- --------
-------- -------- --------
Adjustments:
Noncash mortgage interest. . . . . (723) (723) --
Capital expenditure reserve. . . . (524) (644) (609)
-------- -------- --------

Cash Available for Distribution. . $ 13,652 $ 15,012 $ 10,528
-------- -------- --------
-------- -------- --------

Noncash mortgage interest represents the difference between interest
revenue on the Participating Mortgage reported by the Company in according
with GAAP and the actual cash payment to be received by the Company. Subject
to certain exceptions, the Participating Leases generally require the Company
to reserve annually between 2.0% and 5.0% of the Gross Golf Revenues of the
Golf Courses in the Capital Replacement Fund which is funded by the payment
of additional rent. The Lessees will fund any capital expenditures in excess
of such amounts.

In accordance with the resolution adopted by the Board of Governors of
the National Association of Real Estate Investment Trusts, Inc. ("NAREIT"),
Funds From Operations represents net income (loss) (computed in accordance
with generally accepted accounting principles ("GAAP")), excluding gains (or
losses) from debt restructuring or sales of property, plus depreciation of
real property, and after adjustments for unconsolidated partnership and joint
ventures. Funds From Operations should not be considered as an alternative
to net income or other measurements under GAAP as an indicator of operating
performance or to cash flows from operating investing or financial activities
as a measure of liquidity. Funds From Operations does not reflect working
capital changes, cash expenditures for capital improvements or principal
payments on indebtedness. The Company believes that Funds From Operations is
helpful to investors as a measure of the performance of an equity REIT,
because along with cash flows from operating activities, financing activities
and investing activities, it provides investors with an understanding of the
ability of the Company to incur and service debt and make capital
expenditures. Compliance with the NAREIT definition of Funds From Operations
is voluntary. Accordingly, the Company's calculation of funds from
operations in accordance with the NAREIT definition may be different than
similarly titled measures used by other REITs.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The financial statements and supplementary data required by Regulation
S-X are included in this Annual Report on Form 10-K commencing on page F-1.

ITEM 9. CHANGES IN THE COMPANY'S CERTIFYING PUBLIC ACCOUNTANT

On February 26, 1997, the Company dismissed Price Waterhouse LLP as
independent accountants. Effective February 28, 1997, the Company engaged BDO
Seidman, LLP as principal accountants. The decision to change accountants was
approved by the Audit Committee and ratified by the Board of Directors of the
Company.

The Company was formed on November 8, 1996. Its balance sheet as of
November 8, 1996 was audited by Price Waterhouse LLP. The balance sheet and
the report of Price Waterhouse LLP thereon were included in the Company's
Form S-11 which was declared effective by the Securities and Exchange
Commission on February 6, 1997. In connection with Price Waterhouse LLP's
audit of the November 8, 1996 balance sheet and through February 26, 1997,
there were no disagreements between the Company and Price Waterhouse LLP on
any matter of accounting principles or practices, financial statement
disclosure, or auditing scope or procedure, which disagreements if not
resolved to the satisfaction of Price Waterhouse LLP would have caused them
to make reference thereto in their report on the November 8, 1996 balance
sheet and there were no reportable events (as defined in Regulation S-K Item
304(a)(1)(v)).

The report of Price Waterhouse LLP on the Registrant's November 8, 1996
balance sheet did not contain an adverse opinion or a disclaimer of opinion
and the report was not qualified or modified as to uncertainty, audit scope
or accounting principles.

PART III

CERTAIN INFORMATION REQUIRED IN PART III IS OMITTED FROM THIS REPORT BUT
WILL BE INCLUDED IN A DEFINITIVE PROXY STATEMENT WHICH THE COMPANY WILL FILE
WITHIN 120 DAYS OF THE END OF ITS FISCAL YEAR PURSUANT TO REGULATION 14A FOR
ITS ANNUAL MEETING OF SHAREHOLDERS TO BE HELD IN MAY 1998 (THE "PROXY
STATEMENT").

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

The information contained in the Proxy Statement under the caption
"Election of Directors" is incorporated herein by this reference.

ITEM 11. EXECUTIVE COMPENSATION

The information contained in the Proxy Statement under the caption
"Executive Compensation" is incorporated herein by this reference.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The information contained in the Proxy Statement under the caption
"Security Ownership of Management and Certain Beneficial Owners" is
incorporated herein by this reference.

ITEM 13. CERTAIN RELATIONSHIPS AND TRANSACTIONS

The information contained in the Proxy Statement under the caption
"Certain Relationships and Transactions" is incorporated herein by this
reference.

PART IV

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

1) FINANCIAL STATEMENTS

The financial statements filed as part of this Annual Report
on Form 10-K are listed on page F-1

2) FINANCIAL STATEMENT SCHEDULES

Schedule III - Real Estate and Accumulated Depreciation
(see page S-1)
Schedule IV - Mortgage Loans on Real Estate (see page S-2)

3) EXHIBITS

The exhibits filed as part of this Annual Report on Form 10-K
are listed in the Exhibit Index which follows the financial
statements.

b) REPORTS ON FORM 8-K

No Current Reports on Form 8-K were filed during the 4th Quarter of
1997.

FINANCIAL STATEMENTS

F-1

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities
Act of 1934, the Registrant has duly caused this Annual Report for the year
ended December 31, 1997 to be signed on its behalf by the undersigned,
thereunto duly authorized, in Charleston, South Carolina, on March 26, 1998.

GOLF TRUST OF AMERICA, INC.

By: /S/ W. Bradley Blair, II
-----------------------------------
W. Bradley Blair, II
PRESIDENT AND CHIEF EXECUTIVE OFFICER

POWER OF ATTORNEY

We, the undersigned officers and directors of Golf Trust of America,
Inc., do hereby constitute and appoint W. Bradley Blair, II and David J.
Dick, and each of them, our true and lawful attorneys-in-fact and agents,
each with full power of substitution and resubstitution, for him and in his
name, place and stead, in any and all capacities, to sign any and all
amendments to this report, and to file the same, with exhibits thereto, and
other documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorneys-in-fact and agents, and each of
them, full power and authority to do and perform each and every act and thing
requisite or necessary to be done in and about the premises, as fully to all
intents and purposes as he might or could do in person, hereby, ratifying and
confirming all that each of said attorneys-in-fact and agents, or his
substitute or substitutes, may lawfully do or cause to be done by virtue
hereof.

Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons in the capacities
and on the dates indicated:

SIGNATURE TITLE DATE
--------- ----- ----

/S/ W. Bradley Blair President, Chief March 26, 1998
- ------------------------ Executive Officer and ------------------
W. Bradley Blair, II Chairman of the Board
of Directors

/S/ David J. Dick Executive Vice March 26, 1998
- ------------------------ President and Director ------------------
David J. Dick

/S/ Scott D. Peters Senior Vice President March 26, 1998
- ------------------------ and Chief Financial ------------------
Scott D. Peters Officer

/S/ Larry D. Young Director March 26, 1998
- ------------------------ ------------------
Larry D. Young

/S/ Roy C. Chapman Director March 26, 1998
- ------------------------ ------------------
Roy C. Chapman

/S/ Raymond V. Jones Director March 26, 1998
- ------------------------ ------------------
Raymond V. Jones

/S/ Fred W. Reams Director March 26, 1998
- ------------------------ ------------------
Fred W. Reams

/S/ Edward L. Wax Director March 26, 1998
- ------------------------ ------------------
Edward L. Wax

FINANCIAL INFORMATION

GOLF TRUST OF AMERICA, INC.

Report of Management . . . . . . . . . . . . . . . . . . . . . F-1

Report of Independent Certified Public Accountants . . . . . . F-2

Consolidated Balance Sheets as of December 31,
1996 and 1997 . . . . . . . . . . . . . . . . . . . . . . . . F-3

Consolidated Statement of Income for the Period from
February 12, 1997 through December 31, 1997 . . . . . . . . . F-4

Consolidated Statement of Stockholders' Equity from
February 12, 1997 through December 31, 1997 . . . . . . . . . F-5

Consolidated Statement of Cash Flows from
February 12, 1997 through December 31, 1997 . . . . . . . . . F-6

Notes to Consolidated Financial Statements . . . . . . . . . . F-7

LEGENDS GOLF

Report of Independent Certified Public Accountants . . . . . . F-17

Analysis of Legends Golf Financial Information . . . . . . . . F-18

Combined Balance Sheets--December 31, 1996 and 1997. . . . . . F-21

Combined Statements of Operations--Years Ended
December 31, 1995, 1996, and 1997 . . . . . . . . . . . . . . F-22

Combined Statements of Owners' Equity--Years Ended
December 31, 1995, 1996, and 1997 . . . . . . . . . . . . . . F-23

Combined Statements of Cash Flows--Years Ended
December 31, 1995, 1996, and 1997 . . . . . . . . . . . . . . F-24

Notes to Combined Financial Statements . . . . . . . . . . . . F-25

REPORT OF MANAGEMENT

The consolidated financial statements and other financial information of
Golf Trust of America, Inc. in this report were prepared by management which is
responsible for their contents. They reflect amounts based upon management's
best estimates and informed judgments. In management's opinion, the financial
statements present fairly the financial position, results of operations and cash
flows of the company in conformity with generally accepted accounting
principles.

The Company maintains a system of internal accounting controls and
procedures which is intended, consistent with reasonable cost, to provide
reasonable assurance that transactions are executed as authorized, that they are
included in the financial records in all material respects, and that
accountability for assets is maintained. The accounting controls and procedures
are supported by careful selection and training of personnel and a continuing
management commitment to the integrity of the system.

The financial statements have been audited to the extent required by
generally accepted auditing standards by BDO Seidman, LLP independent auditors.
The independent auditors have evaluated the Company's internal control structure
and performed tests of procedures and accounting records in connection with the
issuance of their report on the fairness of the financial statements.

The Board of Directors has appointed an Audit Committee composed
entirely of directors who are not employees of the company. The Audit Committee
meets with representatives of management and the independent auditors, both
separately and jointly. The Committee discusses with the independent auditors
and approves in advance the scope of the audit, reviews with the independent
auditors the financial statements and their auditors' report, consults with and
reviews management's administration of the system of internal accounting
controls. The Committee reports to the Board on its activities and findings.

W. Bradley Blair Scott D. Peters
Chairman, President and CEO Senior Vice President and CFO

REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS

To the Directors and Stockholders of Golf Trust of America, Inc.

We have audited the accompanying consolidated balance sheets of Golf Trust
of America, Inc. and subsidiaries as of December 31, 1996 and 1997 and the
related consolidated statements of income, stockholders' equity and cash flows
for the period from February 12, 1997 (inception) through December 31, 1997.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.

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

In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Golf Trust
of America, Inc. at December 31, 1996 and 1997, and the results of its
operations and its cash flows for the period from February 12, 1997 through
December 31, 1997, in conformity with generally accepted accounting principles.

March 9, 1998
Charlotte, North Carolina BDO Seidman, LLP

GOLF TRUST OF AMERICA, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)

DECEMBER 31,
---------------------------
1996 1997
---------------------------

ASSETS

Property and equipment: (Notes 3 and 6)
Land . . . . . . . . . . . . . . . . . . . . . . $ - $ 25,796
Golf course improvements . . . . . . . . . . . . - 58,494
Buildings. . . . . . . . . . . . . . . . . . . . - 22,199
Furniture, fixtures, and equipment . . . . . . . - 8,556
---- --------

Total property and equipment . . . . . . . . . . . - 115,045
Less accumulated depreciation. . . . . . . . . . - 14,001
---- --------

Property and equipment, net. . . . . . . . . . . . - 101,044
---- --------

Mortgage notes receivable (Note 4) . . . . . . . . - 65,129

Cash and cash equivalents . . . . . . . . . . . . - 14,968
Receivable from affiliates (Note 8) . . . . . . . - 1,004
Other assets . . . . . . . . . . . . . . . . . . . - 4,161
---- --------

Total assets . . . . . . . . . . . . . . . . . . . $ - $186,306
---- --------
---- --------

LIABILITIES AND STOCKHOLDERS' EQUITY

Notes payable (Note 6) . . . . . . . . . . . . . . $ - $ 4,325
Accounts payable and other liabilities . . . . . . - 3,029
---- --------

Total liabilities. . . . . . . . . . . . . . . . . - 7,354
---- --------

Minority interest. . . . . . . . . . . . . . . . . - 54,625
---- --------

Commitments (Note 5)

Stockholders' equity (Note 7):
Preferred stock, $.01 par value, 10,000,000
shares authorized, no shares issued. . . . . . - -

Common stock, $.01 par value, 90,000,000 shares
authorized, 7,610,755 shares issued and
outstanding. . . . . . . . . . . . . . . . . . - 76
Additional paid-in capital . . . . . . . . . . . - 127,488
Retained earnings. . . . . . . . . . . . . . . . - 1,774
Unamortized restricted stock compensation. . . . - (1,713)
Note receivable from stock sale (Note 4) . . . . - (3,298)
---- --------

Stockholders' equity . . . . . . . . . . . . . . . - 124,327
---- --------

Total liabilities and stockholders' equity . . . . $ - $186,306
---- --------
---- --------

See accompanying notes to consolidated financial statements.

F-3

GOLF TRUST OF AMERICA, INC.
CONSOLIDATED STATEMENT OF INCOME
(IN THOUSANDS)

PERIOD FROM
FEBRUARY 12
THROUGH
DECEMBER 31,
1997
------------

REVENUES:
Rent from affiliates (Note 8). . . . . . . . . . $ 10,802
Rent . . . . . . . . . . . . . . . . . . . . . . 3,607
Mortgage interest (Note 4) . . . . . . . . . . . 4,318
--------

Total revenues . . . . . . . . . . . . . . . . . . 18,727
--------

EXPENSES:
Depreciation and amortization. . . . . . . . . . 3,173
General and administrative . . . . . . . . . . . 2,532
--------

Total expenses . . . . . . . . . . . . . . . . . . 5,705
--------

Operating income . . . . . . . . . . . . . . . . . 13,022
--------

OTHER INCOME (EXPENSE):
Interest income. . . . . . . . . . . . . . . . . 624
Interest expense . . . . . . . . . . . . . . . . (1,879)
--------

Total other income (expense) . . . . . . . . . . . (1,255)
--------

Net income before minority interest. . . . . . . . 11,767
Income applicable to minority interest . . . . . . 5,798
--------

Net income . . . . . . . . . . . . . . . . . . . . $ 5,969
--------
--------

Basic earnings per share . . . . . . . . . . . . . $ 1.32
--------
--------

Weighted average number of shares. . . . . . . . . 4,535
--------
--------

Diluted earnings per share . . . . . . . . . . . . $ 1.29
--------
--------

Weighted average number of shares. . . . . . . . . 4,626
--------
--------

See accompanying notes to consolidated financial statements.

F-4

GOLF TRUST OF AMERICA, INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(IN THOUSANDS)

NOTE
COMMON STOCK ADDITIONAL RECEIVABLE TOTAL
--------------------- PAID-IN RETAINED UNEARNED FROM STOCK STOCKHOLDERS'
SHARES AMOUNT CAPITAL EARNINGS COMPENSATION SALE EQUITY
------ ------ ---------- -------- ------------ ---------- ------------

BALANCE, February 12, 1997 . . . . - $- $ - $ - $ - $ - $ -
Proceeds from Initial
Public Offering. . . . . . . . . 3,910 39 82,071 - - - 82,110
Payment of underwriters discount
and initial offering costs . . . - - (9,055) - - - (9,055)
Adjustment for minority
interest in operating
partnership. . . . . . . . . . . - - (33,882) - - - (33,882)
Issuance of shares in exchange
for note . . . . . . . . . . . . 159 2 3,296 - - (3,298) -
Issuance of shares for
acquisition. . . . . . . . . . . 22 - 600 - - - 600
Issuance of restricted stock . . . 70 1 1,827 - (1,828) - -
Proceeds from follow-on
offering . . . . . . . . . . . . 3,450 34 88,372 - - - 88,406
Payment of underwriters
discount and costs . . . . . . . - - (5,741) - - - (5,741)
Amortization of restricted
stock compensation . . . . . . . - - - - 115 - 115
Dividends. . . . . . . . . . . . . - - - (4,195) - - (4,195)
Net income . . . . . . . . . . . . - - - 5,969 - - 5,969
----- ---- -------- ------ ------- ------- --------

BALANCE, December 31, 1997 . . . . 7,611 $ 76 $127,488 $1,774 $(1,713) $(3,298) $124,327
----- ---- -------- ------ ------- ------- --------
----- ---- -------- ------ ------- ------- --------

See accompanying notes to consolidated financial statements.

F-5

GOLF TRUST OF AMERICA, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(IN THOUSANDS)

PERIOD FROM
FEBRUARY 12
THROUGH
DECEMBER 31,
1997
------------

CASH FLOWS FROM OPERATING ACTIVITIES:
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 5,969
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization. . . . . . . . . . . . . . . . . . . . . . . 3,173
Loan cost amortization . . . . . . . . . . . . . . . . . . . . . . . . . . 280
Straight-line interest . . . . . . . . . . . . . . . . . . . . . . . . . . (723)
Amortization of restricted stock
compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 115
Income applicable to minority interest . . . . . . . . . . . . . . . . . . 5,798
Increase in receivable from affiliates . . . . . . . . . . . . . . . . . . (1,004)
Increase in other assets . . . . . . . . . . . . . . . . . . . . . . . . . (2,993)
Increase in accounts payable and other
liabilities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,029
--------
Net cash provided by operating activities. . . . . . . . . . . . . . . . . . . 13,644
--------
CASH FLOWS USED IN INVESTING ACTIVITIES:
Golf course acquisitions and improvements. . . . . . . . . . . . . . . . . . (84,332)
Increase in mortgage notes receivable. . . . . . . . . . . . . . . . . . . . (64,406)
--------
Net cash used in investing activities. . . . . . . . . . . . . . . . . . . . . (148,738)
--------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings on line of credit . . . . . . . . . . . . . . . . . . . . . . 4,325
Loan costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1,448)
Net proceeds from issuance of common stock . . . . . . . . . . . . . . . . . 155,720
Distributions to partners. . . . . . . . . . . . . . . . . . . . . . . . . . (4,340)
Dividends paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (4,195)
--------
Net cash provided by financing activities. . . . . . . . . . . . . . . . . . . 150,062
--------
Net increase in cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14,968
Cash and cash equivalents, beginning of period . . . . . . . . . . . . . . . . -
--------
Cash and cash equivalents, end of period . . . . . . . . . . . . . . . . . . . $ 14,968
--------
--------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Interest paid during the period. . . . . . . . . . . . . . . . . . . . . . . $ 1,829

NON-CASH INVESTING AND FINANCING TRANSACTIONS:
Net assets of Legends golf transferred to
the Company (Note 3) . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 981
OP Units issued in golf course acquisitions. . . . . . . . . . . . . . . . . $ 18,304
Common stock issued in golf course acquisition . . . . . . . . . . . . . . . $ 600

See accompanying notes to consolidated financial statements

F-6

GOLF TRUST OF AMERICA, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. ORGANIZATION AND BASIS OF PRESENTATION

Golf Trust of America, Inc. (the "Company") was incorporated in Maryland on
November 8, 1996. The Company is a self-administered real estate investment
trust ("REIT") formed to capitalize upon consolidation opportunities in the
ownership of upscale golf courses in the United States. The principal business
strategy of the Company is to acquire upscale golf courses and to lease the golf
courses pursuant to long-term triple net leases to qualified third party
operators, including affiliates of the sellers. Title to the acquired courses
is held by Golf Trust of America, L.P., a Delaware limited partnership (the
"Operating Partnership"). Golf Trust of America, Inc., through its wholly owned
subsidiaries GTA GP, Inc. ("GTA GP") and GTA LP, Inc. ("GTA LP"), holds a 60.0%
interest in the Operating Partnership. GTA GP is the sole general partner of
the Operating Partnership and owns a 0.2% interest therein. GTA LP is a limited
partner in the Operating Partnership and owns a 59.8% interest therein.

The Company commenced operations on February 12, 1997 with the
completion of its initial public stock offering ("IPO") which raised net
proceeds of approximately $73.0 million through the sale of 3,910,000 shares
of common stock. The Company contributed the net proceeds of the IPO to the
Operating Partnership in exchange for a then 48.6% interest in the Operating
Partnership. Concurrently with the closing of the IPO, the Operating
Partnership acquired ten golf courses.

Seven of the courses were acquired from Legends Golf in exchange for
3,738,556 OP Units which represents 30.1% of OP Units outstanding at December
31, 1997 and the repayment of debt. Legends Golf is a group of companies
controlled by Larry D. Young, a director of the Company, and is a lessee.

In November 1997, the Company completed a follow-on equity offering of
3,450,000 shares of common stock. The Company contributed the net proceeds of
approximately $82.7 million to the Operating Partnership to repay approximately
$60.6 million under the line of credit which has been used primarily for golf
course acquisitions.

An OP Unit and share of Common Stock of the Company have the same economic
characteristics inasmuch as they effectively share equally in the net income or
loss and any distributions of the Operating Partnership. OP Unit holders have
the right subject to certain terms and conditions, to convert their OP Units to
shares of Common Stock or to cash at the discretion of the Company. In 1998,
2,407,274 of the OP Units will become convertible.

In order for the Company to maintain its qualification as a REIT, not more
than 50% in value of its Common Stock may be owned, directly or constructively,
by five or fewer individuals. For the purpose of preserving the Company's REIT
qualification, the Certificate of Incorporation prohibits direct or constructive
ownership of more than 9.8% of the Common Stock by any person. Thus, although
an OP Unit is convertible into a share of Common Stock, the conversion of the
majority of the OP Units owned by affiliates of Larry D. Young is restricted by
the Company and the ownership limitations in order to preserve its REIT status.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

PRINCIPLES OF CONSOLIDATION

The accompanying consolidated financial statements include the accounts of
the Company, its wholly owned subsidiaries, and the Operating Partnership. All
significant intercompany transactions and balances have been eliminated in
consolidation.

Minority interest represents the OP Units not held by GTA GP and GTA LP.
Minority interest is adjusted for the OP Unit holders proportionate share of net
income or distributions.

F-7

GOLF TRUST OF AMERICA, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

CASH EQUIVALENTS

The Company considers all highly liquid debt instruments with an original
maturity of three months or less to be cash equivalents.

CONCENTRATION OF CREDIT RISK

The Company has cash and cash equivalents in a financial institution which
is insured by the Federal Deposit Insurance Corporation (FDIC) for amounts up to
$100,000 per institution. At December 31, 1997, the Company had amounts in
excess of FDIC limits. The Company limits its risk by placing its cash and cash
equivalents in a high quality financial institution. Rents and interest
receivable from the Company's lessees and mortgagee, payable in arrears for the
preceding month, were collected subsequent to the issuance of this report.

Concentration of credit risk with respect to the Company's portfolio of 22
golf courses:

REVENUE
AMOUNTS
(IN THOUSANDS) PERCENTAGE
-------------- ----------

Myrtle Beach, SC Area (1) $ 7,526 40%
Florida 4,510 24%
Virginia (1) 3,276 17%
Other 3,415 19%
-------- ---

$ 18,727 100%
-------- ---
-------- ---

(1) The courses located in Myrtle Beach and Virginia are operated by
Legends Golf.

The Company mitigates concentration of credit risk with respect to its
leases by requiring collateral up to 15% of the initial purchase price.

The Company is also subject to a concentration of credit risk from the
participating mortgage. The Company has evaluated the credit worthiness of the
borrower and its affiliates and has obtained a security interest in the property
and equipment of the borrower. The Company has also obtained a limited
guarantee of the debt service from the operator of the resort.

PROPERTY AND EQUIPMENT

Property and equipment is carried at the lower of cost or net realizable
value except for the golf courses acquired from Legends Golf which are carried
at the prior basis of Legends Golf. Cost includes purchase price, closing costs
and other direct costs associated with the purchase. Depreciation is computed
on a straight-line basis over the estimated useful lives of the assets as
follows:

Golf course improvements 15 years
Buildings and improvements 30 years
Furniture, fixtures, and
equipment 3-8 years

The leases presently provide that at the end or termination of the existing
leases, all improvements and fixtures placed on the rental property become
property of the Company. In addition, the leases provide for a capital
replacement reserve to be established by the Company for each property. The
Company will approve disbursements from this fund for capital improvements to
the properties and the acquisition of equipment.

F-8

GOLF TRUST OF AMERICA, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

PROPERTY AND EQUIPMENT (CONTINUED)

The Company assesses whether there has been a permanent impairment in the
value of rental property by considering factors such as expected future
operating income, trends and prospects, as well as the effects of demand,
competition and other economic factors. Such factors include a lessee's ability
to perform its duties and pay rent under the terms of the lease. If the
property was leased at a significantly lower rent, the Company may recognize a
permanent impairment of loss if the income stream were not sufficient to recover
its investment. Such a loss would be determined as the difference between the
carrying value and the fair value of the property. Management believes no
permanent impairment has occurred in its net property carrying values.

INCOME TAXES

The Company qualifies as a real estate investment trust ("REIT") under the
Internal Revenue Code of 1986, as amended (the "Code"). A REIT will generally
not be subject to federal income taxation to the extent that it distributes at
least 95% of its taxable income to its stockholders and complies with other
requirements. The Company paid distributions to stockholders of $1.03 per share
in 1997, all of which is ordinary income.

LOAN COSTS

Loan costs, included in other assets, are amortized over the contractual
term of the agreement. Accumulated amortization of these costs at December 31,
1997 was approximately $280,000.

ACCOUNTING FOR STOCK-BASED COMPENSATION

In 1997, the Company adopted the disclosure provisions of Statement of
Financial Accounting Standards (SFAS) No. 123, Accounting for Stock-Based
Compensation. The Company retained the "intrinsic value" method of accounting
for its plan in accordance with Accounting Principle Board (APB) Opinion No. 25,
and, therefore, recognized no compensation expense for stock opinions. For
disclosure purposes only, the Black-Scholes option pricing model was used to
calculate the "fair values" of stock options.

REVENUE RECOGNITION

The Company recognizes rental revenue on an accrual basis over the terms of
the leases. The Company recognizes interest income ratably over the term of the
loan.

USE OF ESTIMATES

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

FAIR VALUE OF FINANCIAL INSTRUMENTS

The Company calculates the fair value of financial instruments and includes
this additional information in the notes to the consolidated financial
statements when the fair value is different than the carrying value of those
financial instruments. When the fair value reasonably approximates the carrying
value, no additional disclosure is made. The estimated fair value amounts have
been determined by the Company, using available market information and
appropriate valuation methodologies. However, considerable judgement is
required in interpreting market data to develop the estimates of fair value.
Accordingly, the estimates presented herein are not necessarily indicative of
the amounts that the Company could realize in a current market exchange. The
use of different market assumptions and/or estimation methodologies may have a
material effect on the estimated fair value amounts.

F-9

GOLF TRUST OF AMERICA, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

EARNINGS PER SHARE

In February 1997, the Financial Accounting Standards Board ("FASB")
issued Statement of Financial Accounting Standards ("SFAS") No. 128, EARNINGS
PER SHARE. SFAS No. 128 supersedes and simplifies the existing computational
guidelines under Accounting Principles Board ("APB") Opinion No. 15, EARNINGS
PER SHARE. It is effective for financial statements issued for periods
ending after December 15, 1997. Among other changes, SFAS No. 128 eliminates
the presentation of primary earnings per share and replaces it with basic
earnings per share for which common stock equivalents are not considered in
the computation. It also revises the computation of diluted earnings per
share. Adoption of SFAS No. 128 did not have a material impact on the
Company's earnings per share, financial condition, or results of operations.

RECENT ACCOUNTING PRONOUNCEMENTS

In June 1997, the FASB issued SFAS No. 130, REPORTING COMPREHENSIVE
INCOME, which establishes standards for reporting and display of
comprehensive income, its components and accumulated balances. Comprehensive
income is defined to include all changes in equity, except those resulting
from investments by owners and distributions to owners. Among other
disclosure, SFAS 130 requires that all items that are required to be
recognized under current accounting standards as components of comprehensive
income be reported in a financial statement that is displayed with the same
prominence as other financial statements. SFAS 130 is effective for
financial statements for beginning after December 15, 1997, and require
comparative information for earlier years to be restated. Management has
been unable to fully evaluate the impact, if any, the standard may have on
future financial statement disclosures. Results of operations and financial
position, however, will be unaffected by implementation of this standard.

In June 1997, the FASB issued SFAS No. 131, DISCLOSURES ABOUT SEGMENTS OF
AN ENTERPRISE AND RELATED INFORMATION. This statement provides guidelines for
disclosure of financial performance data for identifiable business units and is
effective for fiscal years beginning after December 15, 1997, and when adopted,
will not affect the Company's current disclosures.

In February 1998, the FASB issued SFAS No. 132, EMPLOYERS' DISCLOSURES
ABOUT PENSION AND OTHER POSTRETIREMENT BENEFITS. This statement standardizes
the disclosure requirements for pensions and other postretirement benefits and
is effective for years beginning after December 15, 1997, and when adopted, will
not affect the Company's current disclosures.

3. ACQUISITION OF GOLF COURSES

On February 12, 1997, concurrent with the initial public offering of the
Company's stock, the Company acquired ten initial golf courses in exchange for
the issuance of 4.1 million OP units, the repayment of $47.5 million of notes
payable and affiliate debt, and $6.2 million cash. The seven golf courses
acquired from Legends Golf have been accounted for at a carryover basis as
Legends Golf is considered the accounting acquirer under APB Opinion No. 16.
The value of the OP Units issued and debt assumed was approximately
$73.7 million greater than the carryover basis of Legends Golf.

During 1997, the Company purchased an additional 8 golf courses for an
aggregate initial investment of approximately $41.2 million including OP Unit
value. The aforementioned golf courses are leased to third party operators
pursuant to long-term triple net leases.

F-10

GOLF TRUST OF AMERICA, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

3. ACQUISITION OF GOLF COURSES (CONTINUED)

The following is a summary of the acquisitions for 1997:

ACQUISITION COURSE NAME LOCATION COST
DATE (IN THOUSANDS)
- --------------------------------------------------------------------------------

02/12/97 Heathland, Parkland, Moorland Myrtle Beach, SC $18,816
02/12/97 The Heritage Club Pawleys Island, SC 4,800
02/12/97 Legends of Stonehouse Williamsburg, VA 10,571
02/12/97 Olde Atlanta Golf Club Atlanta, GA 7,569
02/12/97 Oyster Bay Golf Links Sunset Beach, NC 2,016
02/12/97 Royal New Kent Providence Forge, VA 10,945
02/12/97 The Woodlands Golf Course Gulf Shores, AL 6,047
02/13/97 Northgate Country Club Houston, TX 12,610
08/19/97 Tiburon Golf Club Omaha, NE 6,003
09/02/97 Raintree Country Club Akron, OH 4,563
09/30/97 Eagle Watch Golf Club Atlanta, GA 6,400
10/02/97 Lost Oaks of Innisbrook Tampa, FL 5,876
10/17/97 The Club of the Country Overland Park, KS 3,083
11/25/97 Black Bear Golf Club Orlando, FL 4,784
12/19/97 Wildewood Country Club Columbia, SC 4,000
12/19/97 Country Club at Woodcreek Columbia, SC 6,521
Farms --------

$114,604
--------
--------

4. MORTGAGE NOTES RECEIVABLE

On June 23, 1997, the Operating Partnership closed and funded an initial
$69.975 million participating loan to Golf Host Resorts, Inc. ("Golf Host
Resorts"), which is affiliated with Starwood Capital Group LLC. The loan is
secured by the Westin Innisbrook Resort, a 63-hole destination golf and
conference facility located near Tampa, Florida. Additional collateral
includes excess land at the Westin Innisbrook Resort and a first and third
mortgage on the Tamarron Golf Course. Except for the Westin Innisbrook
Resort, the collateral may be released upon the achievement of certain
performance levels. The operator of the resort, Westin, has guaranteed up to
$2.5 million of debt service for each of the first five years.

The initial loan of $69.975 million is being followed by a $9 million
loan, which is being used for a nine-hole expansion and other improvements to
the Westin Innisbrook Resort facilities. The loan term is 30 years, with an
initial base interest rate of 9.63% per annum, annual increases (of at least
5% but no more than 7%) in the interest payment for the first five years, and
a participating interest feature throughout the term based upon the growth in
revenues, if any, over the base year. No participating interest was received
for the period ended December 31, 1997.

Golf Host Resorts used $8,975,000 of the proceeds of the loan to purchase
274,039 OP Units, 159,326 shares of common stock of the Company and an option to
purchase an additional 150,000 shares of common stock of the Company at a price
(subject to certain adjustments) of $26 per share, exercisable before December
31, 1998 (subject to extension in certain circumstances). The $5,677,000 used
to purchase the OP Units has been recorded as an adjustment to minority interest
and the $3,298,000 used to purchase common stock has been recorded as a
reduction of stockholders' equity. The OP Units and 79,663 shares are pledged
as collateral against the loan.

The Company recognizes interest income on a straight-line basis. Interest
income for this mortgage recognized was approximately $723,000 in excess of the
cash received for the period from February 12 to December 31, 1997.

F-11

GOLF TRUST OF AMERICA, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

5. COMMITMENTS

LEASES

Typically, the Company leases its golf courses to affiliates of the
prior owners and other qualified operators under non-cancelable lease
agreements for an initial period of ten years with options to extend the term
of each lease six consecutive times for a period of 5 years. From the
minimum lease payments, the Company is generally required to make available a
reserve of 2%-5% of the annual gross golf revenue of each course for capital
expenditure reimbursement to the lessee subject to approval by the Company.
The capital replacement reserve is funded by additional rent from the lessee.
At December 31, 1997, the amount reserved was $524,000.

Scheduled future minimum rents to be received by the Company under the
Leases are as follows for the year ending:

AMOUNT
----------
IN
(THOUSANDS)

1998 . . . . . . . . . . . . . . . . $ 19,916
1999 . . . . . . . . . . . . . . . . 19,916
2000 . . . . . . . . . . . . . . . . 19,916
2001 . . . . . . . . . . . . . . . . 19,916
2002 . . . . . . . . . . . . . . . . 19,916
Thereafter . . . . . . . . . . . . . 65,185
---------
$ 164,763
---------
---------

The non-cancelable leases provide for the Company to receive the greater of
the Base Rent Escalation or an amount equal to Participating Rent plus the Base
Rent Escalation payable under each non-cancelable lease. Participating rent
will generally be paid to the Company each year in the amount, if any, by which
the sum of 33 1/3% of Gross Golf Revenue exceeds the cumulative Base Rent
Escalation since the commencement date of such Leases. Participating rent was
$280,000 for the period ended December 31, 1997. The base rent will generally
be increased each year by the lesser of (i) 3% or (ii) 200% of the annual
percentage increase in the Consumer Price Index ("CPI"). Annual increases in
lease payments are generally limited to 5% to 7% during the first five years of
the initial lease term.

COURSE EXPANSIONS

The Company has agreed to fund certain improvements and expansions for
approximately $14.0 million. The Company charges a market interest rate for
construction loans. Base rents will be increased as improvements are funded.
Additional commitments of approximately $5.9 million will be available for
working capital needs during periods of construction. In addition, the
Company has a remaining commitment to provide an additional $6.0 million
under the Participating Mortgage.

6. NOTE PAYABLE

Under the terms of the Purchase and Contribution Agreement with one of the
prior owners, the Company is required to maintain a minimum loan balance of
$4,325,000, which is guaranteed by the prior owner.

Prior to amendment and restatement as discussed below, the Company had
available an $100 million secured revolving Credit Facility which carried a
floating interest rate of LIBOR plus 1.75% (7.72% at December 31, 1997.)

F-12

GOLF TRUST OF AMERICA, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

6. NOTE PAYABLE (CONTINUED)

On February 27, 1998, a consortium of banks, co-led by NationsBank, N.A.
and Bank of America NT & SA, amended and restated the Credit Facility to
increase the amount available to $125 million on an unsecured basis. Up to
20% of the Credit Facility may be used for working capital needs. The Credit
Facility availability is limited to the unencumbered pool calculation as
defined in the Credit Facility. Financial covenants include minimum
requirement for net worth, liquidity and cash flow. Non-financial covenants
include, among others, restrictions on loans outstanding, construction in
progress, loans to officers and changes to the Board of Directors. These
covenants have been met.

7. STOCK OPTIONS AND AWARDS

The Company issues stock options and restricted stock to employees under
plans subject to approved by stockholders. Options are generally awarded with
the exercise price equal to the market price at the date of grant and become
exercisable in three years.

In February 1997, the Company adopted the 1997 Stock Incentive Plan (the
"Stock Incentive Plan"). Under the Stock Incentive Plan, the Compensation
Committee of the Board of Directors may grant stock awards relating to 500,000
shares of Common Stock. Option grants, under the Stock Incentive Plan, vest
ratably over a period of three years from the date of grant and expire ten years
from the date of grant. All 500,000 shares have been granted during 1997.

In February 1997, the Company adopted the 1997 Non-Employee Directors' Plan
(the "Directors' Plan"). Under the Directors' Plan, the Compensation Committee
is authorized to grant stock awards to purchase up to 100,000 shares of the
Company's common stock at prices equal to the fair value of the stock on the
date of grant. Under the Directors' Plan, 20,000 options which vest
immediately, have been granted leaving 80,000 available for future grants.

In May 1997, the Company adopted the 1997 Stock-Based Incentive Plan
(the "New 1997 Plan"). Under the New 1997 Plan, the Compensation Committee of
the Board of Directors is authorized to grant awards totaling 600,000 shares
of the Company's common stock. Option grants generally vest ratably over a
period of three years from the date of grant and expire ten years from the
date of grant. Restricted stock grants vest 25% per year from the date of
grant. At December 31, 1997, 110,000 shares remain available for options and
restricted stock grants. Subsequent to year-end, an additional 50,000 options
were granted to a new employee.

The New 1997 Plan provides that the Company may grant stock options or
restricted stock to executive officers and other key employees. Restricted
stock is subject to restrictions determined by the Company's Compensation
Committee. The Compensation Committee, comprised of Directors who are not
officers of the Company, determines compensation, including awards under the
Stock Incentive Plan, for the Company's executive officers. The shares of
restricted stock will be sold at a purchase price equal to $0.01 and will vest
over four-year period. Restricted stock has the same dividend and voting rights
as other common stock and is considered to be currently issued and outstanding.
Compensation expense is determined by reference to the market value on the date
of grant and is being amortized on a straight-line basis over the four-year
vesting period. Such expense amounted to approximately $115,000 for the period
ended 1997.

On September 19, 1997, the Company issued 70,000 restricted common
shares to officers of the Company under the New 1997 Plan. These shares were
issued for $.01 when the market price was $26.1875. Subsequent to year end,
loans of approximately $525,000, secured by shares or OP Units, were made to
two officers for the payment of related taxes. On January 1, 1998 the
Company issued 20,939 restricted common shares to officers of the Company
under the New 1997 Plan. These shares were issued for $0.01 when the market
price was $29.00.

F-13

GOLF TRUST OF AMERICA, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

7. STOCK OPTIONS AND AWARDS (CONTINUED)

Transactions involving the plans are summarized as follows:

Weighted
Option Shares Shares Average
- ------------- ------- --------

Outstanding at February 12, 1997 . . . . - $ -
Granted. . . . . . . . . . . . . . . . . 940,000 23.88
Exercised. . . . . . . . . . . . . . . . - -
Expired and/or canceled. . . . . . . . . - -
------- ------
Outstanding at December 31, 1997 . . . . 940,000 $23.88
------- ------
------- ------

OPTIONS OUTSTANDING

RANGE OF REMAINING AVERAGE
EXERCISE CONTRACTUAL EXERCISE OPTIONS EXERCISABLE
PRICE SHARES LIFE (years) PRICE SHARES PRICE
------------------------------------------------ ----------------

$21 335,000 9.1 $21.00 20,000 $21.00
$24 - $26 605,000 9.3 $25.48 - -

Pro forma net income and earnings per share, as if the fair value method in
SFAS No. 123 had been used to account for stock-based compensation, and the
assumptions used, are as follows:

PERIOD FROM
FEBRUARY 12
THROUGH
DECEMBER 31,
1997
- -------------------------------------------------------------------------------

Basic earnings per share
As reported $1.32
Pro forma $1.03
Diluted earnings per share
As reported $1.29
Pro forma $1.01
Black-Scholes assumptions*
Risk-free interest rate 6.00%
Dividend yield 5.66%
Stock volatility 17.14%
Expected option life 3 years
*Weighted-averages

F-14

GOLF TRUST OF AMERICA, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

7. STOCK OPTIONS AND AWARDS (CONTINUED)

EMPLOYEE STOCK PURCHASE PLAN

Effective March 1, 1998, the Company adopted an Employee Stock Purchase
Plan to provide substantially all employees an opportunity to purchase shares of
its common stock through payroll deduction, up to 10% of eligible compensation
with a $25,000 maximum deferral. Semi-annually, participant account balances
will be used to purchase shares of stock at the lesser of 85 percent of the fair
market value of shares on grant date or exercise date. The Employee Stock
Purchase Plan expires on February 28, 2008. A total of 250,000 shares will be
available for purchase under this plan.

401(k) AND PROFIT SHARING PLAN

Effective November 1, 1997, the Company adopted the Golf Trust of America,
LP 401(k) Profit Sharing Plan & Trust available to all employees who are at
least 21 years of age. Participants may contribute from 1% to 12% of their
earnings, in whole percentages, on a before-tax basis. The Company contributes
to participants' accounts based on the amount the participant elects to defer
and a matching contribution equal to $0.50 on each dollar contributed by a
participant up to 6% of the participant's gross pay. The Company may also make
a discretionary profit-sharing contribution. No discretionary contributions
were made in 1997.

8. TRANSACTIONS WITH AFFILIATE AND SIGNIFICANT LESSEE

Legends Golf is a significant lessee of the golf courses in the
Company's portfolio. Legends Golf is a golf course management group
consisting of eight companies affiliated through common ownership that
operates a portfolio of golf courses owned by the Company. Legends Golf
manages and operates the golf courses as a lessee under triple net leases.
Legends Golf derives revenues from the operation of golf courses principally
through receipt of greens fees, membership fees, golf cart rentals and sales
of food, beverage and merchandise.

The following table sets forth certain combined condensed financial
information for Legends Golf.

December 31
-------------------
(IN THOUSANDS) 1997 1996
------- -------

Current Assets $ 2,454 $ 2,633
Non-current assets 19,765 47,171
------- -------
Total assets $22,219 $49,804
------- -------
------- -------
Payable to Golf Trust of America, I.P. 1,004 $ -
Other current liabilities 1,721 2,150
Total long-term liabilities 10,897 13,783
Total owners' equity 8,597 7,174
------- -------
Total liabilities and owners' equity $22,219 $49,804
------- -------
------- -------

For the year ended December 31
-------------------------------
(IN THOUSANDS) 1997 1996 1995
------- ------- -------

Total revenues $22,588 $19,413 $18,442
Operating income (loss) (4,784) $ 3,457 $ 6,329
Net income (loss) $ (244) $ 1,868 $ 5,312

9. QUARTERLY FINANCIAL INFORMATION (UNAUDITED)

Summarized quarterly financial data for the year ended December 31, 1997 is
as follows (in thousands, except per share amounts):

Quarter Ended
March 31* June 30 September 30 December 31
- -------------------------------------------------------------------------------

Revenues $ 2,042 $ 3,998 $ 6,065 $ 6,622
Operating income $ 1,383 $ 2,598 $ 4,216 $ 4,825
Net income $ 716 $ 1,292 $ 1,615 $ 2,346
Basic earnings per share $ .19 $ .33 $ .40 $ .40
Diluted earnings per share $ .18 $ .32 $ .39 $ .39

*Period from February 12 to March 31, 1997

10. PRO FORMA FINANCIAL INFORMATION (UNAUDITED)

The pro forma financial information set forth below is presented as if the
1997 acquisitions (Note 3) had been consummated as of January 1, 1997. The pro
forma financial information is not necessarily indicative of what actual results
of operations of the Company would have been assuming the acquisitions had been
consummated as of January 1, 1997 nor does it purport to represent the results
of operations for future periods (in thousands, except per share amounts).

For the year
ended
December 31, 1997
- ---------------------------------------------------------------

Revenues $ 28,220
Net income $ 10,057
Basic earnings per share $ 1.33
Diluted earnings per share $ 1.32

F-15

GOLF TRUST OF AMERICA, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

10. PRO FORMA FINANCIAL INFORMATION (UNAUDITED) (CONTINUED)

The pro forma financial information includes the following adjustments: (i)
an increase in depreciation and amortization expense; (ii) an increase in
general and administrative expenses to reflect a whole year of operations (iii)
an increase in interest income; (iv) a decrease in interest expense; and (v) an
increase in income applicable to minority interest.

11. SUBSEQUENT EVENTS

DECLARATION OF DIVIDENDS

On January 26, 1998, the Board of Directors declared a quarterly dividend
distribution of $.41 per share for the quarter ended December 31, 1997, to
stockholders of record on February 5, 1998, which was paid on February 19, 1998.

ACQUISITIONS

On January 2, 1998, the Company acquired Bonaventure Golf Courses,
comprised of two 18-hole golf courses located in Ft. Lauderdale, Florida for
$23.7 million in cash and repayment of mortgage indebtedness including
closing costs. The Company leases the golf courses to an affiliate of
Emerald Dunes Golf Course under a Participating Lease.

On January 16, 1998, the Company acquired Mystic Creek Golf Club and
Banquet Center, an 18-hole semi-private country club located near Dearborn,
Michigan for $8.5 million in cash and OP Units valued at approximately $1.5
million.

Effective February 1, 1998, the Company acquired Emerald Dunes Golf
Course, an 18-hole daily fee golf facility located in West Palm Beach,
Florida for a total purchase price of $22.4 million, which includes
$6.1 million in OP Units. The Company acquired the course subject to an
existing first lien of approximately $12.9 million.

On March 6, 1998, the Company acquired Sandpiper Golf Course, an 18-hole
upscale daily fee golf facility near Santa Barbara, California. The purchase
price paid for the golf facility, long-term management rights and additional
land was $36.5 million. The additional land valued at $4.5 million is held
by a taxable subsidiary of the Company to comply with certain restrictions on
the Company's operations as a REIT. Mr. Blair, President and Mr. Young hold an
approximate 5% interest in this taxable subsidiary. The course is leased to
a joint venture consisting of an affiliate of Environmental Golf and an
affiliate of the adjacent Santa Barbara Club Resort and Spa which is
currently under development.

On March 9, 1998, the Company acquired Persimmon Ridge, an 18-hole upscale
private golf facility located near Louisville, Kentucky for $7.5 million.
The course will be leased to an affiliate of Granite Golf Group.

F-16

ANALYSIS OF LEGENDS GOLF FINANCIAL INFORMATION

The following discussion should be read in conjunction with the
accompanying Legends Golf Combined Financial Statements and Notes thereto.
The forward-looking statements included in the Analysis of Legends Golf
Financial Information relating to certain matters involve risks and
uncertainties, including anticipated perfomance and other similar matters,
which reflect management's best judgement based on factors currently known,
actual results and experience expressed in the Legends Golf forward-looking
statements as result of a number of factors including but not limited to
those discussed in Analysis of Legends Golf Financial Information.

Pursuant to the Formation Transactions of Golf Trust of America, Inc.
(Golf Trust), Legends Golf contributed in exchange for ownership units in the
partnership seven Golf Courses from The Legends Group: Heritage Golf Club,
Heathland, Moorland, Parkland, Oyster Bay, Royal New Kent and Legends of
Stonehouse. These seven Golf Courses are operated by four Legends Lessees.
The Legends Resort Courses: Heathland, Moorland and Parkland share a common
clubhouse, driving range, golf carts and other facilities and will be leased
by a single Legends Lessee pursuant to a single Participating Lease. The
Virginia courses--Royal New Kent and Legends at Stonehouse--leased by a
single Legends Lessee pursuant to separate Participating Leases. Each of the
two other Legends Golf Courses is leased by a separate Legends Lessee.

Legends Golf markets its courses through media advertising (primarily in
golf publications) and various other promotional arrangements (generally
discounted green fees) provided to guests of local hotels in the markets where
its Golf Courses are located. In addition, in 1995, affiliated entities began
constructing, selling and managing the rental golf villas as part of a
resort/residential development at the Legends Resort, site of the Legends Resort
Courses, Heathland, Moorland and Parkland. This development eventually is
expected to include 196 golf villas with over 780 beds. The Company believes
that this resort/residential development helped contribute to the number of
rounds played at the Legends Resort Courses in 1996 and 1997 and is expected to
continue to be a source of rounds played as the development is completed.

For purposes of financial presentations, the term "Legends Golf" refers to
the combined operations of all seven Golf Courses being contributed by The
Legends Group, and the term "Golf Legends" refers to operations of the three
Golf Courses located at the Legends Resort.

RESULTS OF OPERATIONS

YEAR ENDED DECEMBER 31, 1997 AND 1996

Revenue from golf operations increased 15.8% from $15,199,000 to
$17,565,000 while the revenue per player increased from $56.21 to $59.48,
while the total rounds played increased 9.2% from 270,400 to 295,300. The
increase in total number of rounds is due to the opening of the two Virginia
courses in mid-1996. The Virginia courses accounted for increased rounds of
26,400 and a total revenue increase of $2,117,000.

The number of rounds played significantly influences other revenue sources,
including food and beverage and merchandise sales. While the number of rounds
increased 9.2% other revenue increased 19.1% to $5,018,000 from $4,214,000
principally due to a 17.6% increase in food and beverage sales resulting from
additional demand created by occupants of the newly constructed golf villas at
the Legends Resort and sales at the Virginia courses as well as a 12.7% increase
in pro shops sales resulting principally from Virginia courses sales. Other
income increased as a result of reinstituting the course photography.

Operating expenses increased 71.5% to $27,367,000 from $15,956,000.
Principal components of the $11,411,000 increase were (i) operating costs
exclusive of lease payments to Golf Trust and depreciation expense of
approximately $1,122,000 associated with the two Virginia courses opened in
mid-1996; (ii) lease payments to Golf Trust, land lease payments to the prior
owner and depreciation expense totaling $11,790,000 for 1997 compared to
$3,126,000 for 1996 (increase $8,644,000) when there were no lease payments to
Golf Trust; (iii) equipment lease payments for golf carts, maintenance
equipment, and a global positioning system, increased $929,000; (iv) $321,000
attributable to clubhouse repairs at Heritage Golf Club and Oyster Bay along
with the addition of several maintenance personnel to improve the quality of the
course maintenance, and (v) increased costs of the food and beverage operations
consistent with the increase in sales.

F-17

Interest expense decreased 78.2% to $346,000 from $1,589,000 as a result of
lower borrowings outstanding related to debt for the courses which was
transferred in connection with the Formation Transaction's retirement of debt.

Equity in earnings results from limited partnership interest in Golf Trust
of America, L.P.

Net income decreased $2,112,000 from $1,868,000 to a deficit of $244,000
primarily as a result of the increased operating expenses from the two new
courses and lease payments to Golf Trust.

YEAR ENDED DECEMBER 31, 1996 AND 1995

Revenue from golf operations increased 4.0% from $14,619,000 to
$15,199,000 as well as the revenue per player (principally as a result of
increased green fees and gulf cart rentals) fr.. $55.65 to $56.21, while the
total rounds played increased 2.9% from 262,700 to 270,400. The increase in
total number of rounds is primarily due to the opening of the two Legends of
Virginia courses in mid-1996. The increase in total revenues in 1996 due to
the two new courses approximated $690,000. In January and February 1996,
management reduced available tee times and increased green and cart fees over
the prior period's winter rates in an effort to enhance the quality of the
golf experience during the slower time of the year. The Company believes
that the late, harsh winter of 1996 in the Midwest and northeastern United
States reduced vacation golfers' travel from these areas and contributed to
the decrease in the number of rounds played. Rounds player were also
adversely affected by two hurricanes during the summer of 1996 that resulted
in minimal damage to the Golf Courses but reduced vacation golf travel to the
area.

Other revenue sources, including food and beverage and merchandise sales
are significantly influenced by the number of rounds played. While the number
of rounds increased 2.9%, the revenue increased 10.2% to $4,214,000 from
$3,823,000 principally due to a 22.6% increase in food and beverage sales
resulting from additional demand created by occupants of the newly constructed
golf villas at the Legends Resort. The rental units recently opened and
additional units are being developed. Management is unable to estimate the
future impact on food and beverage sales. However, food and beverage revenues
are not included in the calculation of Gross Golf Revenue and therefore do not
affect Participating Rent payments.

Operating expenses increased 31.7% to $15,956,000 from $12,113,000.
Principal components of the $3,843,000 increase were (i) initial operating costs
of approximately $3,178,000 associated with the two Legends of Virginia courses
opened in mid-1996, (ii) a one-time increase in chemical. and fertilizer expense
of approximately $90,000, (iii) periodic resurfacing of cart paths totaling
$50,000, (iv) food and beverage operations of approximately $352,000 attributed
to an increase in revenue, and (v) an increase in repairs and maintenance
expense.

Interest expense increased 56.2% to $1,589,000 from $1,017,000 as a result
of higher borrowings incurred in connection with the completion and pre-opening
costs of the two recently opened Initial Courses.

Net income decreased 64.8% from $5,312,000 to $1,868,000 primarily as a
result of additional $3,178,000 of expenses associated with the two recently
opened Initial Courses.

YEAR ENDED DECEMBER 31, 1995 AND 1994

Revenue from golf operations increased 1.7% to $14,619,000 from
$14,371,000. The increase resulted primarily from a 9.5% increase in revenue
per player (principally as a result of increased green fees and golf cart
rentals) from $50.82 to $55.65. During this same period rounds played decreased
7.1% from 282,800 to 262,700 as a result of the Company's focus on increasing
green fees.

F-18

Other revenue decreased 19.1% from $4,725,000 to $3,823,000 principally due
to a contribution of land totaling $1,000,000 which was partially offset by
increased food and beverage and merchandise sales as a result of improved
merchandising efforts in the pro shop.

Operating expenses increased 1.7% to $12,113,000 from $11,913,000,
primarily as a result of normal wage and other operating cost increases,

Interest expense increased 1.9% to $1,017,000 from $998,000 primarily due
to financing costs incurred in connection with the purchase of maintenance
equipment.

Net income decreased 14.1% to $5,312,000 from $6,185,000.

F-19

REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS

To the Board of Directors of
Legends Golf
Myrtle Beach, South Carolina

We have audited the accompanying combined balance sheets of LEGENDS GOLF
(as defined in Note 1) as of December 31, 1996 and 1997, and the related
combined statements of operations, owners' equity, and cash flows for each of
the three years in the period ended December 31, 1997. These combined financial
statements are the responsibility of LEGENDS GOLF'S management. Our
responsibility is to express an opinion on these financial statements based on
our audits.

As more fully described in the notes to the combined financial statements,
LEGENDS GOLF has material transactions with its majority stockholder and
affiliates.

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

February 17, 1998 BDO Seidman, LLP
Charlotte, North Carolina

F-20

LEGENDS GOLF
COMBINED BALANCE SHEET

DECEMBER 31,
1996 1997

ASSETS
CURRENT: . . . . . . . . . . . . . . . . . . . . .
Cash . . . . . . . . . . . . . . . . . . . . . . $ 841 $ 569
Accounts receivable (Note 3):. . . . . . . . . .
Golf packages . . . . . . . . . . . . . . . . . 984 810
Related parties . . . . . . . . . . . . . . . . 246 95
Other . . . . . . . . . . . . . . . . . . . . . 60 527
Inventories. . . . . . . . . . . . . . . . . . . 498 453
------- -------
Total current assets . . . . . . . . . . . . 2,629 2,454
------- -------
Property and equipment, less accumulated
depreciation and amortization
(Notes 4, 6, and 7). . . . . . . . . . . . . . . 35,060 3,630

Other assets:
Advances to affiliates (Note 3). . . . . . . . . 11,673 13,148
Investment in Golf Trust (Note 2). . . . . . . . - 2,940
Other. . . . . . . . . . . . . . . . . . . . . . 442 47
------- -------
Total other assets . . . . . . . . . . . . . 12,115 16,135

$49,804 $22,219
------- -------
------- -------

LIABILITIES AND OWNERS' EQUITY:
CURRENT LIABILITIES:
Accounts payable . . . . . . . . . . . . . . . . $ 1,417 $ 873
Accrued expenses:
Rent. . . . . . . . . . . . . . . . . . . . . . 5 1,034
Other . . . . . . . . . . . . . . . . . . . . . 728 448
Current maturities of long-term debt (Note 6). . 26,697 370
------- -------
Total current liabilities. . . . . . . . . . 28,847 2,725
------- -------
------- -------

Advances from affiliates (Note 3). . . . . . . . . 13,167 9,661
Long-term debt, less current maturities (Note 6) . 616 1,236
------- -------
Total liabilities. . . . . . . . . . . . . . 42,630 13,622
------- -------
------- -------
Commitments and contingencies (Note 7)
Owners' equity:
Common stock, $1 par--shares authorized,
300,000; outstanding, 1,000. . . . . . . . . . . 3 3
Members' contributions . . . . . . . . . . . . . 1 7
Additional paid-in capital . . . . . . . . . . . 300 3,832
Members' accumulated deficit . . . . . . . . . . (1,970) (5,332)
Retained earnings. . . . . . . . . . . . . . . . 8,840 10,077
------- -------
Total owners' equity . . . . . . . . . . . . 7,174 8,597
------- -------
. . . . . . . . . . . . . . . . . . . . . . . $49,804 $22,219
------- -------
------- -------

See accompanying notes to combined financial statements

F-21

LEGENDS GOLF
COMBINED STATEMENTS OF OPERATIONS
(IN THOUSANDS)

YEAR ENDED DECEMBER 31,
1995 1996 1997

REVENUES:
Green fees . . . . . . . . . . . . . . . . . . . $10,147 $10,476 $12,081
Cart rentals . . . . . . . . . . . . . . . . . . 4,373 4,564 5,335
Membership dues. . . . . . . . . . . . . . . . . 99 159 149
Food and beverage sales. . . . . . . . . . . . . 1,708 2,095 2,464
Pro shop merchandise sales . . . . . . . . . . . 2,021 2,089 2,355
Other income . . . . . . . . . . . . . . . . . . 94 30 199
------- ------- -------
Total revenues . . . . . . . . . . . . . . . 18,442 19,413 22,583
------- ------- -------
COSTS AND EXPENSES:
General and administrative (Note 3). . . . . . . 3,998 4,767 5,511
Repairs and maintenance. . . . . . . . . . . . . 2,386 4,046 5,667
Depreciation and amortization. . . . . . . . . . 1,791 2,400 958
Cost of merchandise sold . . . . . . . . . . . . 983 1,053 1,154
Rents (Note 7) . . . . . . . . . . . . . . . . . 982 1,098 11,068
Pro shop operations. . . . . . . . . . . . . . . 857 1,107 1,231
Cost of food and beverage sold . . . . . . . . . 604 817 1,024
Food and beverage operations . . . . . . . . . . 512 668 754
------- ------- -------
Total costs and expenses . . . . . . . . . . 12,113 15,956 27,367
------- ------- -------
Operating income (loss). . . . . . . . . . . . . . 6,329 3,457 (4,784)
------- ------- -------
OTHER INCOME EXPENSES:
Equity interest in earnings of
Golf Trust (Note 2) . . . . . . . . . . . . . . - - 4,887
Interest expense . . . . . . . . . . . . . . . . (1,017) (1,589) (347)
------- ------- -------
Total other income (expense) . . . . . . . . (1,017) (1,589) 4,540
------- ------- -------
Net income (loss). . . . . . . . . . . . . . . . . $ 5,312 $ 1,868 $ (244)
------- ------- -------
------- ------- -------

See accompanying notes to combined financial statements

F-22

LEGENDS GOLF
COMBINED STATEMENTS OF OWNERS' EQUITY
(IN THOUSANDS)

MEMBERS' PAID-IN RETAINED ACCUMULATED
SHARES AMOUNT CONTRIBUTIONS CAPITAL EARNINGS DEFICIT

BALANCE, January 1, 1995 . . . . . 3 $ 3 $ 1 $300 $2,468 1,000
Net income (loss). . . . . . . . . - - - - 5,357 (44)
Cash dividends . . . . . . . . . . - - - - (2,757) -
------ ------ ----- ----- ------ ------

BALANCE, December 31, 1995 . . . . 3 3 1 300 5,068 956
Net income (loss). . . . . . . . . - - - - 4,794 (2,926)
Cash dividends . . . . . . . . . . - - - - (1,022) -
------ ------ ----- ----- ------ ------

BALANCE, December 31, 1996 . . . . 3 3 1 300 8,840 (1,970)
Capital contributions: . . . . . .
Cash . . . . . . . . . . . . . . - - 6 - - -
Land (Note 2). . . . . . . . . . - - - 3,532 - -
Net income (loss). . . . . . . . . - - - - 3,108 (3,352)
Cash dividends . . . . . . . . . . - - - - (1,871) -
------ ------ ----- ----- ------ ------

BALANCE, December 31, 1997 . . . . 3 $ 3 $ 7 $3,832 $10,077 $(5,322)
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------

See accompanying notes to combined financial statements

F-23

LEGENDS GOLF
COMBINED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)

YEAR ENDED DECEMBER 31,
1995 1996 1997

CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss). . . . . . . . . . . . . . . . . . $5,312 $1,868 $ (244)
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization. . . . . . . . . . . 1,791 2,400 958
Loss on disposal of property and equipment . . . . 5 78 -
Equity earnings in Golf Trust. . . . . . . . . . . - - (4,887)
Decrease (increase) in:
Accounts receivable . . . . . . . . . . . . . . . (135) (627) 171
Inventories . . . . . . . . . . . . . . . . . . . 135 (204) 45
Prepaid expenses and other assets . . . . . . . . 7 (182) (157)
Increase (decrease) in:
Accounts payable. . . . . . . . . . . . . . . . . (87) 987 (544)
Accrued expenses. . . . . . . . . . . . . . . . . (458) 355 791
-------- ------ -------
Net cash provided by (used in) operating activities. . 6,570 4,675 (3,867)
-------- ------ -------

CASH FLOWS FROM INVESTING ACTIVITIES:
Property and equipment additions . . . . . . . . . . (12,213) (5,271) (2,014)
Proceeds from sale of property and equipment . . . . 124 612 -
Proceeds from transfer to Golf Trust . . . . . . . . - - 523
Distributions from Golf Trust. . . . . . . . . . . . - - 3,851
Increase in advances to affiliates . . . . . . . . . (4,843) (3,920) (988)
-------- ------ -------
Net cash provided by (used in) investing activities. . (16,932) (8,579) 1,372
-------- ------ -------

CASH FLOWS FROM FINANCING ACTIVITIES:
Payments of dividends. . . . . . . . . . . . . . . . (2,757) (1,021) (1,871)
Capital contribution . . . . . . . . . . . . . . . . - - 6
Proceeds from long-term debt . . . . . . . . . . . . 11,448 2,497 1,086
Payments on long-term debt . . . . . . . . . . . . . (812) (1,560) (226)
Increase (decrease) in advances from affiliates. . . 2,903 4,429 3,228
Decrease in advances from stockholder. . . . . . . . (525) - -
-------- ------ -------
Net cash provided by financing activities. . . . . . . 10,257 4,345 2,223
-------- ------ -------
Net increase (decrease) in cash. . . . . . . . . . . . (105) 441 (272)
-------- ------ -------
Cash, beginning of period. . . . . . . . . . . . . . . 505 400 841

Cash, end of period. . . . . . . . . . . . . . . . . . $ 400 $ 841 $ 569
---------------------------
---------------------------

See accompanying notes to combined financial statements

F-24

LEGENDS GOLF
NOTES TO COMBINED FINANCIAL STATEMENTS
(IN THOUSANDS)

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

ORGANIZATION AND BASIS OF PRESENTATION

The accompanying 1996 combined financial statements include the accounts of
three S-Corporations (Seaside Resorts, Ltd. d/b/a Oyster Bay Golf Club; Heritage
Golf Club, Ltd.; and Golf Legends, Ltd.) and one limited liability company
(Legends of Virginia, LC). The 1997 combined financial statements also include
the accounts of four newly formed limited liability companies (Legends Golf
Management, LLC; Heritage Golf Management, LLC; Oyster Bay Golf Management, LLC;
and Virginia Legends Golf Management, LLC). The entities, referred to
collectively as Legends Golf (the Company), are engaged in the operation of golf
courses in North Carolina, South Carolina, and Virginia.

The operations of the companies listed above are being presented on a
combined basis, as under the terms of the operating leases, the lease
obligations are cross-collateralized among all four Legends lessees. This
presentation better presents the ability of the lessees to service the leases.

All significant intercompany balances and transactions have been
eliminated. Additionally, certain classifications may vary from those of the
individual companies' financial statements.

INVENTORIES

Inventories are valued at the lower-of-cost (first-in, first-out) or market
and consist primarily of food, beverages, golf equipment, and clothing.

REVENUE RECOGNITION

Revenue from green fees, cart rentals, food and beverage sales, merchandise
sales, and range income are generally recognized at the time of sale.

CASH EQUIVALENTS

The Company considers all highly liquid debt instruments with a maturity of
three months or less to be cash equivalents.

INVESTMENT IN PARTNERSHIP

Legends Golf accounts for its investments in Golf Trust of America, LP
(GTA, LP) under the equity method of accounting. Under this method, equity
earnings (losses) are recorded as increases (decreases) to the investment
account and dividend distributions, to the extent they do not lower the
investment below zero, are recorded as reductions in the investments.

F-25

LEGENDS GOLF
NOTES TO COMBINED FINANCIAL STATEMENTS
(IN THOUSANDS)

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

PROPERTY AND EQUIPMENT

Property and equipment are stated at cost. Depreciation is computed over
the estimated useful lives of the assets using straight-line methods for
financial reporting and accelerated methods for income tax purposes.

Estimated useful lives for major asset categories approximate:

DESCRIPTION YEARS
----------- -----

Buildings . . . . . . . . . . . . . . . . . . . . . . . . . 40
Machinery and equipment . . . . . . . . . . . . . . . . . . 3-8
Furniture . . . . . . . . . . . . . . . . . . . . . . . . . 8
Golf carts. . . . . . . . . . . . . . . . . . . . . . . . . 5

Major renewals and betterments are capitalized. Maintenance, repairs and
minor renewals are expensed as incurred. When properties are retired or
otherwise disposed of, related cost and accumulated depreciation are removed
from the accounts. Tenant improvements, to the extent they are not reimbursed
by the Landlord, are amortized over the lesser of their useful lives or the
related lease term.

INCOME TAXES

For the S-Corporations, the absence of a provision for income taxes is due
to the election by the companies, and consent by their sole stockholder, to
include the taxable income or loss of the companies in his individual tax
returns. As a result, no federal or state income taxes are imposed on the
companies. For the limited liability companies, no provision has been made for
income taxes or related credits as under the Internal Revenue Code as a limited
liability company is treated as a partnership for income tax purposes.
Therefore, the results of operations are includable in the income tax returns of
the members.

USE OF ESTIMATES

The preparation of combined financial statements in conformity with
generally accepted accounting principles required 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 combined
financial statements and reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.

CONCENTRATION OF CREDIT RISK

Financial instruments which potentially subject Legends Golf to
concentration of credit risk consist primarily of trade receivables.

Concentration of credit risk with respect to trade receivables, which
consists primarily of golf packages from hotels and charges, is limited due to
the large number of hotels comprising Legends Golf's customer base. The trade
receivables are billed and due monthly, and all probable bad debt losses have
been appropriately considered in establishing an allowance for doubtful
accounts. As of December 31, 1995, 1996, and 1997, Legends Golf had no
significant concentration of credit risk.

F-26

LEGENDS GOLF
NOTES TO COMBINED FINANCIAL STATEMENTS
(IN THOUSANDS)

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

RECENT ACCOUNTING PRONOUNCEMENTS

ADVERTISING

Legends Golf expenses advertising costs as incurred. Advertising costs
included in general and administrative costs in the amounts of $403, $672, and
$626 for December 31, 1995, 1996, and 1997, respectively.

2. TRANSFER OF ASSETS AND INVESTMENT IN GOLF TRUST

On February 12, 1997, Legends Golf transferred land and improvements,
buildings and certain equipment with a net book value of $36.3 million net of
related debt of $34.8 million to Golf Trust of America, LP Golf Trust for
approximately 3.7 million OP Units and reimbursement of approximately $522,500
of out-of-pocket expenses. Immediately prior to the transfer, the Company's
sole stockholder (majority member) contributed land, previously leased to
Legends Golf, at a value of $3.5 million. The transfer was concurrent with an
initial public offering of the common stock of Golf Trust of America, Inc. (GTA,
Inc.), its general partner. Legends Golf OP Units are convertible, subject to
certain limitations as defined in the transfer agreement, to common shares of
GTA, Inc. At December 31, 1997, the common stock equivalent value of the OP
Units was approximately $108 million.

In addition, with the contribution of assets, the operations of the golf
courses were transferred to four newly formed management companies. These
companies entered into lease agreements with Golf Trust more fully described in
Note 7. Legends Golf is also committed to construct two clubhouses, currently
under construction in Virginia, with an estimated cost at completion of $2
million. Upon completion, the assets will be transferred to Golf Trust.

F-27

LEGENDS GOLF
NOTES TO COMBINED FINANCIAL STATEMENTS
(IN THOUSANDS)

3. RELATED PARTY TRANSACTIONS

Legends Golf sole stockholder (majority member) owns and operates Marsh
Harbour, Ltd.; Heritage Plantation, Ltd.; Legends Golf Development, Ltd.; The
Legends Group, Ltd.; Legends Scottish Village, LLC; Legends Properties, LLC;
Legends Golf Resorts, LLC; and other related businesses.

The Legends Group, Ltd. provides various management and administrative
services including reservations, advertising, accounting, payroll and related
benefits, and telephone for all affiliated companies. These expenses are
allocated to the businesses using procedures deemed appropriate to the nature of
the expenses involved. The procedures utilize various allocation bases such as
relative investment and number of employees and direct effort expended. Interest
on allocated external debt is charged as incurred. Legends Golf's management
believes the allocations are reasonable, but they are not necessarily indicative
of the costs that would have been incurred if the businesses had operated as
separate companies. Administrative fees paid by the Legends Golf for such
services are as follows:

YEAR ENDED DECEMBER 31, AMOUNT
----------------------- ------

1995 . . . . . . . . . . . . . . . . . . . . . . . . . . . $1,065
1996 . . . . . . . . . . . . . . . . . . . . . . . . . . . $1,185
1997 . . . . . . . . . . . . . . . . . . . . . . . . . . . $1,506

During 1996 and 1997, Legends Golf recognized golf course revenue of $1,051
and $1,744, respectively, under golf packages with an affiliated company.

Advances to and from affiliated companies, as shown on the combined balance
sheets, have no fixed payment/repayment provisions. Interest income and expense
on advances to and from affiliates is not recorded for financial statement
purposes.

During 1996, Legends Golf paid an affiliate approximately $18,221 for
construction of two golf courses which represented cost plus 7 percent.

4. PROPERTY AND EQUIPMENT

Major classes of property and equipment consist of the following:

DECEMBER 31,
1996 1997

Land. . . . . . . . . . . . . . . . . . . . . $ 1,000 $ -
Golf course improvements. . . . . . . . . . . 36,005 -
Buildings . . . . . . . . . . . . . . . . . . 4,789 539
Machinery and equipment . . . . . . . . . . . 2,830 58
Furniture . . . . . . . . . . . . . . . . . . 558 288
Golf carts. . . . . . . . . . . . . . . . . . 1,373 1,111
Construction-in-progress. . . . . . . . . . . 332 -
Assets subject to transfer (Notes 2 and 7): .
Equipment . . . . . . . . . . . . . . . . . - 201
Leasehold improvements. . . . . . . . . . . - 802
Construction-in-progress. . . . . . . . . . - 1,302
------- ------
45,888 4,301
Less accumulated depreciation . . . . . . . . 10,828 671
------- ------
Net property and equipment. . . . . . . . . . $35,060 $3,630
--------------------
--------------------

5. RETIREMENT PLAN

F-28

LEGENDS GOLF
NOTES TO COMBINED FINANCIAL STATEMENTS
(IN THOUSANDS)

During 1995 and 1996, the Legends Group, Ltd. sponsored a
defined-contribution retirement plan for all eligible employees of Legends Golf
and other affiliated companies including officers. The plan provided for
contributions by Legends Golf equal to the level funding amount as calculated
and defined in the plan agreement.

During February 1997, Legends Golf converted the defined-contribution
retirement plan to a 401(k) profit sharing plan for all eligible employees of
Legends Golf and other affiliated companies including officers. Legends Group,
Ltd. may annually elect to make matching contributions as defined in the plan.

Expenses under the plans were:

YEAR ENDED DECEMBER 31, AMOUNT
----------------------- ------

1995. . . . . . . . . . . . . . . . . . . . . $71
1996. . . . . . . . . . . . . . . . . . . . . $99
1997. . . . . . . . . . . . . . . . . . . . . $-

6. LONG-TERM DEBT

Long-term debt consists of the following:

DECEMBER 31,
1996 1997

Payable to bank, under a $6 million loan agreement
that Legends Golf participates in, along with Marsh
Harbour, Ltd., an affiliated company. The note bears
interest at the 30-day LIBOR rate (5.72% at December
31, 1997) plus 1/4%. The outstanding balance for
Legends Golf and Marsh Harbour, Ltd. is payable in
graduated principal payments, beginning June 1997, of
$83 plus accrued interest; balance due May 2002. The
aforementioned companies are jointly liable for the
debt and the sole stockholder has guaranteed the
loans . . . . . . . . . . . . . . . . . . . . . . . $ - $ 990
Payable to bank, due in monthly installments of
principal and interest of $20, calculated by multiplying
the capitalized cost by a rental factor, which is
adjusted by a percentage of each basis point change in
the 30-day LIBOR rate; due in 2000; collateralized by
golf carts having a net book value of $778 at December
31, 1997 . . . . . . . . . . . . . . . . . . . . . . 781 579

Other . . . . . . . . . . . . . . . . . . . . . . . 78 37
. . . . . . . . . . . . . . . . . . . . . . . . . .
Paid or transferred to Golf Trust in 1997 . . . . . 26,454 -
------- -------
27,313 1,606
Less current maturities . . . . . . . . . . . . . . 26,697 370
------- -------
$ 616 $ 1,236
------------------
------------------

F-29

LEGENDS GOLF
NOTES TO COMBINED FINANCIAL STATEMENTS
(IN THOUSANDS)

6. LONG-TERM DEBT (CONTINUED)

The $6 million loan agreement provides, among other covenants, restrictions
on certain financial ratios, capital expenditures, indebtedness, liens, changes
in the nature of the business and significant other limitations as to the use of
funds. The Company has obtained a waiver of certain of the covenants as of
December 31, 1997.

Total debt of all affiliated entities of which the Company is jointly
liable is approximately $12,708 at December 31, 1997.

The aggregate annual maturities for the above mortgage notes payable at
December 31, 1997, are as follows:

DECEMBER 31, AMOUNT

1998 . . . . . . . . . . . . . . . . . . . . . . $370
1999 . . . . . . . . . . . . . . . . . . . . . . 455
2000 . . . . . . . . . . . . . . . . . . . . . . 429
2001 . . . . . . . . . . . . . . . . . . . . . . 308
2002 . . . . . . . . . . . . . . . . . . . . . . 44

Total. . . . . . . . . . . . . . . . . . . . . . $1,606
------
------

7. COMMITMENTS AND CONTINGENCIES

LEASES

Concurrent with the transfer of assets, as described in Note 3, Legends
Golf entered into four lease agreements with GTA, LP. The leases provide for
initial annual payments aggregating approximately $12 million with annual
adjustments equal to the lesser of 3 percent or 200 percent of the consumer
price index. In addition, the leases provide for percentage rents based on one
third of the increase in gross golf revenues, as defined in the agreement, over
the base year of 1996. The leases, which have an initial term ending December
31, 2006, may be renewed for six additional periods of five years each. In
addition, the leases provide for reimbursements, subject to landlord approval,
up to 2% of gross golf revenues, to certain qualified capital expenditures, as
defined in the lease agreements. Legends Golf records these expenditures as
leasehold improvements or equipment as applicable until they are reimbursed by
the Lessor. As of December 31, 1997, the Lessor had approximately $351
available to Legends Golf under these lease agreements.

Legends Golf also leases land from a third party under an agreement which
expires in 2032. The lease requires rental payments of 10 percent of monthly
green fees as defined in the lease agreement.

During 1996 and prior to the transfer of assets on February 12, 1997,
Legends Golf leased land from the sole stockholder.

Total rental expense approximated the following:

STOCKHOLDER THIRD GOLF TRUST
YEAR ENDED DECEMBER 31, ----------- PARTY ----------
-----

1995 . . . . . . . . . . . $734 $248 $ -
1996 . . . . . . . . . . . 726 $231 $ -
1997 . . . . . . . . . . . $ 25 $236 $10,807

Legends Golf also leases certain equipment under noncancelable operating leases.
Total equipment lease expense approximated $0, $162, $1,000 for 1995, 1996, and
1997, respectively.

F-30

LEGENDS GOLF
NOTES TO COMBINED FINANCIAL STATEMENTS
(IN THOUSANDS)

7. COMMITMENTS AND CONTINGENCIES (CONTINUED)

LEASES (CONTINUED)

Minimum lease commitments for noncancelable operating leases at December
31, 1997, are as follows:

YEAR ENDING DECEMBER 31. AMOUNT
------------------------ ------

1998 . . . . . . . . . . . . . . . . . . . . . . $13,161
1999 . . . . . . . . . . . . . . . . . . . . . . 13,159
2000 . . . . . . . . . . . . . . . . . . . . . . 12,719
2001 . . . . . . . . . . . . . . . . . . . . . . 12,545
2002 . . . . . . . . . . . . . . . . . . . . . . 12,068
Thereafter . . . . . . . . . . . . . . . . . . . 60,285
--------
Total. . . . . . . . . . . . . . . . . . . . . . $123,937
--------
--------

SELF-INSURANCE

Legends Golf along with its affiliates maintain a self-insurance program
for that portion of health care costs not covered by insurance. Legends Golf is
liable for claims up to $15 per employee annually with an annual aggregate
maximum liability under the program for all companies of $336. Cumulative
amounts estimated to be payable by Legends Golf with respect to pending and
potential claims have been accrued as liabilities.

8. SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION

Cash paid for interest:

YEAR ENDED DECEMBER 31, AMOUNT
----------------------- ------

1995 . . . . . . . . . . . . . . . . . . . . . . $ 1,574
1996 . . . . . . . . . . . . . . . . . . . . . . $ 2,012
1997 . . . . . . . . . . . . . . . . . . . . . . $ 578

During 1996, equipment having a net book value of $711 and cash of $399 was
exchanged for similar new equipment having a value of $1,110.

During 1997, the Company transferred assets and related debt to Golf
Trust (see Note 3).

F-31

SCHEDULE III
GOLF TRUST OF AMERICA, INC.
REAL ESTATE AND ACCUMULATED DEPRECIATION
DECEMBER 31, 1997

BUILDING &
PROPERTY/LOCATION ENCUMBRANCES LAND IMPROVEMENTS IMPROVEMENTS OTHER LAND
- -----------------------------------------------------------------------------------------------------------------------------

Healthland, Parkland, and Moorland--Myrtle Beach, SC - 3,207 15,609 - - $3,207
Heritage Golf Club--Pawleys Island, SC - 325 4,475 - - 325
Royal New Kent--Williamsburg, VA - 500 10,445 - - 500
Olde Atlanta Golf Club--Atlanta, GA - 3,242 4,327 - - 3,242
Oyster Bay Golf Links--Sunset Beach, NC - - 2,016 - - -
Legends of Stonehouse--Williamsburg, VA - 500 10,071 - - 500
The Woodlands Golf Course--Gulf Shores, AL - 1,001 5,046 - - 1,001
Northgate Country Club--Houston, TX - 2,626 9,984 - - 2,626
Tiburon Golf Club--Omaha, NE - 800 5,203 - - 800
Raintree Country Club--Akron, OH - 1,080 3,483 - - 1,080
Eagle Watch Golf Club--Atlanta, GA - 3,603 2,797 - - 3,603
Lost Oaks of Innisbrook--Tampa, FL - 2,641 3,235 - - 2,641
The Club of the Country--Kansas City, KS - 1,220 1,863 - - 1,220
Black Bear Golf Club--Orlando, FL - 851 3,933 - - 851
Wildewood Country Club and Country Club
at Woodcreek Farm--Columbia, SC - 4,200 6,322 - - 4,200
--------

W/O corporate assets $25,796
--------
--------

BUILDING & ACCUMULATED DATE OF DATE
PROPERTY/LOCATION IMPROVEMENTS TOTAL DEPRECIATION CONSTRUCTION ACQUIRED
- ------------------------------------------------------------------------------------------------------------------------------

Healthland, Parkland, and Moorland--Myrtle Beach, SC $15,609 $18,816 $6,959 1990-1992 2/12/97
Heritage Golf Club--Pawleys Island, SC 4,475 4,800 2,856 1986 2/12/97
Royal New Kent--Williamsburg, VA 10,445 10,945 942 1996 2/12/97
Olde Atlanta Golf Club--Atlanta, GA 4,327 7,569 154 1993 2/12/97
Oyster Bay Golf Links--Sunset Beach, NC 2,016 2,016 1,327 1983 2/12/97
Legends of Stonehouse--Williamsburg, VA 10,071 10,571 891 1996 2/12/97
The Woodlands Golf Course--Gulf Shores, AL 5,046 6,047 102 1994 2/12/97
Northgate Country Club--Houston, TX 9,984 12,610 415 1984 2/13/97
Tiburon Golf Club--Omaha, NE 5,203 6,003 144 6/11/05 8/19/97
Raintree Country Club--Akron, OH 3,483 4,563 55 6/13/05 9/2/97
Eagle Watch Golf Club--Atlanta, GA 2,797 6,400 39 6/11/05 9/30/97
Lost Oaks of Innisbrook--Tampa, FL 3,235 5,876 38 5/28/05 10/2/97
The Club of the Country--Kansas City, KS 1,863 3,083 16 6/1/05 10/17/97
Black Bear Golf Club--Orlando, FL 3,933 4,784 22 6/17/05 11/25/97
Wildewood Country Club and Country Club
at Woodcreek Farm--Columbia, SC 6,322 10,522 - 1974,1997 12/19/97
------------------------------------

W/O corporate assets $88,808 $114,604 $13,959
------------------------------------
------------------------------------

S-1

SCHEDULE IV
GOLF TRUST OF AMERICA, INC.
MORTGAGE LOANS ON REAL ESTATE
DECEMBER 30, 1997

FINAL
INTEREST MATURITY
DESCRIPTION RATE DATE PERIOD PAYMENT TERMS

Golf Hosts Resorts, Inc. 9.63%-9.75% 6/20/27 Note payable interest only of $561,589 monthly with 5% increases beginning
in year two and continuing until year five. Amounts drawn on $9M Tranche
II, at $3,024,000 at December 31, 1997, loan bears interest at 9.75%

PRINCIPAL AMOUNT OF
CARRYING LOANS SUBJECT TO
PRIOR FACE AMOUNT AMOUNTS OF DELINQUENT PRINCIPAL
LIENS OF MORTGAGE MORTGAGE OF INTEREST

$-- $63,051,000 $65,129,000 $--

S-2

EXHIBIT INDEX

Pursuant to Item 601(a)(2) of Regulation S-K, this exhibit index
immediately precedes the exhibits.

The following exhibits are part of this Annual Report on Form 10-K for
fiscal year 1997 (and are numbered in accordance with Item 601 of Regulation
S-K). Items marked with an asterisk (*) are filed herewith.

Exhibit No. Description
- ----------- -----------

3.1 Articles of Amendment and Restatement of the Company, as filed
with the State Department of Assessments and Taxation of Maryland
on January 31, 1997, (previously filed as Exhibit 3.1A to the
Company's Registration Statement on Form S-11 (Commission File
No. 333-15965) Amendment No. 2 (filed January 30, 1997) and
incorporated herein by reference).

3.2 Bylaws of the Company as currently in effect (previously filed as
Exhibit 3.2 to the Company's Registration Statement on Form S-11
(Commission File No. 333-15965) Amendment No. 1 (filed January
15, 1997) and incorporated herein by reference).

10.1.0 First Amended and Restated Agreement of Limited Partnership of
the Operating Partnership (the "Partnership
Agreement")(previously filed as Exhibit 10.1 to the Company's
Annual Report on Form 10-K (Commission File No. 000-22091), filed
May 15, 1997, and incorporated herein by reference).

10.1.1* Exhibit A to the Partnership Agreement, as revised through March
25, 1998.

10.1.2* First Amendment to the Partnership Agreement, dated as of
February 1, 1998.

10.2.0 Form of Participating Lease between the Operating Partnership and
the Lessees relating to the Initial Courses (previously filed as
Exhibit 10.2 to the Company's Registration Statement on Form S-11
(Commission File No. 333-15965) Amendment No. 1 (filed January
15, 1997) and incorporated herein by reference).

10.2.1 Schedule of material differences among the Participating Leases
for the Initial Courses (included in lieu of the full text of
each lease pursuant to Instruction 2 to Item 601 of Regulation
S-K)(previously filed as Exhibit 10.2.1 to the Company's Annual
Report on Form 10-K (Commission File No. 000-22091), filed May
15, 1997, and incorporated herein by reference).

10.2.2* Lease, dated October 3, 1997, by and between Golf Trust of
America, L.P., as landlord, and Lost Oaks, L.P., as tenant.

10.2.3* Lease, dated October 17, 1997, by and between Golf Trust of
America, L.P., as landlord, and Golf Properties of the Country,
L.L.C., as tenant.

10.2.4* Lease, dated November 25, 1997, by and between Golf Trust of
America, L.P., as landlord, and Granite Subsidiary, Inc., as
tenant.

10.2.5* Lease, dated September 26, 1997, by and between Golf Trust of
America, L.P., as landlord, and E.W.G.C., LLC, as tenant.

10.2.6* Lease, dated December 19, 1997, by and between Golf Trust of
America, L.P., as landlord, and Stonehenge Golf Development, LLC,
as tenant.

10.2.7* Lease, dated January 1, 1998, by and between Golf Trust of
America, L.P., as landlord, and Emerald Dunes - Bonaventure,
Inc., as tenant.

10.2.8* Lease, dated January 16, 1998, by and between Golf Trust of
America, L.P., as landlord, and Mystic Creek Golf Club, Limited
Partnership, as tenant.

10.2.9* Lease, dated February 1, 1988, by and between Golf Trust of
America, L.P., as landlord, and Emerald Dunes - West Palm Beach,
Inc., as tenant.

10.2.10* Lease, dated March 6, 1998, by and between Sandpiper-Golf Trust,
LLC, as landlord, and Sandpiper at SBCR, LLC, as tenant.

10.2.11* Lease, dated March 9, 1998, by and between Golf Trust of America,
L.P., as landlord, and Granite Ridge, Inc., as tenant.

10.2.12* Lease, dated August 18, 1997, by and between Golf Trust of
America, L.P., as landlord, and Granite Tiburon, Inc., as tenant.

10.2.13* Lease, dated August 29, 1997, by and between Golf Trust of
America, L.P., as landlord, and Raintree Country Club, Inc., as
tenant.

10.3.0 Option to Purchase and Right of First Refusal Agreement between
(i) the Company and the Operating Partnership and (ii) Larry D.
Young dated as of February 12, 1997 (previously filed as Exhibit
10.3 to the Company's Registration Statement on Form S-11
(Commission File No. 333-15965) Amendment No. 2 (filed January
30, 1997) and incorporated herein by reference).

10.4.0 Form of Contribution and Leaseback Agreement between the
Operating Partnership and the Prior Owners relating to the
Initial Courses (previously filed as Exhibit 10.4 to the
Company's Registration Statement on Form S-11 (Commission File
No. 333-15965) (filed November 12, 1996) and incorporated herein
by reference).

10.4.1 Schedule of material differences among the Contribution and
Leaseback Agreements relating to the Initial Courses (included in
lieu of the full text of each agreement pursuant to Instruction 2
to Item 601 of Regulation S-K)(previously filed as Exhibit 10.4.1
to the Company's Annual Report on Form 10-K (Commission File No.
000-22091), filed May 15, 1997, and incorporated herein by
reference).

10.4.2 Contribution and Leaseback Agreement, dated as of August 29,
1997, by and among John J. Rainieri, Sr., Betty Rainieri and
Raintree Country Club, Inc. and Golf Trust of America, L.P.

10.4.3 Purchase and Sale Agreement, dated as of May 19, 1997, by and
between Tiburon Limited Partnership, as seller, and Granite Golf
Group, Inc., as buyer.

10.4.4 Assignment and Assumption of Purchase and Sale Agreement, dated
as of August 18, 1997, by and among Granite Golf Group, Inc., as
assignor, and Golf Trust of America, L.P., as assignee.

10.4.5* Purchase and Sale Agreement, dated August 31, 1997, by and
between Meghan Associates, LLC, as Seller, and Golf Trust of
America, L.P., as buyer.

10.4.6* Contribution and Leaseback Agreement, dated September 18, 1997,
by and between Eagle Watch Golf Club Limited Partnership, as
transferor and Golf Trust of America, L.P., as transferee.

10.4.7* Contribution and Leaseback Agreement, dated October 17, 1997, by
and between Properties of the Country, Inc., as transferor, and
Golf Trust of America, L.P., as transferee.

10.4.8* Purchase Agreement, dated November 5, 1997, by and between Black
Bear Golf Club Ltd., as seller, and Granite Golf Group, Inc., as
buyer.

10.4.9* Assignment and Assumption of Purchase and Sale Agreement dated
November 19, 1997, by and between Granite Golf Group, Inc., as
Assignor, and Golf Trust of America, L.P., as Assignee.

10.4.10* Purchase and Sale Agreement, dated November 26, 1997, by and
between Bonaventure Country Club Associates, as seller, and Golf
Trust of America, L.P. as buyer.

10.4.11* Contribution and Leaseback Agreement, dated December 5, 1997, by
and between Mystic Creek Golf Club, L.P., as transferor, and Golf
Trust of America, L.P., as transferee.

10.4.12* Contribution and Leaseback Agreement, dated December 18, 1997, by
and between Stonehenge Golf Development, LLC, as transferor, and
Golf Trust of America, L.P., as transferee.

10.4.13* Real Property Purchase and Sale Agreement and Escrow
Instructions, dated January 9, 1998, by and between Aradon
Corporation, as seller, and Golf Trust of America, L.P., as
buyer.

10.4.14* Contribution and Leaseback Agreement, dated January 23, 1998, by
and between Okeechobee Championship Golf, Inc., as transferor,
and Golf Trust of America, L.P., as transferee.

10.4.15* Purchase and Sale Agreement, dated February 26, 1998 by and
between Persimmon Ridge Golf Group, L.P., as seller, and Golf
Trust of America, L.P., as buyer.

10.5 Credit Agreement, dated as of June 20, 1997, by and among Golf
Trust of America, L.P., as Borrower, Golf Trust of America, Inc.,
GTA GP, Inc. and GTA LP, Inc., as Guarantors, the Lenders
referred to therein, and NationsBank N.A., as Agent (previously
filed as Exhibit 10.1 to the Company's Current Report on Form
8-K, dated June 20, 1997 and filed August 12, 1997, and
incorporated herein by reference).

10.6 Loan Agreement, dated as of June 20, 1997, by and between Golf
Host Resorts, Inc., as Borrower, and Golf Trust of America, L.P.,
as Lender (previously filed as Exhibit 10.2 to the Company's
Current Report on Form 8-K, dated June 20, 1997 and filed August
12, 1997, and incorporated herein by reference).

10.7 1997 Non-Employee Directors' Plan (previously filed as Exhibit
10.7 to the Company's Registration Statement on Form S-11
(Commission File No. 333-15965) Amendment No. 1 (filed January
15, 1997) and incorporated herein by reference).

10.8 Golf Trust of America, Inc. 1997 Stock Incentive Plan of the
Company (previously filed as Exhibit 10.6 to the Company's
Registration Statement on Form S-11 (Commission File No.
333-15965) Amendment No. 1 (filed January 15, 1997) and
incorporated herein by reference).

10.9 Golf Trust of America, Inc. 1997 Stock-Based Incentive Plan (the
"New Stock Incentive Plan") (previously filed as Exhibit 10.3 to
the Company's Quarterly Report on Form 10-Q (Commission File No.
000-22091), filed August 15, 1997, and incorporated herein by
reference).

10.10 Form of Nonqualified Stock Option Agreement for use under the New
Stock Incentive Plan (previously filed as Exhibit 10.4 to the
Company's Quarterly Report on Form 10-Q (Commission File No.
000-22091), filed August 15, 1997, and incorporated herein by
reference).

10.11 Form of Employee Incentive Stock Option Agreement for use under
the New Stock Incentive Plan (previously filed as Exhibit 10.5 to
the Company's Quarterly Report on Form 10-Q (Commission File No.
000-22091), filed August 15, 1997, and incorporated herein by
reference).

10.12 General Provisions Applicable to Restricted Stock Awards Granted
Under the New Stock Incentive Plan.

10.13 Form of Restricted Stock Award Agreement for use under the New
Stock Incentive Plan.

10.14 Employment Agreement between the Company and W. Bradley Blair, II
dated February 7, 1997 (previously filed as Exhibit 10.7 to the
Company's Annual Report on Form 10-K (Commission File No.
000-22091), filed May 15, 1997, and incorporated herein by
reference).

10.15 Amended and Restated Employment Agreement between the Company and
David J. Dick, dated July 25, 1997.

10.16 Amended and Restated Employment Agreement between the Company and
Scott D. Peters, dated July 25, 1997.

16.1 Letter of Price Waterhouse LLP, former independent accountants of
the Company (previously filed as Exhibit 16.1 to the Company's
amended Current Report on Form 8-K dated February 26, 1997 (filed
March 17, 1997) and incorporated herein by reference).

21.1* List of Subsidiaries of the Company.

23.1* Consent of BDO Seidman LLP.

24.1* Powers of Attorney (included under the caption "Signatures")