UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

SCHEDULE 14A

Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )

Filed by the Registrant [X] Filed by a Party other than the Registrant [ ]

Check the appropriate box:

[ ] Preliminary Proxy Statement

[ ] Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))

[X] Definitive Proxy Statement

[ ] Definitive Additional Materials

[ ] Soliciting Material Pursuant to ss240.14a-12

Apple Suites, Inc.
(Name of Registrant as Specified In Its Charter)

N/A
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)

Payment of Filing Fee (Check the appropriate box):

[ ] No fee required.

[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.

1) Title of each class of securities to which transaction applies:

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2) Aggregate number of securities to which transaction applies:

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3) Per unit price or other underlying value of transaction computed pursuant
to Exchange Act Rule 0-11 (set forth the amount on which the filing fee
is calculated and state how it was determined):

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4) Proposed maximum aggregate value of transaction:

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5) Total fee paid:

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

[ ] Fee paid previously with preliminary materials.

[X] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.

1) Amount Previously Paid:
$9,603,38
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2) Form, Schedule or Registration Statement No.:
333-101194
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3) Filing Party:
Apple Hospitality Two, Inc.
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4) Date Filed:
November 13, 2002
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[LOGO] Apple Hospitality
[Graphic]

Apples Suites
A REAL ESTATE INVESTMENT
TRUST

MERGER PROPOSED--YOUR VOTE IS VERY IMPORTANT

The boards of directors of Apple Hospitality Two, Inc. and Apple Suites,
Inc. have approved a merger transaction in which Suites will become a
subsidiary of Hospitality. In the merger, holders of Suites common shares will
receive either:

. a Hospitality unit, consisting of one Hospitality common share and one
Hospitality Series A preferred share, for each Suites common share; or

. if elected by a Suites common shareholder, $10.00 in cash per Suites
common share subject to a $25 million limit on the cash to be paid in the
merger.

If you elect to receive cash for your Suites common shares, and more Suites
shareholders elect to receive cash than the maximum amount of cash available
for payment, you will receive a combination of cash and Hospitality units for
your Suites common shares, based on a pro rata distribution of the cash
available for payment in the merger. For purposes of calculating this pro rata
distribution, fractional Suites common shares will be rounded to the nearest
whole share. Hospitality, at its sole discretion prior to the effective time of
the merger, may determine to increase the maximum amount of cash consideration
to be paid in the merger to an amount not to exceed $30 million.

Holders of Hospitality units will continue to own their existing Hospitality
units.

Glade M. Knight and two business associates own all 240,000 of the
outstanding Suites Class B convertible shares. Pursuant to the terms of these
securities, the Suites Class B convertible shares will be convertible into
480,000 Suites common shares in connection with the merger. Pursuant to the
merger, the Suites Class B convertible shares will be exchanged for 480,000
Hospitality units, or one Hospitality unit for each Suites common share, the
same exchange ratio applicable to all other Suites common shareholders.

In connection with the merger, the boards of directors of Hospitality and
Suites have determined that the companies will become self-advised after the
merger. As a result, Hospitality and Suites will no longer pay fees to the
companies owned by Mr. Knight that provide advisory services to Hospitality and
Suites, and Mr. Knight will receive substantial additional compensation in
addition to the conversion of his Suites Class B convertible shares, as
described in this joint proxy statement/prospectus.

At special meetings of shareholders on January 30, 2003, Hospitality and
Suites shareholders will be asked to vote on the merger.

/s/ Glade M. Knight /s/ Glade M. Knight
Glade M. Knight Glade M. Knight
Chairman and Chief Executive Chairman and Chief Executive
Officer Officer
Apple Hospitality Two, Inc. Apple Suites, Inc.
December 20, 2002

This joint proxy statement/prospectus provides you with detailed information
about the merger that will be submitted for shareholder approval at
Hospitality's and Suites' respective shareholders meetings. We encourage you to
read this entire document carefully. In addition, you may obtain more
information about us from documents that we have filed with the Securities and
Exchange Commission. Shareholders are urged to consider those matters set forth
in "Risk Factors" beginning on page 11 of this joint proxy statement/prospectus.

Neither the Securities and Exchange Commission nor any state securities
regulators have approved or disapproved of the shares to be issued under this
joint proxy statement/prospectus or passed upon the adequacy of this joint
proxy statement/prospectus. Any representation to the contrary is a criminal
offense.

The Attorney General of the State of New York has not passed on or endorsed
the merits of this offering. Any representation to the contrary is unlawful.

Joint proxy statement/prospectus dated December 20, 2002, and first mailed
to shareholders on or about December 30, 2002.

APPLE HOSPITALITY TWO, INC.

10 SOUTH THIRD STREET
RICHMOND, VIRGINIA 23219

NOTICE OF SPECIAL MEETING OF SHAREHOLDERS

A special meeting of shareholders of Apple Hospitality Two, Inc. will be
held at Hospitality's corporate headquarters, 10 South Third Street, Richmond,
Virginia 23219, on January 30, 2003 at 10:30 a.m., local time. At this meeting,
we propose to consider and approve the merger of Suites with and into
Hospitality Acquisition Company, a subsidiary of Hospitality, and the related
merger agreement and plan of merger, including the related issuance of
Hospitality units.

The merger and related matters and transactions are described more fully in
the attached joint proxy statement/prospectus, which includes a copy of the
merger agreement and related plan of merger as Annex A.

Only shareholders who owned Hospitality common shares at the close of
business on December 20, 2002 may vote at this meeting. A list of holders of
Hospitality common shares will be available during ordinary business hours at
Hospitality's executive office, 10 South Third Street, Richmond, Virginia
23219, for ten days prior to the meeting. Holders of Hospitality common shares
may examine this list for purposes related to the meeting.

Hospitality is soliciting the enclosed proxy card. Please fill in and sign
the card and mail it promptly in the enclosed postage-prepaid envelope. You may
revoke this proxy prior to the meeting by writing to Hospitality and stating
that you revoke the proxy or by delivering a later dated proxy. You may attend
the meeting and vote in person, even if you already delivered a proxy card.

APPLE HOSPITALITY TWO, INC.

/s/ J. Philip Hart
J. Philip Hart
Secretary

Richmond, Virginia
December 20, 2002

Your vote is very important. Whether or not you plan to attend your
shareholders meeting, please vote on the proposal submitted at your meeting by
completing and mailing the enclosed proxy card to us.

APPLE SUITES, INC.

10 SOUTH THIRD STREET
RICHMOND, VIRGINIA 23219

NOTICE OF SPECIAL MEETING OF SHAREHOLDERS

A Special Meeting of Shareholders of Apple Suites, Inc. will be held at
Suites' corporate headquarters, 10 South Third Street, Richmond, Virginia
23219, on January 30, 2003 at 10:00 a.m., local time. At this meeting, we
propose to consider and approve the merger of Suites with and into Hospitality
Acquisition Company, a subsidiary of Apple Hospitality Two, Inc., and the
related merger agreement and plan of merger.

Only shareholders who owned Suites common shares at the close of business on
December 20, 2002 may vote at this meeting. A list of holders of Suites common
shares will be available during ordinary business hours at Suites executive
office, 10 South Third Street, Richmond, Virginia 23219, for ten days prior to
the meeting. Holders of Suites common shares may examine this list for purposes
related to the meeting.

Holders of Suites common shares who object to the merger will be entitled to
dissenters rights under Virginia law.

Suites is soliciting the enclosed proxy card. Please fill in and sign the
card and mail it promptly in the enclosed postage-prepaid envelope. You may
revoke this proxy prior to the meeting by writing to Suites and stating that
you revoke the proxy or by delivering a later dated proxy. You may attend the
meeting and vote in person, even if you already delivered a proxy card.

APPLE SUITES, INC.

/s/ J. Philip Hart
J. Philip Hart
Secretary

Richmond, Virginia
December 20, 2002

TABLE OF CONTENTS

Page
----

QUESTIONS AND ANSWERS ABOUT THE MERGER....................... 1

SUMMARY...................................................... 4

SUMMARY HISTORICAL AND UNAUDITED PRO FORMA CONDENSED COMBINED
FINANCIAL DATA............................................. 10

RISK FACTORS................................................. 11

FORWARD-LOOKING STATEMENTS................................... 17

THE MEETINGS................................................. 17

THE HOSPITALITY MEETING...................................... 17
Purpose of the Meeting.................................... 17
Record Date; Voting Rights; Proxies....................... 17
Solicitation of Proxies................................... 18
Quorum.................................................... 18
Required Vote............................................. 18

THE SUITES MEETING........................................... 19
Purpose of the Meeting.................................... 19
Record Date; Voting Rights; Proxies....................... 19
Solicitation of Proxies................................... 20
Quorum.................................................... 20
Required Vote............................................. 20

THE MERGER................................................... 21
Background of the Merger.................................. 21
Hospitality's Reasons for the Merger...................... 24
Opinion of Hospitality Financial Advisor.................. 25
Suites' Reasons for the Merger............................ 30
Opinion of Suites Financial Advisor....................... 31
Interests of Certain Persons In The Merger................ 36
Conflicts of Interest After the Merger.................... 38
Material United States Federal Income Tax Consequences.... 39
Certain Regulatory Matters................................ 50
Accounting Treatment...................................... 50
Distributions............................................. 50
Appraisal Rights.......................................... 50

THE MERGER AGREEMENT......................................... 53
General................................................... 53
Merger Consideration...................................... 53
Election Procedures....................................... 53
Proration................................................. 54
Exchange Procedures....................................... 54
Extraordinary Dividend on Hospitality Common Shares....... 55
Representations And Warranties............................ 55
Certain Covenants......................................... 56
Conditions To Consummate The Merger....................... 58
Termination; Fees And Expenses............................ 59
Termination Fee and Break Up Expenses..................... 61
Amendment; Extension; Waiver.............................. 61
Survival Of Certain Provisions............................ 62

Page
----

HOSPITALITY SELECTED FINANCIAL INFORMATION..................... 63

SUITES SELECTED FINANCIAL INFORMATION.......................... 64

HOSPITALITY UNAUDITED PRO FORMA CONDENSED COMBINED CONSOLIDATED
FINANCIAL STATEMENTS......................................... 65

THE COMPANIES.................................................. 78
Hospitality................................................. 78
Suites...................................................... 78

PRINCIPAL AND MANAGEMENT SHAREHOLDERS OF HOSPITALITY........... 79

PRINCIPAL AND MANAGEMENT SHAREHOLDERS OF SUITES................ 80

COMPARATIVE PER SHARE PRICE INFORMATION........................ 80

DESCRIPTION OF CAPITAL STOCK OF HOSPITALITY.................... 81
Hospitality Common Shares................................... 81
Hospitality Series A Preferred Shares....................... 82
Hospitality Series B Convertible Preferred Shares........... 83
Hospitality Series C Convertible Preferred Shares........... 83
Preferred Shares............................................ 84
Restrictions on Transfer.................................... 85
Share Redemption Program.................................... 86

COMPARISON OF SHAREHOLDER RIGHTS............................... 87
Authorized Shares........................................... 87
Liquidation Rights.......................................... 88

OTHER MATTERS.................................................. 88
Shareholder Proposals For Annual Meeting.................... 88
Other....................................................... 88

LEGAL MATTERS.................................................. 89

EXPERTS........................................................ 89

WHERE YOU CAN FIND MORE INFORMATION............................ 89

Annex A -- Agreement and Plan of Merger
Annex B -- Opinion of Merrill Lynch, Pierce, Fenner & Smith Incorporated.
Annex C -- Opinion of Wachovia Securities, Inc.
Annex D -- Article 15 of the Virginia Stock Corporation Act

QUESTIONS AND ANSWERS ABOUT THE MERGER

Q: What will I receive in the merger?

A: Suites Shareholders:

In the merger, holders of Suites common shares will receive either:

. a Hospitality unit, consisting of one Hospitality common share and one
Hospitality Series A preferred share, for each Suites common share, or

. if elected by a Suites common shareholder, $10.00 in cash per Suites
common share subject to a $25 million limit on the cash to be paid in the
merger.

If you elect to receive cash for your Suites common shares, and more Suites
shareholders elect to receive cash than the maximum amount of cash available
for payment, you will receive a combination of cash and Hospitality units
for your Suites common shares, based on a pro rata distribution of the cash
available for payment in the merger. For purposes of calculating this pro
rata distribution, fractional Suites common shares will be rounded to the
nearest whole share. Hospitality, at its sole discretion prior to the
effective time of the merger, may determine to increase the maximum amount
of cash consideration to be paid in the merger to an amount not to exceed
$30 million.

A: Hospitality Shareholders:

Holders of Hospitality units, each unit consisting of one Hospitality common
share and one Hospitality Series A preferred share, will continue to own the
same number of units immediately after the merger.

Q: What do I need to do now?

A: Complete, sign and mail your proxy card in the enclosed return envelope as
soon as possible, so that your shares may be represented at the shareholders
meetings.

Q: What should I do now to exchange my Suites common shares for the merger
consideration?

A: If you are a record holder of Suites common shares and wish to receive cash
in the merger, you must make a valid cash election by:

. properly completing and signing the election form included with this
joint proxy statement/prospectus; and

. returning the election form to Wachovia Bank, N.A., the exchange agent,
by 5:00 p.m., local time, at the address indicated on the election form
by the second business day prior to the effective date of the merger.

If you hold your Suites common shares beneficially through a broker or other
intermediary, you will need to return the enclosed instruction form to your
broker or other intermediary by 5:00 p.m., local time, at the address
indicated on your instruction form by the third business day prior to the
effective date of the merger.

We currently anticipate the effective date of the merger to be January 31,
2003.

If you wish to receive Hospitality units in the merger, you do not need to
act at this time. You will receive written instructions for exchanging your
Suites common shares for Hospitality units after we complete the merger.

Regardless of the type of consideration that you wish to receive in the
merger, you should complete, sign and mail your proxy card in the enclosed
return envelope as soon as possible, so that your shares may be represented
at your shareholders meeting.

Q: Can I change my vote after I send in my proxy?

A: Yes. You can change your vote at any time before we vote your proxy at the
shareholders meeting. You can do so in one of three ways. First, you can
send a written notice dated after your proxy stating that you would like to
revoke your proxy. Second, you can complete a new proxy card and send it to
the Secretary of Hospitality or Suites, as the case may be, and the new
proxy card will automatically replace any earlier dated proxy card that you
returned. Third, you can attend your shareholders meeting and vote in person.

You should send any written notice of revocation, request for a new proxy
card or completed new proxy card to the Secretary of Hospitality or Suites,
as the case may be, at the following addresses:

Apple Hospitality Two,
Inc. Apple Suites, Inc.
10 South Third Street 10 South Third Street
Richmond, Virginia 23219 Richmond, Virginia 23219

Q: If my shares are held in "street name" by my broker, will my broker vote my
shares for me?

A: Your broker will vote your shares with respect to the merger only if you
provide instructions to your broker on how to vote. Please tell your broker
how you would like him or her to vote your shares.

Q: When and where are the shareholders meetings?

A: The Hospitality meeting will be held at Hospitality's corporate
headquarters, 10 South Third Street, Richmond, Virginia 23219, on January
30, 2003 at 10:30 a.m., local time.

The Suites meeting will be held at Suites' corporate headquarters, 10 South
Third Street, Richmond, Virginia 23219, on January 30, 2003 at 10:00 a.m.,
local time.

Q: In addition to voting on the merger, what else will happen at the
shareholders meetings?

A: No other matters are currently scheduled to be voted on at the shareholders
meetings.

Q: Why will Suites shareholders receive units but Hospitality shareholders will
not receive any additional shares of stock in the merger?

A: Suites will be merged with and into Hospitality Acquisition Company, a
subsidiary of Hospitality, and will no longer be a separate company. As the
parent of Hospitality Acquisition Company, all of Hospitality's currently
outstanding stock will remain outstanding.

Q: When do you expect the merger to be completed?

A: We hope to complete the merger shortly after the shareholders meetings.

Q: Will I have to pay federal income taxes as a result of the merger?

A: We expect the merger to be tax-free to Suites shareholders who only receive
Hospitality units in exchange for their Suites common shares. Therefore, if
you receive solely Hospitality units in the merger, you will not have to pay
federal income taxes as a result of the merger.

If you receive solely cash or a combination of cash and Hospitality units in
the merger, you will recognize gain equal to the lesser of:

. the difference between:

-- (x) the aggregate amount of the cash and the fair market value of the
Hospitality units, if any, that you receive; and

-- (y) your adjusted basis in the Suites common shares that you
surrender; and

. the amount of cash that you received in the merger.

Q: Whom should I call with questions?

A: If you have questions about the merger, you should contact:

For Hospitality
Shareholders: For Suites Shareholders:

Apple Hospitality Two,
Inc. Apple Suites, Inc.
10 South Third Street 10 South Third Street
Richmond, Virginia 23219 Richmond, Virginia 23219
Attention: David McKenney Attention: David McKenney
Phone Number: (804) Phone Number: (804)
344-8121 344-8121

SUMMARY

This summary highlights selected information from this joint proxy
statement/prospectus and may not contain all of the information that is
important to you. To better understand the merger and for a more complete
description of the legal terms of the merger, you are urged to carefully read
this entire document and the documents to included under the heading "Where You
Can Find More Information" beginning on page 89.

This joint proxy statement/prospectus contains certain forward-looking
statements concerning, among other things, the benefits expected as a result of
the merger and the future financial performance of Hospitality after the
merger. Actual results may differ significantly from the forward-looking
statements. Please see "Risk Factors" beginning on page 11.

The Companies (page 78)

APPLE HOSPITALITY TWO, INC.
10 South Third Street
Richmond, Virginia 23219
(804) 344-8121

Hospitality is an externally advised real estate investment trust owning
upper-end extended-stay hotels in select metropolitan areas throughout the
United States. As of September 30, 2002, Hospitality owned 48 extended-stay
hotels, containing 5,767 suites as a part of the Residence Inn(R) by
Marriott(R) Franchise, and had total assets of approximately $547 million.

APPLE SUITES, INC.
10 South Third Street
Richmond, Virginia 23219
(804) 344-8121

Suites is an externally advised real estate investment trust owning
upper-end extended-stay hotels in select metropolitan areas throughout the
United States. As of September 30, 2002, Suites owned 17 extended-stay hotels,
containing 1,922 suites as part of the Homewood Suites(R) by Hilton(R)
franchise, and had total assets of approximately $180 million.

The Combined Companies

After the merger, Hospitality will have consolidated total assets of
approximately $727 million and will own 65 properties, containing 7,689 suites
in select metropolitan areas throughout the United States.

In connection with the merger, the boards of directors of Hospitality and
Suites have determined that the companies will become self-advised, contingent
upon the merger occurring. Consequently, the advisory agreements Hospitality
and Suites have with Apple Suites Advisors, Inc., will be terminated
concurrently with the merger and thereafter no further advisory fees will be
due under those agreements. In addition, the property acquisition/disposition
agreements that Hospitality and Suites have with Apple Suites Realty Group,
Inc., will also be terminated. Glade M. Knight, a director of Hospitality and
Suites and chairman of the board and president of Hospitality and Suites, is
the sole shareholder of Apple Suites Advisors and Apple Suites Realty.

THE MERGER

The merger agreement is attached as Annex A to this joint proxy
statement/prospectus. We encourage you to read the entire merger agreement, as
it is the legal document that governs the merger.

What Suites Shareholders Will Receive In The Merger (page 53)

In the merger, holders of Suites common shares will receive either:

. a Hospitality unit, consisting of one Hospitality common share and one
Hospitality Series A preferred share, for each Suites common share, or

. if elected by a Suites common shareholder, $10.00 in cash per Suites
common share subject to a $25 million limit on the cash to be paid in the
merger.

What Current Shareholders Of Hospitality Will Own After The Merger (page 1)

Holders of Hospitality units will continue to own the same number of units
immediately after the merger.

Extraordinary Dividend on Hospitality Common Shares (page 55)

In connection with the merger, Hospitality will pay an extraordinary
dividend of $0.497 per share to Hospitality common shareholders on the record
date of January 20, 2003. The payment date for the extraordinary dividend will
be February 3, 2003 and is contingent on the merger becoming effective. The
aggregate amount of the extraordinary dividend payment is $15 million. If the
merger is not effective on January 31, 2003, the payment date for the
extraordinary dividend will be the first business day after the merger is
effective.

Effective Time Of The Merger

Under Virginia law, the merger will be effective when the Virginia State
Corporation Commission issues a certificate of merger in connection with the
filing of articles of merger relating to the merger. Assuming all conditions
have been satisfied or waived, we expect that the merger will be completed as
soon as practicable following approval by the Hospitality and Suites
shareholders at their respective shareholders meetings.

Opinions of Financial Advisors

Opinion of Hospitality Financial Advisor. (page 25)

Merrill Lynch, Pierce, Fenner & Smith Incorporated has acted as financial
advisor to Hospitality in connection with the merger. Merrill Lynch delivered
to the special committee of the Hospitality board of directors an oral opinion
on October 23, 2002, which was confirmed by a written opinion dated October 23,
2002, to the effect that, as of the date of the opinion and based upon and
subject to specified matters described therein, the consideration to be paid by
Hospitality pursuant to the merger is fair to Hospitality from a financial
point of view.

The full text of the written opinion of Merrill Lynch, which sets forth the
assumptions made, matters considered and limitations on the review undertaken,
is attached as Annex B to this joint proxy statement/prospectus and you are
urged to read the opinion carefully in its entirety. The opinion of Merrill
Lynch was provided solely for the use and benefit of the Hospitality special
committee and board and addresses only the fairness to Hospitality of the
consideration to be paid by Hospitality pursuant to the merger from a financial
point of view. The Merrill Lynch opinion does not address the relative merits
of the underlying business decision by Hospitality to engage in the merger as
compared to alternative business strategies that might exist for Hospitality
and does not constitute a recommendation to any shareholder as to how that
shareholder should vote on the merger or any matter related thereto.

Opinion of Suites Financial Advisor. (page 31)

Wachovia Securities, Inc. has acted as financial advisor to Suites in
connection with the merger. Wachovia Securities delivered to the special
committee of Suites' board of directors an oral opinion on October 23, 2002,
which was confirmed by a written opinion dated October 23, 2002, to the effect
that, as of the date of the opinion and based upon and subject to specified
matters stated in the opinion, the merger consideration to be paid to the
Suites common shareholders, other than Hospitality or any of its affiliates, is
fair, from a financial point of view, to those shareholders.

The full text of the written opinion of Wachovia Securities, which sets
forth the assumptions made, matters considered and limitations on the review
undertaken, is attached as Annex C to this joint proxy statement/prospectus and
you are urged to read the opinion in its entirety. The opinion of Wachovia
Securities was provided solely for the information and benefit of the Suites
special committee and board and addresses only the fairness, from a financial
point of view, of the merger consideration to be paid to the Suites common
shareholders, other than Hospitality or its affiliates, and does not address
the merits of the underlying decision by Suites to engage in the transaction
and does not constitute a recommendation to any shareholder as to how a
shareholder should vote on the merger or any matter related thereto.

Interests Of Hospitality And Suites Officers, Directors And Certain
Shareholders In The Merger (page 36)

In considering the merger, you should be aware that each director may be
considered to have interests in the merger.

The boards of directors of Hospitality and Suites are composed of the same
directors. Consequently, each director may be deemed to have an interest in the
merger. No unaffiliated representative was retained to negotiate separately for
the shareholders of each company. Because each director may be deemed to have
an interest in the merger, the board of each company established a separate
special committee of different directors which engaged separate financial
advisors. The special committee of the Hospitality board engaged Merrill Lynch,
which rendered its opinion as to the fairness, from a financial point of view,
of the consideration to be paid by Hospitality in the merger. The special
committee of the Suites board engaged Wachovia Securities, which rendered its
opinion as to the fairness, from a financial point of view, of the
consideration to be paid in the merger to the Suites shareholders, other than
Hospitality or any of its affiliates.

In addition Glade M. Knight, a director of Hospitality and Suites and
chairman of the board and president of Hospitality and Suites, has additional
economic interests in the merger, the related termination of the advisory
agreements between each of Hospitality and Suites and Apple Suites Advisors,
and the related termination of the property acquisition/distribution agreements
between each of Hospitality and Suites and Apple Suites Realty. In connection
with the merger, Mr. Knight will receive:

. $2 million cash and a non-interest bearing promissory note, due four
years after the merger, in a principal amount of $4.48 million, in
connection with Hospitality's acquisition of Mr. Knight's stock in Apple
Suites Advisors, currently the external manager of Hospitality and
Suites, instead of receiving a $6.48 million termination fee that would
otherwise be due Apple Suites Advisors under its advisory agreement with
Hospitality. In connection with this acquisition, the advisory agreement
will be terminated and no further advisory fees will be due under that
agreement.

. 1,073,000 newly created Hospitality Series C convertible preferred shares
in exchange for his Hospitality Series B convertible preferred shares.
Mr. Knight would have otherwise been entitled to receive 1,073,000
Hospitality units upon conversion of his Hospitality Series B convertible
preferred shares in connection with the termination of Hospitality's
advisory agreement with Apple Suites Advisors and Hospitality's property
acquisition/distribution agreement with Apple Suites Realty. The new
Hospitality Series C convertible preferred shares will have a liquidation
preference comparable to the Hospitality Series B convertible preferred
shares, in that holders of Hospitality Series C convertible preferred
shares will receive no payments in a liquidation for their Series C
convertible preferred shares until holders of Hospitality units are paid
in full for their Hospitality Series A preferred shares. The Hospitality
Series C convertible preferred shares will also have the same voting
rights and rights to receive dividend distributions as if they had
already been converted to Hospitality common shares. Assuming a $10.00
per share value, the aggregate value of the Hospitality Series C
convertible preferred shares received by Mr. Knight will be $10,730,000

. 405,000 Hospitality units on conversion of his Suites Class B convertible
shares. Each Suites Class B convertible share, pursuant to its terms, is
convertible into two Suites common shares in connection with the merger.
Pursuant to the merger, Mr. Knight's Suites Class B convertible shares
will be exchanged for 405,000 Hospitality units, or one Hospitality unit
for each Suites common share, the same exchange ratio applicable to all
other Suites common shareholders. Assuming a $10.00 per unit value, the
aggregate value of the Hospitality units received by Mr. Knight will be
$4,050,000.

As of December 20, 2002, the directors and executive officers at Hospitality
held options to purchase an aggregate of approximately 42,720 Hospitality
common shares at a weighted average exercise price per share of approximately
$9.75. As of December 20, 2002, the directors and executive officers of Suites
held options to purchase an aggregate of approximately 45,888 Suites common
shares at a weighted average exercise price per share of approximately $9.55.
Suites' executive officers and directors are to receive the same consideration
for their Suites common shares as the other Suites shareholders are to receive.
Upon consummation of the merger, all outstanding options to purchase Suites
common shares will automatically be deemed to constitute an option to acquire
that number of Hospitality units that the holders of such options would have
been entitled to receive if such holders had exercised their options
immediately prior to the merger.

Material United States Federal Income Tax Consequences (page 39)

Suites Shareholders. We expect the merger to be tax-free to Suites
shareholders who receive only Hospitality units in exchange for their Suites
common shares. If a Suites shareholder receives solely cash or a combination of
cash and Hospitality units in the merger, he will generally recognize taxable
gain on the receipt of cash in exchange for his Suites common shares.

Hospitality Shareholders. Neither Hospitality nor Hospitality's
shareholders will recognize gain or loss as a result of the merger.

Hospitality shareholders will recognize dividend income on the distribution
of the extraordinary dividend to the extent of the accumulated and current
earnings and profits of Hospitality.

REIT Status of Hospitality and Hospitality Acquisition Company. Hospitality
has previously elected and operates as a REIT and Hospitality Acquisition
Company will elect to be taxed as a REIT under the Internal Revenue Code. We
expect that Hospitality will continue to qualify as a REIT and that Hospitality
Acquisition Company will operate in a manner so as to qualify as a REIT after
the merger. The ability of Hospitality and Hospitality Acquisition Company to
qualify as REITs depends upon their ability to meet specified distribution
levels, specified diversity of stock ownership, specified income and asset
tests and various other qualifications imposed by the Internal Revenue Code.

Appraisal Rights (page 50)

Under Article 15 of the Virginia Stock Corporation Act, holders of Suites
common shares will have the right to dissent from the merger and to obtain
payment of the fair value of their Suites common shares. Holders of Hospitality
units, however, will not have the right to dissent from the merger. A copy of
Article 15 of the Virginia Stock Corporation Act is attached to this joint
proxy statement / prospectus as Annex D. Under the merger agreement,
Hospitality's obligation to close the merger is subject to the condition that
holders of no more than 1% of the outstanding Suites common shares indicate
their intention to exercise their dissenters' rights.

Conditions To Consummate The Merger (page 58)

A number of conditions must be met before the merger is completed including,
among other things:

. approval of the merger by the shareholders of Hospitality and Suites;

. receipt by Suites of a legal opinion, reasonably satisfactory to Suites,
that the merger should qualify as a tax-free reorganization under Section
368 of the Internal Revenue Code of 1986, as amended; and

. holders of no more than 1% of the outstanding Suites common shares as of
the applicable record date having indicated their intention to exercise
dissenters' rights under the Virginia Stock Corporation Act.

Some of the conditions to the merger may be waived.

Termination Of The Merger Agreement (page 59)

Hospitality and Suites may agree to terminate the merger agreement before
the merger has been completed, and either Hospitality or Suites may terminate
the merger agreement if any of the following occurs:

. the merger has not been completed by February 28, 2003, unless the delay
is caused by the breach of a representation, warranty or covenant by the
party who wishes to terminate;

. the required shareholder approvals are not obtained;

. a court or other governmental authority permanently prohibits the merger;
or

. the other party materially breaches certain of the representations,
warranties or covenants contained in the merger agreement and such
breaches are not cured within the time period specified therein.

Termination Fee And Expenses (page 61)

If either Suites or Hospitality withdraws from the merger as a result of a
competing transaction, and the merger agreement is terminated, it will be
required to reimburse the other party for the expenses, not exceeding $1
million, incurred by the other party relating to the merger.

Accounting Treatment (page 50)

The merger is expected to be accounted for by Hospitality using the purchase
method of accounting.

The Hospitality Special Meeting (page 17)

The special meeting of Hospitality shareholders will be held at
Hospitality's corporate headquarters, 10 South Third Street, Richmond, Virginia
23219, on January 30, 2003 at 10:30 a.m., local time.

At the Hospitality meeting, Hospitality shareholders will consider and vote
upon a proposal to approve the merger, the merger agreement and the plan of
merger, including the related issuance of Hospitality units.

The merger agreement requires the approval of the holders of at least a
majority of Hospitality common shares present and voting at the Hospitality
meeting, excluding Hospitality common shares owned by or voted under the
control of a Hospitality or Suites director.

Only shareholders who owned Hospitality common shares at the close of
business on December 20, 2002, may vote at the meeting. As of December 20,
2002, a total of 30,157,932 Hospitality common shares were eligible to be voted
at the Hospitality meeting. Directors and executive officers of Hospitality and
their affiliates beneficially owned less than one percent of these Hospitality
common shares.

The Suites Special Meeting (page 19)

The special meeting of Suites shareholders will be held at Suites' corporate
headquarters, 10 South Third Street, Richmond, Virginia 23219, on January 30,
2003 at 10:00 a.m., local time.

At the Suites meeting, Suites shareholders will consider and vote upon a
proposal to approve the merger, the merger agreement and the plan of merger.

The merger agreement requires the approval of the holders of at least a
majority of the outstanding Suites common shares as well as approval of the
holders of a majority of outstanding Suites common shares present and voting at
the Suites meeting, excluding Suites common shares owned by or voted under the
control of a Suites or Hospitality director.

Only shareholders who owned Suites common shares at the close of business on
December 20, 2002 may vote at the meeting. As of December 20, 2002, a total of
12,666,677 Suites common shares were eligible to be voted at the Suites
meeting. Directors and executive officers of Suites beneficially owned less
than one percent of these Suites common shares.

Market Data

Neither Hospitality common shares or Suites common shares actively trade,
nor are they likely to do so any time in the near future.

SUMMARY HISTORICAL AND UNAUDITED PRO FORMA
CONDENSED COMBINED FINANCIAL DATA

We are providing the following summary historical financial and pro forma
data is being provided to aid you in your analysis of the financial aspects of
the merger. This information is only a summary and you should read it in
conjunction with Hospitality's and Suites' historical financial statements (and
related notes) contained in the reports that have been filed with the
Securities and Exchange Commission and incorporated by reference into this
joint proxy statement/prospectus. You should also read the unaudited pro forma
condensed combined financial statements (and related notes) appearing elsewhere
in this joint proxy statement/prospectus. See "Where You Can Find More
Information." Hospitality's and Suites' consolidated financial information for
each of the fiscal years presented were derived from their respective audited
financial statements. The financial information for each of the quarterly
periods presented were derived from their respective unaudited financial
statements.

Hospitality Summary Historical and Unaudited Pro Forma Condensed Combined
Financial Data (page 65)

2001 9/30/02
12/31/01 Hospitality 9/30/02 Hospitality
Hospitality Combined Hospitality Combined
Historical Pro forma Historical Pro forma
------------ ------------ ------------ ------------

Balance Sheet Data
Investment in hotel properties...... $121,078,235 n/a $386,665,313 $568,090,491
Total Assets........................ $178,381,287 n/a $522,386,055 $693,005,885
Mortgage notes payable.............. $ 52,874,346 n/a $271,172,175 $350,495,031
Total Liabilities................... $ 57,920,316 n/a $279,735,816 $365,562,310
Total Shareholders' Equity.......... $120,460,971 n/a $242,650,239 $327,443,575

Operating Data
Total Revenue....................... $ 12,441,771 $217,811,007 $ 60,171,759 $149,617,869
Total Expenses...................... $ 9,125,052 $187,031,622 $ 49,814,627 $130,551,100
Net Income.......................... $ 3,316,719 $ 30,779,385 $ 10,083,343 $ 19,066,769
Earnings per common Share........... $ 0.52 $ 1.05 $ 0.52 $ 0.56
Distributions to common shareholders $ 0.75 $ 0.75 $ 0.50 $ 0.50

Funds from Operations
Net Income.......................... $ 3,316,719 $ 30,779,385 $ 10,083,343 $ 19,066,769
Depreciation........................ $ 1,084,933 $ 9,705,408 $ 4,903,596 $ 12,160,369
Other............................... $ 1,600 $ -- $ 723,789 $ 723,789
Funds From Operations............... $ 4,403,252 $ 40,484,793 $ 15,710,728 $ 31,950,927

RISK FACTORS

This joint proxy statement/prospectus contains forward-looking statements
within the meaning of Section 27A of the Securities Act of 1933, as amended,
and Section 21E of the Securities Exchange Act of 1934, as amended.
Hospitality's actual results could differ materially from those set forth in
the forward-looking statements because of, among other reasons, the following
list of risk factors. The list below may not be exhaustive.

Hospitality and Suites have pre-existing relationships that may have influenced
the merger terms.

Prior to execution of the merger agreement, Hospitality and Suites, and
their respective officers and directors, were related in a variety of ways,
which may have resulted in the merger terms being different than terms to which
unrelated third parties would have agreed. The boards of directors of
Hospitality and Suites are composed of the same members. In addition, certain
officers and directors of Hospitality hold interests in the capital stock of
both Hospitality and Suites. Because of these factors, we cannot assure you
that the merger terms represent the same terms that would be agreed upon in the
absence of these inter-relationships.

We may not realize the anticipated benefits of the merger.

We may not realize the anticipated benefits of the merger. Further, we may
incur unanticipated costs as a result of the merger such as transfer taxes,
consent fees, or professional expenses or unexpected future operating expenses
including increased personnel costs, property taxes or travel expenses.

Hospitality's and Suites' common shareholders' percentage ownership interests
will be substantially reduced after the merger.

The percentage ownership interests of both Hospitality common shareholders
and Suites common shareholders will be substantially reduced relative to their
pre-merger interests in Hospitality and Suites. Therefore, holders of Suites
common shares will experience a substantial reduction in their effective voting
power in Hospitality relative to their effective voting power in Suites prior
to the merger.

If the merger does not qualify as reorganization, Suites shareholders may owe
substantial additional taxes.

We expect the merger to qualify as a reorganization under Section 368(a) of
the Internal Revenue Code of 1986, as amended. Shareholders of Suites that
receive solely Hospitality units should not recognize taxable gain or loss as a
result of the merger. Shareholders of Suites that receive solely cash or a
combination of cash and Hospitality units should generally recognize taxable
gain on the receipt of cash in exchange for their Suites common shares.
Shareholders of Hospitality should not recognize taxable gain or loss as a
result of the merger. Shareholders of Hospitality should recognize taxable
income on the extraordinary dividend. We have agreed to obtain a legal opinion
from counsel stating that the merger should be treated as a reorganization.
However, this legal opinion will not be binding on the Internal Revenue
Service. If the merger does not qualify as a reorganization, each Suites
shareholder will recognize gain or loss equal to the difference between the sum
of the fair market value of the Hospitality units and cash, if any, received
and the shareholder's adjusted tax basis in the Suites common shares.

We will incur substantial expenses related to the merger.

We cannot assure you that the merger will be completed. Under some
circumstances, Suites may have to pay Hospitality's out-of-pocket expenses in
connection with the merger if the merger is terminated. Similarly, under some
circumstances, Hospitality may have to pay Suites' out-of-pocket expenses in
connection with the merger if the merger agreement is terminated. Further,
Hospitality and Suites each have incurred substantial expenses in connection
with the merger. If the merger is not completed, these expenses and termination
fees could materially impact Hospitality's and/or Suites' operating results and
ability to pay future distributions to their shareholders.

Hospitality shareholders are not entitled to appraisal rights.

Under Virginia law, holders of Suites common shares will have the right to
dissent from the merger and to obtain payment of the fair value of their Suites
common shares. Holders of Hospitality common shares will not have the right to
dissent from the merger.

There will be dilution of shareholders interests upon conversion of Suites
Class B convertible shares and the exchange of Hospitality Series B convertible
shares for Hospitality Series C convertible preferred shares.

In connection with the merger and the related termination of the advisory
agreement with Apple Suites Advisors, the outstanding Hospitality Series B
convertible preferred shares will be exchanged for 1,272,000 newly created
Series C convertible preferred shares which will have the same voting and
dividend rights as if they had already been converted into 1,272,000
Hospitality common shares. In the merger, the Suites Class B convertible shares
will be converted into 480,000 Hospitality units. The conversion and exchange
of these shares will result in dilution of shareholders' interests.

Glade M. Knight, who is a director of Hospitality and Suites, chairman of
the board and president of Hospitality and Suites, and others hold the
outstanding Hospitality Series B convertible preferred shares. Also, Mr. Knight
and others hold all 240,000 Suites Class B convertible shares.

Hospitality issued the Hospitality Series B convertible preferred shares to
Mr. Knight and two of his business associates as part of its initial public
offering. Suites issued the Suites Class B convertible shares to Mr. Knight and
two of his business associates as part of its initial public offering.

There is no public market for Hospitality's common shares so shareholders may
be unable to dispose of their investment.

Shareholders of Suites should view the Hospitality common shares, to be
issued as part of each unit issued in the merger, as illiquid and must be
prepared to hold their Hospitality common shares for an indefinite length of
time. Hospitality common shares do not actively trade, and Hospitality does not
plan to cause Hospitality common shares to be listed on any securities exchange
or quoted on any system or in any established market either immediately or at
any definite time in the future. While Hospitality, acting through its board of
directors, may cause the Hospitality common shares to be listed or quoted if
the board of directors determines this action to be prudent, there can be no
assurance that this event will ever occur. Shareholders may be unable to resell
their Hospitality common shares at all, or may be able to resell them only
later at a substantial discount from the purchase price. Thus, the Hospitality
common shares should be considered a long-term investment.

There will never be a public market for Hospitality's Series A preferred
shares, and you will not be able to separately dispose of your Series A
preferred shares without disposing of the Hospitality common shares to which
the Hospitality Series A preferred shares relate.

Suites shareholders should view the Hospitality Series A preferred shares as
illiquid and must be prepared to hold those shares for as long as they hold the
Hospitality common shares that correspond to the Series A preferred shares. No
public market for Hospitality Series A preferred shares will exist separate
from any public market that may exist for Hospitality common shares. No
Hospitality Series A preferred share will trade separately from the common
share to which it relates. Suites shareholders will be unable to resell Series
A preferred shares without selling the Hospitality common shares to which they
relate.

There are conflicts of interest with Hospitality's President and Chairman of
the Board.

Glade M. Knight is and will be a principal in other real estate investment
transactions or programs which may compete with Hospitality and Suites.
Currently, Mr. Knight is the chairman of the board and president of
Hospitality, Suites, Apple Hospitality Five, Inc. and Cornerstone Realty Income
Trust, Inc., all of which are real

estate investment trusts. Mr. Knight has economic interests in these other
programs by virtue of his positions in those companies. Mr. Knight receives a
salary from Cornerstone Realty Income Trust and direct or indirect compensation
from Hospitality, Suites and Apple Hospitality Five. Mr. Knight is a minority
shareholder of Hospitality, Suites, Apple Hospitality Five and Cornerstone
Realty Income Trust.

There were no arms-length negotiations for Hospitality's or Suites' agreements
with Apple Suites Advisors or Apple Suites Realty.

Hospitality will acquire Apple Suites Advisors in connection with the merger
under terms reached without the benefits of arms-length negotiations. Apple
Suites Advisors and Apple Suites Realty have received substantial compensation
from Hospitality and Suites in exchange for various services rendered to
Hospitality and Suites. This compensation has been established without the
benefits of arms-length negotiation. Apple Suites Advisors has supervised and
arranged for the day-to-day management of Hospitality's and Suites' operations
and assisted Hospitality and Suites in maintaining a continuing and suitable
property investment program. Apple Suites Realty has acted as a real estate
broker in connection with Hospitality's and Suites' purchases and sales of
properties. Hospitality and Suites will terminate these arrangements with Apple
Suites Advisors and Apple Suites Realty in connection with the merger. Glade M.
Knight is the chief executive officer and sole shareholder of Apple Suites
Advisors and Apple Suites Realty.

Hospitality's management will spend time on other activities.

The officers and directors of Hospitality, Suites and Apple Suites Advisors
also serve as officers and directors of entities that engage in the brokerage,
sale, operation or management of real estate. These entities are Cornerstone
Realty Income Trust and Apple Hospitality Five. Both of these entities share
similar investment objectives and policies. Apple Hospitality Five may compete
for properties against Hospitality and Suites. The officers and directors of
Hospitality, Suites and Apple Suites Advisors may disproportionately allocate
their time and resources between these other entities and Hospitality or
Suites. The organizational documents of Hospitality, Suites and Apple Suites
Advisors do not specify a minimum standard of time and attention that Mr.
Knight is required to devote to Hospitality, Suites and Apple Suites Advisors.

There may be operational limitations associated with management and franchise
agreements affecting Hospitality's and Suites' properties.

Hospitality's and Suites' properties are managed pursuant to management
agreements and franchise or license agreements with nationally recognized hotel
management companies and hotel franchisors. These agreements may contain
specific standards for, and restrictions and limitations on, the operation and
maintenance of Hospitality's and Suites' properties in order to maintain
uniformity within the franchise system. We do not know whether those
limitations may conflict with our ability to create specific business plans
tailored to each property and to each market.

The standards are subject to change over time, in some cases at the
direction of the manager or franchisor, and may restrict the ability to make
improvements or modifications to a property without the consent of the manager
or franchisor. In addition, compliance with the standards could require us to
incur significant expenses or capital expenditures. Action, or in some
instances inaction, could result in a breach of those standards or other terms
and conditions of the management or franchise agreements and could result in
the loss or cancellation of a franchise license.

In connection with terminating or changing the franchise affiliation of a
property, Hospitality may be required to incur significant expenses or capital
expenditures. Moreover, the loss of a franchise license could have a material
adverse effect upon the operations or the underlying value of the property
covered by the franchise because of the loss of associated name recognition,
marketing support and centralized reservation systems provided by the
franchisor.

Hospitality's board may in its sole discretion determine the amount and nature
of its aggregate debt.

Subject to the limitations in Hospitality's bylaws on the permitted maximum
amount of debt, there is no limitation on the number of mortgages or deeds of
trust that may be placed against any particular property. Therefore, our
properties may be highly over leveraged and thereby subject to a greater risk
of default. All of Hospitality's hotels are currently mortgaged. Hospitality's
bylaws prohibit Hospitality from incurring debt if the debt would result in
Hospitality's total debt exceeding 100% of the value of Hospitality's assets at
cost. The bylaws also prohibit Hospitality from allowing total borrowing to
exceed 50% of the fair market value of Hospitality's assets. However,
Hospitality's bylaws allow Hospitality to incur debt in excess of these
limitations when the excess borrowing is approved by a majority of the
independent directors and disclosed to the shareholders. In addition, the
bylaws provide that Hospitality's borrowings must be reasonable in relation to
its net assets and must be reviewed quarterly by the directors.

Hospitality may be unable to make distributions.

If Hospitality's and Suites' properties do not generate sufficient revenue
to meet operating expenses after the merger, Hospitality's cash flow and its
ability to make distributions to shareholders may be adversely affected.
Hospitality's properties are subject to all operating risks common to hotels.
These risks might adversely affect occupancy or room rates. Increases in
operating costs due to inflation and other factors may not necessarily be
offset by increased room rates. The local, regional and national hotel markets
may limit the extent to which room rates may be increased to meet increased
operating expenses without decreasing occupancy rates. While Hospitality
intends to make quarterly distributions to shareholders, there can be no
assurance that Hospitality will be able to make distributions at any particular
rate, or at all. Further, there is no assurance that a distribution rate
achieved for a particular period will be maintained in the future. Also, while
management may establish goals as to particular rates of distribution or have
an intention to make distributions at a particular rate, there can be no
assurance that these goals or intentions will be realized.

While Hospitality continues to seek generally to make distributions from its
operating revenues, Hospitality might make distributions (although there is no
obligation to do so) in certain circumstances in part from financing proceeds
or other sources, such as proceeds from offerings of Hospitality units. While
distributions from these sources would result in the shareholders receiving
cash, the consequences to Hospitality would differ from a distribution out of
Hospitality's operating revenues. For example, if financing is the source of a
distribution, that financing would have to be repaid, and if proceeds from the
offering of Hospitality units are distributed, those proceeds would not then be
available for other uses, such as property acquisitions or improvements.

Hospitality faces competition in the hotel industry.

The upper-end, extended-stay and limited service hotel industry is highly
competitive. This competition could reduce occupancy levels and rental revenues
at Hospitality's properties, which would adversely affect Hospitality's
operations. Hospitality faces competition from many sources. Hospitality and
Suites face competition from other hotels in the geographic market where
Hospitality's and Suites' hotels are located. Over-building in the hotel
industry increases the number of rooms available and may decrease occupancy and
room rates. In addition, increases in operating costs due to inflation may not
be offset by increased room rates. Hospitality and Suites also face competition
from nationally recognized hotel brands with which Hospitality and Suites are
not associated. Currently and in the future, hotels owned by Hospitality or
Suites may compete with hotels owned by Apple Hospitality Five.

Hospitality also faces competition for investment opportunities. These
competitors are other real estate investment trusts, national hotel chains and
other entities that may have substantially greater financial resources than
Hospitality does. Hospitality also faces competition for investors from other
hotel real estate investment trusts and real estate entities.

There would be significant adverse consequences of Hospitality's failure to
continue as a REIT.

Hospitality intends to continue to qualify as a real estate investment
trust, or REIT. If Hospitality fails to qualify as a REIT for any taxable year,
Hospitality would be subject to federal income tax on its taxable income

at corporate rates. In addition, Hospitality would generally be disqualified
from treatment as a REIT for the four taxable years following the year of
losing its REIT status. Losing Hospitality's REIT status would reduce its net
earnings available for investment or distribution to its shareholders because
of the additional tax liability. In addition, distributions to its shareholders
would no longer qualify for the dividends paid deduction, and Hospitality would
no longer be required to make distributions. To the extent Hospitality would
have made distributions in anticipation of qualifying as a REIT, Hospitality
might be required to borrow funds or liquidate investments in order to pay the
applicable tax.

Hospitality's real estate investments will be relatively illiquid.

Real estate investments are, in general, relatively difficult to sell.
Hospitality's asset illiquidity tends to limit its ability to promptly vary its
portfolio in response to changes in economic or other conditions. In addition,
provisions of the Internal Revenue Code relating to REITs limit Hospitality's
ability to sell properties held for fewer than four years. This limitation may
affect its ability to sell properties without adversely affecting returns to
its shareholders.

Hospitality has no restriction on changes in its investment and financing
policies.

Hospitality's board of directors approves its investment and financing
policies, including its policies with respect to growth, debt, capitalization
and payment of distributions. Although the Hospitality board of directors has
no present intention to amend or waive its current policies, it could do so at
any time, or from time to time, at its discretion without shareholder approval.
For example, Hospitality's board could determine without shareholder approval
that it is in the best interests of the shareholders to cease all investments
in extended-stay and limited service hotel properties, to make investments in
other types of assets or to dissolve the business. Further, Hospitality's board
may determine in its sole discretion the amount and nature of its aggregate
debt.

Hospitality's shareholders' interests may be diluted.

The Hospitality board of directors is authorized, without shareholder
approval, to cause Hospitality to issue additional common shares and,
therefore, additional Series A preferred shares, or to raise capital through
the issuance of preferred shares, options, warrants and other rights, on terms
and for consideration as the board of directors in its sole discretion may
determine. Any such issuance could result in dilution of the equity of the
shareholders. The board of directors, in its sole discretion, may authorize
Hospitality to issue common shares or other equity or debt securities, to
persons from whom Hospitality purchases property, as part or all of the
purchase price of the property. The Hospitality board of directors, in its sole
discretion, may determine the value of any Hospitality common shares or other
equity or debt securities issued in consideration of property or services
provided, or to be provided, to Hospitality, except that during any period when
Hospitality common shares are offered by Hospitality to the public, the public
offering price of the Hospitality common shares will be deemed their value.

Hospitality has adopted two stock incentive plans for the benefit of its
directors and a limited number of its employees and employees of Apple Suites
Advisors and Apple Suites Realty. The effect of the exercise of those options
could be to dilute the value of the shareholders' investments to the extent of
any difference between the exercise price of an option and the value of the
shares purchased at the time of the exercise of the option.

In addition, Hospitality intends to implement a dividend reinvestment plan
involving the issuance of additional shares by Hospitality, at an issue price
determined by the board of directors. See "Description of Capital Stock of
Hospitality--Share Redemption Program."

Hospitality's articles and bylaws contain antitakeover provisions and ownership
limits.

Hospitality's bylaws contain restrictions on stock ownership that may
discourage third parties from making acquisition proposals. These same
antitakeover provisions may also impede the shareholders' ability to change
Hospitality's management.

In order to maintain Hospitality's qualification as a REIT, no more than 50%
in value of its outstanding shares of capital stock may be owned, directly or
indirectly, by five or fewer individuals or entities. As a result,
Hospitality's bylaws prohibit ownership, either directly or indirectly, of more
than 9.8% of the outstanding shares by any shareholder. Hospitality's board may
waive this ownership limitation on a case-by-case basis. As a result, without
Hospitality's board's approval, no person may acquire more than 9.8% of its
outstanding shares, limiting a third party's ability to acquire control of
Hospitality.

Hospitality's articles of incorporation authorize the board to issue up to
13,728,000 preferred shares and to establish the preference and rights of those
shares. These preferred shares would be in addition to the Series A preferred
shares, the Series B convertible preferred shares and the Series C convertible
preferred shares. Thus, Hospitality's board could create a new class of
preferred shares with voting or other rights senior to any existing class of
stock. These rights could delay or prevent a change in control even if a change
were in Hospitality's shareholders' best interest.

Hospitality may become subject to environmental liabilities.

Although Hospitality will continue to subject its properties to an
environmental assessment prior to acquisition, Hospitality may not be made
aware of all the environmental liabilities associated with a property prior to
its purchase. There may be hidden environmental hazards that may not be
discovered prior to acquisition. The costs of investigation, remediation or
removal of hazardous substances may be substantial. In addition, the presence
of hazardous substances on one of Hospitality's or Suites' properties, or the
failure to remediate properly a contaminated property, could adversely affect
its ability to sell or rent the property or to borrow using the property as
collateral.

Various federal, state and local environmental laws impose responsibilities
on an owner or operator of real estate and subject those persons to potential
joint and several liabilities. Typical provisions of those laws include:

. Responsibility and liability for the costs of removal or remediation of
hazardous substances released on or in real property, generally without
regard to knowledge of, or responsibility for, the presence of the
contaminants.

. Liability for the costs of removal or remediation of hazardous substances
at disposal facilities for persons who arrange for the disposal or
treatment of those substances.

. Potential liability under common law claims by third parties based on
damages and costs of environmental contaminants.

If Hospitality or Hospitality Acquisition fails to qualify as a REIT, we will
be subject to potentially significant tax liabilities.

In the past, we have operated as a REIT, and we intend for Hospitality and
Hospitality Acquisition to operate as REITs following the merger. Qualification
as a REIT involves the application of highly technical and complex Internal
Revenue Code provisions for which there are limited judicial or administrative
interpretations and involves the determination of various factual matters and
circumstances not entirely within our control. Therefore, we cannot assure you
that we will qualify as REITs.

If we fail to qualify as REITs, we will be subject to federal income tax at
regular corporate rates and to potentially significant tax liabilities. If this
happens, the amount of cash available for distribution to shareholders would be
reduced and possibly eliminated. If we fail to qualify as REITs and are not
entitled to relief under certain statutory provisions, we would also be
disqualified from treatment as REITs for the four taxable years following the
year during which such qualification was lost.

Hospitality may incur significant costs complying with the Americans with
Disabilities Act and similar laws.

Hospitality's and Suites' properties are required to meet federal
requirements related to access and use by disabled persons as a result of the
Americans with Disabilities Act of 1990. In addition, a number of additional

federal, state and local laws may require modifications to any properties
Hospitality or Suites purchases, or may restrict further renovations thereof,
with respect to access by disabled persons. Noncompliance with these laws or
regulations could result in the imposition of fines or an award of damages to
private litigants. Additional legislation could impose additional financial
obligations or restrictions with respect to access by disabled persons. If
required changes involve greater expenditures than Hospitality currently
anticipates, or if the changes must be made on a more accelerated basis,
Hospitality's ability to make expected distributions could be adversely
affected.

FORWARD-LOOKING STATEMENTS

Hospitality and Suites have each made forward-looking statements in this
document (and in documents that are incorporated herein by reference) that are
subject to risks and uncertainties. Forward-looking statements include
information concerning possible or assumed future results of operations of
Hospitality or Suites, including the anticipated benefits from the merger.
Also, when we use words such as "believes," "expects," "anticipates" or similar
expressions are used, we are making forward-looking statements. Shareholders of
Hospitality and Suites should note that many factors could affect the future
financial results of Hospitality after the merger and could cause these results
to differ materially from those expressed in our forward-looking statements.

THE MEETINGS

This joint proxy statement/prospectus is furnished in connection with the
solicitation of proxies from holders of Hospitality common shares for use at
the Hospitality meeting and from the holders of Suites common shares for use at
the Suites meeting. This joint proxy statement/prospectus and accompanying form
of proxy are first being mailed to the respective shareholders of Hospitality
and Suites on or about December 30, 2002.

THE HOSPITALITY MEETING

Purpose of the Meeting

A special meeting of the shareholders of Hospitality will be held at
Hospitality's corporate headquarters, 10 South Third Street, Richmond, Virginia
23219, on January 30, 2003 at 10:30 a.m., local time, to consider and approve
the Agreement and Plan of Merger, dated as of October 24, 2002, as amended, by
and among Hospitality, Suites and Hospitality Acquisition Company, a subsidiary
of Hospitality, including the related plan of merger, by which Suites is to
merge with and into Hospitality Acquisition Company.

Only business within the purposes described in the Hospitality Notice of
Special Meeting of Shareholders may be conducted at the Hospitality meeting.
Any action may be taken on the foregoing at the Hospitality meeting on the date
specified above, or on any date or dates to which it may be postponed or to
which, by original or later adjournment, the Hospitality meeting may be
adjourned.

Record Date; Voting Rights; Proxies

Hospitality has fixed the close of business on December 20, 2002 as the
record date for determining holders of Hospitality common shares entitled to
notice of, and to vote at, the Hospitality meeting. Only holders of Hospitality
common shares at the close of business on the record date will be entitled to
notice of and to vote at the Hospitality meeting. As of the record date, there
were 30,157,932 issued and outstanding Hospitality common shares. Each holder
of record of Hospitality common shares on such record date is entitled to one
vote per share, which may be cast either in person or by properly executed
proxy.

All Hospitality common shares, which are entitled to vote and are
represented at the Hospitality meeting by properly executed proxies received
prior to or at the Hospitality meeting, and not revoked, will be voted at such
meeting in accordance with the instructions indicated on the proxies. If no
instructions are given on a proxy card, it will be voted for approval of the
merger and the merger agreement.

Votes cast by proxy or in person at the Hospitality meeting will be
tabulated by the inspector of elections appointed for the meeting who will
determine whether or not a quorum is present. The inspector of elections will
treat abstentions as shares that are present and entitled to vote for purposes
of determining the presence of a quorum, but as not voting for purposes of
determining the approval of any matter submitted to the shareholders for a
vote. If a broker indicates on the proxy that it does not have discretionary
authority as to certain shares to vote on a particular matter, those shares
will be considered as present for purposes of determining a quorum but not
voting with respect to that matter.

If any other matters are properly presented at the Hospitality meeting for
consideration, including, among other things, consideration of a motion to
adjourn such meeting to another time and/or place (including, without
limitation, for the purposes of soliciting additional proxies or allowing
additional time for the satisfaction of conditions to the merger), the persons
named in the proxies will have discretion to vote on such matters in accordance
with their best judgment. However, proxies voted against a proposal will not be
voted in favor of adjournment in order to continue to solicit proxies with
respect to that proposal.

Any proxy given by a Hospitality common shareholder pursuant to this
solicitation may be revoked by the person giving it at any time before it is
voted by:

. filing with the Secretary of Hospitality, at or before the taking of the
vote at the Hospitality meeting, a written notice of revocation bearing a
later date than the proxy,

. duly executing a later dated proxy relating to the same shares and
delivering it to the Secretary of Hospitality before the taking of the
vote at such meeting, or

. voting in person at the meeting, although attendance at the Hospitality
meeting will not by itself constitute a revocation of a proxy. Any
written notice of revocation or subsequent proxy should be sent to Apple
Hospitality Two, Inc., 10 South Third Street, Richmond, Virginia 23219,
Attention: Secretary, or hand delivered to the Secretary at or before the
taking of the vote at the Hospitality meeting.

Solicitation of Proxies

Hospitality is soliciting proxies on behalf of the Hospitality board of
directors. Hospitality will bear its own costs of soliciting proxies, except
that the cost of preparing, printing and mailing this joint proxy
statement/prospectus will be borne equally by Hospitality and Suites. Brokerage
houses, fiduciaries, nominees and others will be reimbursed for their
out-of-pocket expenses in forwarding proxy materials to owners of Hospitality
common shares held in their names. In addition to the solicitation of proxies
by use of the mails, proxies may be solicited from Hospitality shareholders by
directors, officers and employees of Hospitality in person or by telephone,
telegraph, facsimile or other appropriate means of communications. No
additional compensation, except for reimbursement of reasonable out-of-pocket
expenses, will be paid to these directors, officers and employees of
Hospitality in connection with the solicitation. Hospitality has retained David
Lerner Associates, Inc. to solicit, and for advice and assistance in connection
with the solicitation of, proxies for the Hospitality meeting at a cost of
$250,000, including out-of-pocket expenses. Any questions or requests for
assistance regarding this joint proxy statement/prospectus and related proxy
materials may be directed to Hospitality by telephone at (804) 344-8121,
attention David McKenney.

Quorum

The holders of a majority of all of the votes entitled to be cast, present
in person or represented by proxy, will constitute a quorum at the Hospitality
meeting. Shares that abstain from voting and broker non-votes will be treated
as shares that are present and entitled to vote at the Hospitality meeting for
purposes of determining whether a quorum exists.

Required Vote

The approval of the merger, the merger agreement and the related plan of
merger will require the affirmative vote of the holders of at least a majority
of the Hospitality common shares present and voting at the Hospitality meeting,
excluding Hospitality common shares owned by or voted under the control of a
Hospitality or Suites director.

Regardless of the number of Hospitality common shares you own, your vote is
important to Hospitality. Please complete, sign, date and promptly return the
enclosed proxy card today.

THE SUITES MEETING

Purpose of the Meeting

A Special Meeting of the Shareholders of Suites will be held at Suites'
corporate headquarters, 10 South Third Street, Richmond, Virginia 23219, on
January 30, 2003 at 10:00 a.m., local time, to consider and approve the
Agreement and Plan of Merger, dated as of October 24, 2002, as amended, by and
among Hospitality, Suites and Hospitality Acquisition Company, a subsidiary of
Hospitality, including the related plan of merger, by which Suites is to merge
with and into Hospitality Acquisition Company.

Only business within the purposes described in the Suites Notice of Special
Meeting of Shareholders may be conducted at the Suites meeting. Any action may
be taken on the foregoing at the Suites meeting on the date specified above, or
on any date or dates to which it may be postponed or to which, by original or
later adjournment, the Suites meeting may be adjourned.

Record Date; Voting Rights; Proxies

Suites has fixed the close of business on December 20, 2002 as the record
date for the determination of the shareholders entitled to notice of, and to
vote at, the Suites meeting. Only holders of record of Suites common shares at
the close of business on the record date will be entitled to notice of, and to
vote at, the Suites meeting. As of the record date, there were 12,666,677
Suites common shares issued and outstanding. Each holder of record of Suites
common shares on such record date is entitled to one vote per share, which may
be cast either in person or by properly executed proxy.

All Suites common shares represented at the Suites meeting by properly
executed proxies received prior to or at such meeting, and not revoked, will be
voted at the Suites meeting in accordance with the instructions indicated on
such proxies. If no instructions are given on a proxy card, it will be voted
for approval of the merger agreement.

Votes cast by proxy or in person at the Suites meeting will be tabulated by
the inspector of elections appointed for the meeting who will determine whether
or not a quorum is present. The inspector of elections will treat abstentions
as shares that are present and entitled to vote for purposes of determining the
presence of a quorum, but as not voting for purposes of determining the
approval of any matter submitted to the shareholders for a vote. If a broker
indicates on the proxy that it does not have discretionary authority as to
certain shares to vote on a particular matter, those shares will be considered
as present for purposes of determining a quorum but not voting with respect to
that matter.

If any other matters are properly presented at the Suites meeting for
consideration, including, among other things, consideration of a motion to
adjourn such meeting to another time and/or place (including, without
limitation, for the purposes of soliciting additional proxies or allowing
additional time for the satisfaction of conditions to the merger), the persons
named in the proxies will have discretion to vote on such matters in accordance
with their best judgment. However, proxies voted against a proposal will not be
voted in favor of adjournment in order to continue to solicit proxies with
respect to that proposal.

Any proxy given by a Suites common shareholder pursuant to this solicitation
may be revoked by the person giving it at any time before it is voted by:

. filing with the Secretary of Suites, at or before the taking of the vote
at the Suites meeting, a written notice of revocation bearing a later
date than the proxy,

. duly executing a later dated proxy relating to the same shares and
delivering it to the Secretary of Suites before the taking of the vote at
such meeting, or

. voting in person at the meeting (although attendance at the Suites
meeting will not by itself constitute a revocation of a proxy). Any
written notice of revocation or subsequent proxy should be sent to Apple

Suites, Inc., 10 South Third Street, Richmond, Virginia 23219, Attention:
Secretary, or hand delivered to the Secretary at or before the taking of
the vote at the Suites meeting.

Solicitation of Proxies

Suites is soliciting proxies on behalf of the Suites board of directors.
Suites will bear its own costs of soliciting proxies, except that the cost of
preparing, printing and mailing this joint proxy statement/prospectus will be
borne equally by Hospitality and Suites. Arrangements also will be made with
brokerage houses, custodians, nominees and fiduciaries for forwarding of proxy
solicitation materials to beneficial owners of shares held of record by such
brokerage houses, custodians, nominees and fiduciaries, and Suites will
reimburse such brokerage houses, custodians, nominees and fiduciaries for their
reasonable expenses incurred in connection therewith. In addition to
solicitation by use of the mails, proxies may be solicited from the Suites
shareholders by directors, officers and employees of Suites in person or by
telephone, telegraph, facsimile or other means of communications. These
directors, officers and employees will not be additionally compensated, but may
be reimbursed for reasonable out-of-pocket expenses in connection with the
solicitation. Suites has retained David Lerner Associates, Inc. to solicit, and
for advice and assistance in connection with the solicitation of, proxies for
the Suites meeting at a cost of $250,000, including out-of-pocket expenses. Any
questions or requests for assistance regarding this joint proxy
statement/prospectus and related proxy materials may be directed to Suites by
telephone at (804) 344-8121, attention David McKenney.

Quorum

The holders of a majority of the votes entitled to be cast, present in
person or represented by proxy, will constitute a quorum at the Suites meeting.
Shares that abstain from voting and broker non-votes will be treated as shares
that are present and entitled to vote at the Suites meeting for purposes of
determining whether a quorum exists.

Required Vote

The approval of the merger, the merger agreement and the related plan of
merger will require the affirmative vote of the holders of at least:

. a majority of the Suites common shares outstanding on the record date; and

. a majority of Suites common shares present and voting at the Suites
special meeting, excluding Suites common shares owned or voted under
control of a Suites or Hospitality director.

Accordingly, abstentions and broker non-votes will have the same effect as a
vote against the merger, the merger agreement and the related plan of merger.
As parties to the merger agreement, the holders of the Suites Class B
convertible shares outstanding, have consented to and approved the merger, the
merger agreement and the related plan of merger.

Regardless of the number of shares you own, your vote is important to
Suites. Please complete, sign, date and promptly return the enclosed proxy card
today.

THE MERGER

Background of the Merger

In March 1999, Glade M. Knight, Chairman and President of Suites and
Hospitality, formed Suites, which began operations as of September 1999, to
acquire, own and lease extended stay hotels in select metropolitan areas. As of
September 30, 2002, Suites owned 17 extended stay hotels containing 1,922
suites.

In January 2001, Mr. Knight formed Hospitality to acquire and operate
upper-end, extended stay and limited service hotels. The first investor closing
occurred on May 1, 2001, and as of September 30, 2002, Hospitality owned 48
extended stay hotels containing 5,767 suites.

In connection with its initial public offering, Suites indicated that within
approximately three to five years from its initial closing, it intended to
either:

. cause Suites common shares to be listed on a national securities exchange
or reported on the NASDAQ national market system; or
. with shareholder approval, to dispose of all of its properties in a
manner which would permit distributions to shareholders of cash.

Suites indicated it was under no obligation to take any of these actions and
that, the actions if taken, might be taken after five years from the initial
closing.

In late spring 2002, management of Suites began analyzing the feasibility of
listing Suites common shares or liquidating Suites assets as the third
anniversary of Suites initial closing was August 2002. As part of this
analysis, management discussed the expectations of Suites' shareholders with
respect to the Suites' liquidity undertaking with representatives of David
Lerner Associates, the underwriter for Suites' initial public offering.
Management concluded that neither alternative was attractive due to a variety
of factors including:

. the relatively small market capitalization of Suites;

. the volatility of the stock markets since September 11, 2001; and

. the current market environment for hotel properties given industry
performance since September 11, 2001, and expectation that an economic
upturn will take longer than previously expected.

As part of this analysis, management began to consider whether a business
combination of Suites and Hospitality would be advantageous to the shareholders
of both companies.

On July 30, 2002, the boards of Suites and Hospitality each held separate
meetings, and management reviewed its analysis of market conditions, Suites'
liquidity undertaking and its recommendation that the board evaluate a possible
business combination of the two companies in which Hospitality would acquire
Suites in a merger transaction. Management also recommended that the
transaction be structured as a one-for-one stock exchange with a cash election
feature permitting Suites' shareholders to elect cash in the amount of $10.00
per share with a maximum amount of cash to be paid of approximately $25 million.

In view of the identical membership of the Suites and Hospitality boards,
the directors determined to pursue the evaluation by appointing a special
committee composed of different members for each board and authorized each
special committee to engage financial and legal advisors for purposes of
evaluating the proposed business combination. In addition, each board discussed
that, in connection with approving any business combination, it would approve
the combination without a recommendation with respect to shareholder approval,
and that approval would be conditioned upon receiving the affirmative vote of a
majority of each company's shareholders not affiliated with any of the
directors.

In their respective quarterly reports on Form 10-Q filed in August 2002,
Hospitality and Suites reported they were evaluating a possible business
combination.

The Suites board established a special committee consisting of Michael
Waters and Lisa Kern. On August 5, 2002, the Suites special committee met to
discuss its obligations and how it would proceed, including the need to seek
and hire financial and legal advisors. During August 2002, the Suites special
committee interviewed candidates to serve as its financial advisor and its
legal counsel and selected Wachovia Securities, Inc. and Troutman Sanders LLP
to serve as its financial advisor and legal counsel, respectively.

The Hospitality board established a special committee consisting of Bruce H.
Matson and Robert M. Wiley. On August 15, 2002 the Hospitality special
committee met to discuss its obligations and how it would proceed, including
the need to seek and hire financial and legal advisors. During the remainder of
August, the Hospitality special committee interviewed candidates to serve as is
financial advisors and selected Merrill Lynch to serve as its financial
advisor. In addition, the Hospitality special committee considered legal
advisors and selected McGuireWoods LLP to serve as its legal counsel.

In August 2002, management advised each of the special committees that it
recommended that the cash consideration to be paid in the merger be limited to
$25 million, but that Hospitality in its sole discretion be permitted to
increase that amount before the merger to $30 million.

On September 4, 2002, the Suites special committee met with representatives
of Wachovia Securities and Troutman Sanders to discuss the status of, and
likely timetable to evaluate, a potential business combination and the due
diligence to be undertaken.

On September 9, 2002, the Hospitality special committee met with
representatives of Merrill Lynch and McGuireWoods to discuss the status of, and
likely timetable to evaluate, a potential business combination and the due
diligence to be undertaken.

During September and October 2002, the advisors to the Suites special
committee and to the Hospitality special committee undertook their due
diligence investigations and communicated regularly with their respective
clients concerning the terms of a possible business combination, and legal
counsel for the respective special committees met with each other to negotiate
the terms and conditions of the business combination on behalf of their
respective clients. The Suites special committee held meetings with its
advisors on September 23 and October 19 for the purpose of discussing the
progress of due diligence, the status of the merger and issues raised in the
negotiation of the merger agreement.

On October 21, 2002, the Hospitality special committee met with its
financial advisors and legal counsel. Merrill Lynch discussed the status of its
review of the proposed merger, including its preliminary view as to relative
valuation ranges of Hospitality and Suites. The Hospitality special committee
then requested that Merrill Lynch explore with management and the financial
advisors for Suites alternatives to enhance the value of the merger from the
standpoint of the Hospitality shareholders.

On October 21 and 22, 2002, Merrill Lynch discussed with management
alternatives for enhancing the value of the merger from the standpoint of the
Hospitality shareholders. As a result of these discussions, Hospitality's
management proposed revising the merger agreement to provide for a $15 million
extraordinary dividend to be paid to Hospitality common shareholders before the
merger and to be conditioned on the merger occurring. That proposal was
communicated by management to Wachovia Securities and by McGuireWoods to
Troutman Sanders.

On October 22, 2002, the Suites special committee met with its advisors to
discuss the proposed revision to the merger agreement.

On October 23, 2002, in a presentation to the Suites special committee,
Wachovia Securities and Troutman Sanders reviewed the terms of the merger
agreement, and Wachovia Securities delivered an oral opinion regarding the
fairness, from a financial point of view, to the Suites common shareholders, of
the proposed transaction pursuant to the merger agreement. The Suites special
committee unanimously approved the merger and merger agreement and recommended
the merger and merger agreement to the Suites board.

On October 23, 2002, in a presentation to the Hospitality special committee,
Merrill Lynch and McGuireWoods reviewed the terms of the merger agreement, and
Merrill Lynch delivered an oral opinion regarding the fairness, from a
financial point of view, to Hospitality of the proposed transaction pursuant to
the merger agreement. The Hospitality special committee unanimously approved
the merger and merger agreement and recommended the merger and merger agreement
to the Hospitality board.

On October 23, 2002, the Suites board met to consider the proposed
transaction with Hospitality and to receive the Suites special committee's
recommendation regarding the proposed transaction. Wachovia Securities reviewed
its presentation to the Suites special committee including its oral opinion
regarding the fairness, from a financial point of view, to the Suites common
shareholders, of the proposed transaction pursuant to the merger agreement. The
Suites special committee presented its unanimous recommendation that the Suites
board approve the merger and merger agreement. The Suites board unanimously
approved the merger and merger agreement.

On October 23, 2002, the Hospitality board met to consider the proposed
transaction with Suites and to receive the Hospitality special committee's
recommendation regarding the proposed transaction. Merrill Lynch reviewed its
presentation to the Hospitality special committee including its oral opinion
regarding the fairness, from a financial point of view, to Hospitality of the
proposed transaction pursuant to the merger agreement. The Hospitality special
committee presented its unanimous recommendation that the Hospitality board
approve the merger and merger agreement. The Hospitality board unanimously
approved the merger and merger agreement.

In approving the merger, each board determined it should make no
recommendation to shareholders with respect to the merger because each director
may be considered to be interested in the merger as the boards of Suites and
Hospitality have the same members. For information regarding the interests of
the Hospitality and Suites directors and others in the merger, we urge you to
read carefully "Interest of Certain Persons in the Merger."

At the October 23, 2002 meetings of the Hospitality and Suites boards,
management reviewed its recommendation that in connection with the merger both
companies become self-advised. The boards of both Hospitality and Suites
approved the termination of each advisory agreement with Apple Suites Advisors
contingent upon the merger occurring. To implement the termination of the
advisory agreement for Hospitality, the Hospitality board approved the
acquisition of the outstanding stock of Apple Suites Advisors from its sole
shareholder, Glade M. Knight, subject to the approval of definitive
documentation and conditioned on the merger occurring. For a description of the
terms of this acquisition, we urge you to read carefully "Interest of Certain
Person in the Merger - Acquisition of Apple Suites Advisors and Conversion of
Hospitality Convertible Preferred Shares."

On October 24, 2002, Hospitality, Suites and Hospitality Acquisition Company
executed and delivered the definitive form of the merger agreement. On October
25, 2002, Hospitality and Suites each filed a Form 8-K disclosing the proposed
merger and its terms.

During the week of October 28, 2002, management reviewed the impact of the
conversion of Hospitality Series B convertible preferred shares into
Hospitality units on the liquidation preferences of other Hospitality
shareholders and discussed this impact with representatives of David Lerner
Associates, the underwriter for Hospitality's public offerings. As an
alternative to this conversion, management proposed that the Hospitality Series
B convertible preferred shares be exchanged for new Hospitality Series C
convertible preferred shares that would contain liquidation provisions
comparable to the Hospitality Series B convertible preferred shares, but
provide for voting and dividend rights as though the shares had been converted
into Hospitality units. Mr. Knight and the other holders of the Series B
convertible preferred shares indicated their willingness to exchange their
Hospitality Series B convertible preferred shares for new Hospitality Series C
convertible preferred shares.

On November 13, 2002, the Suites board met to consider the impact on the
merger of the exchange of Hospitality Series B convertible preferred shares for
new Hospitality Series C convertible preferred shares. Wachovia Securities
advised the Suites board that this exchange would not adversely affect its
opinion rendered on October 23, 2002. The Suites board approved waivers to the
merger agreement necessary for the creation of the Hospitality Series C
convertible preferred shares and their exchange for Hospitality Series B
convertible preferred shares.

On November 13, 2002, the Hospitality board met to consider the proposed
creation of a new Hospitality Series C convertible preferred shares and their
exchange for the outstanding Hospitality Series B convertible preferred shares,
as well as to evaluate the impact of this exchange on the merger. At this
meeting, Merrill Lynch advised the Hospitality board that the proposed exchange
would not adversely affect its opinion rendered on October 23, 2002. The
Hospitality board approved the creation of the new Hospitality Series C
convertible preferred shares and the exchange of the outstanding Hospitality
Series B convertible preferred shares for 1,272,000 Hospitality Series C
convertible preferred shares.

Hospitality's Reasons for the Merger

On October 23, 2002, the Hospitality board met to consider the merger and to
receive the Hospitality special committee's recommendation regarding the
merger. Based upon a review of the terms of the merger agreement, consultation
with Hospitality's management, as well as its financial advisors and legal
counsel, consideration of the factors described below and the unanimous
recommendation of the Hospitality special committee that the Hospitality board
approve the merger and the merger agreement, the Hospitality board unanimously
approved the merger and the merger agreement and the transactions contemplated
thereby and the related issuance of Hospitality units.

In reaching its determination, the Hospitality board considered the
following material factors:

. Franchise Diversification and Portfolio Growth. Hospitality will
diversify its operations by acquiring properties operated as Homewood
Suites(R) by Hilton, which are generally newer properties requiring less
renovation than, and generally have lower management fees than, the
properties currently owned by Hospitality. Hospitality will acquire 17
properties containing 1,922 suites including properties in six markets
where Hospitality currently has no properties.

. Accretive Effect. Hospitality believes the acquisition of Suites will be
accretive to its adjusted funds from operations (AFFO) per share for 2003
and 2004 on a fully converted basis.

. Improved Potential for Market Listing. Hospitality believes that, with a
larger asset and equity base as a result of the acquisition of Suites, it
will be in an improved position to seek listing of the Hospitality units
on a market or exchange at an appropriate time in the future.

. Increased Asset Base. Hospitality's total asset base will increase from
approximately $547 million to approximately $727 million and the number
of properties and suites will increase from 48 properties containing
5,767 suites to 65 properties containing 7,689 suites.

. Potential Cost Savings. The combined companies may achieve cost savings
by consolidation of public reporting system and insurance.

. Opinion of Merrill Lynch. The Hospitality Board considered the opinion,
analyses and presentation of Merrill Lynch described below under "Opinion
of Hospitality Financial Advisor," to the effect that, as of the date of
the Merrill Lynch opinion and based upon and subject to the matters
stated therein, the consideration to be paid by Hospitality pursuant to
the merger is fair to Hospitality from a financial point of view.

. Recommendation of Hospitality Special Committee. The Hospitality board
also considered the recommendation of the Hospitality special committee.
In determining to recommend the merger to the Hospitality board, the
Hospitality special committee considered the same factors described
herein which were considered by the Hospitality board as a whole.

. Interest of Certain Persons. The Hospitality board and the Hospitality
special committee also evaluated the benefits of the transaction to be
received by some officers and directors of Hospitality and Suites as
described under "The Merger--Interest of Certain Persons in the Merger"
and the related dilution of shareholder interests upon conversion of the
Suites Class B convertible shares and the exchange of the Hospitality
Series B convertible preferred shares.

In approving the merger, the Hospitality board determined it should make no
recommendation to Hospitality shareholders with respect to the merger because
each director may be considered to be interested in the merger as each director
is also a director of Suites. For information regarding the interests of the
Hospitality directors and others in the merger, we urge you to read carefully
"Interest of Certain Persons in the Merger."

Opinion of Hospitality Financial Advisor

Under an engagement letter dated August 26, 2002, Hospitality engaged
Merrill Lynch to act as exclusive financial advisor to the Hospitality special
committee in connection with the proposed merger. Pursuant to this engagement,
Hospitality requested that Merrill Lynch evaluate the fairness to Hospitality,
from a financial point of view, of the consideration to be paid by Hospitality
in the proposed merger. On October 23, 2002, at a meeting of the Hospitality
special committee held to consider the proposed merger, Merrill Lynch rendered
an oral opinion, which was subsequently confirmed by delivery to the
Hospitality special committee of a written opinion, dated October 23, 2002, to
the effect that, as of that date and based on and subject to the matters
described in its opinion, the consideration to be paid by Hospitality in the
proposed merger was fair, from a financial point of view, to Hospitality.

The full text of Merrill Lynch's written opinion, dated October 23, 2002,
which describes the assumptions made, matters considered and limitations on the
review undertaken, is attached to this joint proxy statement/prospectus as
Annex B. Merrill Lynch's opinion is addressed to the members of the Hospitality
special committee and relates only to the fairness to Hospitality, from a
financial point of view, of the consideration to be paid by Hospitality in the
proposed merger. Merrill Lynch was not requested to opine on, and its opinion
does not address, the relative merits of the underlying business decision by
Hospitality to engage in the proposed merger as compared to alternative
business strategies that might exist for Hospitality. Merrill Lynch's opinion
is solely for the use and benefit of the Hospitality board and the Hospitality
special committee and does not constitute a recommendation to any shareholder
of Hospitality as to how that shareholder should vote on the proposed merger or
any other related matter.

The summary of the material terms of Merrill Lynch's opinion described below
is qualified in its entirety by reference to the full text of the opinion
attached to this joint proxy statement/prospectus as Annex B. You are
encouraged to read the opinion carefully in its entirety.

In arriving at its opinion, Merrill Lynch, among other things:

. Reviewed certain publicly available business and financial information
relating to Suites and Hospitality that it deemed to be relevant;

. Reviewed certain information, including financial forecasts, relating to
the business, earnings, cash flow, assets, liabilities and prospects of
Suites and Hospitality furnished to Merrill Lynch by Suites and
Hospitality, respectively;

. Conducted discussions with members of senior management and
representatives of Suites and Hospitality concerning the matters
described in the two clauses directly above, as well as their respective
businesses and prospects before and after giving effect to the proposed
merger;

. Participated in certain discussions and negotiations among
representatives of Suites and Hospitality and their financial and legal
advisors;

. Reviewed the potential pro forma impact of the proposed merger;

. Reviewed a draft dated October 22, 2002 of the proposed merger agreement;
and

. Reviewed such other financial studies and analyses and took into account
such other matters as Merrill Lynch deemed necessary, including its
assessment of general economic, market and monetary conditions.

In preparing its opinion, Merrill Lynch assumed and relied on the accuracy
and completeness of all information supplied or otherwise made available to it,
discussed with or reviewed by or for it, or publicly available, and Merrill
Lynch did not assume any responsibility for independently verifying such
information or undertake an independent evaluation or appraisal of any of the
assets or liabilities of Suites or Hospitality and was not furnished with any
such evaluation or appraisal. In addition, Merrill Lynch did not assume any
obligation to conduct any physical inspection of the properties or facilities
of Suites or Hospitality. With respect to the financial forecast information
furnished to or discussed with Merrill Lynch by Suites or Hospitality, Merrill
Lynch assumed that they were reasonably prepared and reflected the best
currently available estimates and judgment of Suites' or Hospitality's
management as to the expected future financial performance of Suites or
Hospitality, as the case may be. Merrill Lynch also assumed that the final form
of the merger agreement would be substantially similar to the last draft
reviewed by it, that the proposed merger would qualify as a tax-free
reorganization under section 368(a) of the Internal Revenue Code of 1986, as
amended, and that both Suites and Hospitality qualify as real estate investment
trusts under the Internal Revenue Code of 1986, as amended.

In connection with its opinion, Merrill Lynch was advised that Hospitality
will purchase Apple Suites Advisors, the outside advisory company for
Hospitality and Suites (which is owned by the management of Hospitality and
Suites), and terminate Apple Suites Advisors' advisory agreements with Suites
and Hospitality. Merrill Lynch expressed no opinion with respect to
Hospitality's purchase of Apple Suites Advisors or the termination of its
advisory agreements with Suites and Hospitality or any other arrangement
between Hospitality or Suites and Apple Suites Advisors or management.

Merrill Lynch's opinion was necessarily based upon market, economic and
other conditions as they existed and could be evaluated on, and on the
information made available to it as of, the date of the Merrill Lynch opinion.
In rendering its opinion, Merrill Lynch assumed that in the course of obtaining
the necessary regulatory or other consents or approvals, contractual or
otherwise, for the proposed merger, no restrictions, including any divestiture
requirements or amendments or modifications, would be imposed that would have a
material adverse effect on the contemplated benefits of the proposed merger.
Merrill Lynch did not express any opinion as to the price at which Hospitality
shares might trade following the announcement or consummation of the proposed
merger in any public market or private transaction.

Summary of Merrill Lynch's Financial Analyses

The summary below is not a complete description of Merrill Lynch's
presentation to the members of the Hospitality special committee or the
Hospitality board or the financial analyses performed and factors considered by
Merrill Lynch in connection with rendering its opinion. The preparation of a
fairness opinion is a complex analytical process involving various
determinations as to the most appropriate and relevant methods of financial
analysis and the application of those methods to the particular circumstances,
and, therefore, a fairness opinion is not readily susceptible to summary
description. Merrill Lynch believes that its analyses and this summary must be
considered as a whole and that selecting portions of its analyses and factors
or focusing on information presented in tabular format, without considering all
analyses and factors or the narrative description of the analyses, could create
a misleading or incomplete view of the processes underlying Merrill Lynch's
analyses and opinion.

In performing its analyses, Merrill Lynch considered industry performance,
general business, economic, market and financial conditions and other matters
existing as of the date of its opinion, many of which are beyond the control of
Hospitality and Suites. An evaluation of the results of those analyses is not
entirely mathematical. Rather, the analyses involve complex considerations and
judgments concerning financial and operating characteristics and other factors
that could affect the acquisition, trading or other values of the companies or
business segments analyzed.

The estimates contained in Merrill Lynch's analyses and the ranges of
valuations resulting from any particular analysis are not necessarily
indicative of actual values or future results, which may be significantly more
or less favorable than those suggested by Merrill Lynch's analyses. In
addition, analyses relating to the value of businesses or

securities do not necessarily purport to be appraisals or to reflect the prices
at which businesses or securities actually may be sold. Accordingly, Merrill
Lynch's analyses and estimates are inherently subject to substantial
uncertainty.

The type and amount of consideration payable in the proposed merger was
determined by Hospitality and Suites, and the decision by Hospitality to enter
into the proposed merger was solely that of the Hospitality board, based on the
recommendation of the Hospitality special committee. Merrill Lynch's opinion
and financial analyses were only one of many factors considered by the
Hospitality board and the Hospitality special committee in their evaluation of
the proposed merger and should not be viewed as determinative of the views of
the Hospitality board,
the Hospitality special committee or the management of Hospitality with respect
to the proposed merger or the consideration to be paid by Hospitality in the
proposed merger.

Each of the analyses conducted by Merrill Lynch was carried out to provide a
different perspective on the proposed transaction. Merrill Lynch did not form a
conclusion as to whether any individual analysis, considered in isolation,
supported or failed to support its opinion. Merrill Lynch did not place any
specific reliance or weight on any individual analysis, but instead concluded
that its analyses, taken as a whole, supported its determination that the
consideration to be paid by Hospitality in the proposed merger was fair, from a
financial point of view, to Hospitality. The following analyses assume that
Hospitality makes the proposed $15 million distribution to its common
shareholders and that this distribution is paid to its common shareholders as
of a record date prior to the consummation of the proposed merger.

Net Asset Valuation. Merrill Lynch performed a net asset valuation for
Hospitality based upon estimates of Hospitality's enterprise value as of
December 31, 2002, the present value of deferred incentive management fees, the
present value of projected capital expenditures for renovations and the net
debt balance as of December 31, 2002. Merrill Lynch's estimates were based upon
the projected financial information provided by the senior management of
Hospitality and Suites and all present values were calculated as of December
31, 2002. This valuation applied an 11% capitalization rate to Hospitality's
net operating profit for purposes of calculating Hospitality's enterprise
value. This analysis also assumed deferred incentive management fees of
approximately $28.92 million as of December 31, 2007 and assumed a 12% discount
rate for purposes of calculating the present value of deferred incentive
management fees and projected capital expenditures for renovations. The
valuation indicated an equity value for Hospitality of approximately $233.11
million, resulting in a per unit net asset valuation for Hospitality's units of
approximately $7.39, based upon 31.54 million Hospitality units outstanding. A
unit consists of one Hospitality common share and one Hospitality Series A
preferred share.

Merrill Lynch also performed a net asset valuation for Suites based upon
estimates of Suites' enterprise value as of December 31, 2002 and net debt
balance as of December 31, 2002. Merrill Lynch's estimates were based upon the
projected financial information provided by the senior management of
Hospitality and Suites. Merrill Lynch's valuation assumed a 9.5% capitalization
rate for purposes of calculating Suites' enterprise value and indicated an
equity value for Suites of approximately $102.97 million, resulting in a per
share net asset valuation for Suites common shares of approximately $7.83,
based upon 13.15 million Suites common shares outstanding, which assumes that
Suites Class B convertible shares are converted into 480,000 Suites common
shares.

Discounted Cash Flow Analysis. Merrill Lynch performed a discounted cash
flow analysis of Hospitality based upon the projected cash flow of Hospitality
for the years 2002 through 2007 as provided by the senior management of
Hospitality and Suites. First, Merrill Lynch estimated the present value of the
future free cash flows of Hospitality during the forecast period. Then, to
estimate the residual value of Hospitality at the end of the forecast period,
or the terminal value, Merrill Lynch applied terminal capitalization rates
ranging from 11% to 12% to the 2007 projected net operating profit of
Hospitality. Merrill Lynch also utilized discount rates ranging from 10% to
14%. The discounted cash flow analysis implied a range of equity values for
Hospitality of approximately $229.45 million to $320.05 million, resulting in a
range of implied equity values per Hospitality unit of approximately $7.27 to
$10.15. This analysis was based upon 31.54 million Hospitality units
outstanding.

Merrill Lynch also performed a discounted cash flow analysis for Suites
based upon the projected cash flow of Suites for the years 2002 through 2007 as
provided by the senior management of Hospitality and Suites. First,

Merrill Lynch estimated the present value of the future free cash flows of
Suites during the forecast period. Then, to estimate the terminal value of
Suites, Merrill Lynch applied a range of terminal capitalization rates to the
2007 projected net operating profit of Suites. Merrill Lynch utilized discount
rates ranging from 10% to 14% and terminal capitalization rates ranging from
9.5% to 10.5%. The discounted cash flow analysis implied a range of equity
values for Suites of approximately $94.37 million to $133.41 million, resulting
in a range of implied equity values per Suites common share of approximately
$7.18 to $10.15. This analysis was based upon 13.15 million Suites common
shares outstanding, which assumes that Suites Class B convertible shares are
converted into 480,000 Suites common shares.

Book Value Per Share Analysis. Merrill Lynch performed a book value per
share analysis for each of Hospitality and Suites based upon their respective
balance sheets as of September 30, 2002. These analyses resulted in an
estimated book value per share of $8.50 for Hospitality as of September 30,
2002 and an estimated book value per share of $7.55 for Suites as of September
30, 2002.

Exchange Ratio Analysis. Merrill Lynch calculated the implied exchange
ratios in the proposed merger based upon the high and low equity values per
unit calculated by Merrill Lynch in its net asset value and discounted cash
flow analyses for Hospitality and the high and low equity values per common
share calculated by Merrill Lynch in its net asset value and discounted cash
flow analyses for Suites. For purposes of this analysis, Merrill Lynch assumed
that all Suites shareholders elected to receive stock (instead of cash) in the
proposed merger. Based upon the estimated equity value per unit of $7.39 for
Hospitality and the estimated equity value per common share of $7.83 for Suites
calculated by Merrill Lynch in its net asset value analysis, the exchange ratio
analysis resulted in an implied exchange ratio of 1.060x Hospitality units for
each Suites common share. This compares to an exchange ratio in the proposed
merger of 1.000x.

Based upon the high and low per Hospitality unit and per Suites common share
equity values calculated by Merrill Lynch in its discounted cash flow analysis,
Merrill Lynch calculated the following implied exchange ratios in the proposed
merger. The following implied exchange ratios compare to the exchange ratio in
the proposed merger of 1.000x.

Implied Exchange Ratios

Hospitality High: $10.15 Hospitality Low: $7.27
------------------------ ----------------------

Suites High: $10.15 1.000x 1.396x
Suites Low: $7.18.. 0.707x 0.988x

Contribution Analysis. Merrill Lynch calculated the implied exchange ratios
resulting from a debt-adjusted revenue contribution analysis, a debt-adjusted
EBITDA contribution analysis and a FFO contribution analysis for the years 2003
and 2004 for Hospitality and Suites, based upon the projected financial
information provided by the senior management of Hospitality and Suites. For
purposes of this analysis, Merrill Lynch adjusted the implied ownership values
for the $25 million cash consideration to Suites shareholders in the proposed
merger and for the $15 million distribution to Hospitality common shareholders
in connection with the proposed merger.

2003E 2004E
--------------------- ---------------------
Implied Implied
Contribution Ownership Contribution Ownership
------------ --------- ------------ ---------
Revenue (dollar values in thousands)

Hospitality $169,261 74.7% $174,339 74.7%
Suites..... $ 54,155 25.3% $ 55,780 25.3%
EBITDA
Hospitality $ 60,731 74.4% $ 63,489 74.4%
Suites..... $ 19,574 25.6% $ 20,465 25.6%
FFO
Hospitality $ 41,673 75.9% $ 43,943 75.5%
Suites..... $ 13,095 24.1% $ 14,050 24.5%

"EBITDA" means a company's earnings before interest, taxes, depreciation and
amortization. "FFO" means a company's funds from operations. Merrill Lynch
calculated the following implied exchange ratios resulting from a debt-adjusted
estimated revenue contribution analysis, a debt-adjusted estimated EBITDA
contribution analysis and an estimated FFO contribution analysis for each of
2003 and 2004. For purposes of this analysis, the calculation of the implied
exchange ratios was based upon 31.54 million Hospitality units outstanding and
13.15 million Suites common shares outstanding. The following implied exchange
ratios compare to the exchange ratio in the proposed merger of 1.000x.

Implied Exchange Ratio
----------------------
2003E 2004E
------ ------

Revenue 1.005x 1.005x
EBITDA. 1.018x 1.018x
FFO.... 0.942x 0.959x

Pro Forma Analysis. Merrill Lynch performed an analysis of the potential
pro forma financial impact of the proposed merger to Hospitality for the years
2003 through 2007 based upon the financial projections provided by the senior
management of Hospitality and Suites. The analysis resulted in estimates of pro
forma AFFO per Hospitality unit accretion / (dilution), pro forma CAD per
Hospitality unit accretion / (dilution) and pro forma AFFO per dividend
coverage for each of the years indicated in the chart below. Merrill Lynch's
calculations of pro forma AFFO per Hospitality unit accretion / (dilution) and
pro forma CAD per Hospitality unit accretion / (dilution) were based upon
42.187 million Hospitality units outstanding.

Per Unit Accretion / (Dilution)
------------------------------------
2003E 2004E 2005E 2006E 2007E
------ ------ ------ ------ ------

Pro Forma AFFO Per Unit
Accretion / (Dilution)... $ 0.26 $ 0.11 $(0.03) $(0.01) $(0.01)
Pro Forma CAD Per Unit
Accretion / (Dilution)... $ 0.28 $ 0.14 $(0.00) $(0.01) $ 0.00
Pro Forma AFFO / Dividend
Coverage................. 0.15x 0.63x 1.13x 1.17x 1.25x

"Pro Forma AFFO Per Unit Accretion / (Dilution)" means the accretive or
dilutive effect of pro forma adjusted funds from operations per Hospitality
unit. "Pro Forma CAD Per Unit Accretion / (Dilution)" means the accretive or
dilutive effect of pro forma cash available for distribution per Hospitality
unit. "Pro Forma AFFO / Dividend Coverage" means pro forma adjusted funds from
operations divided by dividend payments.

Miscellaneous. Hospitality selected Merrill Lynch as its financial advisor
in connection with the proposed merger based on Merrill Lynch's reputation,
expertise and familiarity with Hospitality and its business. Merrill Lynch is
an internationally recognized investment banking firm and, as part of its
investment banking business, is regularly engaged in the valuation of
businesses and their securities in connection with mergers and acquisitions,
private placements and related financings, bankruptcy reorganizations and
similar recapitalizations, negotiated underwriting, secondary distributions of
listed and unlisted securities and valuations for corporate and other purposes.

Under an engagement letter dated August 26, 2002, Merrill Lynch was retained
to act as financial advisor to the Hospitality special committee in connection
with the proposed merger and has received a customary fee in connection with
the rendering of its opinion. Subject to certain limitations, Hospitality has
also agreed to reimburse Merrill Lynch for its reasonable expenses incurred in
connection with its engagement. In addition, Hospitality has agreed to
indemnify Merrill Lynch for certain liabilities arising out of its engagement.
Merrill Lynch has, in the past, provided financial advisory and financing
services to various affiliates of Hospitality and/or Suites and may continue to
do so and has received, and may receive, fees for the rendering of these
services. Merrill Lynch has also been engaged as financial advisor to parties
who have sold significant portfolios to Hospitality in the past two years.

Suites' Reasons for the Merger

On October 23, 2002, the Suites board met to consider the merger and to
receive the Suites special committee's recommendation regarding the merger.
Based upon a review of the terms of the merger agreement, consultation with
Suites' management, as well as its financial advisors and legal counsel,
consideration of the factors described below and the unanimous recommendation
of the Suites special committee that the Suites board approve the merger and
the merger agreement, the Suites board unanimously approved the merger and the
merger agreement and the transactions contemplated thereby.

In reaching its determination, the Suites board considered the following
material factors:

. Increased Dividend Income. Suites shareholders will receive Hospitality
units, with a historical dividend policy providing an annual dividend
rate of $1.00 per Hospitality common share, representing a 25% increase
over the annual dividend rate of $.803 per Suites common share.

. Opportunity for Liquidity. Suites common shareholders desiring to
receive cash for their Suites common shares have the opportunity to elect
to receive $10.00 per share in cash instead of stock in the merger,
subject to the limit on the maximum amount of cash that will be paid by
Hospitality in the merger.

. Franchise Diversification and Portfolio Growth. Suites shareholders will
have an interest in a larger more diverse company. After the merger,
Hospitality will own 65 properties containing 7,689 suites operating
under two franchises--Residence Inn(R) by Marriott and Homewood Suites(R)
by Hilton.

. Improved Potential for Market Listing. Suites believes that Hospitality,
with a larger asset and equity base as a result of the acquisition of
Suites, will be in a better position than Suites, on a stand-alone basis,
to seek listing of its stock on a market or exchange at an appropriate
time in the future.

. Increased Asset Base. The asset base in which Suites shareholders have
an interest will increase from approximately $180 million to
approximately $727 million and the number of properties and suites will
increase from 17 properties containing 1,922 suites to 65 properties
containing 7,689 suites.

. Opinion of Wachovia Securities. The Suites board considered the opinion,
analyses and presentation of Wachovia's Securities described below under
"Opinion of Suites Financial Advisor" to the effect that as of the date
of the Wachovia Securities opinion and based upon and subject to the
matters stated therein, the merger consideration to be paid to the common
shareholders of Suites, other than Hospitality or any of its affiliates,
is fair, from a financial point of view, to those shareholders.

. Recommendation of Suites Special Committee. The Suites board placed
emphasizes on the recommendation of the Suites special committee. In
determining to recommend the merger to the Suites board, the Suites
special committee considered the same factors described herein which were
considered by the Suites board as a whole.

. No Other Indication of Interest. Suites did not receive any indication
of interest or unsolicited offers as a result of its announcement in
August 2002, that it was evaluating a business combination with
Hospitality.

. Interests of Certain Persons. The Suites board and the Suites special
committee also evaluated the benefits of the transaction to be received
by some officers and directors of Hospitality and Suites as described in
"The Merger--The Interest of Certain Persons in the Merger" and the
related dilution of shareholder interests upon conversion of the Suites
Class B convertible shares and the exchange of the Hospitality Series B
convertible preferred shares.

In approving the merger, the Suites board determined it should make no
recommendation to Suites' shareholders with respect to the merger because each
director may be considered to be interested in the merger as each director is
also a director of Hospitality. For information regarding the interests of the
Suites directors and others in the merger, we urge you to read carefully
"Interest of Certain Persons in the Merger."

Opinion of Suites Financial Advisor

Suites retained Wachovia Securities as its exclusive financial advisor to
render a fairness opinion in connection with the merger. At the October 23,
2002 meeting of the Suites special committee, Wachovia Securities rendered its
oral opinion, which was subsequently confirmed by a written opinion dated the
same date, that as of such date, and based upon and subject to the various
qualifications and assumptions described therein, the merger consideration to
be received by the Suites common shareholders was fair, from a financial point
of view, to the common shareholders of Suites, other than Hospitality or any of
its affiliates.

The full text of the written opinion of Wachovia Securities dated October
23, 2002, which sets forth, among other things, the assumptions made,
procedures followed, matters considered and limitations on the review
undertaken in connection with the opinion, is attached as Annex C to this joint
proxy statement/prospectus and is incorporated herein by reference. Holders of
Suites common shares are urged to read such opinion in its entirety. Wachovia
Securities' opinion is addressed to the Suites special committee and addresses
only the fairness, from a financial point of view, of the merger consideration
to be received by the Suites common shareholders and does not address the
merits of the underlying decision by Suites to engage in the transaction, or
any other aspect of the merger or any related transaction, and does not
constitute a recommendation to any holder of Suites common shares as to how
such holder should vote with respect to the merger.

In arriving at its opinion, Wachovia Securities:

. reviewed the merger agreement, draft dated as of October 22, 2002,
including the financial terms of the merger agreement;

. reviewed certain business, financial and other information, including
financial forecasts, regarding Suites and Hospitality that was publicly
available or furnished to Wachovia Securities by management, and
discussed each company's business and prospects with its management;

. considered certain financial data for Suites and Hospitality and compared
that data with similar data regarding certain other publicly traded
companies that Wachovia Securities deemed to be relevant;

. compared the proposed financial terms of the merger agreement with the
financial terms of certain other business combinations and transactions
that Wachovia Securities deemed to be relevant;

. reviewed Suites' and Hospitality's financial contributions to the
combined entity on a pro forma basis without giving effect to the
potential transaction synergies and costs;

. calculated a net asset value per common share for each company based on
2003 projected net operating income, adjusted for capital reserves;

. developed discounted cash flow models of Suites and Hospitality;

. reviewed the potential pro forma financial impact of the merger; and

. considered other information such as financial studies, analyses and
investigations, as well as financial and economic and market criteria
that Wachovia Securities deemed to be relevant.

In rendering its opinion, Wachovia Securities relied upon the accuracy and
completeness of the foregoing financial and other information, and Wachovia
Securities did not assume any responsibility for any independent verification
of such information. With respect to Suites' and Hospitality's financial
forecasts, on the advice of Suites, Wachovia Securities assumed, with the
permission of Suites, that they were reasonably prepared and reflected the best
current estimates and judgments of management as to the future financial
performance of the companies. Wachovia Securities discussed Suites' and
Hospitality's financial projections with the management of Suites and
Hospitality, but Wachovia Securities assumed no responsibility for, and
expressed no view as to, Suites' and Hospitality's financial projections or the
assumptions upon which they are based. In arriving at its opinion, Wachovia
Securities did not make and was not provided with any comprehensive evaluations
or appraisals of the assets or liabilities of Suites or Hospitality.

In rendering its opinion, Wachovia Securities assumed that the merger will
be consummated in accordance with the terms described in the merger agreement,
without waiver of any material terms or conditions, that the draft merger
agreement reviewed by it would not differ materially from the agreement
actually executed, and that in the course of obtaining any necessary legal,
regulatory or third party consents and/or approvals, no restrictions will be
imposed that will have a material adverse effect on the merger or other actions
contemplated by the merger agreement. In addition, Wachovia Securities assumed
that the merger will be accounted for as a tax-free reorganization within the
meaning of Section 368(a) of the Code. The merger agreement is attached to this
joint proxy statement/prospectus as Annex A hereto, and we urge you to review
the terms of the merger agreement and the conditions to Suites' obligations
thereunder in connection with your consideration of the merger.

Wachovia Securities' opinion is necessarily based on economic, market,
financial and other conditions and information made available to Wachovia
Securities as of the date of the opinion. Although subsequent developments may
affect its opinion, Wachovia Securities does not have any obligation to update,
revise or reaffirm the opinion. Wachovia Securities' opinion does not address
the relative merits of the merger or other actions contemplated by the merger
agreement compared with other business strategies that may have been considered
by management and/or Suites' board of directors or any committee thereof.
Wachovia Securities did not consider, nor did it express any opinion with
respect to, the prices at which Suites common shares or Hospitality common
shares will trade, if at all, following announcement of the merger or the price
at which Hospitality common shares will trade, if at all, following
consummation of the merger.

The following is a summary of the principal financial analyses performed by
Wachovia Securities in connection with its opinion. No company or transaction
used in the analyses described below is directly comparable to Suites,
Hospitality or the merger. The analyses Wachovia Securities performed are not
necessarily indicative of actual values or future results, which may be
significantly more or less favorable than suggested by these analyses.

Comparable Companies Analysis. Using publicly available information and
estimates of future financial results published by First Call or derived from
various research reports, Wachovia Securities analyzed the market values and
certain trading multiples of selected publicly traded extended stay and lodging
companies that Wachovia Securities believed were reasonably comparable to
Suites and Hospitality. These comparable companies were selected principally
based on the consistency of property types owned with those owned by Suites and
Hospitality. The selected comparable companies were:

. Extended Stay America, Inc.;

. Equity Inns, Inc.;

. Hospitality Properties Trust;

. Innkeepers USA Trust;

. RFS Hotel Investors, Inc.; and

. Winston Hotels, Inc.

For each of the comparable companies, Wachovia Securities calculated the
multiples of market value to projected funds from operations, or FFO, for 2002
and 2003. Wachovia Securities' calculations resulted in the following relevant
ranges for the comparable companies:

. a range of projected FFO multiples for 2002 for the comparable companies
of 5.4x to 8.4x, with a median of 6.9x.

. a range of projected FFO multiples for 2003 for the comparable companies
of 4.5x to 7.8x, with a median of 5.9x.

. Based on Suites' projected FFO for 2002 and 2003, the implied range of
per share values for Suites was $4.31 to $7.50 and the per share value
was $6.11 and $5.66 using the 2002 and 2003 median FFO per

share multiples, respectively. Based on Hospitality's projected FFO for
2002 and 2003, the implied range of per share values for Hospitality was
$5.23 to $9.11 and the per share value was $7.28 and $6.87 using the 2002
and 2003 median FFO per share multiples, respectively.

Wachovia Securities noted that the implied exchange ratio calculated using the
inverse of the minimum and maximum share values described above would range
between 0.47 and 1.43, and 0.84 and 0.82 using the median share values from the
2002 and 2003 multiples, respectively, as compared to the proposed exchange
ratio of 1.00.

None of the companies utilized in the above analysis for comparative
purposes is identical to Suites or Hospitality. Accordingly, a complete
analysis of the results of the foregoing calculations cannot be limited to a
quantitative review of such results and involves complex considerations and
judgments concerning the differences in the financial and operating
characteristics of the comparable companies and other factors that could affect
the public trading value of the comparable companies as well as the potential
trading value of Suites or Hospitality. In addition, the multiples of common
share price to projected 2002 and 2003 FFO per share for the comparable
companies are based on projections prepared by research analysts using only
publicly available information. Accordingly, such estimates may or may not
prove to be accurate.

Selected Transactions Analysis. Using publicly available information,
Wachovia Securities examined selected transactions in the real estate industry,
deemed relevant by Wachovia Securities. These selected transactions were chosen
principally based on the consistency of the target's property types owned with
those owned by Suites and Hospitality. The selected transactions were:

. Nova Finance Company, LLC / Sunburst Hospitality Corporation;

. Intown Holding Company LLC / Suburban Lodges of America, Inc.;

. Security Capital Lodging Incorporated / Homestead Village, Inc.; and

. Blackstone Real Estate Advisors / Homestead Village, Inc.

For each of the comparable transactions, Wachovia Securities calculated,
among other things, the multiples of adjusted market value to trailing and
forward twelve month earnings before interest, taxes, depreciation and
amortization, or EBITDA, for each of the target companies. Wachovia Securities'
calculations resulted in the following relevant ranges:

. a range of trailing twelve month EBITDA multiples for the target
companies of 6.8x to 8.5x, with a median of 7.4x.

. a range of forward twelve month EBITDA multiples for the target companies
of 7.0x to 9.6x, with a median of 7.7x.

. The implied range of per share values for Suites was $4.22 to $8.63 and
the per share value was $4.95 and $5.92 using the trailing twelve month
and forward twelve month median EBITDA multiples, respectively. The
implied range of per share values for Hospitality was $4.54 to $10.14 and
the per share value was $5.46 and $6.72 using the trailing twelve month
and forward twelve month median EBITDA multiples, respectively.

Wachovia Securities noted that the implied exchange ratio calculated using the
inverse of the minimum and maximum share values described above would range
between 0.47 and 1.62, and 0.91 and 0.88 using the median share values from the
trailing twelve month and forward twelve month multiples, respectively, as
compared to the proposed exchange ratio of 1.00.

None of the transactions utilized in the above analysis for comparative
purposes is identical to the merger. Accordingly, a complete analysis of the
results of the foregoing calculations cannot be limited to a quantitative
review of such results and involves complex considerations and judgments
concerning the differences in the financial and operating characteristics of
the companies in those transactions and other factors that could affect

the value of the companies in those transactions as well as the potential value
of Suites or Hospitality. In addition, the target companies' adjusted market
values to forward EBITDA multiples in the selected transactions were, in many
cases, based on projections prepared by research analysts using only publicly
available information. Accordingly, these estimates may or may not prove to be
accurate.

Contribution Analysis. Wachovia Securities reviewed Suites' and
Hospitality's financial contribution to the combined company on a projected pro
forma basis for 2002 and 2003. Wachovia Securities' analysis, based on
management projections, included relative contributions of the following per
share operating statistics: total sales, house profit, EBITDA, FFO and cash
available for distribution, or CAD.

The range of implied exchange ratios between Hospitality common shares and
Suites common shares derived from the projected relative per share
contributions of the above operating statistics was 0.74 to 0.90, as compared
to the proposed exchange ratio of 1.00.

Net Asset Value Analysis. Wachovia Securities performed a net asset value
analysis of Suites by calculating the gross estimated value of its properties
and other assets and subtracting its outstanding debt and other liabilities.
The gross estimated value for Suites was estimated by capitalizing 2003 net
operating income as projected by management, including an adjustment for
reserves for recurring capital expenditures. Theoretical net asset value
assumes that each asset is sold at its best and highest price and does not
include all corporate liquidation costs. The capitalization rates were based on
industry surveys and recent sales of comparable extended stay properties. In
applying capitalization rates ranging from 9.50% to 10.50%, Wachovia Securities
took into consideration current market conditions and property characteristics.
The net asset valuation analysis produced an estimated per share value range of
$6.75 to $8.01.

Wachovia Securities also performed a net asset value analysis of Hospitality
by calculating the gross estimated value of its properties and other assets and
subtracting its outstanding debt and other liabilities. The gross estimated
value for Hospitality was estimated by capitalizing 2003 net operating income
as projected by management, including an adjustment for reserves for recurring
capital expenditures. Theoretical net asset value assumes that each asset is
sold at its best and highest price and does not include all corporate
liquidation costs. The capitalization rates were based on industry surveys and
recent sales of comparable extended stay properties. In applying capitalization
rates ranging from 10.50% to 11.50%, Wachovia Securities took into
consideration current market conditions and property characteristics. The net
asset valuation analysis produced an estimated per share value range of $7.18
to $8.59. Based on an analysis of this data and the net asset value analysis
performed on Suites' properties, Wachovia Securities derived implied exchange
ratios ranging from 0.79 to 1.12, as compared to the proposed exchange ratio of
1.00.

Discounted Cash Flow Analysis. Wachovia Securities performed a discounted
cash flow analysis by calculating the present value of estimated cash flows
before debt service for Suites for 2003 through 2007 based on management
projections. Wachovia Securities calculated the terminal values by applying
terminal capitalization rates ranging from 10.00% to 11.00% to 2008 net
operating income adjusted for reserves for recurring capital expenditures.
Wachovia Securities discounted the cash flows and the terminal values to
present value based on discount rates ranging from 12.00% to 15.00%. After
adjustments to the resulting present values for current cash balances, net
working capital balances and outstanding debt, the discounted cash flow
analysis produced an estimated per share value range of $7.77 to $10.15.

Wachovia Securities also performed a discounted cash flow analysis by
calculating the present value of estimated cash flows before debt service for
Hospitality for 2003 through 2007 based on management projections. Wachovia
Securities calculated the terminal values by applying terminal capitalization
rates ranging from 11.00% to 12.00% to 2008 net operating income adjusted for
reserves for recurring capital expenditures. Wachovia Securities discounted the
cash flows and the terminal values to present value based on discount rates
ranging from 12.00% to 15.00%. After adjustments to the resulting present
values for current cash balances, net working capital balances and outstanding
debt, the discounted cash flow analysis produced an estimated per share value
range of $7.65 to $10.19. Based on an analysis of this data and the discounted
cash flow analysis

performed on Suites' properties, Wachovia Securities derived implied exchange
ratios ranging from 0.76 to 1.33, as compared to the proposed exchange ratio of
1.00.

General. The summary set forth above is qualified by reference to the full
text of the written opinion of Wachovia Securities attached hereto as Annex C.
The preparation of a fairness opinion is a complex process involving various
determinations as to the most appropriate and relevant methods of financial
analysis and the application of those methods to the particular circumstances.
Therefore, a fairness opinion is not necessarily susceptible to partial
analysis or summary description. Selecting portions of the analyses or the
summary set forth above, without considering the analyses as a whole, could
create an incomplete view of the processes underlying Wachovia Securities'
opinion. In arriving at its fairness determination, Wachovia Securities
considered the results of all such analyses. Wachovia Securities did not
attribute any particular weight to any analysis. Rather Wachovia Securities
made qualitative judgments as to the significance and relevance of each
analysis. The analyses were prepared solely for purposes of Wachovia Securities
rendering its opinion to the Suites special committee as to the fairness, from
a financial point of view, of the merger consideration to be received by the
Suites common shareholders and do not purport to be appraisals or necessarily
reflect the prices at which businesses or securities may be sold. Analyses
based upon forecasts or future results are not necessarily indicative of actual
future results, which may be significantly more or less favorable than
suggested by such analyses. Because such analyses are inherently subject to
uncertainty, being based on numerous factors or events beyond the control of
the parties or their respective advisors, none of Suites, Hospitality, Wachovia
Securities or any other person assumes responsibility if future results are
materially different from those forecast. As described above, Wachovia
Securities' opinion to the Suites special committee was one of many factors
taken into consideration by the Suites special committee and board of directors
in making its determination to approve the merger agreement.

Wachovia Securities is a trade name of Wachovia Securities, Inc., an
investment banking subsidiary and affiliate of Wachovia Corporation. Wachovia
Securities and its affiliates, as part of their investment banking activities,
are regularly engaged in the valuation of businesses and their securities in
connection with merger transactions and other types of acquisitions, negotiated
underwritings, secondary distributions of listed and unlisted securities,
private placements and valuations for corporate and other purposes. The Suites
special committee selected Wachovia Securities to serve as its exclusive
financial advisor for the purpose of rendering an opinion on the basis of
Wachovia Securities' experience and expertise in transactions similar to the
merger and its reputation in the REIT industry. Wachovia Securities and its
affiliates, including Wachovia Corporation and its affiliates, currently have
certain other relationships with Suites and Hospitality. In September 2002,
Wachovia Securities closed on an $83 million non-recourse mortgage financing
for Hospitality, intended to be sold through its conduit. In September 2000,
Wachovia Securities closed on a $50 million non-recourse mortgage financing for
Suites, intended to be sold through its conduit. Wachovia Securities and its
affiliates may in the future maintain business relationships with Hospitality.
In addition, Wachovia Bank, National Association, an affiliate of Wachovia
Securities, may provide working capital loans for both Suites and Hospitality
at market rates and terms.

Pursuant to the terms of an engagement agreement dated August 26, 2002,
Suites agreed to pay Wachovia Securities a customary fee upon delivery of its
opinion. Suites also agreed to reimburse Wachovia Securities for its reasonable
out-of-pocket expenses, including the reasonable fees and expenses of Wachovia
Securities' counsel, and to indemnify Wachovia Securities, its affiliates, and
their respective directors, agents, employees and controlling persons against
certain liabilities, including liabilities under the federal securities laws,
relating to or arising out of Wachovia Securities' engagement. Wachovia
Securities did not participate in the negotiations related to the merger
agreement and did not recommend the amount of the consideration to be paid in
the merger. Other than as described above, no restrictions or limitations were
imposed by the special committee of the Suites board of directors on Wachovia
Securities with respect to the investigations made or the procedures followed
by Wachovia Securities in rendering its opinion.

Interests of Certain Persons In The Merger

In considering the merger, you should be aware that each director may be
considered to have interests in the merger.

The boards of directors of Hospitality and Suites are composed of the same
directors. Consequently, each director may be deemed to have an interest in the
merger. No unaffiliated representative was retained to negotiate separately for
the shareholders of each company. Because each director may be deemed to have
an interest in the merger, the board of each company established a separate
committee of different directors that engaged separate financial advisors. The
special committee of the Hospitality board engaged Merrill Lynch, which
rendered its opinion as to the fairness, from a financial point of view, of the
consideration to be paid by Hospitality in the merger. The special committee of
the Suites board engaged Wachovia Securities, which rendered its opinion that
the consideration to be paid in the merger is fair, from a financial point of
view, to the Suites shareholders, other than Hospitality or any of its
affiliates.

Interests of Glade M. Knight. Glade M. Knight, a director of Hospitality
and Suites and chairman of the board and president of Hospitality and Suites,
has additional economic interests in the merger, the related termination of the
advisory agreements between each of Hospitality and Suites and Apple Suites
Advisors, and the related termination of the property acquisition/distribution
agreements between each of Hospitality and Suites and Apple Suites Realty. In
connection with the merger, Mr. Knight will receive:

. 1,073,000 newly created Hospitality Series C convertible preferred shares
in exchange for his Hospitality Series B convertible preferred shares.
Mr. Knight would have otherwise been entitled to receive 1,073,000
Hospitality units upon conversion of his Hospitality Series B convertible
preferred shares in connection with the termination of Hospitality's
advisory agreement with Apple Suites Advisors and Hospitality's property
acquisition/distribution agreement with Apple Suites Realty. The new
Hospitality Series C convertible preferred shares will have a liquidation
preference comparable to the Hospitality Series B convertible preferred
shares, in that holders of Hospitality Series C convertible preferred
shares will receive no payments in a liquidation for their Series C
convertible preferred shares until holders of Hospitality units are paid
in full for their Hospitality Series A preferred shares. The Hospitality
Series C convertible preferred shares will also have the same voting
rights and rights to receive dividend distributions as if they had
already been converted to Hospitality units. Assuming a $10.00 per share
value, the aggregate value of the Hospitality Series C convertible
preferred shares received by Mr. Knight will be $10,730,000.

Acquisition of Apple Suites Advisors and Exchange of Hospitality Series B
Convertible Preferred Shares. In connection with the merger, the boards of
directors of Hospitality and Suites have determined that the companies will
become self-advised, contingent upon the merger occurring. Consequently, the
advisory agreements Hospitality

and Suites have with Apple Suites Advisors, which is owned by Mr. Knight, will
be terminated concurrently with the merger and thereafter no further advisory
fees will be due under those agreements. In addition, the property
acquisition/disposition agreements that Hospitality and Suites have with Apple
Suites Realty, which is also owned by Mr. Knight, will also be terminated.

As a result of the termination of these agreements, the 240,000 Hospitality
Series B convertible preferred shares held by Mr. Knight and two business
associates would become convertible into 1,272,000 Hospitality units. Mr.
Knight and the other holders of Hospitality Series B convertible preferred
shares have agreed to exchange their Hospitality Series B convertible preferred
shares for 1,272,000 newly created Hospitality Series C convertible preferred
shares. These new Hospitality Series C convertible preferred shares will have a
liquidation preference comparable to the Hospitality Series B convertible
preferred shares, in that holders of Hospitality Series C convertible preferred
shares will receive no payments in a liquidation for their Series C convertible
preferred shares until holders of Hospitality units are paid in full for their
Hospitality Series A preferred shares. Consequently, holders of Hospitality
units will be entitled to receive $10.00 per share in cash on liquidation,
before any payments will be made to Mr. Knight or the other holders of the
Hospitality Series C convertible preferred shares for their Hospitality Series
C convertible preferred shares. Each Hospitality Series C convertible preferred
share will be convertible into one Hospitality unit upon either of the
following triggering events:

. Hospitality transfers substantially all of its assets, stock or business
as a going concern, whether through exchange, merger, consolidation,
lease, share exchange or otherwise, other than a sale of assets in
liquidation, dissolution or winding up of Hospitality's business.

. Hospitality lists the Hospitality units on a securities exchange or
quotation system or in any established market.

The Hospitality Series C convertible preferred shares will also have the same
voting rights and rights to receive dividend distributions as if they had
already been converted to Hospitality units.

To implement the termination of the advisory agreement for Hospitality,
Hospitality and Glade M. Knight, the sole shareholder of Apple Suites Advisors,
have entered into an agreement to acquire all of Mr. Knight's stock in Apple
Suites Advisors instead of paying a $6.48 million termination fee due Apple
Suites Advisors under the advisory agreement. In this acquisition, Mr. Knight
will receive a cash payment of $2 million and a non-interest-bearing promissory
note, due four years after the merger, in a principal amount of $4.48 million.
This acquisition is conditioned upon the effectiveness of the merger and is
expected to close concurrently with the merger.

Conversion of Suites Class B Convertible Shares. Glade M. Knight and two
business associates own all 240,000 of the outstanding Suites Class B
convertible shares. Pursuant to the terms of these securities, the Suites Class
B convertible shares will be convertible into 480,000 Suites common shares in
connection with the merger. Pursuant to the merger, the Suites Class B
convertible shares will be exchanged for 480,000 Hospitality units, or one
Hospitality unit for each Suites common share, the same exchange ratio
applicable to all other Suites common shareholders.

Ownership of Hospitality Units and Suites Common Shares. The Hospitality
board is comprised of five members: Glade M. Knight, Lisa B. Kern, Bruce H.
Matson, Michael S. Waters, Robert M. Wily. As of December 20, 2002, each of the
above named individuals owned the following number of Hospitality or Suites
common shares and held options to purchase that number of Hospitality units or
Suites common shares listed below, the weighted average exercise price of
which, in the case of Hospitality, was $9.75, and in the case of Suites, was
$9.55.

Hospitality Suites
---------------------------- -------------------------------
Units Subject to Common Shares Common Shares
Units Owned Option Owned Subject to Option
----------- ---------------- ------------- -----------------

Glade M. Knight. 10 -- 10 --
Lisa B. Kern.... -- 10,680 -- 11,472
Bruce H. Matson. -- 10,680 -- 11,472
Michael S.Waters -- 10,680 -- 11,472
Robert M. Wily.. -- 10,680 -- 11,472

In addition, the Hospitality and Suites executive officers named below owned
the following number of Hospitality units and Suites common shares and held
options to purchase that number of Hospitality units and Suites common shares
listed below.

Glade M. Knight 10 -- 10 --

Suites' executive officers and directors are to receive the same
consideration for their Suites common shares as the other Suites shareholders
are to receive. After the merger, all outstanding options to purchase Suites
common shares will represent options to acquire that number of Hospitality
units that the holders of such options would have been entitled to receive if
they had exercised their options immediately prior to the merger.

Conflicts of Interest After the Merger

General. Hospitality and Suites may be subject to various conflicts of
interest arising from their relationship with Apple Hospitality Five and Glade
M. Knight, Hospitality and Suites' chairman of the board and president. Mr.
Knight is the chairman of the board and president of Apple Hospitality Five.

Apple Hospitality Five is a new real estate investment trust created by Mr.
Knight which will focus on purchasing and owning upper-end, extended-stay hotel
properties and other upper-end, limited-service hotel properties located in
selected metropolitan areas.

Apple Hospitality Five is expected to have the same board of directors and
executive officers as Hospitality and Suites. Apple Hospitality Five will
contract with Apple Hospitality Five Advisors, Inc., a company wholly-owned by
Glade M. Knight, to provide advisory services and day-to-day management to
Apple Hospitality Five. Apple Hospitality Five Advisors will subcontract with
Apple Suites Advisors for these services. After the merger, Apple Suites
Advisors will become a wholly owned subsidiary of Hospitality, and Hospitality
through this subsidiary will receive the benefit of the fees generated by
providing these services.

Some of the hotels owned by Apple Hospitality Five may be in the same
markets and may compete with hotels owned by Hospitality and Suites. Apple
Hospitality Five's hotels may be operated as part of the Homewood Suites(R) by
Hilton or the Residence Inn(R) by Marriott(R) franchise systems. However, the
hotels owned by Hospitality, Suites and Apple Hospitality Five will be managed
by third party management companies.

Under a property acquisition/distribution agreement, Apple Suites Realty
assists Hospitality in the acquisition and disposition of investments. This
agreement will be terminated in connection with the merger. At this time, Apple
Suites Realty does not provide services exclusively to Hospitality or Suites,
and will perform similar services for Apple Hospitality Five. Apple Suites
Realty may perform similar services to other parties, both affiliated and
unaffiliated, in the future. Mr. Knight is the sole shareholder of Apple Suites
Realty.

Apple Hospitality Five, Apple Suites Realty, and Mr. Knight are not
restricted from engaging for their own account in business activities of the
type conducted by Hospitality or Suites. Occasions may arise when Hospitality
and Suites' interests conflict with those of Apple Suites Realty, Apple
Hospitality Five or Mr. Knight. Mr. Knight is accountable to Hospitality and
Suites and our shareholders as a fiduciary, and consequently must exercise good
faith and integrity in handling Hospitality and Suites' affairs.

Although Hospitality does not currently anticipate entering into joint
ventures with other entities, including Apple Suites Realty, Hospitality may do
so in order to obtain an interest in hotels. These joint ventures may have
divergent interests or goals that may be inconsistent with Hospitality's goals.
In addition, Hospitality may be

represented by the same legal counsel that represents Apple Suites Realty. To
the extent a conflict arises regarding legal representation, Apple Suites
Realty will obtain separate independent counsel.

Interlocking Boards of Directors. Glade M. Knight, Lisa B. Kern, Bruce H.
Matson, Michael S. Waters and Robert M. Wily serve as directors on
Hospitality's and Suites' board and are expected to serve as directors for
Apple Hospitality Five. Mr. Knight is also chairman of the board and president
of Apple Hospitality Five. There may be in the future instances where
Hospitality and Suites' Hotels are in the same markets as hotels owned by Apple
Hospitality Five. However, because the hotels are managed by third party
management companies and neither Hospitality's nor Suites' board of directors
nor the boards of directors of Apple Hospitality Five play a direct role in the
management of the hotels, we do not believe that having the same board of
directors as Apple Hospitality Five or being in the same markets as Apple
Hospitality Five will present a conflict of interest.

Competition Between Us And Mr. Knight. Mr. Knight or other companies
organized by him, may form additional REITs, limited partnerships and other
entities to engage in activities similar to Hospitality or Suites and their
activities. Until the time as more than 95% of the proceeds of Hospitality's
$100 million offering begun in May 2002, are invested, Mr. Knight and Apple
Suites Realty will notify Hospitality of any suitable investment opportunity in
light of Hospitality's focus on purchasing and owning upper-end, extended-stay
and limited service hotel properties before notifying or offering it to any
other affiliated entity. Hospitality and Suites have no contractual rights with
Mr. Knight, such as a right of first refusal, that obligates him to sell any
property to Hospitality or Suites. In addition, Hospitality and Suites may
purchase properties from entities affiliated with Mr. Knight.

The competing activities of Apple Suites Realty and Mr. Knight may involve
conflicts of interest. For example, Mr. Knight is interested in the continuing
success of other ventures because he has fiduciary responsibilities to
investors in those ventures, he may be personally liable on obligations of
those ventures and he has equity and incentive interests in those ventures.
Those ventures include Cornerstone and Apple Hospitality Five. Apple
Hospitality Five has similar investment objectives as Hospitality and Suites do
and, in addition, may compete against Hospitality and Suites for properties.
Conflicts of interest would also exist if properties acquired by Hospitality or
Suites compete with properties owned or managed by Mr. Knight or affiliates of
Apple Suites Realty. Conflicts of interest may also arise in the future if
Hospitality or Suites sell, finances or refinances properties at the same time
as ventures developed by Mr. Knight or affiliates of Apple Suites Realty.

Competition For Management Services. Mr. Knight is and in the future will
be an officer or director of one or more entities, which engage in the
brokerage, sale, operation, or management of real estate. These entities
include Cornerstone and Apple Hospitality Five. Accordingly, Mr. Knight may
have conflicts of interest in allocating management time and services between
Hospitality or Suites and those entities. None of the organizational documents
for Hospitality, Suites, Cornerstone or Apple Hospitality Five specify a
minimum standard of time and attention that Apple Suites Realty or Mr. Knight
is required to provide to the applicable corporation.

Material United States Federal Income Tax Consequences

In General. The following discussion generally describes the material U.S.
federal income tax consequences to a U.S. holder of Suites common shares with
respect to the exchange of Suites common shares for Hospitality units and cash,
if any, pursuant to the merger. This discussion only applies to you if you are
a U.S. holder of Suites common shares. A U.S. holder means, for purposes of
this discussion:

. a citizen or resident of the United States;

. a corporation, or other entity taxable as a corporation, created or
organized under the laws of the United States or any of its political
subdivisions;

. a trust, if a U.S. court is able to exercise primary supervision over the
administration of the trust and one or more U.S. persons have the
authority to control all substantial decisions of the trust; or

. an estate that is subject to U.S. Federal income tax on its income
regardless of its source.

This discussion is based upon the following, all of which are subject to
change, possibly retroactively:

. the Internal Revenue Code, as amended (the Code);

. Treasury regulations;

. administrative rulings; and

. judicial decisions currently in effect.

The discussion assumes that you hold your Suites common shares, and will
hold your Hospitality units, as capital assets within the meaning of section
1221 of the Code. Further, the discussion does not address all aspects of U.S.
federal income taxation that may be relevant to you in light of your personal
investment circumstances or if you are subject to special treatment under U.S.
federal income tax laws, including federal income tax laws applicable to:

. insurance companies;

. tax-exempt organizations;

. dealers in securities or foreign currency;

. banks, trusts, or financial institutions;

. persons that hold Suites common shares as part of a straddle, a hedge
against currency risk or a constructive sale or conversion transaction;

. persons that have a functional currency other than the U.S. dollar;

. investors in pass-through entities;

. persons who acquired their Suites common shares through the exercise of
options or otherwise as compensation or through a tax-qualified
retirement plan;

. foreign persons;

. persons subject to the alternative minimum tax provisions of the Code; and

. holders of options that purchase Suites common shares granted under any
Suites benefit plan.

If a partnership, including for this purpose, any entity, domestic or
foreign, treated as a partnership for U.S. tax purposes, is a beneficial owner
of Suites common shares, the U.S. tax treatment of a partner in the partnership
will generally depend on the status of the partner and the activities of the
partnership. A holder of Suites common shares that is a partnership and
partners in such partnership should consult their individual tax advisors about
the U.S. federal income tax consequences of holding the common shares.

In addition, the discussion does not address tax consequences of the
following:

. any transaction in which Hospitality units are sold or otherwise disposed
of; and

. the effect of foreign, estate, state, or local tax laws on the merger.

You are urged to consult your own tax advisor as to the specific tax
consequences to you of the merger including the applicable federal, state,
local, and foreign tax consequences.

Material U.S. Federal Income Tax Consequences to Suites
Shareholders. Hospitality and Suites intend that this merger will qualify as a
reorganization within the meaning of section 368(a) of the Code. They cannot
provide any assurance, however, that the merger will qualify as a
reorganization. Assuming the merger does so qualify, the following summarizes
the material federal income tax consequences of the merger to U.S. holders of
Suites common shares under the law in effect as of the date hereof.

Gain Recognition. If you receive cash in the merger, you will recognize gain
in an amount equal to the lesser of:

. the difference between:

-- (x) the amount of cash and the fair market value of the Hospitality
units you receive in the exchange; and

-- (y) your adjusted tax basis in the Suites shares; and

. the amount of cash you receive in the exchange.

If you do not receive cash in the merger, you will not recognize gain,
except in the case of cash in lieu of fractional shares.

Loss Recognition. If you receive cash in the merger, you will not be
permitted to recognize a loss in the exchange.

Character of Gain. If you receive cash in the merger, the gain you
recognize on receipt of cash and Hospitality units pursuant to the merger
generally will be characterized as capital gain, and should be long-term
capital gain if you held, or are treated as having held, the Suites common
shares for more than one year as of the time of the exchange. If your receipt
of cash has the effect of a distribution of a dividend as described below,
however, you will be required to treat any gain recognized as ordinary income
(rather than capital gain) up to your proportionate share of Suites'
accumulated earnings and profits.

Fractional Shares. If you receive cash in lieu of a fractional share, you
will generally recognize gain or loss in an amount equal to the difference
between:

. the amount of cash you receive in lieu of a fractional share; and

. the portion of your adjusted tax basis in your Suites shares that is
allocated to the fractional share.

Such gain or loss will be capital gain or loss, and will be long-term
capital gain or loss if you held (or are treated as having held) your Suites
shares for more than one year as of the time of the exchange.

Tax Basis. The total tax basis of the Hospitality units that you receive in
the merger will be equal to the total tax basis of your Suites common shares
exchanged therefor, other than the portion of such tax basis allocable to a
fractional share of stock for which you receive cash, decreased by the amount
of cash, other than cash received in lieu of a fractional share, you receive in
the exchange, and increased by the amount of gain, if any, you recognize in the
exchange.

Holding period. The holding period of the Hospitality units that you
receive in the merger will include the period for which you held the Suites
common shares surrendered therefor.

Whether your receipt of cash has the effect of a distribution of a dividend
to you depends on your particular circumstances. In general, if the receipt of
cash is deemed to result in a meaningful reduction in your actual and
constructive ownership in Hospitality units, as opposed to the amount of
Hospitality units that you would have owned if you had received solely
Hospitality units in the merger, then the receipt of this cash will not have
the effect of a distribution of a dividend. For this purpose, if you are a
small, minority shareholder of Suites, you should be considered to have had a
meaningful reduction of interest, and therefore to have capital gain rather
than dividend income, if you experience any reduction in interest as a result
of the receipt of cash and you exercise no control with respect to corporate
affairs. Moreover, if the percentage interest in the Hospitality units you
actually or constructively hold following the merger is less than 80% of the
percentage interest you would have held if only Hospitality units had been
issued in the merger, you should be considered to have had a meaningful
reduction of interest.

If you are a holder of Suites common shares who exercises appraisal rights,
and you therefore receive only cash in exchange for your shares, you will
recognize gain or loss equal to the difference between:

. the amount of cash you receive; and

. your adjusted tax basis in your shares of Suites common shares.

The gain or loss you recognize generally will be characterized as capital
gain or loss, and should be long-term capital gain or loss if you held, or are
treated as having held, the Suites common shares for more than one year as of
the time of the exchange.

Tax Opinion. McGuireWoods LLP, as counsel to Hospitality, will provide an
opinion at the time of the merger to Hospitality and Suites that the merger of
Suites with and into Hospitality Acquisition Company will qualify as a
reorganization for United States federal income tax purposes within the meaning
of section 368(a) of the Code. However, the opinion of counsel will be based on
certain facts, representations by Suites and Hospitality, and assumptions, some
of which are outside of the control of Suites and Hospitality. If any of these
facts, representations, and assumptions are incorrect in certain material
respects as of the time of the merger, the conclusions reached in the opinion
could be jeopardized, and the opinion of counsel may not be delivered at the
time of the merger. For example, the opinion of counsel will be based on the
assumption that the fair market value of the Hospitality units issued to Suites
shareholders will not be less than a certain percentage, specified in counsel's
opinion, of the aggregate consideration paid in the merger to Suites'
shareholders in consideration for their Suites common shares.

Except for the assumption described in the immediately preceding paragraph,
neither Suites nor Hospitality is currently aware of any facts or circumstances
that could cause any facts, representations, and assumptions set forth in the
opinions to be untrue or incorrect in any material respect.

An opinion of counsel is not binding on the IRS or the courts, and the
Internal Revenue Service could assert, or a court could adopt, a contrary
position. The opinions are based on currently existing law, all of these being
subject to change. Any change, which may or may not be retroactive, could
jeopardize the conclusions reached in the opinion.

A successful IRS challenge to the reorganization status of the merger would
result in your recognizing taxable gain or loss with respect to your Suites
common shares surrendered. This taxable gain or loss would be equal to the
difference between:

. the amount of cash and the fair market value as of the closing of the
merger of the Hospitality units you receive in exchange for your shares
of Suites common shares; and

. your adjusted tax basis in such shares.

In this event, gain will generally be capital gain, and this capital gain
will be long-term capital gain if you held, or are treated as having held, your
Suites common shares for more than one year as of completion of the merger. The
aggregate tax basis in the Hospitality units you receive will equal the fair
market value as of the completion of the merger. Your holding period in the
Hospitality units you receive will commence the day after the date of the
completion of the merger.

Backup Withholding. Some non-corporate U.S. holders of Suites common shares
may be subject to backup withholding on cash payments, if any, received. Backup
withholding will not apply to you even in if you received cash in the merger,
however, if you furnish a correct taxpayer identification number and make
appropriate certifications as provided on the substitute Form W-9 or successor
form included in the letter of transmittal to be delivered to you following the
date of the merger, or are otherwise exempt from backup withholding. We will

report to our shareholders and the IRS the amount of cash and Hospitality units
paid in the merger and the amount of tax withheld, if any. As a U.S. holder of
Suites common shares who receives cash and Hospitality units as a result of the
merger, you will be required to retain records related to the merger and file
with your federal income tax return a statement setting forth facts relating to
the merger.

Election of REIT Status. Suites has elected to be treated as a REIT for
federal income tax purposes commencing with its taxable year ended December 31,
1999. Hospitality has elected to be treated as a REIT for federal income tax
purposes commencing with its taxable year ended December 31, 2001. Based on
assumptions and representations summarized below, McGuireWoods LLP, our legal
counsel, is of the opinion that beginning with our taxable year ended December
31, 1999 and December 31, 2001, respectively:

. we are organized in conformity with the requirements for qualification
and taxation as a REIT under the Code; and

. our method of operations described in this prospectus will enable us to
satisfy the requirements for qualification as a REIT.

The rules governing REITs are highly technical and require ongoing
compliance with a variety of tests that depend, among other things, on future
operating results. McGuireWoods LLP will not monitor our compliance with these
requirements. While we expect to satisfy these tests, and will use our best
efforts to do so, we cannot ensure we will qualify as a REIT for any particular
year, or that the applicable law will not change and adversely affect us and
our shareholders. The following is a summary of the material federal income tax
considerations affecting us as a REIT and our shareholders:

REIT Qualification. In order to maintain our REIT qualification, we must
meet the following criteria:

. we must be organized as an entity that would, if we did not maintain our
REIT status, be taxable as a regular corporation;

. we must be managed by one or more directors;

. our taxable year must be the calendar year;

. our beneficial ownership must be evidenced by transferable shares;

. our capital stock must be held by at least 100 persons during at least
335 days of a taxable year of 12 months or during a proportionate part of
a taxable year of less than 12 months; and

. not more than 50% of the value of our shares of capital stock may be
held, directly or indirectly, applying constructive ownership rules, by
five or fewer individuals at any time during the last half of each our
taxable years.

To protect against violations of these requirements, our bylaws provide
restrictions on transfers of our shares, as well as provisions that
automatically convert shares into nonvoting, non-dividend paying excess shares
to the extent that the ownership otherwise might jeopardize our REIT status.

To monitor our compliance with the share ownership requirements, we are
required to and do maintain records disclosing the actual ownership of common
shares. To do so, we demand written statements each year from the record
holders of certain percentages of shares in which the record holders are to
disclose the actual owners of the shares. A list of those persons failing or
refusing to comply with this demand is be maintained as part of our records.
Shareholders who fail or refuse to comply with the demand must submit a
statement with their tax returns disclosing the actual ownership of the shares
and other information.

We expect to satisfy each of the requirements discussed above. We also
expect to satisfy the requirements that are separately described below
concerning the nature and amounts of our income and assets and the levels of
required annual distributions.

Sources of Gross Income. In order to qualify as a REIT for a particular
year, we also must meet two tests governing the sources of our income. These
tests are designed to ensure that a REIT derives its income principally from
passive real estate investments. In evaluating a REIT's income, the REIT will
be treated as receiving its proportionate share of the income produced by any
partnership in which the REIT holds an interest as a partner, and that income
will retain the character that it has in the hands of the partnership. The Code
allows us to own and operate a number of our properties through wholly owned
subsidiaries that are "qualified REIT subsidiaries." The Code provides that a
qualified REIT subsidiary is not treated as a separate corporation, and all of
its assets, liabilities and items of income, deduction and credit are treated
as assets, liabilities and items of the REIT.

75% Gross Income Test. At least 75% of a REIT's gross income for each
taxable year must be derived from specified classes of income that principally
are real estate related. The permitted categories of principal importance to us
are:

. rents from real property;

. interest on loans secured by real property;

. gain from the sale of real property or loans secured by real property,
excluding gain from the sale of property held primarily for sale to
customers in the ordinary course of a company's trade or business,
referred to below as "dealer property";

. income from the operation and gain from the sale of property acquired in
connection with the foreclosure of a mortgage securing that property;

. distributions on, or gain from the sale of, shares of other qualifying
REITs;

. abatements and refunds of real property taxes; and

. "qualified temporary investment income."

In evaluating our compliance with the 75% gross income test, as well as the
95% gross income test described below, gross income does not include gross
income from "prohibited transactions." In general, a prohibited transaction is
one involving a sale of dealer property, not including foreclosure property and
dealer property held by us for at least four years.

Substantially all of our operating gross income is considered rent from real
property. Rent from real property is qualifying income for purposes of the
gross income tests only if certain conditions are satisfied. Rent from real
property includes charges for services customarily rendered to tenants, and
rent attributable to personal property leased together with the real property,
so long as the personal property rent is less than 15% of the total rent. We do
not expect to earn material amounts in these categories. Rent from real
property generally does not include rent based on the income or profits derived
from the property. We do not intend to lease property and receive rentals based
on the tenant's net income or profit. However, rent based on a percentage of
gross income is permitted as rent from real property and we will have leases
where rent is based on a percentage of gross income.

With the exception for certain rents received from a taxable REIT
subsidiary, "rents from real property" also excludes amounts received from a
person or corporation in which we, or any of our 10% or greater owners,
directly or indirectly through the constructive ownership rules contained in
section 318 of the Code, owns a 10% or greater interest. As described below,
amounts received from Apple Hospitality Management, Hospitality's wholly-owned
taxable REIT subsidiary satisfy the conditions of the exception for rents
received from a taxable REIT subsidiary with the result that such amounts are
considered rents from real property. A third exclusion covers amounts received
with respect to real property if we furnish services to the tenants or manage
or operate the property, other than through an "independent contractor" from
whom we do not derive any income. The obligation to operate through an
independent contractor generally does not apply, however, if the services
provided by us are usually or customarily rendered in connection with the
rental of space for occupancy only and are not considered rendered primarily
for the convenience of the tenant. Further, if the value of the non-customary
service income with respect to a property, valued at no less than 150% of our
direct cost of performing the services, is 1% or less of the total income
derived from the property, then all rental income from that property except the
non-customary service income will qualify as rents from real property.

A REIT may jointly elect with a corporation, in which the REIT directly or
indirectly owns stock, to cause the corporation to be treated as a taxable REIT
subsidiary. Hospitality made a joint election to cause Apple Hospitality
Management to be treated as a taxable REIT subsidiary. In connection with that
election, Hospitality intends to lease all its hotels to Apple Hospitality
Management.

Amounts received as rent from a taxable REIT subsidiary are not excluded
from rents from real property by reason of the related party rule described
above, if the activities of the taxable REIT subsidiary and the nature of the
properties it leases meet certain requirements. Generally, amounts received by
Hospitality from Apple Hospitality Management with respect to any hotels
Hospitality owns will be considered rents from real property only if the
following conditions are met:

. Each hotel must not be managed or operated by Apple Hospitality
Management, but rather must be managed or operated by an entity that
qualifies for federal tax purposes as an independent contractor that is
actively engaged in the trade or business of operating lodging facilities
for persons not related to us or Apple Hospitality Management;

. Apple Hospitality Management may not directly or indirectly provide to
any person, under a franchise, license or otherwise, rights to any brand
name under which the any hotel facility is operated, except with respect
to an independent contractor in relation to facilities it owns or leases
from Hospitality; and

. No wagering activities may be conducted at or in connection with its
hotels by any person who is engaged in the business of accepting wagers
and who is legally authorized to engage in such business.

Hospitality expects that all its hotels will be operated in accordance with
these requirements with the result that amounts received from Apple Hospitality
Management will be considered rents from real property. Apple Hospitality
Management, as a taxable REIT subsidiary, will pay regular corporate rates on
any income it earns from the lease of Hospitality's hotels.

Upon the ultimate sale of any of our properties, any gains realized also are
expected to constitute qualifying income, as gain from the sale of real
property, not involving a prohibited transaction.

95% Gross Income Test. In addition to earning 75% of its gross income from
the sources listed above, at least an additional 20% of our gross income for
each taxable year must come either from those sources, or from dividends,
interest or gains from the sale or other disposition of stock or other
securities that do not constitute dealer property. This test permits a REIT to
earn a significant portion of its income from traditional "passive" investment
sources that are not necessarily real estate related. The term "interest",
under both the 75% and 95% tests, does not include amounts that are based on
the income or profits of any person, unless the computation is based only on a
fixed percentage of receipts or sales.

Failing the 75% or 95% Tests; Reasonable Cause. As a result of the 75% and
95% tests, REITs generally are not permitted to earn more than 5% of their
gross income from active sources such as brokerage commissions or other fees
for services rendered. We may receive this type income. This type of income
will not qualify for the 75% test or 95% test but is not expected to be
significant and this income, together with other non-qualifying income, is
expected to be at all times less than 5% of our annual gross income. While we
do not anticipate we will earn substantial amounts of non-qualifying income, if
non-qualifying income exceeds 5% of our gross income, we could lose our status
as a REIT. As described above, we will establish one or more taxable REIT
subsidiaries with whom we will enter into leases for all of our hotels. The
gross income generated by these taxable REIT subsidiaries would not be included
in our gross income, however, we will realize gross income from these
subsidiaries in the form of rents. In addition, any dividends from subsidiaries
to us would be included in our gross income and qualify for the 95% income test.

If we fail to meet either the 75% or 95% income tests during a taxable year,
we may still qualify as a REIT for that year if:

. we report the source and nature of each item of our gross income in our
federal income tax return for that year;

. the inclusion of any incorrect information in our return is not due to
fraud with intent to evade tax; and

. the failure to meet the tests is due to reasonable cause and not to
willful neglect.

However, in that case, we would be subject to a 100% tax based on:

. the greater of:

-- the amount by which we fail either the 75% income tests for the year;
or

-- the amount by which 90% of our gross income exceeds the amount of
gross income we derive from sources that count toward satisfying the
95% gross income test; multiplied by

. a fraction intended to reflect our profitability.

Character of Assets Owned. On the last day of each calendar quarter, we
also must meet two tests concerning the nature of our investments. First, at
least 75% of the value of our total assets generally must consist of real
estate assets, cash, cash items and government securities. For this purpose,
real estate assets include:

. interests in real property,

. interests in loans secured by mortgages on real property or by interests
in real property;

. shares in other REITs and certain options;

but exclude mineral, oil or gas royalty interests. The temporary investment of
new capital in debt instruments also qualifies under this 75% asset test, but
only for the one-year period beginning on the date we receive the new capital.

Second, although the balance of our assets generally may be invested without
restriction, not more than 20% of the value of our total assets may be
represented by the securities of one or more taxable REIT subsidiaries. Also,
with exception for securities includible for purposes of the 75% test as well
as the securities of a taxable REIT subsidiary and qualified REIT subsidiary,
we will not be permitted to own:

. securities of any one issuer that represent more than 5% of the value of
our total assets;

. more than 10% of the outstanding voting securities of any single issuer;
or

. more than 10% of the value of the outstanding securities of any single
issuer.

As noted, a REIT, however, may own 100% of the stock of a qualified REIT
subsidiary, in which case the assets, liabilities and items of income,
deduction and credit of the subsidiary are treated as those of the REIT. In
evaluating a REIT's assets, if the REIT invests in a partnership, it is deemed
to own its proportionate share of the assets of the partnership. We expect to
satisfy these asset tests.

Annual Distributions to Shareholders. To maintain REIT status, we generally
must distribute to our shareholders in each taxable year at least 90% of our
net ordinary income. More precisely, we must distribute an amount equal to:

. 90% of the sum of:

-- our REIT taxable income before deduction of dividends paid and
excluding any net capital gain; and

-- any net income from foreclosure property less the tax on the income;
minus

. limited categories of excess non-cash income, including, cancellation of
indebtedness and original issue discount income.

REIT taxable income is defined to be the taxable income of the REIT,
computed as if it were an ordinary corporation, with modifications. For
example, the deduction for dividends paid is allowed, but neither net income
from foreclosure property, nor net income from prohibited transactions, is
included. In addition, the REIT may carry over, but not carry back, a net
operating loss for 20 years following the year in which it was incurred.

A REIT may satisfy the 90% distribution test with dividends paid during the
taxable year and with dividends paid after the end of the taxable year if the
dividends fall within one of the following categories:

. dividends paid in January that were declared during the last calendar
quarter of the prior year and were payable to shareholders of record on a
date during the last calendar quarter of that prior year are treated as
paid in the prior year for our shareholders and ourselves; and

. dividends declared before the due date of our tax return for the taxable
year (including extensions) also will be treated as paid in the prior
year for ourselves if they are paid:

-- within 12 months of the end of the taxable year; and

-- no later than our next regular distribution payment occurring after
that declaration.

Dividends that are paid after the close of a taxable year that do not
qualify under the rule governing payments made in January will be taxable to
the shareholders in the year paid, even though we may take them into account
for a prior year. A nondeductible excise tax equal to 4% will be imposed on a
company for each calendar year to the extent that dividends declared and
distributed or deemed distributed before December 31 are less than the sum of:

. 85% of a company's "ordinary income"; plus

. 95% of a company's capital gain net income; plus

. any undistributed income from prior periods.

We will be taxed at regular corporate rates to the extent we retain any
portion of our taxable income. It is possible that we may not have sufficient
cash or other liquid assets to meet the distribution requirement. This could
arise because of competing demands for our funds, or because of timing
differences between tax reporting and cash receipts and disbursements. Although
we do not anticipate any difficulty in meeting this requirement, we cannot
assure you that necessary funds will be available. In the event this occurs, we
may arrange for short-term, or possibly long-term, borrowings to permit the
payment of required dividends and meet the 90% distribution requirement.

If we fail to meet the 90% distribution requirement because of an adjustment
to our taxable income by the IRS, we may be able to retroactively cure the
failure by paying a deficiency dividend, as well as applicable interest and
penalties, within a specified period.

Taxation as a REIT. As a REIT, we generally will not be subject to
corporate income tax to the extent we currently distribute our REIT taxable
income to our shareholders. This treatment effectively eliminates the double
taxation imposed on investments in most corporations. We generally will be
taxed only on the portion of our taxable income which we retain, including any
undistributed net capital gain, because we will be entitled to a deduction for
dividends paid to shareholders during the taxable year. A dividends paid
deduction is not available for dividends that are considered preferential
within any given class of shares or as between classes except to the extent a
class is entitled to a preference. We do not anticipate we will pay any
preferential dividends.

Even as a REIT, we will be subject to tax in the following circumstances:

. certain income or gain from foreclosure property will be taxed at the
highest corporate rate;

. a tax of 100% applies to any net income from prohibited transactions,
which are, in general, sales or other dispositions of property held
primarily for sale to customers in the ordinary course of business;

. if we fail to meet either the 75% or 95% source of income tests, a 100%
tax would be imposed equal to the amount obtained by multiplying:

-- the greater of the amount, if any, by which we failed either the 75%
income test or the 95% income test; by

-- the ratio of our REIT taxable income to our gross income (excluding
capital gain and other items);

. items of tax preference, excluding items specifically allocable to our
shareholders, will be subject to the alternative minimum tax;

. if we fail to distribute with respect to each calendar year at least the
sum of:

-- 85% of our REIT ordinary income for the year;

-- 95% of our REIT capital gain net income for the year; and

-- any undistributed taxable income from prior years;

we would be subject to a 4% excise tax on the excess of the required
distribution over the amounts actually distributed; and

. we also may be taxed at the highest regular corporate tax rate on any
built-in gain attributable to assets we acquire in tax-free corporate
transactions, to the extent the gain is recognized during the first ten
years after we acquire the assets.

Failure to Qualify as a REIT. If we fail to qualify as a REIT and are not
successful in seeking relief, we will be taxed at regular corporate rates on
all of our taxable income. Distributions to our shareholders would not be
deductible in computing that taxable income, and we would no longer be required
to make distributions. Any corporate level taxes generally would reduce the
amount of cash available for distribution to our shareholders and, because our
shareholders would continue to be taxed on any distributions they receive, the
net after tax yield to our shareholders likely would be substantially reduced.

As a result, our failure to qualify as a REIT during any taxable year could
have a material adverse effect upon our shareholders and us. If we lose our
REIT status, unless we are able to obtain relief, we will not be eligible to
elect REIT status again until the fifth taxable year which begins after the
taxable year during which our election was terminated.

Taxation of Shareholders. In general, distributions will be taxable to
shareholders as ordinary income to the extent of our earnings and profits.
Specifically, dividends and distributions will be treated as follows:

. Dividends declared during the last quarter of a calendar year and
actually paid during January of the immediately following calendar year
are generally treated as if received by the shareholders on December 31
of the calendar year during which they were declared.

. Distributions paid to shareholders will not constitute passive activity
income, and as a result generally cannot be offset by losses from passive
activities of a shareholder who is subject to the passive activity rules.

. Distributions we designate as capital gains dividends generally will be
taxed as long-term capital gains to shareholders to the extent that the
distributions do not exceed our actual net capital gain for the taxable
year. Corporate shareholders may be required to treat up to 20% of any
capital gains dividends as ordinary income.

. If we elect to retain and pay income tax on any net long-term capital
gain, our shareholders would include in their income as long-term capital
gain their proportionate share of net long-term capital gain. Our
shareholders would receive a credit for the shareholder's proportionate
share of the tax paid by us on retained capital gains and an increase in
basis in their shares in an amount equal to the difference between the
undistributed long-term capital gains and the amount of tax we paid.

. Any distributions we make, whether characterized as ordinary income or as
capital gains, are not eligible for the dividends received deduction for
corporations.

. Shareholders are not permitted to deduct our losses or loss
carry-forwards.

We may generate cash in excess of our net earnings. If we distribute cash to
our shareholders in excess of our current and accumulated earnings and profits,
other than as a capital gain dividend, the excess cash will be deemed to be a
return of capital to each shareholder to the extent of the adjusted tax basis
of the shareholder's shares. Distributions in excess of the adjusted tax basis
will be treated as gain from the sale or exchange of the shares. A shareholder
who has received a distribution in excess of our current and accumulated
earnings and profits may, upon the sale of the shares, realize a higher taxable
gain or a smaller loss because the basis of the shares as reduced will be used
for purposes of computing the amount of the gain or loss.

Generally, gain or loss realized by a shareholder upon the sale of shares
will be reportable as capital gain or loss. If a shareholder receives a
long-term capital gain dividend and has held the shares for six months or less,
any loss incurred on the sale or exchange of the shares is treated as a
long-term capital loss to the extent of the corresponding long-term capital
gain dividend received.

In any year in which we fail to qualify as a REIT, our shareholders
generally will continue to be treated in the same fashion described above,
except that none of our dividends will be eligible for treatment as capital
gains dividends, corporate shareholders will qualify for the dividends received
deduction and the shareholders will not be required to report any share of our
tax preference items.

Backup Withholding. We will report to our shareholders and the IRS the
amount of dividends paid during each calendar year and the amount of tax
withheld, if any. Under current law, if a shareholder is subject to backup
withholding, we will be required to deduct and withhold from any dividends
payable to that shareholder a tax of:

. 30% for taxable years 2002 and 2003;

. 29% for taxable years 2004 and 2005; and

. 28% for taxable years 2006 and thereafter.

These rules may apply in the following circumstances:

. when a shareholder fails to supply a correct taxpayer identification
number;

. when the IRS notifies us that the shareholder is subject to the rules or
has furnished an incorrect taxpayer identification number; or

. in the case of corporations or others within exempt categories, when they
fail to demonstrate that fact when required.

A shareholder that does not provide a correct taxpayer identification number
may also be subject to penalties imposed by the IRS. Any amount withheld as
backup withholding may be credited against the shareholder's federal income tax
liability. We also may be required to withhold a portion of capital gain
distributions made to shareholders who fail to certify their non-foreign status.

The United States Treasury has recently issued final regulations regarding
the withholding and information reporting rules discussed above. In general,
the final regulations do not alter the substantive withholding and information
reporting requirements but unify current certification procedures and clarify
reliance standards. The final regulations are generally effective for payments
made on or after January 1, 2001, subject to transition rules. You should
consult your own tax advisors concerning the adoption of the final regulations
and the potential effect on your ownership of Hospitality units.

Certain Regulatory Matters

Hospitality and Suites believe that there are no material regulatory
approvals required in connection with the merger other than regulatory
approvals that they expect to be able to obtain in the ordinary course.

Accounting Treatment

The merger is expected to be accounted for by Hospitality using the purchase
method of accounting in accordance with generally accepted accounting
principles.

Distributions

Hospitality expects that after the merger, subject to approval and
declaration by the Hospitality Board, it will declare regularly scheduled
quarterly distributions on its capital stock, including those distributions
necessary for Hospitality to maintain its status as a REIT. The current
annualized rate of distributions on the Hospitality common shares is $1.00 per
share. The current annualized rate of distributions on the Suites common shares
is $.803 per share. After the merger, subject to approval and declaration by
the Hospitality Board, all Hospitality expects that it will pay quarterly
distributions to Hospitality common shareholders at an annualized rate of $1.00
per Hospitality common share.

Suites expects to continue to declare distributions on the Suites common
shares until the effective time of the merger. The right of holders of Suites
common shares to receive distributions will end at the effective time of the
merger when the separate corporate existence of Suites will terminate. See
"Comparative Per Share Price and Distribution Information."

Appraisal Rights

Suites is a Virginia corporation. Under Virginia law, Suites shareholders
have the right to dissent from the merger and receive payment in cash for their
common shares. As a shareholder of a Virginia corporation, Suites shareholders
are entitled to an appraisal by a circuit court of the "fair value" of their
Suites common shares because:

. Suites will be a party to the merger; and

. approval by the shareholders is required for the merger.

Suites shareholders wishing to exercise their right to dissent must follow
the specific procedural requirements under Virginia law in order to maintain
this right and obtain payment.

Article 15 of the Virginia Stock Corporation Act addresses shareholders'
rights to dissent and is reprinted in its entirety in Annex D to this joint
proxy statement/prospectus. The following discussion is a summary of the
material terms of the law relating to rights to dissent. We urge Suites
shareholders to review this discussion and Annex D carefully and consult with
their attorney if they wish to exercise their statutory right to dissent, or
preserve their right to dissent, because failure to comply with the procedures
described in this discussion and in the statute will result in the loss of the
right to dissent to the merger.

A Suites shareholder that wishes to exercise rights to dissent generally
must dissent with respect to all of the common shares he or she owns or over
which he or she has power to direct the vote. However, if a record shareholder
is a nominee for several beneficial shareholders, some of whom wish to dissent
and some of whom do not, then the record shareholder may dissent with respect
to all the shares beneficially owned by any one person by notifying Suites in
writing of the name and address of each person on whose behalf the record
shareholder asserts such rights to dissent. A beneficial shareholder may assert
his or her rights directly by submitting to Suites the record shareholder's
written consent to the dissent and by dissenting with respect to all

the common share of which the shareholder is the beneficial shareholder or over
which the shareholder has power to direct the vote.

Suites shareholders wishing to exercise their right to dissent must deliver
a written payment demand to Suites before the taking of the vote on the merger
at the Suites special meeting. If you wish to assert dissenters' rights, you
must:

. state your intent to demand payment for your shares if the proposed
action is effectuated; and

. not vote your shares in favor of the proposed action.

The written demand should be sent to the following address:

Apple Suites, Inc.
10 South Third Street
Richmond, VA 23219

If Suites completes the merger, the surviving corporation in the merger
will, within 10 days after the effective time of the merger, deliver a written
notice to all Suites shareholders that properly exercised their dissent and
appraisal rights. The notice delivered by the surviving corporation in the
merger will:

. state where payment demand is to be sent and where and when certificates
for the shares subject to the shareholders' dissent are to be deposited;

. supply a form for demanding payment that includes the date (October 25,
2002) of the first announcement to the news media or to the shareholders
of the merger, and requires that the person asserting dissenters' rights
certify whether or not that person acquired beneficial ownership of that
person's shares subject to the shareholders' dissent before or after that
date;

. set a date by which the surviving corporation must receive the payment
demand, which date may not be less than 30 nor more than 60 days after
the date of delivery of the dissenters' notice; and

. include a copy of Article 15 of the Virginia Stock Corporation Act.

The shareholder's dissenters' notice will demand payment, certify that the
holder acquired beneficial ownership of the holder's common shares before or
after October 25, 2002, and deposit the certificates representing the holder's
common shares in accordance with the dissenters' notice. A Suites shareholder
who deposits common shares as described in the dissenters' notice retains all
other rights as a holder of Suites common shares except to the extent those
rights are canceled or modified by the completion of the merger. A Suites
shareholder who deposits shares as described in the dissenters' notice,
however, will not be treated like a shareholder of the surviving corporation
and will only be entitled to payment by the surviving corporation of the fair
value of the holder's shares plus accrued interest, to the extent required
under the Virginia code. A Suites shareholder who does not demand payment and
deposit his or her share certificates where required, each by the date stated
in the dissenters' notice, is not entitled to payment for his or her shares
under Article 15 of the Virginia Stock Corporation Act.

Except as provided below with respect to after-acquired shares, within 30
days after receipt of a payment demand, the surviving corporation will pay the
dissenter the amount that the surviving corporation estimates as the fair value
of the dissenter's shares, plus accrued interest. The obligations of the
surviving corporation to make such payment may be enforced:

. by the circuit court for the City of Richmond, Virginia; or

. at the election of any dissenter residing or having its principal office
in Virginia, by the circuit court in the city or county where the
dissenter resides or has such office.

The following items will accompany the payment by the surviving corporation:

. The balance sheet of Suites as of the end of a fiscal year ended not more
than 16 months before the effective time of the merger, an income
statement for that year, a statement of changes in shareholders' equity
for that year and the latest available interim financial statements, if
any;

. an explanation of how the surviving corporation estimated the fair value
of the shares and of how the interest was calculated;

. statement of the dissenter's right to demand payment as described below;
and

. a copy of Article 15 of the Virginia Stock Corporation Act.

The surviving corporation may elect to withhold payment from a dissenter
unless the dissenter was the beneficial owner of the shares subject to the
right to dissent on October 25, 2002, in which case the surviving corporation
will estimate the fair value of the after-acquired shares, plus accrued
interest, and will offer to pay that amount to each dissenter who agrees to
accept it in full satisfaction of that dissenter's demand. The surviving
corporation will send with this offer an explanation of how it estimated the
fair value of the shares and of how the interest was calculated, and a
statement of the dissenter's right to demand payment as described below.

Within 30 days after the surviving corporation makes or offers payment as
described above, a dissenter may notify the surviving corporation in writing of
the dissenter's own estimate of the fair value of the shares and the amount of
interest due, and demand payment of that estimate (less any payment by the
surviving corporation) or reject the surviving corporation's offer and demand
payment of that estimate.

If any demand for payment remains unsettled, within 60 days after receiving
the payment demand, the surviving corporation will petition the circuit court
for the City of Richmond, Virginia to determine the fair value of the shares
and the accrued interest and make all dissenters whose demands remain unsettled
parties to this proceeding, or pay each dissenter whose demand remains
unsettled the amount demanded. Each dissenter made a party to this proceeding
is entitled to a judgment for:

. the amount, if any, by which the court finds that the fair value of the
shares, plus interest, exceeds the amount paid by the surviving
corporation; or

. the fair value, plus accrued interest, of the dissenter's after-acquired
shares for which the surviving corporation elected to withhold payment.

The court will determine all costs of the proceeding, including the
reasonable compensation and expenses of appraisers appointed by the court and
assess the costs against the surviving corporation, or against all or some of
the dissenters to the extent the court finds the dissenters did not act in good
faith in demanding payment.

Failure to follow precisely the procedures summarized above, and stated in
Annex D, may result in the loss of dissenters' rights. Suites will not furnish
any further notice of the events giving rise to dissenters' rights or any
associated steps to shareholders, except as indicated above or otherwise
required by law.

In general, any dissenting shareholder that perfects his or her right to be
paid the fair value of Suites common shares in cash will recognize taxable gain
or loss for federal income tax purposes upon receipt of such cash.

THE MERGER AGREEMENT

This description of the merger agreement is not complete and is qualified in
its entirety by reference to the merger agreement. A copy of the merger
agreement is attached to this joint proxy statement/prospectus as Annex A. All
shareholders of Suites and Hospitality are urged to read the entire merger
agreement for a complete description of the terms and conditions of the merger.

General

The merger agreement provides for the merger of Suites with and into
Hospitality Acquisition Company, a subsidiary of Hospitality. At the effective
time of the merger, the separate corporate existence of Suites will cease and
Hospitality Acquisition Company will be the surviving corporation and will
change its name to Apple Suites, Inc.

Merger Consideration

In the merger, Suites shareholders will receive stock consideration or cash
consideration as described below.

Outstanding Suites Common Shares. Each Suites common share, issued and
outstanding immediately prior to the effective time of the merger, will be
converted into the right to receive either:

. one Hospitality unit, consisting of one Hospitality common share and one
Hospitality Series A preferred share; or

. if the holder of the Suites common share elects, $10.00 in cash, subject
to a $25 million limit on the cash to be paid in the merger.

Outstanding Suites Class B Convertible Shares. Each Suites Class B
convertible share, issued and outstanding immediately prior to the effective
time of the merger, will be converted into the right to receive two Hospitality
units, consisting of one Hospitality common share and one Hospitality Series A
preferred share.

Rights of Holders of Suites Shares; Suites Stock Transfers After the
Merger. At the effective time of the merger, the rights of holders of Suites
common shares and Suites Class B convertible shares as shareholders of Suites
will cease, except for the right to receive:

. any dividend or other distribution with respect to Suites common shares
with a record date occurring prior to or at the effective time of the
merger, and

. the applicable consideration in the merger.

Election Procedures

Each holder of Suites common shares will be entitled to submit a request
specifying that the holder wishes for all of the holder's common shares to be
converted into cash consideration.

Record holders of Suites common shares must make their election to receive
cash by delivering to the exchange agent, Wachovia Bank, N.A., a completed
election form included with this joint proxy statement/prospectus. The election
form must be received by the exchange agent no later than 5:00 p.m., local
time, on the second business day prior to the effective date. We anticipate
that the effective date of the merger will be January 31, 2003. Accordingly,
record holders of Suites common shares who wish to receive cash consideration
must ensure that their materials are received by the exchange agent no later
than 5:00 p.m., local time, on January 29, 2003, two business days before the
anticipated effective date.

If you hold Suites common shares through a broker or other intermediary, you
must make your election to receive cash by delivering to your broker or other
intermediary a completed instruction form included with this joint proxy
statement/prospectus. The instruction form must be received by your broker or
other intermediary no later than 5:00 p.m., local time, on January 28, 2003,
the third business day prior to the effective date, so that your broker may
submit your election to the exchange agent prior to 5:00 p.m., local time, on
January 29, 2003.

The cash election decision of each holder of Suites common shares is subject
to the proration provisions explained below. There is no guarantee that a
holder of Suites common shares will receive entirely cash consideration.

Proration

If we receive cash elections that are equal to or less than the maximum
amount of cash consideration available, each Suites common share covered by a
cash election will be converted into the right to receive cash. If we receive
cash elections that exceed the maximum amount of cash consideration available,
all Suites common shares which elected to receive cash will receive cash on a
pro rata basis, rounded to the nearest whole share, up to the maximum amount of
cash consideration available and will receive the remainder of their
consideration in Hospitality units.

Exchange Procedures

At or prior to the effective time of the merger, Hospitality will deposit
with an exchange agent, for the benefit of the holders of Suites common shares
and holders of Suites Class B convertible shares, sufficient stock
consideration and cash consideration issuable for the issued and outstanding
Suites common shares and Suites Class B convertible shares. As soon as
reasonably practicable after the effective time of the merger and in no event
no later than 30 days following the effective time, the exchange agent will
mail to each holder of outstanding Suites common shares and Suites Class B
convertible shares which were converted into the right to receive merger
consideration pursuant to the merger agreement, a letter of notification
describing the merger consideration issued to each such holder as a consequence
of the merger.

Hospitality will not issue a certificate representing a fractional
Hospitality unit in exchange for Suites common shares and Suites Class B
convertible shares. Each holder of Suites common shares and Suites Class B
convertible shares who would otherwise be entitled to receive a fractional
Hospitality unit will be entitled to receive cash equal to the product of such
fractional interest multiplied by $10.00.

Hospitality or the exchange agent will be entitled to deduct and withhold
from the merger consideration otherwise payable pursuant to the merger
agreement to any holder of Suites common shares or Suites Class B convertible
shares the amounts that Hospitality or the exchange agent is required to deduct
and withhold with respect to the making of that payment under the Internal
Revenue Code, or any provisions of state, local or foreign tax law. To the
extent that amounts are so withheld by Hospitality or the exchange agent, the
withheld amount will be treated for all purposes of the merger agreement as
having been paid to the holder of Suites common shares or Suites Class B
convertible shares.

Extraordinary Dividend on Hospitality Common Shares

The merger agreement provides that Hospitality will pay an extraordinary
dividend to Hospitality common shareholders consisting of an aggregate payment
of $15 million to be divided equally among the outstanding Hospitality common
shares and to be contingent on the merger becoming effective. The merger
agreement provides that the record date for the extraordinary dividend will be
the record date of the Hospitality common shareholders meeting to approve the
merger or another date that the Hospitality board declares as long as the
record date is prior to the effective date of the merger. The merger agreement
provides that the payment date for the extraordinary dividend will be after the
effective date of the merger. The Hospitality board has set January 20, 2003 as
the record date and February 3, 2003 as the payment date for the dividend. If
the merger is not effective on January 31, 2003, the payment date for the
extraordinary dividend will be the first business day after the merger is
effective.

Representations And Warranties

The merger agreement contains reciprocal representations and warranties,
subject to identified exceptions, made by Hospitality and Suites relating to,
among other things:

. due organization, corporate power and good standing;

. subsidiaries;

. capital structure;

. corporate authority to enter into the merger agreement;

. required consents and non-contravention of certain organizational
documents, agreements or governmental orders;

. reports and other documents filed with the SEC, the accuracy of the
information contained in such documents and undisclosed liabilities;

. absence of certain material changes and events;

. litigation;

. employee benefit plans and ERISA compliance;

. tax matters;

. loans or payments to insiders;

. brokers;

. compliance with laws;

. defaults under contracts and debt instruments;

. environmental matters;

. real property;

. books and records;

. the vote required to approve the merger;

. labor matters; and

. the opinion of their financial advisors.

In addition to these representations and warranties, the merger agreement
contains representations and warranties specific to Suites regarding
information for inclusion within the registration statement of which this joint
proxy statement/prospectus is a part.

Certain Covenants

The merger agreement contains various covenants and agreements that govern
Suites' and Hospitality's actions prior to the effective time of the merger,
except as expressly contemplated by the merger agreement, including the
following:

Conduct of Business. Suites and Hospitality have each agreed to conduct
their respective businesses in the ordinary and usual course and to use
reasonable efforts to preserve intact their business organizations and assets,
and to maintain their respective status as a REIT within the meaning of the
Internal Revenue Code. Suites and Hospitality further agreed to restrict:

. the declaration of dividends or other distributions, except for payment
of the Hospitality extraordinary dividend and the regular quarterly
dividends not in excess of $.25 per common share for Hospitality and
$.201 per common share for Suites, with customary record and payment
dates;

. stock splits and other reclassifications of their capital stock;

. the repurchase or redemption of their capital stock;

. the amendment of their charter or bylaws unless otherwise contemplated by
the merger agreement;

. the merger or consolidation of either party with any person;

. the issuance, delivery or sale of any option or right in respect of
capital stock;

. the making or rescinding of any tax election, unless necessary to
maintain REIT status;

. material changes in accounting methods;

. the settlement of any claims, actions, suits, litigation or other type of
proceeding relating to taxes exceeding $250,000 individually or in the
aggregate, or changing methods of reporting income or deductions for tax
purposes;

. the settlement of any shareholder derivative or class action claims
arising out of the merger without the other's consent;

. the entering into, or amendment or modification of, material agreements
with officers, directors, employees or their affiliates; and

. the entering into any transaction or series of transactions with respect
to which required financial statements could not be included or
incorporated into the applicable registration statement for the merger
within 30 days after that requirement arises.

The merger agreement contains various other covenants, including the
following:

Best Efforts; Notification. Suites and Hospitality have each agreed to use
their best efforts to assist and cooperate with each other to fulfill the
conditions of the merger agreement. The tasks which Suites and Hospitality have
agreed to cooperate in accomplishing include:

. the obtaining of all necessary actions, non-actions, waivers, consents
and approvals, etc. from governmental authorities;

. the obtaining of all necessary consents, approvals, waivers or exemptions
from non-governmental third parties;

. the defending of lawsuits or other legal proceedings challenging the
merger; and

. the execution and delivery of any additional instruments necessary to
consummate the transactions contemplated by and to fully carry out the
purposes of the merger agreement.

Affiliates. Suites has agreed to deliver to Hospitality, a list identifying
all persons who are affiliates of Suites for the purposes of Rule 145 under the
Securities Act, and Suites also has agreed to use its best efforts to cause
those affiliates to deliver written agreements stating that they will not sell,
transfer or otherwise dispose of any of the Hospitality units issued to them in
the merger in violation of the Securities Act or the rules and regulations
thereunder.

Tax Treatment. Each of Suites and Hospitality have agreed to use its best
efforts to:

. cause the merger to qualify as a tax-free reorganization under Section
368(a) of the Code, and

. obtain an opinion of counsel, which supports the qualification of the
merger under this status.

Solicitation of Transactions. Suites and Hospitality have agreed that they
will not directly or indirectly initiate or solicit any inquiries or the making
of any proposal that constitutes or may reasonably be expected to lead to any
competing transaction. Suites and Hospitality have agreed to notify the other
party in writing of any inquires or proposals of that type. However, the merger
agreement provides that the board of directors of Suites and the board of
directors of Hospitality may, in good faith based on the advice of outside
counsel, respond to and approve an unsolicited offer which it determines in
good faith, based on the advice of its investment banking firm, to be superior
to the merger.

Transfer and Gains Taxes. Hospitality and Suites have agreed to cooperate
in the preparation and filing of all returns or other documents regarding
transfer taxes and other fees or similar taxes which become payable in
connection with the merger.

Employee Matters. Suites and Hospitality have agreed as follows:

. Hospitality will have no liability or obligation to Suites or its
employees to employ or offer employment to any employee of Suites or any
group of employees of Suites, but may, in its sole discretion, offer
employment to such employees after the merger; and

. All outstanding options to purchase Suites common shares will, at the
time of the merger, become options to purchase the same number of
Hospitality units as the holder of an option would have been entitled to
receive pursuant to the merger had that holder exercised the option in
full immediately prior to the effective time of the merger.

Indemnification. The merger agreement provides that, for a period of six
years after the effective time of the merger, Hospitality will indemnify,
defend and hold harmless each individual who was, at any time prior to the
effective time of the merger, an officer, director, employee or agent of Suites
who at any time prior to the effective time of the merger was entitled to
indemnification under the articles of incorporation or bylaws of Suites or
employment agreements between Suites and its officers existing on the date of
the merger agreement to the same extent those persons were entitled to
indemnification prior to the effective time of the merger.

Hospitality also has agreed to use its reasonable best efforts to cause the
persons serving as officers and directors of Suites immediately prior to the
effective time of the merger to be covered by "run-off" or "tail" directors and
officers liability insurance coverage, without a reduction of existing coverage
for a period of six years after the effective time of the merger.

The indemnity provisions of the merger agreement are intended to be for the
benefit of, and will be enforceable by, each indemnified party, his or her
heirs and his or her personal representatives and will be binding on all
successors and assigns of Hospitality and Suites.

Certain Other Covenants. The merger agreement contains certain other
covenants of the parties relating to, among other things:

. the preparation and distribution of this joint proxy statement/prospectus;

. the respective Hospitality and Suites shareholders' meetings;

. cooperation in issuing public announcements;

. qualification of the merger as a reorganization under Section 368 of the
Code;

. access to information;

. confidentiality;

. obtaining comfort letters from their respective independent public
accountants; and

. the fulfillment of conditions precedent to obligations found in the
merger agreement.

Conditions To Consummate The Merger

The obligations of each party to consummate the merger are subject to the
satisfaction or waiver of certain conditions, including:

. obtaining the affirmative vote of at least a majority of the outstanding
Suites common shares and at least a majority of Suites common shares
present and voting, excluding Suites common shares owned by or voted
under the control of a Suites or Hospitality director;

. obtaining the affirmative vote of at least a majority of Hospitality
common shares present and voting, excluding Hospitality common shares
owned by or voted under the control of a Hospitality or Suites director;

. the effectiveness of the registration statement on Form S-4 and the
absence of any stop order or proceedings seeking a stop order;

. the absence of injunctions, decrees, orders, laws, statutes or
regulations enjoining, preventing or making illegal the consummation of
the merger;

. obtaining all governmental approvals required to consummate the
transactions contemplated in the merger agreement; and

. completion of all material action by or in respect of any governmental
entity required for the consummation of the merger or any of the other
transactions contemplated by the merger agreement.

The obligations of Hospitality to consummate the merger are further subject
to satisfaction or waiver of the following conditions:

. each of the representations and warranties of Suites in the merger
agreement is true and correct as of the effective date of the merger
(except for representations and warranties made as of a specified date
which will be true and correct as of the specified date) except that this
condition will be deemed to be satisfied if the aggregate losses as a
result of a failure to meet any representations or warranties does not
and would not reasonably be expected to result in a material adverse
effect;

. all of the obligations of Suites under the merger agreement have been
performed in all material aspects, and Hospitality has received a
certificate signed on behalf of Suites by the chief executive officer or
chief financial officer to that effect;

. all consents and waivers from third parties pursuant to the merger
agreement have been obtained, other than consents from third parties,
which if not obtained would not result, individually or in the aggregate,
in a material adverse effect;

. from the date of the merger agreement through the effective time of the
merger, there has not have occurred any change in the financial
condition, business or operations of Suites and its subsidiaries, taken
as a whole, that would have or would be reasonably likely to have a
material adverse effect;

. the fairness opinion of Merrill Lynch addressed to the Hospitality
special committee has not been withdrawn or materially modified; and

. the holders of no more than 1% of the outstanding Suites common shares
have indicated their intention to exercise their dissenters' rights under
the Virginia Stock Corporation Act.

The obligations of Suites to consummate the merger are further subject to
satisfaction or waiver of the following conditions:

. each of the representations and warranties of Hospitality in the merger
agreement is true and correct as of the effective date of the merger
(except for representations and warranties made as of a specified date
which will be true and correct as of the specified date) except that this
condition will be deemed to be satisfied if the aggregate losses as a
result of a failure to meet any representations or warranties does not
and would not reasonably be expected to result in a material adverse
effect;

. all of the obligations of Hospitality under the merger agreement have
been performed in all material aspects and Hospitality has received a
certificate signed on behalf of Hospitality by the chief executive
officer or chief financial officer to that effect;

. Suites has received an opinion dated as of the closing date from
McGuireWoods LLP, subject to certificates, letters and assumptions
reasonably satisfactory to Suites that the merger qualifies as a tax-free
reorganization under Section 368 of the Internal Revenue Code;

. from the date of the merger agreement through the effective time of the
merger, there has not occurred any change in the financial condition,
business or operations of Hospitality and its subsidiaries, taken as a
whole, that would have or would be reasonably likely to have a material
adverse effect; and

. the fairness opinion of Wachovia Securities addressed to the Suites
special committee has not been withdrawn or materially modified.

Termination; Fees And Expenses

Termination. The merger agreement may be terminated at any time prior to
the filing of the articles of merger for the merger with the State Corporation
Commission of the Commonwealth of Virginia, whether before or after the
approval by the Suites common shareholders or the Hospitality common
shareholders:

. by mutual written consent of Hospitality and Suites duly authorized by
the respective boards of directors of Hospitality and Suites;

. by Hospitality:

. upon a breach of any representation, warranty, covenant or agreement
on the part of Suites in the merger agreement, or

. if any representation or warranty of Suites shall have become untrue,
such that any of the conditions stated above would be incapable of
being satisfied by February 28, 2003 (except as otherwise extended);

. by Suites:

. upon a breach of any representation, warranty, covenant or agreement
on the part of Hospitality in the merger agreement, or

. if any representation or warranty of Hospitality shall have become
untrue, such that any of the conditions stated above would be
incapable of being satisfied by February 28, 2003 (except as otherwise
extended);

. by either Hospitality or Suites if any judgment, injunction, order or
decree or action by a governmental authority of competent authority
preventing the consummation of the merger has become final and
non-appealable;

. by either Hospitality or Suites, if the merger has not been consummated
by February 28, 2003; provided however that a party that has willfully
and materially breached a representation will not be entitled to exercise
this right to terminate under this provision;

. by either Hospitality or Suites if:

. upon a vote at a duly held Suites common shareholders meeting or
adjournment thereof, the approval of the Suites shareholders has not
been obtained, or

. upon a vote at a duly held Hospitality common shareholders meeting or
adjournment thereof, the approval by the Hospitality common
shareholders has not been obtained;

. by Suites upon prior notice to Hospitality, if prior to the Suites common
shareholders meeting the board of directors shall have withdrawn or
modified in any manner adverse to Hospitality its approval of the merger
in accordance with Section 7.1 of the merger agreement;

. by Hospitality if:

. prior to the Suites common shareholders meeting, the board of
directors of Suites shall have withdrawn in any manner adverse to
Hospitality its approval of the merger in connection with a competing
transaction,

. Suites shall have entered into any agreement with respect to any
competing transaction (other than a confidentiality agreement
contemplated in Section 7.1 of the merger agreement), or

. the board of directors of Suites or any committee of Suites shall have
resolved to carry out any action found in that provision,

. by Hospitality upon prior notice to Suites, if prior to the Hospitality
common shareholders meeting the board of directors shall have withdrawn
or modified in any manner adverse to Suites its approval of the merger in
accordance with Section 7.2 of the merger agreement, and

. by Suites if:

. prior to the Hospitality common shareholders meeting, the board of
directors of Hospitality shall have withdrawn in any manner adverse to
Suites its approval of the merger in connection with a competing
transaction,

. Hospitality shall have entered into any agreement with respect to any
competing transaction (other than a confidentiality agreement
contemplated in Section 7.2 of the merger agreement), or

. the Board of Directors of Hospitality or any committee of Hospitality
shall have resolved to carry out any action found in that provision.

Expenses. Suites and Hospitality will each bear all of their own expenses
incurred in connection with the merger agreement except in the following
circumstances:

. if the merger and the transactions contemplated by the merger agreement
are consummated in accordance with the merger agreement, all
out-of-pocket costs will be paid by Hospitality; or

. if either party is required to pay break up expenses (as discussed below).

Termination Fee and Break Up Expenses.

If the merger agreement is terminated:

. by Suites, if prior to the Suites common shareholders meeting, the Suites
board withdraws or modifies in any manner adverse to Hospitality its
approval of the merger in connection with a competing transaction; or

. by Hospitality:

-- if prior to the Suites common shareholders meeting, the Suites board
withdraws or modifies in any manner adverse to Hospitality its
approval of the merger in connection with a competing transaction;

-- if Suites shall have entered into any agreement with respect to a
competing transaction; or

-- if the Suites board or any committee thereof shall have resolved to
do any of the foregoing,

then Suites will pay to Hospitality break up expenses equal to the lesser of:

. Hospitality's actual expenses incurred on or after January 31, 2002 in
connection with the merger agreement and the transactions contemplated
thereby, and

. $1,000,000.

If the merger agreement is terminated:

. by Hospitality, if prior to the Hospitality common shareholders meeting,
the Hospitality board withdraws or modifies in any manner adverse to
Suites its approval of the merger in connection with a competing
transaction; or

. by Suites:

-- if prior to the Hospitality common shareholders meeting, the
Hospitality board withdraws or modifies in any manner adverse to
Suites its approval of the merger in connection with a competing
transaction;

-- if Hospitality shall have entered into any agreement with respect to
a competing transaction; or

-- if the Hospitality board or any committee thereof shall have resolved
to do any of the foregoing,

then Hospitality will pay to Suites break up expenses equal to the lesser of:

. Suites' actual expenses incurred on or after January 31, 2002 in
connection with the merger agreement and the transactions contemplated
thereby, and

. $1,000,000.

Amendment; Extension; Waiver

Subject to compliance with applicable law, prior to the effective time of
the merger, any provision of the merger agreement may:

. be waived by the party benefited by the provision;

. be amended or modified at any time, by an agreement in writing between
the parties, if approved by their respective boards of directors and
executed in the same manner as the merger agreement; or

. have extended the respective time required for the performance of any of
the obligations or other acts of the party.

Survival Of Certain Provisions

If the Merger Agreement is Terminated Before the Effective Time of the
Merger. If the merger agreement is terminated before the effective time of the
merger, certain provisions of the merger agreement will survive and remain
effective, including provisions regarding:

. confidentiality of information obtained in connection with the merger
agreement and

. liability of the companies to each other as a result of the termination
of the merger agreement; except that if any termination results from a
willful breach by a party of any of its representations, warranties,
covenants or agreements set forth in the merger agreement, then other
provisions of the merger agreement would apply to claims asserted in
response to such a breach.

If the Merger Agreement Becomes Effective. After the effective time of the
merger, none of the representations and warranties in the merger agreement will
survive; however, any covenant or agreement which contemplates performance
after the effective time of the merger will survive.

HOSPITALITY SELECTED FINANCIAL INFORMATION

The following table presents selected consolidated financial information for
Hospitality and should be read in conjunction with the consolidated financial
statements and related notes of Hospitality incorporated by reference into this
joint proxy statement/prospectus and the other financial, pro forma and
statistical information included or incorporated by reference in this joint
proxy statement/prospectus. See "Where You Can Find More Information."

For the period
January 17, 2001
(initial capitalization) For the
throught Nine Months Ended
December 31, 2001 September 30, 2002
------------------------ ------------------

REVENUES:
Suite Revenue.................................... $10,022,272 $57,399,212
Interest income and other revenue................ 2,419,499 2,772,547
----------- -----------
Total Revenue................................ $12,441,771 $60,171,759
EXPENSES:
Hotel expenses................................... $ 5,624,836 $31,371,503
Taxes, insurance and other....................... 552,734 3,767,255
General and administrative....................... 491,009 1,298,401
Depreciation..................................... 1,084,933 4,903,596
Interest......................................... 1,371,540 8,473,872
----------- -----------
Total expenses............................... $ 9,125,052 $49,814,627
Extraordinary item............................... $ 0 $ 273,789
----------- -----------
Net income....................................... $ 3,316,719 $10,083,343
=========== ===========
PER SHARE
Earnings per share--basic and diluted............ $ 0.52 $ 0.52
Distributions to common shareholders............. $ 0.75 $ 0.50
Weighted-average common shares outstanding--basic 6,334,168 19,384,346

December 31, 2001 September 30, 2002
----------------- ------------------

BALANCE SHEET DATA:
Cash and cash equivalents.............. $ 15,468,841 $108,556,513
Investment in hotels, net.............. $ 121,078,235 $386,665,313
Total assets........................... $ 178,381,287 $522,386,055
Notes payable--secured................. $ 52,874,346 $271,172,175
Shareholders' equity................... $ 120,460,971 $242,650,239
OTHER DATA:
Cash flow from:
Operating activities............... $ 4,694,360 $ 16,134,215
Investing activities............... $(108,918,125) $(20,889,476)
Financing activities............... $ 119,692,506 $ 97,842,933
Number of hotels owned at end of period 10 48
FUNDS FROM OPERATIONS CALCULATION
Net income............................. $ 3,316,719 $ 10,083,343
Depreciation........................... $ 1,084,933 $ 4,903,596
Start-up costs......................... $ 1,600 $ 0
Interest expense (imputed)............. $ 723,789
Funds from Operation (a)............... $ 4,403,252 $ 15,710,728
FFO per share.......................... $ 0.70 $ 0.81

(a) Funds from operations (FFO) is defined as net income (computed in
accordance with generally accepted accounting principles-GAAP) excluding
gains and losses from sales of depreciable property, plus depreciation and
amortization. We consider FFO in evaluating property acquisitions and
operating performance. We believe that FFO should be considered along with,
but not as an alternative to, net income and cash flows as a measure of our
activities in accordance with GAAP and that it is not necessarily
indicative of cash available to fund cash needs.

SUITES SELECTED FINANCIAL INFORMATION

The following table presents selected consolidated financial information for
and should be read in conjunction with the financial statements and related
notes of Suites incorporated by reference into this joint proxy
statement/prospectus and the other financial, pro forma and statistical
information included or incorporated by reference in this joint proxy
statement/prospectus. See "Where You Can Find More Information."

March 26, 1999 Nine Months
Year Ended Year Ended Through Ended
December 31, December 31, December 31, September 30,
2001 2000 1999(b) 2002
------------ ------------ -------------- -------------

REVENUES:
Suite revenue................................ $ 43,338,533 $ -- $ -- $ 36,183,949
Lease revenue................................ -- 15,807,258 2,518,031 --
Interest income and other revenue............ 2,523,462 395,671 169,086 1,633,409
Total revenue............................. $ 45,861,995 $ 16,202,929 $ 2,687,117 37,817,358
EXPENSES:
Hotel expenses............................... $ 26,588,906 $ -- $ -- $ 22,304,418
Taxes, insurance and other................... 2,297,935 2,083,533 426,592 2,034,404
General and administrative................... 894,121 1,048,212 153,807 722,168
Depreciation of real estate owned............ 4,787,486 2,990,381 496,209 4,097,861
Interest..................................... 5,849,378 6,611,716 1,245,044 5,182,425
Management termination fees.................. 1,413,520 -- -- --
------------ ------------ ------------ ------------
Total expenses............................ 41,831,346 12,733,842 2,321,652 34,341,276
------------ ------------ ------------ ------------
Net income................................ $ 4,030,649 $ 3,469,087 $ 365,465 $ 3,476,082
============ ============ ============ ============
PER SHARE
Earnings per share--basic and diluted............ $ 0.34 $ 0.66 $ 0.14 $ 0.27
Distributions paid to common shareholders........ $ 1.03 $ 1.02 $ 0.33 $ 0.66
Weighted-average common shares outstanding--basic 11,907,721 5,274,633 2,648,196 12,666,677
============ ============ ============ ============
BALANCE SHEET DATA
Cash and cash equivalents........................ $ 8,331,891 $ 2,653,058 $ 581,344 $ 4,400,705
Investment in hotels, net........................ $170,437,222 $124,576,257 $ 93,719,632 $167,776,509
Total assets..................................... $185,177,085 $134,073,848 $ 99,489,008 $178,561,469
Notes payable--secured........................... $ 77,041,296 $ 57,670,866 $ 68,569,500 $ 76,322,856
Shareholders' equity............................. $103,999,875 $ 72,964,622 $ 28,098,000 $ 99,134,975

OTHER DATA
Cash flow from:
Operating activities......................... $ 9,118,279 $ 5,512,154 $ 548,015 $ 6,099,443
Investing activities......................... $(31,211,032) $(10,987,264) $(28,411,941) $ (963,295)
Financing activities......................... $ 27,771,586 $ 7,546,824 $ 28,445,170 $ (9,067,334)
Number of hotels owned at end of period...... 17 13 11 17
============ ============ ============ ============
FUNDS FROM OPERATIONS CALCULATION
Net income....................................... $ 4,030,649 $ 3,469,087 $ 365,465 $ 3,476,082
Depreciation of real estate owned............ 4,787,486 2,990,381 496,209 4,097,861
Start-up costs............................... -- -- 22,002 --
Management termination fees.................. 1,413,520 -- -- --
------------ ------------ ------------ ------------
Funds from operations(a)......................... $ 10,231,655 $ 6,459,468 $ 883,676 $ 7,573,943
============ ============ ============ ============

- --------
(a) Funds from operations (FFO) is defined as net income (computed in
accordance with generally accepted accounting principles-GAAP) excluding
gains and losses from sales of depreciable property, plus depreciation and
amortization. We consider FFO in evaluating property acquisitions and
operating performance. We believe that FFO should be considered along with,
but not as an alternative to, net income and cash flows as a measure of our
activities in accordance with GAAP and that it is not necessarily
indicative of cash available to fund cash needs.

HOSPITALITY

UNAUDITED PRO FORMA CONDENSED COMBINED CONSOLIDATED FINANCIAL STATEMENTS

UNAUDITED PRO FORMA
CONDENSED COMBINED CONSOLIDATED BALANCE SHEET
AS OF SEPTEMBER 30, 2002

Basis of Presentation

The following Unaudited Pro Forma Condensed Combined Consolidated Balance
Sheet gives effect to the merger between Apple Hospitality Two, Inc. and Apple
Suites, Inc. Concurrent with the following transactions related to the merger:
1) conversion of Suites Class B convertible shares to 480,000 Suites common
shares 2) exchange of Hospitality Class B converible shares for 1,272,000
Hospitality Series C convertible shares 3) termination of Hospitality and
Suites advisory contracts with Apple Suites Advisors, Inc. including payment of
$2 million cash and non-interest bearing note, due four years after the merger,
for $4.48 million and 4) payment of a special distribution of $15 million to
Hospitality shareholders just prior to the closing of the merger. The merger is
accounted for under the purchase method of accounting in accordance with
Accounting Standards Board Opinion No, 16. In the opinion of management, all
significant adjustments necessary to reflect the effects of the merger have
been made.

This pro forma Balance Sheet also assumes all of the hotels had been leased
to our wholly owned taxable REIT subsidiaries pursuant to master hotel lease
agreements. Residence Inn by Marriott will continue to manage the hotels owned
by Hospitality under agreements not materially different from historical
contractual arrangements. Promus Hotels, Inc., a wholly-owned subsidiary of
Hilton Hotels Corporation, will continue to manage the hotels owned by Suites
under the same agreements.

This pro forma information is based in part upon the historical Consolidated
Balance Sheet of Hospitality, the historical balance sheet of Suites, and the
historical Balance Sheet of the Marriott Residence Inn I and II Limited
Partnerships and Residence Inn III LLC. In management's opinion, all
adjustments necessary to reflect the effects of these transactions have been
made.

The following unaudited Pro Forma Condensed Combined Consolidated Balance
Sheet of Hospitality is not necessarily indicative of what actual financial
condition of Hospitality and Suites would have been assuming such transactions
had been completed on September 30, 2002, nor does it purport to represent the
future combined financial position of Hospitality and Suites. These unaudited
pro forma condensed combined financial statements should be read in conjunction
with, and are qualified in their entirety by, Hospitality and Suites historical
consolidated financial statements, incorporated by reference into this joint
proxy statement/prospectus.

(A)
Hospitality (A)
Historical Historical Hospitality
Consolidated Apple Suites, Inc. Merger Hospitality Combined
Balance Sheet Balance Sheet Adjustments Adjustments Pro forma
------------- ------------------ ----------- ------------ ------------

ASSETS
Investment in hotel properties.......... $392,653,842 $180,148,446 $ 1,276,732 (H) $574,079,020
Accumulated depreciation................ (5,988,529) (12,371,937) 12,371,937 (H) (5,988,529)
------------ ------------ ----------- ------------ ------------
Investment in hotel properties, net..... $386,665,313 $167,776,509 $13,648,669 $ -- $568,090,491
Cash and cash equivalents............... 108,556,513 4,400,705 (3,333,576) (G) (15,000,000) (N)
(2,000,000) (I) 92,623,642
Restricted cash reserves................ -- 109,368 109,368
Deposit for potential acquisition....... 3,000,000 -- 3,000,000
Accounts receivable, net................ -- 1,725,921 1,725,921
Inventories............................. -- 145,300 145,300
Due from Residence Inn by Marriott,
Inc.................................... -- -- --
Furniture, fixtures & equipment
reserve................................ 12,747,677 40,564 12,788,241
Deferred financing costs, net of
accumulated amortizaton................ 1,116,835 1,256,732 (1,256,732) (J) 1,116,835
Deposit for refinancing................. -- -- --
Deferred franchise fees................. -- 760,220 760,220
Other assets............................ 10,299,717 2,346,150 12,645,867
-- --
------------ ------------ ----------- ------------ ------------
Total Assets............................ $522,386,055 $178,561,469 $ 9,058,361 $(17,000,000) $693,005,885
============ ============ =========== ============ ============
LIABILITIES and SHAREHOLDERS' EQUITY
Liabilities
Mortgage notes payable.................. $271,172,175 $ 76,322,856 3,000,000 (G) $350,495,031
Accounts payable--affiliate............. 150,333 35,145 3,400,000 (I) 3,585,478
Due to third party manager.............. 227,323 970,454 1,197,777
Accounts payable and accrued
expenses............................... 6,375,804 2,098,039 8,473,843
Capital lease obligations............... 190,394 -- 190,394
Interest payable........................ 1,140,214 -- 1,140,214
Deferred incentive management fees
payable................................ 479,573 -- -- 479,573
------------ ------------ ----------- ------------ ------------
Total Liabilities....................... 279,735,816 79,426,494 3,000,000 3,400,000 365,562,310
Shareholders' equity
Total partmers' capital................. -- --
Preferred stock, no par value,
authorized 15,000,000 shares; none
issued or outstanding.................. -- --
Common stock, no par value,
authorized 200,000,000 shares;
issued and outstanding 21,344,510
shares................................. 243,409,806 111,099,353 (9,742,017) (L) 344,767,142
3,816,000 (K) 3,816,000
Class B convertible stock, no par value,
authorized 240,000 shares; issued
and outstanding 240,000 shares......... 24,000 24,000 (24,000) (K) (24,000) (M) --
Series C convertible stock.............. -- 10,176,000 (M) 10,176,000
Additional Paid-in Capital.............. 20,000 (L) 20,000
Distributions greater than net income... (783,567) (11,988,378) 15,804,378 (L) (10,152,000) (M)
-- (15,000,000) (N)
(3,816,000) (K) (5,400,000) (I) (31,335,567)
------------ ------------ ----------- ------------ ------------
Total Shareholders' Equity.............. 242,650,239 99,134,975 6,058,361 (20,400,000) 327,443,575
------------ ------------ ----------- ------------ ------------
Total Liabilities and Shareholders'
Equity................................. $522,386,055 $178,561,469 $ 9,058,361 $(17,000,000) $693,005,885
============ ============ =========== ============ ============

Notes to Unaudited Pro Forma Condensed Combined Consolidated Balance Sheet

Merger adjustments:

(A) Represents the historical September 30, 2002 balance sheet.

(B)-(F) Intentionally not used.

(G) The merger will be accounted for in accordance with the purchase method of
accounting. The following represents the purchase price of common shares at
fair value, plus assumption of liabilities at fair value and estimated
transaction costs associated with the merger:

Purchase price for Suites common shares (see below). $105,173,336
Mortgage notes assumed-at book value................ 76,322,856
Mark to market of debt assumed...................... 3,000,000
Other liabilities assumed-at estimated fair value... 3,103,638
Value of vested options ($.50 per 40,000 shares o/s) 20,000
------------
Sub-total........................................... 187,619,830
Estimated transaction costs (see below)............. 3,333,576
------------
Total purchase price................................ $190,953,406
============

The following is the calculation of the purchase price of shareholder
equity, reflecting the issuance of 13,146,667 Hospitality units consisting
of common shares and Series A convertible preferred shares at an estimated
fair value of $10 per share in exchange for all of Suites outstanding common
shares and Class B convertible shares at September 30, 2002 as follows:

Suites common shares outstanding at September 30, 2002.............................. 12,666,667
Plus conversion of Class B convertible shares to Suites common shares
(see Note K)...................................................................... 480,000
------------
Adjusted Suites common shares outstanding at September 30, 2002..................... 13,146,667
Estimated fair market value per share of Hospitality units.......................... $ 8.00
------------
Consisting of Hospitality common shares and Series A convertible preferred shares to
be issued......................................................................... $105,173,336
============

The following is an estimate of the fees and other expenses related to the
merger:

Advisory fees................................... $1,500,000
Legal and accounting fees....................... 500,000
Printing........................................ 350,000
Proxy solicitation and consulting fees.......... 200,000
Other........................................... 783,576
----------
Total adjustment for estimated transaction costs $3,333,576
==========

(H) Increase of $12,371,937 in the net book value of Suites real estate assets
based upon Hospitality's recording gross purchase price and the adjustment
to eliminate Suites historical accumulated depreciation of $12,371,937 as
follows:

Purchase price................................................ $190,953,406
Less:
Purchase price allocated to cash and cash equivalents...... (4,510,073)
Other assets and prepaid expenses.......................... (5,018,155)
------------
Amount allocated to investment in rental property............. 181,425,178
Net book value of Suites investment in real estate............ 167,776,509
------------
Net increase in book value of Suites investment in real estate 13,648,669
Eliminate accumulated depreciation............................ (12,371,937)
------------
Adjustment to reflect new cost basis of rental property....... $ 1,276,732
============
Amount allocated to investment in rental property............. $181,425,178
Less: Amount allocated to land................................ (33,804,510)
------------
Depreciable basis of rental property.......................... $147,620,668
============

(I) To record the acquisition of Apple Suites Advisors, Inc. in lieu of the
termination fee payable to Apple Suites Advisors, Inc. by Hospitality.

This following also will be reflected in Hospitality's statement of
operations upon termination of the advisory agreement:

Cash payment........................................................................ $2,000,000
Present value at a market rate of 7%, of $4.48 million non-interest bearing note due
January 1, 2007................................................................... 3,400,000
----------
$5,400,000

(J) To remove Suites' historical deferred financing costs.

(K) The Suites Class B convertible shares are convertible into Suites common
shares and then into Hospitality units consisting of common shares with
Series A convertible preferred shares upon the merger with Suites. The
expense that results upon conversion is estimated to be $3,816,000 and will
be reflected in Suites statement of operations upon shareholder approval of
the merger. The Class B convertible shares will be converted and exchanged
as follows:

Class B convertible shares of Suites....................... 240,000
Conversion ratio to Suites common stock.................... 2
----------
480,000
Estimated fair value (see note J).......................... $ 8
----------
3,840,000
Less: Amount originally paid for Class B convertible shares (24,000)
----------
$3,816,000
==========

(L) To adjust Suites historical shareholders' equity to reflect the issuance of
Hospitaliy units consisting of common shares with Series A convertible
preferred shares at an assumed price of $8.00 per share, in exchange for
all of Suites outstanding common shares and to reflect the conversion of
Suites Class B convertible shares to Suites common shares and subsequent
exchange for Hospitality units consisting of common shares with Series A
convertible preferred shares as follows:

Class B Series A Convertible Distributions
Common Convertible Preferred in Excess of Additional
Stock Stock Stock Earnings Paid-in Capital
------------- ----------- -------------------- ------------- ---------------

Value of vested Suites stock
options........................ 20,000
Issuance of Hospitality units
consisting of common shares
with Series A convertible
preferred shares for Suites
common shares.................. 105,173,336 -- -- --
Conversion of Suites Class B
convertible shares to
Hospitality units consisting of
common shares with Series A
convertible preferred shares
(see Note K)................... (3,816,000) -- -- 3,816,000
Elimination of Apple Suites
historical shareholders'
equity......................... (111,099,353) (24,000) -- 11,988,378
------------- -------- --- ----------- -------
Pro forma adjustments........... $ (9,742,017) $(24,000) $-- $15,804,378 $20,000
============= ======== === =========== =======

(M) Hospitality Class B convertible shares will be exchanged for Hospitality
Series C convertible shares. The expense that results upon conversion is
estimated to be $12,696,000 and will be reflected in Hospitality's
statement of operations upon approval of the merger. The Class B
convertible shares will be exchanged as follows:

Class B convertible shares............................................. 240,000
Conversion ratio to Hospitality Series C convertible shares............ 5
-----------
1,272,000
Estimated fair value................................................... $ 8
-----------
10,176,000
Less: Amount originally paid for Hospitality Class B convertible shares (24,000)
-----------
$10,152,000
===========

(N) Special distribution payable to Hospitality shareholders prior to closing
of merger.

HOSPITALITY
UNAUDITED PRO FORMA CONDENSED COMBINED CONSOLIDATED
STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 2001
AND FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2002

The Unaudited Pro Forma Condensed Combined Consolidated Statement of
Operations for the year ended December 31, 2001 and the nine months ended
September 30, 2002 are presented as if the Suites merger had occurred at the
beginning of each period presented. In addition to the Suites merger, the
Unaudited Pro Forma Condensed Combined Statements of Operations give effect to
two other mergers and one acquisition made by Hospitality during 2001 and 2002.
The Unaudited Pro Forma Condensed Combined Statements of Operations give effect
to the merger under the purchase method of accounting in accordance with
Accounting Standards Board Opinion No, 16, and the combined entity qualifying
as a REIT, distributing at least 95% of its taxable income, and therefore,
incurring no federal tax liability for the periods presented.

This unaudited Pro Forma Condensed Combined Consolidated Statement of
Operations also assumes all of the hotels had been leased to our wholly owned
taxable REIT subsidiaries pursuant to master hotel lease agreements. Residence
Inn by Marriott will continue to manage the hotels owned by Hospitality under
agreements not materially different from historical contractual arrangements.
Promus Hotels, Inc. a wholly-owned subsidiary of Hilton Hotels Corporation,
will continue to manage the hotels owned by Suties under the same agreements.

As mentioned in the introductory paragraph, the following Unaudited Pro
Forma Condensed Combined Consolidated Statement of Operations of Hospitality
also present the purchase of Marriott Residence Inn II Limited Partnership (the
"Partnership") in August 2002, containing 23 Residence Inn by Marriott hotels,
from Host Mariott Corporation ("Host") for approximately approximately $136
million in total purchase price, net of cash acquired of $24 million had
occurred on January 1, 2001 for the twelve month and January 1, 2002.

As mentioned in the introductory paragraph, the unaudited Pro Forma
Condensed Statement of Operations includes the purchase of 15 Residence Inn(R)
by Marriott hotels from Host in March 2002 for an aggregate purchase price of
$133 million; as well as, 10 Residence Inn(R) by Marriott hotels from Crestline
Capital Corporation in September 2001, for an aggregate purchase price of
$123.5 million. The results of operations subsequent to Hospitality's purchase
are included in the historical statement of operations of Hospitality.

Such pro forma information is based in part upon the historical Consolidated
Statements of Operations of Hospitality, and the historical Statements of
Operations of the Marriott Residence Inn I and II Limited Partnerships and
Residence Inn III LLC. In management's opinion, all adjustments necessary to
reflect the effects of these transactions have been made.

The following unaudited Pro Forma Condensed Consolidated Statement of
Operations of Hospitality are not necessarily indicative of what actual results
of operations of Hospitality would have been assuming such transactions had
been completed on January 1, 2001 for the twelve month and January 1, 2002 for
the nine month statement of operations, nor does it purport to represent the
results of operations for future periods.

Hospitality did not commence operations until May 1, 2001. Accordingly,
Hospitality's historical 2001 historical consolidated statement of operations
contained less than a complete fiscal year of operations.

These unaudited Pro Forma Condensed Combined Consolidated Financial
Statements should be read in conjunction with Hospitality's historical
Consolidated Financial Statements.

For the year ended December 31, 2001 (unaudited)

Hospitality
Historical
Statement of Historical Historical
Operations Residence Inn Pro forma Pro forma before Marriott Residence
(May 1 - Dec. 31) III LLC (A) Adjustments 2002 acquisitions Inn LP (A)
----------------- ------------- ----------- ----------------- ------------------

Revenue:
Suite revenue........................ $10,022,272 $27,564,918 $ -- $37,587,190 $61,423,000
Other operating revenue.............. 414,493 -- -- 414,493 2,621,000
Interest income...................... 2,005,006 -- (1,827,669) (B) 177,337 664,000
----------- ----------- ----------- ----------- -----------
Total revenue.......................... 12,441,771 27,564,918 (1,827,669) 38,179,020 64,708,000
Expenses:............................
Operating expenses................... 4,516,264 12,288,306 -- 16,804,570 28,116,000
General and administrative........... 491,009 -- 372,897 (C) 863,906 1,636,000
Franchise fees (Residence Inn System
Fee)................................ 400,888 1,055,127 -- 1,456,015 2,457,000
Management fees...................... 474,041 551,298 -- 1,025,339 1,281,000
Permits, licenses & lease payments... -- 128,688 -- 128,688 --
Chain services....................... 233,643 552,449 -- 786,092 --
Incentive management fees............ -- 841,983 -- 841,983 3,375,000
Taxes, insurance and other........... 552,734 1,322,418 -- 1,875,152 5,807,000
Depreciation of real estate owned.... 1,084,933 -- 2,019,336 (D) 3,104,269 6,479,000
-- --
Management termination fees..........
Interest............................. 1,371,540 -- 2,868,745 (E) 4,240,285 10,152,000
--
----------- ----------- ----------- ----------- -----------
Total expenses......................... 9,125,052 16,740,269 5,260,978 31,126,299 59,303,000
Income tax expense..................... -- -- -- (F) -- --
----------- ----------- ----------- ----------- -----------
Net income............................. $ 3,316,719 $10,824,649 $(7,088,647) $ 7,052,721 $ 5,405,000
=========== =========== =========== =========== ===========
Earnings per common share:
Basic and Diluted.................... $ 0.52 $ 0.75
=========== ===========
Basic and diluted weighted average
common shares outstanding............. 6,334,649 3,038,590 (G) 9,373,239

Pro forma before Historical
acquisition of Marriott
Pro forma Marriott Residence Residence
Adjustments Inn II LP Inn II LP (A)
------------ ------------------ -------------

Revenue:
Suite revenue........................ $ -- $ 99,010,190 $63,727,000
Other operating revenue.............. -- 3,035,493 2,804,000
Interest income...................... (664,000) (B) 177,337 1,463,000
------------ ------------ -----------
Total revenue.......................... (664,000) 102,223,020 67,994,000
Expenses:............................
Operating expenses................... -- 44,920,570 37,459,000
General and administrative........... (1,636,000) (C) 863,906 --
Franchise fees (Residence Inn System
Fee)................................ 440,837 (D) 4,353,852 2,549,000
Management fees...................... -- 2,306,339 1,331,000
Permits, licenses & lease payments... -- 128,688 1,165,000
Chain services....................... -- 786,092 --
Incentive management fees............ (3,375,000) (K) 841,983 2,545,000
Taxes, insurance and other........... -- 7,682,152 2,262,000
Depreciation of real estate owned.... (6,479,000) (E) 7,295,000
3,006,965 (F) 6,111,234
Management termination fees..........
Interest............................. (10,152,000) (G) 12,362,000
9,370,685 (H) 13,610,970
------------ ------------ -----------
Total expenses......................... (8,823,514) 81,605,786 66,968,000
Income tax expense..................... -- (I) -- --
------------ ------------ -----------
Net income............................. $ 8,159,514 $ 20,617,234 1,026,000
============ ============ ===========
Earnings per common share:
Basic and Diluted.................... $ 1.38
============
Basic and diluted weighted average
common shares outstanding............. 5,603,630 (J) 14,976,869

For the year ended December 31, 2001 (unaudited)

Historical
Homewood
Suites
Total Statement Total Suites
Pro Forma Historical of Historical Pro Forma
Pro Forma before Apple Operations Apple Suites before
Adjustments merger Suites, Inc. (W) Adjustments merger
----------- ------------ ------------ ---------- ------------ ------------

Revenue:
Suite revenue............................. $ -- $162,737,190 $43,338,533 $3,486,143 $209,561,866
Other operating revenue................... -- 5,839,493 2,141,832 175,521 8,156,846
Interest income........................... (1,463,000) (B) 381,630
(100,000) (C) 77,337 458,967
----------- ------------ ----------- ---------- --------- ------------
Total revenue............................... (1,563,000) 168,654,020 45,861,995 3,661,664 -- 218,177,679
Expenses:.................................
Operating expenses........................ -- 82,379,570 23,337,764 1,835,894 107,553,228
General and administrative................ 325,000 (D) 1,188,906 894,121 -- 14,226 (S) 2,097,253
--
Franchise fees (Residence Inn System Fee). -- 6,902,852 1,729,446 144,054 8,776,352
Management fees........................... -- 3,637,339 1,521,696 122,117 5,281,152
Permits, licenses & lease payments........ -- 1,293,688 -- 1,293,688
Chain services............................ 786,092 -- 786,092
Incentive management fees................. (2,545,000) (H) 841,983 -- 841,983
Taxes, insurance and other................ -- 9,944,152 2,297,935 238,355 12,480,442
Depreciation of real estate owned......... (7,295,000) (E) 4,787,486 513,062 (513,063) (T) 4,787,485
359,606 (T) 359,606
3,594,174 (F) 9,705,408 9,705,408
Management termination fees............... 1,413,520 1,413,520
--
Interest.................................. -- 5,849,378 188,401 (188,401) (U)
25,972,970 366,396 (V) 32,188,744
----------- ------------ ----------- ---------- --------- ------------
Total expenses.............................. (5,920,826) 142,652,960 41,831,346 3,041,883 38,764 187,564,953
Income tax expense.......................... -- (G) -- -- --
----------- ------------ ----------- ---------- --------- ------------
Net income.................................. $ 4,357,826 $ 26,001,060 $ 4,030,649 $ 619,781 $ (38,764) $ 30,612,726
=========== ============ =========== ========== ========= ============
Earnings per common share:
Basic and Diluted......................... $ 1.74 $ 0.34 $ 1.11
============ =========== ============
Basic and diluted weighted average common
shares outstanding......................... -- 14,976,869 11,907,721 677,592 (X) 27,562,182

Apple Hospitality
Merger Hospitality Combined
Adjustments Adjustments Pro Forma
----------- ------------ ------------

Revenue:
Suite revenue............................. $209,561,866
Other operating revenue................... 8,156,846
Interest income........................... (66,672) (Q) (300,000) (J)
92,295
--------- ------------ ------------
Total revenue............................... (66,672) (300,000) 217,811,007
Expenses:.................................
Operating expenses........................ 107,553,228
General and administrative................ (298,270) (L) 10,152,000 (K)
(200,000) (O) (10,152,000) (K) 1,598,983
Franchise fees (Residence Inn System Fee). 8,776,352
Management fees........................... 5,281,152
Permits, licenses & lease payments........ 1,293,688
Chain services............................ 786,092
Incentive management fees................. 841,983
Taxes, insurance and other................ 12,480,442
Depreciation of real estate owned......... 26,339 (Y) 4,813,824
359,606
9,705,408
Management termination fees............... 5,400,000 (M) --
(5,400,000) (M) 1,413,520
Interest.................................. (375,000) (P)
313,600 (N) 32,127,344
--------- ------------ ------------
Total expenses.............................. (846,931) 313,600 187,031,622
Income tax expense.......................... -- -- --
--------- ------------ ------------
Net income.................................. $ 780,259 $ (613,600) $ 30,779,385
========= ============ ============
Earnings per common share:
Basic and Diluted......................... $ 1.05
============
Basic and diluted weighted average common
shares outstanding......................... 480,000 (R) 1,272,000 (R) 29,314,182

For the nine months ended September 30, 2002 (unaudited)

Hospitality Historical Pro forma before
Historical Marriot Residence acquisition of
Statement of Inn LP for Periods Pro forma Marriott Residence
Operations 1 & 2 2002 Adjustments Inn II LP
------------ ------------------ ----------- ------------------

Revenue:
Suite revenue.................................. $57,399,212 $7,516,099 -- 64,915,311
Other operating revenue........................ 1,970,888 296,191 -- 2,267,079
Interest income................................ 801,659 -- -- 801,659

----------- ---------- ----------- -----------
Total revenue...................................... 60,171,759 7,812,290 -- 67,984,049
Expenses:
Operating expenses............................. 26,275,178 3,931,579 -- 30,206,757
General and administrative..................... 1,298,401 -- 215,348 (D) 1,513,749
Franchise fees (Residence Inn System Fee)...... 2,272,663 300,644 -- 2,573,307
Management fees................................ 1,938,554 156,246 -- 2,094,800
Permits, licenses & lease payments............. -- 46,747 -- 46,747
Chain Services................................. 885,108 143,542 -- 1,028,650
Incentive management fees...................... -- -- -- --
Taxes, insurance and other..................... 3,767,255 434,737 -- 4,201,992
Depreciation of real estate owned.............. 4,903,596 -- 443,527 (F) 5,347,123
-- --
Imputed interest expense on Res I.............. 450,000 -- -- 450,000
Management termination fees.................... --
Ground lease................................... --
Interest....................................... 8,023,872 -- 1,365,35 (H) 9,389,227
----------- ---------- ----------- -----------
Total expenses..................................... 49,814,627 5,013,495 2,024,230 56,852,352
Income tax expense................................. -- -- -- --
----------- ---------- ----------- -----------
Net income before extraordinary items.............. $10,357,132 $2,798,795 $(2,024,230) $11,131,697
----------- ---------- ----------- -----------
Earnings per common share:
Basic and Diluted before extraordinary items... $ 0.53 0.57
=========== ===========
Basic and diluted weighted average.................
common shares outstanding.......................... 19,384,346 -- 19,384,346
=========== ===========

Historical
Marriott
Residence Pro Forma
Inn II LP (A) Adjustments
------------- -----------

Revenue:
Suite revenue.................................. $43,041,466 $ --
Other operating revenue........................ 1,100,000 --
Interest income................................ 294,000 (294,000) (B)
(50,000) (C)
----------- -----------
Total revenue...................................... 44,435,466 (344,000)
Expenses:
Operating expenses............................. 24,754,945
General and administrative..................... -- 365,000 (D)
Franchise fees (Residence Inn System Fee)...... 1,643,722 --
Management fees................................ 893,759 --
Permits, licenses & lease payments............. 1,122,243 --
Chain Services................................. --
Incentive management fees...................... 1,185,000 (1,185,000) (H)
Taxes, insurance and other..................... 2,680,595 --
Depreciation of real estate owned.............. 3,319,000 (3,319,000) (E)
2,695,631 (F)
Imputed interest expense on Res I..............
Management termination fees....................
Ground lease...................................
Interest....................................... 5,531,000
----------- -----------
Total expenses..................................... 41,130,264 (1,443,369)
Income tax expense................................. -- -- (G)
----------- -----------
Net income before extraordinary items.............. $ 3,305,202 $ 1,099,369
----------- -----------
Earnings per common share:
Basic and Diluted before extraordinary items...

Basic and diluted weighted average.................
common shares outstanding.......................... --

For the nine months ended September 30, 2002 (unaudited)

Hospitality Hospitality
Pro Forma Historical Merger Hospitality Combined
Before Merger Apple Suites, Inc. Adjustments Adjustments Pro Forma
------------- ------------------ ----------- ----------- ------------

Revenue:
Suite revenue.................................. 107,956,777 $36,183,949 . $144,140,726
Other operating revenue........................ 3,367,079 1,618,084 (50,004) (Q) 4,935,159
Interest income................................ 15,325
751,659 (225,000) (J) 541,984
----------- ----------- --------- ---------- ------------
Total revenue...................................... 112,075,515 37,817,358 (50,004) (225,000) 149,617,869
Expenses:
Operating expenses............................. 54,961,702 19,469,253 74,430,955
General and administrative..................... 1,878,749 722,168 (203,127) (L) 2,397,790
Franchise fees (Residence Inn System Fee)...... 4,217,029 1,447,358 (100,000) (O) 5,564,387
Management fees................................ 2,988,559 1,312,807 -- 4,301,366
Permits, licenses & lease payments............. 1,168,990 -- 1,168,990
Chain Services................................. 1,028,650 -- 1,028,650
Incentive management fees...................... -- -- --
Taxes, insurance and other..................... 6,882,587 2,034,404 8,916,991
Depreciation of real estate owned.............. -- 4,097,861 19,754 (Y)
8,042,754 12,160,369
Imputed interest expense on Res I.............. 450,000 450,000
Management termination fees.................... --
Ground lease................................... 75,000 75,000
Interest....................................... 14,920,227 5,182,425 (281,250) (P) 235,200 (N) 20,056,602
----------- ----------- --------- ---------- ------------
Total expenses..................................... 96,539,247 34,341,276 (564,623) 235,200 130,551,100
Income tax expense................................. -- -- -- -- --
----------- ----------- --------- ---------- ------------
Net income before extraordinary items.............. 15,536,268 $ 3,476,082 $ 514,619 $ (460,200) $ 19,066,769
----------- ----------- --------- ---------- ------------
Earnings per common share:
Basic and Diluted before extraordinary items... 0.80 $ 0.27 $ 0.56
=========== =========== ============
Basic and diluted weighted average.................
common shares outstanding.......................... 19,384,346 12,666,677 480,000 (R) 1,272,000 (R) 33,803,023
=========== =========== ========= ========== ============

Notes to Unaudited Pro Forma Condensed Combined Consolidated Statements of
Operations for Residence Inn III LLC:

(A) Represents results of operations for the hotels acquired on a pro forma
basis as if the hotels were owned by Hospitality at January 1, 2001 for the
respective periods prior to acquisition by Hospitality in September 2001.
(B) Represents the elimination of the interest income recorded on the $47
million promissory note with Cresline, as the note receivable was used to
purchase the Partnership.
(C) Represents the advisory fee of .25% of accumulated capital contributions
under the "best efforts" offering for the period of time not owned by
Hospitality plus anticipated legal and accounting fees, employee costs,
salaries and other costs of operating as a public company of $814, 377 and
$372, 896 for the year ended December 31, 2000, and the period ended
December 31, 2001, respectively.
(D) Represents the depreciation on the hotels acquired based on the purchase
price allocation of $98 million to depreciable property. The weighted
average lives of the depreciable assets are 39 years for building (fair
value allocation of approximately $95.6 million) and 7 years for FF&E (fair
value allocation of approximately $4.9 million). The estimated useful lives
are based on management's knowledge of the properties and the hotel
industry in general.
(E) Represents the interest expense for the hotel acquisitions for the period
in which the hotels were not owned. Interest was computed using the
interest rate of 8.08% on the mortgage debt of $53 million.
(F) Represents the combined state and federal income tax expense of our wholly
owned taxable REIT subsidiary estimated based on the contractual agreements
put in place between Hospitality and its lessee based on a combined rate of
40%. Based on the terms of the lease agreements Hospitality's taxable
subsidiary would have incurred a loss. No operating loss benefit has been
recorded as a realization is not certain.
(G) Represents the increase in number of shares assuming Residence Inn III LLC
was acquired at the beginning of the period presented, which represents
additional cash of $27.2 million needed to purchase real estate, based on
assumed net proceeds of $8.95 per common share issued.

Notes to Unaudited Pro Forma Condensed Combined Consolidated Statements of
Operations for Marriott Residence Inn LP:

(A) Represents results of operations for the hotels acquired on a pro forma
basis as if the Partnership was owned by Hospitality on January 1, 2001.
(B) Represents the elimination of historical interest income recorded by the
prior owner, as cash was used to fund acquisition.
(C) Represents the elimination of the historical general and administrative
expense allocated at the hotels by the prior owner, which will not be
incurred by Hospitality. The amount indicated for general and
administrative expense was extracted from the Partnership's historical
statements.
(D) Represents the advisory fee of .25% of accumulated capital contributions
under the "best efforts" offering for the period of time not owned by
Hospitality plus anticipated legal and accounting fees, employee costs,
salaries and other costs of operating as a public company of $330,628 for
the year ended December 31, 2001 and $215,348 for the two months not owned
in 2001.
(E) Represents the elimination of the historical depreciation expense recorded
by the prior owner.
(F) Represents the depreciation on the hotels acquired based on the purchase
price allocation. The weighted average lives of the depreciable assets are
39 years for building (fair value allocation of approximately $77.9
million) and 7 years for FF&E (fair value allocation of approximately $7.1
million). The estimated useful lives are based on management's knowledge of
the properties and hotel industry in general.
(G) Represents the elimination of the historical interest expense recorded by
the prior owner.
(H) Represents the interest expense for the hotel acquisitions for the period
in which the hotels were not owned. Interest was computed using the
interest rates of 8.6% on the mortgage debt of $70.9 million and 15.6% on
the mortgage debt of $20.7 million.
(I) Represents the combined state and federal income tax expense of our wholly
owned taxable REIT subsidiary estimated based on the contractual agreements
put in place between Hospitality and its lessee

based on a combined rate of 40%. Based on the terms of the lease agreements
Hospitality's taxable subsidiary would have incurred a loss. No operating
loss benefit has been recorded as realization is not certain.
(J) Represents additional common shares assuming the Partnership was acquired
at the beginning of the period presented, which represents additional cash
of $50.2 million. needed to purchase real estate, based on assumed net
proceeds of $8.95 per common share.
(K) Represents elimination of deferred incentive management fees from prior
owner, since payment is not considered probable.

Notes to Unaudited Pro Forma Condensed Combined Consolidated Statements of
Operations (unaudited) for Marriott Residence Inn II Limited Partnership:

(A) Represents results of operations for the hotels acquired on a pro forma
basis as if the Partnership was owned by Hospitality on January 1 of the
respective period.
(B) Represents the elimination of historical interest income recorded by the
prior owner as cash was used to fund acquisition.
(C) Represents the elimination of interest income on Hospitality cash of
approximately $5 million used to fund acquisition at interest rates in
effect during periods presented, assuming the money market interest rates
in effect during the period of 2%.
(D) Represents the advisory fee of .25% of accumulated capital contributions
under the "best efforts" offering for the period of time not owned by
Hospitality plus anticipated legal and accounting fees, employee costs,
salaries and other costs of operating as a public company.
(E) Represents the elimination of the historical depreciation expense recorded
by the prior owner.
(F) Represents the depreciation on the hotels acquired based on the purchase
price allocation. The weighted average lives of the depreciable assets are
39 years (fair value allocation of approximately $98.6 million) for
building and 7 years for FF&E (fair value allocation of $7.5 million). The
estimated useful lives are based on management's knowledge of the
properties and hotel industry in general.
(G) Represents the combined state and federal income tax expense of our wholly
owned taxable REIT subsidiary estimated based on the contractual agreements
put in place between Hospitality and our lessee based on a combined rate of
40%. Based on the terms of the lease agreements Hospitality's taxable
subsidiary would have incurred a loss. No operating loss benefit has been
recorded as realization is not certain.
(H) Represents elimination of deferred incentive management fees from prior
owner, since payment is not considered probable.

Merger and Hospitality Adjustments:

(J) Represents reduction of interest income on $15 million special distribution
to Hospitality's shareholders just prior to the merger at money market
interest rates in effect during the period, 2%.
(K) Represents expense associated with exchange of Hospitality Class B
convertible shares for Hospitality Series C convertible shares and
conversion of Suites Class B shares to Hospitality units (see Note M to
Unaudited Pro Forma Condensed Combined Consolidated Balance Sheet). Amount
is eliminated since this transaction is directly attributable to the merger
and is not expected to have on-going impact.
(L) Elimination of Apple Suites Advisors advisory fee, as advisory contract
will terminate upon merger.
(M) Represents expense associated with advisor termination (see Note I to
Unaudited Pro Forma Condensed Combined Consolidated Balance Sheet). Amount
is eliminated since it is in connection with the merger and will not have
on-going impact.
(N) Represents imputed interest at 7% on $4.48 million non-interest bearing
note issued in connection with the termination of the advisor agreement.
(O) Reduction of operating expenses to operate as a public company eliminated
as a result of the merger, such as audit fees and costs associated with
producing the annual report.
(P) Represents amortization of mark to market of debt assumed from Suites (see
note G to pro forma balance sheet).

(Q) Represents a reduction to interest income resulting from the use of cash
for payment of transaction costs and purchase price as a result of the
merger at a money market interest rate of 2%.

$3,333,576... Transaction costs
0.02
-----------
$ 66,672 Full year
$ 50,004 Nine months

(R) Represents increase in shares resulting from the exchange of Hospitality
Class B convertible shares for Hospitality Series C shares and the
conversion of Suites Class B convertible shares into Hospitality common
shares as follows:

Hospitality Class B convertible shares 240,000 Suites Class B convertible shares 240,000
Exchange ratio to Hospitality common Conversion ratio to Suites common
shares--Series C 5 shares 2
--------- -------
Hospitality common shares 1,272,000 Suites common shares 480,000
Conversion ratio to Hospitality
common shares 1
-------
Hospitality common shares 480,000

(Y) Represents additional depreciation expense on the increase of fair market
value of Suites real estate using a depreciable life of 39 years.

$1,276,732 New additional interest in basis of Suites depreciable rental property (See Note
H on Balance Sheet)
80% allocated to building (20% allocated to land)
- ----------
$1,027,224
39 Depreciable life
- ----------
$ 26,339 Full year
$ 19,754 Nine months

Apple Suites Adjustments:

(S) Represents the advisory fee of .25% of accumulated capital contributions
under the "best efforts" offering for the period of time not owned by
Suites for the periods presented.
(T) Represents the depreciation on the hotels acquired based on the purchase
price, excluding amounts allocated to land, for the period of time not
owned. The weighted average life of the depreciable assets was 39 years.
(U) Represents the elimination of the expense recorded by the prior owner since
it will not be an on-going expense to Suites.
(V) Represents the interest expense on Suites long-term refinancings of $50
million at a rate of 9% and $10.7 million at a rate of 8.15% and a portion
of the $10 million short-term financing ($6,569,500) at a rate of one month
LIBOR plus 200 basis points (8.67%) for the term of the financing (6
months) for the periods presented.
(W) Represents results of operations for the 3 Homewood Suites hotels acuired
by Suites in 2001 on a pro froma basis as if the hotels were owned by
Suites on January 1 of the respective period.
(X) Represents additional common shares assuming the properties were acquired
at the beginning of the periods presented with the net proceeds from the
"best efforts" offering of $10 per share (net $8.95 per share) for the
remainder.

THE COMPANIES

Hospitality

Hospitality is a Virginia corporation and was incorporated on January 17,
2001. The business of Hospitality is to acquire and operate upper-end
extended-stay and limited service hotels. As of September 30, 2002, Hospitality
owned 48 extended-stay hotels containing 5,767 hotel suites throughout the
United States. Each hotel operates as part of the Residence Inn(R) by
Marriott(R) franchise. The hotels are located in Alabama, California, Colorado,
Connecticut, Florida, Georgia, Illinois, Louisiana, Massachusetts, Michigan,
Mississippi, Missouri, Nevada, New Mexico, North Carolina, Ohio, Pennsylvania,
South Carolina, Tennessee and Texas.

Hospitality is an externally advised, self-administered real estate
investment trust and operates in one defined business segment consisting of
upper-end, extended-stay and limited service hotels. Hospitality leases all
hotel properties acquired to Apple Hospitality Management, Inc., a 100% owned
taxable REIT subsidiary, or its subsidiaries under the terms of master hotel
lease agreements. The hotels are operated and managed by Residence Inn(R) by
Marriott, Inc., under master hotel lease agreements and hotel management
agreements.

Hospitality seeks to maximize long-term growth in net operating income and
portfolio value. Hospitality believes there is substantial opportunity for
growth from the ownership of its currently owned hotels and the acquisition of
additional hotels in select metropolitan areas throughout the United States.
Hospitality intends to continue to acquire upper-end extended-stay and limited
service hotels in select metropolitan areas throughout the United States.

Hospitality targets markets characterized by a diversified economy, stable
employment and increasing household formation and household incomes.
Hospitality believes that a geographically diversified portfolio reduces risks
resulting from adverse changes in local economic conditions. Accordingly, the
hotels are located in upscale communities in 20 states. Hospitality expects to
strengthen its presence in its current markets and possibly expand into
additional geographic regions with similar environments, convenient access to
Hospitality's offices and sufficient opportunities to create additional
operating efficiencies through the acquisition of a critical mass of hotels.

Suites

Suites is a Virginia corporation that was incorporated on March 5, 1999 and
commenced operations as of September 1, 1999. Suites acquires, owns and leases
upper-end extended-stay hotels in select metropolitan areas throughout the
United States. Suites' focus is on upscale and residential-style hotels,
consisting of one or two bedroom suites. Suites currently operates as and has
elected to be treated as a real estate investment trust for federal income tax
purposes.

At September 30, 2002, Suites owned, either directly or through its
subsidiaries, a total of 17 extended-stay hotels, which comprise a total of
1,922 suites. All of the Suites hotels currently operate under the Homewood
Suites(R) by Hilton.

Suites leases its hotels to a wholly owned subsidiary, Apple Suites
Management, Inc., under master hotel lease agreements. The hotels are operated
and managed by Promus Hotels, Inc. under hotel license agreements and hotel
management agreements.

Suites' objective has been to enhance shareholder value by increasing funds
from operations and cash available for distribution. Suites focuses on
maximizing the internal growth of its portfolio by selecting hotels that are
expected to have strong cash flow growth potential.

The Combined Companies

In connection with the merger, the boards of directors of Hospitality and
Suites have determined that the companies will become self-advised, contingent
upon the merger occurring. Consequently, the advisory agreements Hospitality
and Suites have with Apple Suites Advisors, which is owned by Mr. Knight, will
be terminated concurrently with the merger and thereafter no further advisory
fees will be due under those agreements. In addition, the property
acquisition/disposition agreements that Hospitality and Suites have with Apple
Suites Realty, which is also owned by Mr. Knight, will also be terminated.

PRINCIPAL AND MANAGEMENT SHAREHOLDERS OF HOSPITALITY

The following table presents certain information as to each of Hospitality's
directors and executive officers, each owner known to Hospitality to have
beneficially owned more than five percent of Hospitality's common shares and
all of Hospitality's directors and executive officers as a group. Unless
otherwise noted, all information concerning directors and officers was provided
by the shareholders listed and reflects their beneficial ownership as of
December 20, 2002, and is based on 30,157,932 Hospitality common shares
outstanding at the close of business on such date. Each person named in the
table and included in the director/officer group has sole voting and investment
powers as to such common shares, or shares such powers with his or her spouse
or minor children, if any.

No. of Series A
No. of Common Preferred
Shares Shares
Names and Business Address Beneficially Beneficially Percent
of Beneficial Owner ** Owned (1) Owned (1) of Class
-------------------------- ------------- --------------- --------

Glade M. Knight................................ 10 -- *
Lisa B. Kern................................... 10,680 10,680 *
Bruce H. Matson................................ 10,680 10,680 *
Michael S. Waters.............................. 10,680 10,680 *
Robert M. Wily................................. 10,680 10,680 *
All directors and executive officers as a group 42,730 42,720 *

- --------
* Less than one percent of outstanding Hospitality common shares.
** The business address for each beneficial owner is c/o Apple Hospitality Two,
Inc., 10 South Third Street Richmond, Virginia 23219.
(1) Includes units that may be acquired upon the exercise of stock options, as
follows: Messrs. Matson, Waters and Wily and Ms. Kern--10,680 units each.

PRINCIPAL AND MANAGEMENT SHAREHOLDERS OF SUITES

The following table presents certain information as to each of Suites'
directors and executive officers, each owner known to Suites to have
beneficially owned more than five percent of Suites common shares, and all of
Suites' directors and executive officers as a group. Unless otherwise noted,
all information concerning directors and officers was provided by the
shareholders listed and reflects their beneficial ownership as of December 20,
2002, and is based on 12,666,677 Suites common shares outstanding and 240,000
shares of Suites Class B convertible shares outstanding at the close of
business on that date. Each person named in the table and included in the
director/officer group has sole voting and investment powers as to such common
shares, or shares such powers with his or her spouse or minor children, if any.

No. of Shares
Names and Business Address Beneficially Percent
of Beneficial Owner** Owned (1) of Class
-------------------------- ------------- --------

Glade M. Knight................................ 10 *
Lisa B. Kern................................... 11,472 *
Bruce H. Matson................................ 11,472 *
Michael S. Waters.............................. 11,472 *
Robert M. Wily................................. 11,472 *
All directors and executive officers as a group 45,898 *

- --------
* Less than one percent of outstanding Suites common shares.
** The business address for each beneficial owner is c/o Apple Suites, Inc., 10
South Third Street Richmond, Virginia 23219.
(1) Includes common shares that may be acquired upon the exercise of stock
options, as follows: Messrs. Matson, Waters and Wily and Ms. Kern - 11,472
shares each.

COMPARATIVE PER SHARE PRICE INFORMATION

Neither Hospitality units nor Suites common shares are listed on any foreign
or domestic exchange. Hospitality does not anticipate listing any capital stock
on any exchange in the near future. Hospitality has indicated, that in order to
provide liquidity to its shareholders, it expects that within approximately
three to five years from May 1, 2001, the initial closing under its first
public offering, it will either:

. cause the Hospitality units or common shares to be listed on a national
securities exchange or quoted on the NASDAQ National Market System; or

. with shareholders approval (if required by law), dispose of all of its
properties in a manner, whether by merger or otherwise, which will permit
distributions to shareholders of cash.

However, Hospitality is under no obligation to take any of these actions,
and these actions, if taken, might be taken after the five-year period
mentioned above.

As of December 20, 2002, there were approximately 9,765 beneficial holders
of Hospitality common shares and approximately 4,564 beneficial holders of
Suites common shares. As of December 20, 2002, all 240,000 shares of Suites
Class B convertible shares outstanding were held by Glade M. Knight and two
business associates.

DESCRIPTION OF CAPITAL STOCK OF HOSPITALITY

The information set forth below is only a summary of the material terms of
the Hospitality common shares and the Hospitality preferred shares. You should
refer to the Hospitality articles of incorporation and bylaws for a complete
description of the Hospitality common shares and the Hospitality preferred
shares.

The Hospitality authorized capital stock consists of:

. 200,000,000 Hospitality common shares, no par value,

. 200,000,000 Hospitality Series A preferred shares, no par value,

. 240,000 Hospitality Series B convertible preferred shares, no par value,

. 1,272,000 Hospitality Series C convertible preferred shares, no par
value, and

. 13,728,000 additional Hospitality preferred shares, no par value.

As of December 20, 2002, there were 30,157,932 Hospitality common shares,
30,157,932 Hospitality Series A preferred shares, 240,000 Hospitality Series B
convertible preferred shares and no Hospitality Series C convertible preferred
shares issued and outstanding.

Hospitality Common Shares

Dividend And Distribution Rights. Hospitality common shares have equal
rights in connection with:

. dividends;

. distributions; and

. liquidations.

If the Hospitality board of directors determines, in its sole discretion, to
declare a dividend, the right to that dividend is subject to the following
restrictions:

. the dividend rights of the Hospitality common shares may be subordinate
to the dividends right of any other of Hospitality shares ranking senior
to the Hospitality common shares; and

. the amount of the dividend may be limited by law.

If Hospitality liquidates its assets or dissolves entirely, the holders of
the Hospitality common shares will share, on a pro rata basis, in the assets
Hospitality is legally allowed to distribute. Hospitality must pay all of its
known debts and liabilities or have made adequate provision for payment of
these debts and liabilities before holders of Hospitality common shares can
share in its assets. Upon liquidation, the rights of the holders of the
Hospitality common shares will initially arise out of their rights as holders
of the Hospitality Series A preferred shares. The Hospitality Series A
preferred shares provide that the holders of Series A preferred shares will
have a priority distribution of $10.00 per share before any distribution to the
holders of any other shares. If the assets of Hospitality are insufficient to
make these payments in full, payments will be made to the holders of
Hospitality Series A preferred shares on a pro rata basis. Before the merger
and the related conversion of the Hospitality Series B convertible preferred
shares, holders of Hospitality Series B convertible preferred shares will be
entitled to be paid $10.00 per number of common shares each Hospitality Series
B convertible preferred share would be convertible into. If the assets of
Hospitality are insufficient to make these payment in full, payments will be
made to the holders of Hospitality Series B convertible preferred shares on a
pro rata basis. After payments in full to the Hospitality Series A preferred
shares and the Hospitality Series B convertible preferred shares, the remaining
assets will be distributed between the holders of the Hospitality common shares
and the holders of the Hospitality Series B convertible preferred shares, on an
as converted basis.

Immediately after the effective time of the merger, the outstanding
Hospitality Series B convertible preferred share will be exchanged for
Hospitality Series C convertible preferred shares. After this exchange, no
Hospitality Series B convertible shares will be outstanding and 1,272,000
Hospitality Series C convertible

preferred shares will be outstanding. All 240,000 authorized Hospitality Series
B convertible preferred shares are held by Glade M. Knight and two business
associates. After the merger, if the assets of Hospitality are sufficient to
pay in full the distribution rights of $10.00 per share for the outstanding
Hospitality Series A preferred shares, the remaining assets will first be used
to pay $10.00 per share to the holders of the Hospitality Series C convertible
preferred shares, on an as converted basis and then, any remaining assets will
be distributed pro rata to the holders of Hospitality common shares and the
holders of Hospitality Series C convertible preferred shares, on an as
converted basis. Consequently, holders of Hospitality units will be entitled to
receive $10.00 per share in cash on liquidation, before any payments will be
made to Mr. Knight or the other holders of the Hospitality Series C convertible
preferred shares for their Hospitality Series C convertible preferred shares.

Holders of Hospitality common shares do not have the right to convert or
redeem their shares. In addition, they do not have rights to a sinking fund or
to subscribe for any of Hospitality's securities.

Voting Rights. Each outstanding Hospitality common share entitles the
holder to one vote on all matters submitted to a vote of shareholders. The
holders of Hospitality common shares and the holders of Hospitality Series C
convertible preferred shares, on an as converted basis, will have exclusive
voting power with respect to the election of directors, except as otherwise
required by law or except as provided with respect to any other class or series
of shares. There is no cumulative voting in the election of directors.
Therefore the holders of a majority of the outstanding Hospitality common
shares and Hospitality Series C convertible preferred shares, on an as
converted basis, will be able to elect all of the directors then standing for
election and the holders of the remaining Hospitality common shares and
Hospitality Series C convertible preferred shares will not be able to elect any
directors. Currently, the Hospitality board of directors is divided into three
classes, as nearly equal in size as possible. The terms of one class of
directors expire each year.

The Hospitality articles will provide that a majority of Hospitality common
shares and Hospitality Series C convertible preferred shares, on an as
converted basis, outstanding and entitled to vote on a matter may approve
Hospitality taking any of the following actions:

. dissolve;

. amend Hospitality's articles of incorporation, except for amendments to
Hospitality's articles relating to the classification of the board of
directors which requires the approval of at least two-thirds of the
shares entitled to vote;

. merge;

. sell all or substantially all of Hospitality's assets; or
. engage in a share exchange or similar transactions.

Transfer Agent and Registrar. The transfer agent and registrar for the
Hospitality common shares is Wachovia Bank, N.A.

Hospitality Series A Preferred Shares

The Hospitality Series A preferred shares have no voting rights, no
distribution rights and no conversion rights. In addition, the Hospitality
Series A preferred shares are not separately tradable from the Hospitality
common shares to which they relate. The only right associated with each
Hospitality Series A preferred share is a priority distribution upon the sale
of Hospitality's assets or other event of liquidation. The priority
distribution will be equal to $10.00 per Hospitality Series A preferred share,
and no more, before any distribution will be made to the holders of any other
shares. Upon that distribution the Hospitality Series A preferred shares will
have no other distribution rights.

Hospitality Series B Convertible Preferred Shares

Hospitality authorized capital stock includes 240,000 Hospitality Series B
convertible preferred shares. There are no dividends payable on the Hospitality
Series B convertible preferred shares. Holders of more than two-thirds of the
Hospitality Series B convertible preferred shares must approve any proposed
amendment to the Hospitality articles of incorporation that would adversely
affect the Hospitality Series B convertible preferred shares. Upon
Hospitality's liquidation, the holders of the Hospitality Series B convertible
preferred shares are entitled to a priority liquidation payment. However the
priority liquidation payment of the holders of the Hospitality Series B
convertible preferred shares is junior to the holders of the Hospitality Series
A preferred shares distribution rights. The holder of a Hospitality Series B
convertible preferred share is entitled to a liquidation payment of $10.00 per
number of common shares each Hospitality Series B convertible preferred share
would be convertible into according to the formula described below. Prior to
the exchange of Hospitality Series B convertible preferred shares for
Hospitality Series C convertible preferred shares, in the event that the
liquidation of Hospitality's assets results in proceeds that exceed the
distribution rights of the Hospitality Series A preferred shares and the
Hospitality Series B convertible preferred shares, the remaining proceeds will
be distributed between the Hospitality common shares and the Hospitality Series
B convertible preferred shares, on an as converted basis.

The Hospitality Series B convertible preferred shares are convertible into
Hospitality units upon and for 180 days following the occurrence of either of
the following events:

(1) Hospitality transfers substantially all of its assets, stock or
business, whether through exchange, merger, consolidation, lease, share
exchange or otherwise; or

(2) the advisory agreement with Apple Suites Advisors is terminated or
expires without renewal and if Hospitality ceases to use Apple Suites
Realty to provide substantially all of its property acquisition and
disposition services.

Upon the occurrence of either triggering event and for purposes of
determining the liquidation payment due to each holder of a Hospitality Series
B convertible preferred share, each Hospitality Series B convertible preferred
share is convertible into 5.3 Hospitality units, based upon the gross public
offering proceeds raised through the date of this joint proxy
statement/prospectus.

No additional consideration is due upon the conversion of the Hospitality
Series B convertible preferred shares. The conversion into Hospitality units of
the Hospitality Series B convertible preferred shares will result in dilution
of the shareholders' interests.

The outstanding Hospitality Series B convertible preferred shares will be
exchanged for 1,272,000 Hospitality Series C convertible preferred shares
immediately following the merger. Mr. Knight and two business associates own
the outstanding Hospitality Series B convertible preferred shares.

Hospitality Series C Convertible Preferred Shares

Dividend and Distribution Rights. The holders of Hospitality Series C
convertible preferred shares, on an as converted basis, will be entitled to
receive the same dividends and distributions as declared for the holders of
Hospitality common shares, except for distributions in liquidation.

If Hospitality liquidates its assets or dissolves entirely and the assets of
Hospitality are sufficient to pay the distribution rights of the Hospitality
Series A preferred shares in full, the remaining assets will first be used to
pay $10.00 per share to the holders of the Hospitality Series C convertible
preferred shares, on an as converted basis. Then, any remaining assets will be
distributed pro rata to the holders of Hospitality common shares and holders of
Hospitality Series C convertible preferred shares, on an as converted basis.

Conversion. The Hospitality Series C convertible preferred shares will be
convertible into Hospitality units upon and for 180 days following the
occurrence of either of the following events:

(1) Hospitality transfers substantially all of its assets, stock or business
as a going concern, whether through exchange, merger, consolidation,
lease, share exchange or otherwise, other than a sale of assets in
liquidation, dissolution or winding up of Hospitality's business; or

(2) Hospitality lists the Hospitality units on a national securities
exchange or quotation system or in any established market.

Upon the occurrence of either triggering event, each Hospitality Series C
convertible preferred share will be convertible into one Hospitality unit,
subject to adjustment to reflect stock dividends on, or split, subdivision or
combination of, the Hospitality common shares.

Voting Rights. The holders of Hospitality Series C convertible preferred
shares will be entitled to vote on all matters submitted to a vote of
shareholders as if they were converted into Hospitality common shares, except
as otherwise provided by law. The holders of Hospitality common shares and the
holders of Hospitality Series C convertible preferred shares, on an as
converted basis, will have exclusive voting power with respect to the election
of directors, except as provided with respect to any other class or series of
shares. There is no cumulative voting in the election of directors. Therefore
the holders of a majority of the outstanding Hospitality common shares and
Hospitality Series C convertible preferred shares, on an as converted basis,
will be able to elect all of the directors then standing for election and the
holders of the remaining Hospitality common shares and Hospitality Series C
convertible preferred shares will not be able to elect any directors. Currently
the Hospitality board of directors is divided into three classes, as nearly
equal in size as possible. The terms of one class of directors expires each
year.

Preferred Shares

The Hospitality articles of incorporation authorize the issuance of up to
13,728,000 additional Hospitality preferred shares. At the present time, no
preferred shares other than the Hospitality Series A preferred shares and the
Hospitality Series B convertible preferred shares have been issued.

Hospitality believes that the authorization to issue additional preferred
shares benefit Hospitality and its shareholders by permitting flexibility in
financing additional growth, giving it additional financing options in its
corporate planning and in responding to developments in its business, including
financing of additional acquisitions and other general corporate purposes.
Having authorized preferred shares available for issuance in the future gives
Hospitality the ability to respond to future developments and allow preferred
shares to be issued without the expense and delay of a special shareholders'
meeting.

At present, Hospitality has no specific financing or acquisition plans
involving the issuance of additional preferred shares, other than the issuance
of 1,272,000 Hospitality Series C convertible preferred shares discussed above,
and does not propose to fix the characteristics of any series of preferred
shares in anticipation of issuing preferred shares. Hospitality cannot now
predict whether or to what extent, if any, additional preferred shares will be
used or, if so used, what the characteristics of a particular series may be.

The voting rights and rights to distributions of the holders of Hospitality
common shares will be subject to the prior rights of the holders of any
subsequently issued preferred shares. Unless otherwise required by applicable
law or regulation, the preferred shares would be issuable without further
authorization by holders of the Hospitality common shares and on the terms and
for the consideration as may be determined by the Hospitality board of
directors. The preferred shares could be issued in one or more series having
varying voting rights, redemption and conversion features, distribution
(including liquidating distribution), rights and preferences, and other rights,
including rights of approval of specified transactions. A series of preferred
shares could be given rights that are superior to rights of holders of
Hospitality common shares and a series having

preferential distribution rights could limit common share distributions and
reduce the amount holders of Hospitality common shares would otherwise receive
on dissolution.

Restrictions on Transfer

To qualify as a REIT under the Internal Revenue Code, Hospitality common
shares must be beneficially owned by 100 or more persons during at least 335
days of a taxable year of twelve months or during a proportionate part of a
shorter taxable year. Further, not more than 50% of the value of the issued and
outstanding Hospitality common shares may be owned, directly or indirectly, by
five or fewer individuals or, in limited circumstances, entities such as
qualified private pension plans, during the last half of a taxable year or
during a proportionate part of a shorter taxable year.

Since the Hospitality board of directors believes it is essential that
Hospitality maintain its REIT status, the Hospitality bylaws provide that no
person may own or be deemed to own more than 9.8% of the issued and outstanding
shares of any class or series. The Hospitality board may exempt a proposed
transferee from this ownership limit. The Hospitality board may require
opinions of counsel, affidavits, undertakings or agreements at it may deem
necessary or advisable in order to determine or ensure Hospitality's status as
a REIT.

Any acquisition or transfer of Hospitality common shares that would:

. result in the Hospitality common shares and any other stock being owned
by fewer than 100 persons, or

. result in our being "closely-held" within the meaning of Section 856(h)
of the Internal Revenue Code.

will be null and void, and the intended transferee will acquire no rights to
the Hospitality common shares. These restrictions on transferability and
ownership will not apply if the Hospitality board determines that it is no
longer in Hospitality's best interests to attempt to qualify, or to continue to
qualify, as a REIT and Hospitality's articles are amended accordingly.

Any purported transfer of Hospitality common shares or any other stock that
would result in a person owning shares of capital stock in excess of the
ownership limit will result in the transfer being declared null and void. The
shares subject to the purported transfer will be considered to be "excess
shares." Under the Hospitality bylaws, excess shares will be deemed to have
been acquired and to be held on Hospitality's behalf. The excess shares will
not be considered to be outstanding for quorum and voting purposes. The excess
shares will not be entitled to receive dividends or any other distributions.

Any dividends or distributions paid to a purported transferee of excess
shares prior to our discovery that the shares have been transferred in
violation of the Hospitality bylaws must be repaid to us upon demand.

The Hospitality bylaws provide that Hospitality may redeem any excess
shares. The redemption price for any excess share will be equal to:

. the price paid for the excess shares by the intended transferee; or

. if no consideration was paid, the fair market value of the shares
measured on the last business day prior to date on which Hospitality
elects to redeem the excess shares.

Fair market value means the average daily closing price of a share if listed
on a national securities exchange. If the shares are quoted on the NASD
National Market System, fair market value will be the average of closing bid
prices and closing asked prices. If there have been no sales or published bid
and asked quotations with respect to the shares, the fair market value will be
as determined in good faith by the Hospitality board.

In addition, each shareholder shall, upon demand, be required to disclose in
writing all information regarding the direct and indirect beneficial ownership
of shares of capital stock as the Hospitality board deems

reasonably necessary to comply with the provisions of the Internal Revenue Code
applicable to a REIT, to comply with the requirements of any taxing authority
or governmental agency or to determine any compliance with those provisions or
requirements.

These ownership limitations could have the effect of discouraging a takeover
or other transaction in which holders of some, or a majority, of shares of
capital stock might receive a premium for their shares over the then-prevailing
market price or which these holders might believe to be otherwise in their best
interest.

Share Redemption Program

In the Spring of 2004, Hospitality intends to institute a share redemption
program to provide its shareholders who have held their Hospitality units for
at least one year with the benefit of limited interim liquidity, by presenting
for redemption all or any portion of their Hospitality units at any time and in
accordance with the procedures outline herein. At that time, Hospitality may,
subject to the conditions and limitations described below, redeem the
Hospitality units presented for redemption for cash, to the extent that
Hospitality has sufficient funds available to fund such redemption.

If you have held your Hospitality units for the required one-year period,
you may redeem your Hospitality units for a purchase price equal to the lesser
of:

. $10.00 per Hospitality unit; or

. the purchase price per Hospitality unit that you actually paid for your
Hospitality units (or the price that you actually paid for your Suites
common shares, if you acquired your Hospitality units through the
exchange of your Suites common shares in the merger).

The Hospitality board of directors reserves the right, in its sole
discretion, at any time and from time to time, to:

. waive the one-year holding period in the event of the death or bankruptcy
of a shareholder or other exigent circumstances;

. reject any request for redemption;

. change the purchase price for redemptions; or

. otherwise amend the terms of, suspend, or terminate the share redemption
program.

Redemption of Hospitality units, when requested, will be made quarterly on a
first-come, first-served basis. Funding for the redemption of Hospitality units
will come from the proceeds Hospitality receives from the sale of units under a
dividend reinvestment plan, or DRIP, that Hospitality intends to establish at
the time that Hospitality initiates the share redemption program. Hospitality
will limit the number of units redeemed pursuant to the share redemption
program as follows:

. during any calendar year, Hospitality will not redeem in excess of three
percent (3.0%) of the weighted average number of Hospitality units
outstanding during the prior calendar year; and

. funding for the redemption of units will come exclusively from the
proceeds Hospitality receives from the sale of units under the DRIP,
provided that in no event will the aggregate amount of redemptions under
the share redemption program exceed aggregate proceeds received from the
sale of units pursuant to the DRIP.

Not withstanding the foregoing, Hospitality may consider other sources of
funding other than the DRIP to fund the redemption of units under the share
redemption program.

The Hospitality board of directors, in its sole discretion, may choose to
suspend or terminate the share redemption program, or to reduce the number of
Hospitality units purchased under the share redemption program, if it
determines the funds otherwise available to fund the share redemption program
are needed for other purposes.

Hospitality cannot guarantee that the funds set aside for the share
redemption program will be sufficient to accommodate all requests made in any
year. If Hospitality does not have such funds available, at the time when
redemption is requested, you can:

. withdraw your request for redemption; or

. ask that Hospitality honor your request at such time, if any, when
sufficient funds become available. Such pending requests will be honored
on a first-come, first-served basis.

The shares redemption program is only intended to provide limited interim
liquidity for shareholders until a secondary market develops for the
Hospitality units. No such market presently exists and Hospitality cannot
assure you that any market for your Hospitality units will ever develop.

The Hospitality units purchased under the share redemption program will be
cancelled and will have the status of authorized but unissued units.
Hospitality will not reissue such units unless they are first registered with
the SEC under the Securities Act of 1933 and under appropriate state securities
laws, or otherwise issued in compliance with such laws.

If Hospitality terminates, suspends, reduces the scope of or otherwise
changes the share redemption program, Hospitality will disclose the changes in
reports filed with the SEC.

As previously discussed, at the same time Hospitality initiates the share
redemption program, Hospitality intends to establish a DRIP, which will allow
Hospitality shareholders to have their dividends otherwise distributable to
them invested in additional Hospitality units. No commissions will be payable
under the share redemption program or the DRIP.

COMPARISON OF SHAREHOLDER RIGHTS

As a result of the merger, holders of Suites common shares receiving stock
consideration will become holders of Hospitality units, each consisting of
Hospitality common share and one Hospitality Series A preferred share.
Hospitality and Suites are both incorporated under the laws of the Commonwealth
of Virginia. As Virginia corporations, both Hospitality and Suites are subject
to the Virginia Stock Corporation Act, which is a general corporation statute.
Certain differences between the Hospitality articles of incorporation and
bylaws and the Suites articles of incorporation and bylaws are discussed below.
However, the comparative rights of holders of Hospitality units and holders of
Suites common shares set forth below does not purport to be complete and is
subject to and qualified in its entirety by reference to the Hospitality
Articles and bylaws and to the Suites Articles and bylaws.

Authorized Shares

The Hospitality articles authorize the issuance of 200,000,000 common
shares, 200,000,000 Series A preferred shares, 240,000 Hospitality Series B
convertible preferred shares, 1,272,000 Hospitality Series C convertible
preferred shares and 13,728,000 preferred shares. The Hospitality board may, by
adoption of an amendment of the Hospitality articles, fix in whole or in part
the preferences, limitations and relative rights, within the limits set forth
in the Virginia Stock Corporation Act, of any series within the preferred
shares before the issuance of any shares of that series. Any increase in the
aggregate number of shares which Hospitality has the authority to issue would
require an amendment to the Hospitality Articles which must first be approved
by a

majority of the holders of the outstanding common shares of Hospitality and
outstanding Hospitality Series C convertible preferred shares voting as if they
were converted into Hospitality common shares.

The amended and restated articles of Suites authorize the issuance of
200,000,000 Suites common shares and 240,000 Suites Class B convertible
preferred shares.

Liquidation Rights

Upon a liquidation, dissolution or winding up of Suites, holders of Suites
common shares are entitled to be paid the balance of Suites' assets, if any,
remaining after payment of the $0.10 per share liquidation payment to the
holders of Suites Class B convertible preferred shares.

Upon a liquidation, dissolution or winding up of Hospitality, holders of
Hospitality Series A preferred shares will be entitled to be paid $10.00 per
share in cash. If the assets of Hospitality are insufficient to make these
payments in full, payments will be made to the holders of Hospitality Series A
preferred shares on a pro rata basis. Following the merger and related
conversion of Hospitality Series B convertible preferred shares, and after
payment in full of the liquidation preference to the Hospitality Series A
preferred shares, holders of Hospitality Series C convertible preferred shares
will be entitled to be paid $10.00 per share, on an as converted basis, in
cash. If the assets of Hospitality are insufficient to make these payments in
full, payments will be made to the holders of Hospitality Series C convertible
preferred shares on a pro rata basis. After payments in full of the liquidation
preference to the Hospitality Series A preferred shares and the Hospitality
Series C preferred shares, holders of Hospitality common shares and Hospitality
Series C convertible preferred shares, on an as converted basis, are entitled
to be paid pro rata the balance of Hospitality's remaining assets.

OTHER MATTERS

Shareholder Proposals For Annual Meeting

Any qualified Hospitality shareholder wishing to make a proposal to be acted
upon at Hospitality Annual Meeting of Shareholders in 2003 must submit such
proposal, to be considered by Hospitality for inclusion in the proxy statement,
to Apple Hospitality Two, Inc., 10 South Third Street, Richmond, Virginia
23219, Attention: Secretary, no later than December 7, 2002.

With respect to shareholder proposals not included in Hospitality's proxy
statement for the 2003 annual meeting, the persons named in the board of
directors' proxy for such meeting will be entitled to exercise the
discretionary voting power conferred by such proxy under the circumstances
specified in Rule 14a-4(c) under the Securities Exchange Act of 1934, including
with respect to proposals received by Hospitality after February 21, 2003.

If the merger is consummated, there will be no 2003 Annual Meeting of Suites
shareholders.

SEC rules set forth standards as to what shareholder proposals are required
to be included in a proxy statement for an annual meeting.

Other

As of the date of this joint proxy statement/prospectus, the Hospitality
board knows of no matters other than as described in this joint proxy
statement/prospectus that are likely to be brought before the Hospitality
special meeting. However, if any matters not now known come before the
Hospitality special meeting, the persons named in the enclosed proxy are
expected to vote the Hospitality common shares represented by such proxy on
such matters in accordance with their best judgment.

As of the date of this joint proxy statement/prospectus, the Suites board
knows of no matters other than as described in this joint proxy
statement/prospectus that are likely to be brought before the Suites special
meeting. However, if any matters not now known come before the Suites special
meeting, the persons named in the enclosed proxy are expected to vote the
Suites common shares represented by such proxy on such matters in accordance
with their best judgment.

LEGAL MATTERS

The validity of the Hospitality units to be issued in connection with the
merger will be passed upon by McGuireWoods LLP, counsel to Hospitality. In
addition, McGuireWoods LLP will also pass on certain federal income tax
consequences of the merger.

EXPERTS

Ernst & Young LLP, independent auditors, have audited the Hospitality
consolidated financial statements and schedule included in its Annual Report on
Form 10-K for the year ended December 31, 2001, as set forth in their report,
which is incorporated by reference in this joint proxy statement/prospectus and
elsewhere in the registration statement. The Hospitality consolidated financial
statements and schedule are incorporated by reference in reliance on Ernst &
Young LLP's report, given on their authority as experts in accounting and
auditing.

Financial statements for certain partnerships owned by Hospitality
incorporated by reference into this joint proxy statement/prospectus have been
audited by Arthur Andersen LLP, independent public accounts as indicated in
their reports with respect thereto. After reasonable efforts, we have been
unable to obtain the written consent of Andersen to the inclusion of their
audit report on those financial statements into the registration statement of
which this joint proxy statement/prospectus is a part. Because Andersen has not
consented to the incorporation by reference of its report into this joint proxy
statement/prospectus, you will not be able to recover against Andersen under
Section 11 of the Securities Act of 1933 for any untrue statement of a material
fact contained in the financial statements audited by Andersen that are
incorporated herein by reference or any omission to state a material fact
required to be stated therein.

Ernst & Young LLP, independent auditors, have audited the Suites
consolidated financial statements and schedule included in its Annual Report on
Form 10-K for the year ended December 31, 2001, as set forth in their report,
which is incorporated by reference in this prospectus and elsewhere in the
registration statement. The Suites consolidated financial statements and
schedule are incorporated by reference in reliance on Ernst & Young LLP's
report, given on their authority as experts in accounting and auditing.

WHERE YOU CAN FIND MORE INFORMATION

Hospitality and Suites file annual, quarterly and special reports, proxy
statements and other information with the SEC. You may read and copy any
reports, statements or other information we file at the SEC's public reference
rooms at 450 Fifth Street, N.W., Washington, D.C. 20549 and also at the SEC's
public reference rooms in New York, New York and Chicago, Illinois. Please call
the SEC at 1-800-SEC-0330 for further information on the public reference
rooms. Our SEC filings are also available to the public from commercial
document retrieval services and at the web site maintained by the SEC at
"http://www.sec.gov." In addition, Hospitality has filed a Registration
Statement on Form S-4 to register with the SEC the Hospitality units to be
issued to the shareholders of Suites in the merger. This joint proxy
statement/prospectus is a part of that Registration Statement and constitutes a
prospectus of Hospitality in addition to being a proxy statement of Hospitality
and Suites for the Hospitality meeting and the Suites meeting. As allowed by
SEC rules, this joint proxy statement/prospectus does

not contain all the information you can find in the Registration Statement or
the exhibits to the Registration Statement.

The SEC allows us to "incorporate by reference" information into this joint
proxy statement/prospectus, which means that we can disclose important
information to you by referring you to another document filed separately with
the SEC. The information incorporated by reference is deemed to be part of this
joint proxy statement/prospectus, except for any information superseded by
information in this joint proxy statement/prospectus. This joint proxy
statement/prospectus incorporates by reference the documents set forth below
that we have previously filed with the SEC. These documents contain important
information about Hospitality and Suites.

Apple Hospitality Two, Inc. SEC Filings (File Number: 000-49748)

. Hospitality's Annual Report on Form 10-K for the year ended December 31,
2001;

. Hospitality's Quarterly Reports on Form 10-Q for the quarters ended March
31, 2002 (as amended by Form 10-Q/A on May 16, 2002), June 30, 2002 and
September 30, 2002;

. Hospitality's Current Reports on Form 8-K filed April 15, 2002 (as
amended by Current Report on Form 8-K/A on April 18, 2002), September 12,
2002 and October 25, 2002; and

. The description of Hospitality's capital stock contained in Form 8-A
filed on April 23, 2002 under Section 12(g) of the Securities Exchange
Act of 1934.

Apple Suites, Inc. SEC Filings (File Number: 000-30491)

. Suites' Annual Report on Form 10-K for the year ended December 31, 2001;

. Suites' Quarterly Reports on Form 10-Q for the quarters ended March 31,
2002, June 30, 2002 and September 30, 2002;

. Suites' Current Reports on Form 8-K filed July 2, 2001 (as amended by
Current Report on Form 8-K/A on September 4, 2001 and April 1, 2002) and
October 25, 2002; and

. The description of Suites' capital stock contained in Form 8-A filed
April 28, 2000 under Section 12(g) of the Securities Exchange Act of 1934.

We are also incorporating by reference additional documents that we file
with the SEC pursuant to Section 13(a), 13(c), 14 or 15(d) of the Exchange Act
between the date of this joint proxy statement/prospectus and the dates of the
meetings of our shareholders.

Hospitality has supplied all information contained or incorporated by
reference in this joint proxy statement/prospectus relating to Hospitality, and
Suites has supplied all such information relating to Suites.

If you are a shareholder, we may have sent you some of the documents
incorporated by reference, but you can obtain any of them through us or the
SEC. Documents incorporated by reference are available from us without charge,
excluding all exhibits unless we have has specifically incorporated by
reference an exhibit in this joint proxy statement/prospectus. Shareholders may
obtain documents incorporated by reference in this joint proxy
statement/prospectus by requesting them in writing or by telephone from the
appropriate party at the following address:

Apple Hospitality Two,
Inc. Apple Suites, Inc.
10 South Third Street 10 South Third Street
Richmond, Virginia 23219 Richmond, Virginia 23219
Attention: Secretary Attention: Secretary
Telephone: (804) 344-8121 Telephone: (804) 344-8121

If you would like to request documents from us, please do so by January 23,
2003 to receive them prior to the Hospitality and Suites shareholder meetings.

You should rely only on the information contained or incorporated by
reference in this joint proxy statement/prospectus to vote on the merger and
the merger agreement. We have not authorized anyone to provide you with
information that is different from what is contained in this joint proxy
statement/prospectus. This joint proxy statement/prospectus is dated December
20, 2002. You should not assume that the information contained in this joint
proxy statement/prospectus is accurate as of any date other than such date, and
neither the mailing of this joint proxy statement/prospectus to shareholders
nor the issuance of Hospitality units in the merger shall create any
implication to the contrary.

ANNEX A

EXECUTION COPY

AGREEMENT AND PLAN OF MERGER

Dated as of October 24, 2002, as amended,

Among

APPLE HOSPITALITY TWO, INC.,

APPLE SUITES, INC.,

and

HOSPITALITY ACQUISITION COMPANY

TABLE OF CONTENTS

ARTICLE I....................................................................................... A-4
SECTION 1.1 The Merger..................................................................... A-4
SECTION 1.2 Closing........................................................................ A-4
SECTION 1.3 Effective Time................................................................. A-4
SECTION 1.4 Effects of the Merger.......................................................... A-5
SECTION 1.5 Articles and By-Laws........................................................... A-5
SECTION 1.6 Status of Acquisition Sub...................................................... A-5
SECTION 1.7 Extra-Ordinary Dividend for Company Common Shares.............................. A-5
ARTICLE II...................................................................................... A-6
SECTION 2.1 Effect on Capital Stock........................................................ A-6
SECTION 2.2 Cash Election Procedure........................................................ A-6
SECTION 2.3 Payment of Cash Consideration; Proration....................................... A-7
SECTION 2.4 Exchange Procedures............................................................ A-7
ARTICLE III..................................................................................... A-10
SECTION 3.1 Representations and Warranties of Suites....................................... A-10
SECTION 3.2 Representations and Warranties of the Company.................................. A-16
ARTICLE IV...................................................................................... A-23
SECTION 4.1 Conduct of Business by Suites.................................................. A-23
SECTION 4.2 Conduct of Business by the Company............................................. A-23
SECTION 4.3 Other Actions.................................................................. A-24
ARTICLE V....................................................................................... A-25
SECTION 5.1 Preparation of the Registration Statement and the Proxy Statement; Shareholders
Meetings....................................................................... A-25
SECTION 5.2 Access to Information; Confidentiality......................................... A-25
SECTION 5.3 Best Efforts; Notification..................................................... A-27
SECTION 5.4 Affiliates..................................................................... A-27
SECTION 5.5 Tax Treatment.................................................................. A-28
SECTION 5.6 No Solicitation of Transactions................................................ A-28
SECTION 5.7 Public Announcements........................................................... A-29
SECTION 5.8 Transfer and Gains Taxes....................................................... A-29
SECTION 5.9 Employee Matters............................................................... A-29
SECTION 5.10 Indemnification................................................................ A-30
SECTION 5.11 Comfort Letter................................................................. A-30
SECTION 5.12 Efforts to Fulfill Conditions.................................................. A-30
SECTION 5.13 Cooperation of the Parties..................................................... A-30
SECTION 5.14 No Recommendation to Shareholders.............................................. A-30
ARTICLE VI...................................................................................... A-31
SECTION 6.1 Conditions to Each Party's Obligation to Effect the Merger..................... A-31
SECTION 6.2 Conditions to Obligations of the Company....................................... A-31
SECTION 6.3 Conditions to Obligation of Suites............................................. A-32
ARTICLE VII..................................................................................... A-33
SECTION 7.1 Suites Board Actions........................................................... A-33
SECTION 7.2 Company Board Actions.......................................................... A-33
ARTICLE VIII.................................................................................... A-34
SECTION 8.1 Termination.................................................................... A-34
SECTION 8.2 Expenses....................................................................... A-35
SECTION 8.3 Effect of Termination.......................................................... A-35
SECTION 8.4 Amendment...................................................................... A-35
SECTION 8.5 Extension; Waiver.............................................................. A-35

A-2

ARTICLE IX..................................................... A-36
SECTION 9.1 Nonsurvival of Representations and Warranties. A-36
SECTION 9.2 Notices....................................... A-36
SECTION 9.3 Interpretation................................ A-37
SECTION 9.4 Counterparts.................................. A-37
SECTION 9.5 Entire Agreement; No Third-Party Beneficiaries A-37
SECTION 9.6 Governing Law................................. A-37
SECTION 9.7 Assignment.................................... A-37
SECTION 9.8 Enforcement................................... A-37
SECTION 9.9 Incorporation................................. A-38
SECTION 9.10 Non-Recourse.................................. A-38
ARTICLE X...................................................... A-39
SECTION 10.1 Certain Definitions........................... A-39

Appendix A -- Plan of Merger

A-3

AGREEMENT AND PLAN OF MERGER (the "Agreement"), dated as of October 24,
2002, as amended, among APPLE HOSPITALITY TWO, INC., a Virginia corporation
(the "Company"), APPLE SUITES, INC., a Virginia corporation ("Suites"), and
HOSPITALITY ACQUISITION COMPANY, a Virginia corporation ("Acquisition Sub").

RECITALS

(a) The Boards of Directors of the Company and Suites have determined that
it is advisable and in the best interest of their respective companies and
their shareholders to consummate the strategic business combination involving
Suites and the Company described herein, pursuant to which Suites will merge
with Acquisition Sub and Acquisition Sub will be the surviving corporation in
such merger (the "Merger") and each issued and outstanding common share, no par
value, of Suites (the "Suites Common Shares") will be converted into the right
to receive the Common Shares Consideration (as defined below) and each issued
and outstanding Class B Convertible Share, no par value, of Suites (the "Suites
Class B Convertible Shares") will be converted into the right to receive the
Class B Consideration (as defined below); and

(b) For federal income tax purposes, it is intended that the Merger qualify
as a tax-free reorganization under Section 368(a) of the Internal Revenue Code
of 1986, as amended (the "Code"), and that this Agreement constitutes a plan of
reorganization under Section 368 of the Code; and

NOW, THEREFORE, in consideration of the representations, warranties,
covenants and agreements contained in this Agreement, the parties agree as
follows:

ARTICLE I

The Merger

SECTION 1.1 The Merger. Upon the terms and subject to the conditions set
forth in this Agreement, and in accordance with the Virginia Stock Corporation
Act (the "VSCA"), Suites shall be merged with Acquisition Sub at the Effective
Time (as defined herein) in accordance with this Agreement and a Plan of Merger
reflecting the terms of, and consistent with, this Agreement, and in the form
attached hereto as Appendix A (the "Plan of Merger"), with such completions,
additions and substitutions conforming to the terms of this Agreement as the
parties shall approve pursuant to the provisions of this Agreement, such
approval to be conclusively evidenced by their causing the Plan of Merger
containing such completions, additions or substitutions to be filed in
accordance with law. Following the Merger, the separate corporate existence of
Suites shall cease and Acquisition Sub shall continue as the surviving
corporation and shall succeed to and assume all the rights and obligations of
Suites in accordance with the VSCA.

SECTION 1.2 Closing. The closing of the Merger will take place at a
mutually agreeable time and place and on a date to be specified by the parties,
which (subject to satisfaction or waiver of the conditions set forth in
Sections 6.2 and 6.3) shall be no later than the second business day after
satisfaction or waiver of the conditions set forth in Section 6.1 (the "Closing
Date").

SECTION 1.3 Effective Time. As soon as practicable following the
satisfaction or waiver of the conditions set forth in Article VI, the parties
shall file the articles of merger or other appropriate documents for the Merger
(the "Articles of Merger") executed in accordance with Section 13.1-720 of the
VSCA and shall make all other filings or recordings required under the VSCA to
effect the Merger. The Merger shall become effective at such time as the
Articles of Merger have been duly filed with the State Corporation Commission
of the Commonwealth of Virginia, or at such later time as the Company and
Suites shall specify in the Articles of

A-4

Merger (the time and the day the Merger becomes effective being, respectively,
the "Effective Time" and the "Effective Day"), it being understood that the
parties shall cause the Effective Time to occur on the Closing Date.

SECTION 1.4 Effects of the Merger. The Merger shall have the effects set
forth in the VSCA.

SECTION 1.5 Articles and By-Laws. On the Closing Date, the Articles of
Incorporation and By-Laws of Acquisition Sub and the Articles of Incorporation
of the Company (the "Company Charter") and the By-Laws of the Company (the
"Company By-Laws"), in each case as in effect immediately prior to the
Effective Time, shall not be affected by the Merger. At the Effective Time, the
name of Acquisition Sub shall be changed to "Apple Suites, Inc." and the
parties shall include the appropriate documentation in the Articles of Merger
to make such name change effective.

SECTION 1.6 Status of Acquisition Sub. It is understood that Acquisition
Sub will elect to be taxed as a REIT (as defined herein) under the Code and
that in order to satisfy certain share ownership requirements imposed upon
REITs by the Code, up to 0.01% of the outstanding common shares of Acquisition
Sub may be owned by Persons other than the Company, and the balance of such
common shares shall be owned by the Company.

SECTION 1.7 Extra-Ordinary Dividend for Company Common Shares. The Company
shall declare and set aside, prior to the Effective Time, and pay, following
the Effective Time, to the holders of Common Shares, no par value, of the
Company ("Company Common Shares") a one-time extra-ordinary dividend (the
"Company Extra-Ordinary Dividend"). The Company Extra-Ordinary Dividend shall
consist of an aggregate payment of $15,000,000 which is divided equally among
the outstanding Company Common Shares as of the record date of the Company
Common Shareholders Meeting (as defined herein) or such other record date that
the Board of Directors of the Company shall declare as long as such record date
is prior to the Effective Time and is contingent on the Merger becoming
effective. In addition, the record date for the Company Extra-Ordinary Dividend
shall be prior to any conversion of the Company Series B Shares (as defined
herein).

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ARTICLE II

Effect of the Merger on the Capital Stock of the
Constituent Corporations

SECTION 2.1 Effect on Capital Stock. By virtue of the Merger and without
any action on the part of the holder of any Suites Common Shares:

(a) At the Effective Time, each issued and outstanding Suites Common
Share shall be converted (the "Exchange Ratio") into the right to receive
from the Company one unit (a "Unit") consisting of one common share, no par
value, of the Company and one Series A Preferred Share, no par value, of the
Company (the "Stock Consideration") or at the election of the holder
pursuant to Section 2.2 and subject to the limitations set forth in Section
2.3, $10.00 in cash per share without any interest thereon (the "Cash
Consideration" and, together with the Stock Consideration, the "Common
Shares Consideration").

(b) At the Effective Time, each issued and outstanding Suites Class B
Convertible Share shall be converted into the right to receive from the
Company two Units (the "Class B Consideration" and, together with the Common
Shares Consideration, the "Merger Consideration").

(c) At the Effective Time, all such Suites Common Shares and Suites
Class B Convertible Shares shall no longer be outstanding and shall
automatically be cancelled and retired.

SECTION 2.2 Cash Election Procedure. Each holder (or beneficial owner
through appropriate and customary documentation and instructions) of
outstanding Suites Common Shares shall have the right to submit a request
specifying that such holder desires all such holder's Suites Common Shares to
be converted into the right to receive Cash Consideration in the Merger instead
of the Stock Consideration in accordance with the following procedure:

(a) Subject to Section 2.3, each such holder of Suites Common Shares may
specify in a request made in accordance with the provisions of this Section
2.2 that all such holder's Suites Common Shares be converted into the right
to receive the Cash Consideration in the Merger (a "Cash Election").

(b) An election form and other appropriate and customary transmittal
materials in such form as the Company and Suites shall mutually agree (the
"Election Form") shall be mailed thirty days prior to the anticipated
Effective Time or on such other date as the Company and Suites shall
mutually agree (the "Mailing Date") to each holder of record of Suites
Common Shares not more than five business days prior to the Mailing Date.

(c) Any Cash Election shall have been made properly only if the Exchange
Agent shall have received, by 5:00 p.m. local time at its principal office
on the second business day prior to the anticipated Effective Time (or such
other time and date as the Company and Suites shall mutually agree) (the
"Election Deadline"), an Election Form properly completed and signed.

(d) Any holder of Suites Common Shares may at any time prior to the
Election Deadline revoke or change his or her Cash Election by written
notice received by the Exchange Agent prior to the Election Deadline
accompanied by a properly completed and signed, revised Election Form. All
Cash Elections shall be revoked automatically if the Exchange Agent is
notified in writing by the Company or Suites that this Agreement has been
terminated. The Exchange Agent shall have reasonable discretion to determine
whether any election, revocation or change has been properly or timely made
and to disregard immaterial defects in the Election Forms, and any good
faith decisions of the Exchange Agent regarding such matters shall be
binding and conclusive. The Exchange Agent shall be under no obligation to
notify any person of any defect in an Election Form.

(e) Within two business days after the Election Deadline, unless the
Effective Time has not yet occurred, in which case within one business day
prior to the Effective Time, the Company shall cause the Exchange Agent to
effect the allocation among the holders of Suites Common Stock of rights to
receive Cash Consideration in the Merger in accordance with Sections 2.3 and
2.4.

A-6

(f) Holders of Suites Common Shares not properly making a Cash Election
shall only receive the Stock Consideration.

SECTION 2.3 Payment of Cash Consideration; Proration. The manner in which
each outstanding Suites Common Share as to which a Cash Election has been made
shall be converted into the right to receive the Cash Consideration at the
Effective Time shall be as set forth in this Section 2.3.

(a) As is more fully set forth below, the aggregate number of
outstanding Suites Common Shares (the "Maximum Cash Conversion Number") to
be converted into the right to receive the Cash Consideration pursuant to
the Merger shall not exceed 2,500,000 or a maximum Cash Consideration of
$25,000,000 (the "Maximum Cash Consideration"); provided, however, in the
event Cash Elections are received for a number of Suites Common Shares that
is greater than 2,500,000, the Company may, in its sole discretion, at any
time before the Effective Time, increase the aggregate number of outstanding
Suites Common Shares and maximum Cash Consideration for which Cash Elections
may be made to an amount not to exceed 3,000,000 Suites Common Shares or
$30,000,000, in which event the terms "Maximum Cash Conversion Number" and
"Maximum Cash Consideration" shall refer respectively to the number of
shares and Cash Consideration as so increased.

(b) If Cash Elections are received for a number of Suites Common Shares
that is equal to or less than the Maximum Cash Conversion Number, each
Suites Common Share covered by a Cash Election shall be converted in the
Merger into the right to receive the Cash Consideration.

(c) If Cash Elections are received for a number of Suites Common Shares
in the aggregate in excess of the Maximum Cash Conversion Number, then:

(i) Subject to the provisions of clause (ii) below, the Exchange
Agent will distribute Cash Consideration with respect to the number of
such outstanding Suites Common Shares equal to the Maximum Cash
Conversion Number of outstanding Suites Common Shares;

(ii) The distributions of Cash Consideration in respect of
outstanding Suites Common Shares contemplated by the preceding clause
(i) shall be made pro rata rounded to the nearest whole share, based on
the ratio of the Maximum Cash Consideration to the aggregate amount of
cash that would be payable (absent a Maximum Cash Conversion Number) in
respect of all outstanding Suites Common Shares for which Cash Elections
have been properly made, among all outstanding Suites Common Shares as
to which Cash Elections have been properly made; and

(iii) Each outstanding Suites Common Share covered by a Cash
Election and not converted into the right to receive the Cash
Consideration as set forth in clause (i) above shall be converted in the
Merger into the right to receive the number of Units equal to the
Exchange Ratio.

(d) If the Exchange Agent shall determine that any Cash Election is not
properly made with respect to any outstanding Suites Common Shares, such
Cash Election shall be deemed to be not in effect, and the outstanding
Suites Common Shares covered by such Cash Election shall, for purposes
hereof, be converted into the right to receive the Stock Consideration.

SECTION 2.4 Exchange Procedures.

(a) Exchange Agent. Prior to the Effective Time, the Company shall
appoint a bank or trust company to act as exchange agent (the "Exchange
Agent") for the exchange of the Merger Consideration for the issued and
outstanding Suites Common Shares and Suites Class B Convertible Shares.

(b) Provision of Shares. The Company shall provide to the Exchange
Agent on or before the Effective Time, for the benefit of the holders of
Suites Common Shares, sufficient Stock Consideration and Cash Consideration
to be exchanged for the issued and outstanding Suites Common Shares pursuant
to Sections 2.1 and 2.2 and, for the benefit of the holders of Suites Class
B Convertible Shares, sufficient Class B Consideration to be exchanged for
the issued and outstanding Suites Class B Convertible Shares pursuant to
Section 2.1.

A-7

(c) Permitted Investments. The cash portion of the aggregate Merger
Consideration shall be invested by the Exchange Agent, as directed by and
for the benefit of the Company, provided that such investments shall be
limited to direct obligations of the United States of America, obligations
for which the full faith and credit of the United States of America is
pledged to provide for the payment of principal and interest, commercial
paper rated of the highest quality by Moody's Investor Services, Inc.
("Moody's") or Standard & Poor's Ratings Group, a division of McGraw-Hill,
Inc. ("S&P"), and certificates of deposit issued by a commercial bank whose
long-term debt obligations are rated at least A2 by Moody's or at least A by
S&P, in each case having a maturity not in excess of one year.

(d) Exchange Procedures. As soon as reasonably practicable after the
Effective Time and in no event no later than 30 days following the Effective
Time, the Exchange Agent shall mail to each holder of record of outstanding
Suites Common Shares and Suites Class B Convertible Shares which were
converted into the right to receive the Merger Consideration pursuant to
Section 2.1 a letter of notification (which shall be in a form and have such
other provisions as the Company may reasonably specify) describing the
Merger Consideration issued to each such holder as a consequence of the
Merger.

(e) Distributions with Respect to Suites Common Shares. On any regular
dividend date and at the Effective Time, Suites may, at the election of its
Board of Directors or its Audit Committee, if the Board of Directors or
Audit Committee deems such action to be prudent, appropriate or otherwise
advisable, declare, set aside and pay to the holders of Suites Common Shares
a cash dividend at a rate equal to not more than $.067 per Suites Common
Share per month for each month (with a pro rated amount being paid for
partial months based on the actual number of days elapsed during the month)
between the most recent regular dividend date and the Effective Day.

(f) No Fractional Shares. No certificates or scrip representing a
fractional Company Unit shall be issued, and such fractional share interests
will not entitle the owner thereof to vote or to any rights of a shareholder
of the Company. Each holder of Suites Common Shares who would otherwise be
entitled to receive a fractional Company Unit will be entitled to receive
from the Exchange Agent in accordance with the provisions of this Section
2.4(f), in lieu thereof, an amount of cash (without interest) equal to the
product of such fractional interest multiplied by $10.00.

(g) No Further Ownership Rights in Suites Common Shares. All Merger
Consideration issued upon exchange of Suites Common Shares and Suites Class
B Convertible Shares in accordance with the terms of this Article II shall
be deemed to have been issued in full satisfaction of all rights pertaining
to the Suites Common Shares and Suites Class B Convertible Shares, subject,
however, to the obligation of the Company to pay, without interest and not
more than 60 days following the Effective Time, any dividends or make any
other distributions with a record date prior to the Effective Time which may
have been declared or made by Suites on such shares in accordance with the
terms of this Agreement or prior to the date of this Agreement and which
remain unpaid at the Effective Time and have not been paid prior to such
exchange, and there shall be no further registration of transfers on the
stock transfer books of Suites of the Suites Common Shares and Suites Class
B Convertible Shares which were outstanding immediately prior to the
Effective Time.

(h) No Liability. None of the Company, Acquisition Sub, Suites or the
Exchange Agent shall be liable to any person in respect of any Merger
Consideration delivered to a public official pursuant to any applicable
abandoned property, escheat or similar law. Any portion of the Merger
Consideration delivered to the Exchange Agent pursuant to this Agreement
that remains unclaimed for six months after the Effective Time shall be
redelivered by the Exchange Agent to the Company, upon demand, and any
holders of Suites Common Shares which have not been exchanged as
contemplated by Section 2.3 shall thereafter look only to the Company for
delivery of the Merger Consideration, subject to applicable abandoned
property, escheat and other similar laws.

(i) Withholding Rights. The Company or the Exchange Agent shall be
entitled to deduct and withhold from the Merger Consideration otherwise
payable pursuant to this Agreement to any holder of Suites Common Shares
such amounts as the Company or the Exchange Agent is required to deduct and

A-8

withhold with respect to the making of such payment under the Code, or any
provision of state, local or foreign tax law. To the extent that amounts are
so withheld by the Company or the Exchange Agent, such withheld amounts
shall be treated for all purposes of this Agreement as having been paid to
the holder of Suites Common Shares, as the case may be, in respect of which
such deduction and withholding was made by the Company or the Exchange Agent.

(j) Dissenting Shares. Notwithstanding anything in this Agreement to
the contrary, holders of Suites Common Shares who have properly exercised,
perfected and not subsequently withdrawn or lost their dissenters' rights
with respect thereto in accordance with Article 15 of the VSCA (the
"Dissenting Shares") shall not have any of such shares converted into the
right to receive, or become exchangeable for, their applicable portion of
the Merger Consideration. The holders of such shares shall be entitled to
receive payment of the fair value of such shares in accordance with the
provisions of such Article 15 unless and until such holders fail to perfect
or shall have effectively withdrawn or lost their dissenters' rights under
Article 15 of the VSCA. If, after the Effective Time, any such holder fails
to perfect or shall have effectively withdrawn or lost such right, each of
such holder's shares shall thereupon be treated as if it had been converted
into the right to receive, and become exchangeable for, at the Effective
Time, the applicable portion of the Merger Consideration, without interest
thereon, as provided in Section 2.1 hereof. The Company shall be responsible
for all payments to be made under Article 15 in respect of Dissenting Shares.

A-9

ARTICLE III

Representations and Warranties

SECTION 3.1 Representations and Warranties of Suites. Suites represents
and warrants to the Company as follows:

(a) Organization, Standing and Corporate Power of Suites. Suites is a
corporation duly organized and validly existing under the laws of Virginia
and has the requisite corporate power and authority to carry on its business
as now being conducted. Suites is duly qualified or licensed to do business
and is in good standing in each jurisdiction in which the nature of its
business or the ownership or leasing of its properties makes such
qualification or licensing necessary, other than in such jurisdictions where
the failure to be so qualified or licensed, individually or in the
aggregate, would not have a material adverse effect on the business,
properties, assets, financial condition or results of operations of Suites
and the Suites Subsidiaries (as defined below) taken as a whole (a "Suites
Material Adverse Effect"). As used herein, "Suites Subsidiary" shall mean
any corporation, partnership, limited liability company, joint venture or
other legal entity of which Suites (either directly or through or together
with another Suites Subsidiary) owns any capital stock or other equity
interests of such entity.

(b) Suites Subsidiaries. Schedule 3.1(b) to the Suites Disclosure
Letter (as defined herein) sets forth each Suites Subsidiary and the
ownership interest therein of Suites. Except as set forth in Schedule 3.1(b)
to the Suites Disclosure Letter, (i) all the outstanding shares of capital
stock of each Suites Subsidiary that is a corporation have been validly
issued, are fully paid and nonassessable and are owned by Suites, by another
Suites Subsidiary or by Suites and another Suites Subsidiary, free and clear
of all pledges, claims, liens, charges, encumbrances and security interests
of any kind or nature whatsoever (collectively, "Liens") and (ii) all equity
interests in each Suites Subsidiary that is a partnership or limited
liability company are owned by Suites, by another Suites Subsidiary or by
Suites and another Suites Subsidiary, free and clear of all Liens. Each
Suites Subsidiary that is a corporation is duly incorporated and validly
existing under the laws of its jurisdiction of incorporation and has the
requisite corporate power and authority to carry on its business as now
being conducted and each Suites Subsidiary that is a partnership or limited
liability company is duly organized and validly existing under the laws of
its jurisdiction of organization and has the requisite power and authority
to carry on its business as now being conducted. Each Suites Subsidiary is
duly qualified or licensed to do business and is in good standing in each
jurisdiction in which the nature of its business or the ownership or leasing
of its properties makes such qualification or licensing necessary, other
than in such jurisdictions where the failure to be so qualified or licensed,
individually or in the aggregate, would not have a Suites Material Adverse
Effect. Except for interests in the Suites Subsidiaries, neither Suites nor
any Suites Subsidiary owns directly or indirectly any interest or investment
(whether equity or debt) in any corporation, partnership, joint venture,
business, trust or entity (other than investments in short-term investment
securities).

(c) Capital Structure. The authorized capital stock of Suites consists
of 200,000,000 Suites Common Shares and 240,000 Suites Class B Convertible
Shares. On the date hereof, (i) 12,666,677 Suites Common Shares and 240,000
Suites Class B Convertible Shares were issued and outstanding, (ii) 786,750
Suites Common Shares were available for issuance under Suites' stock option
plans (the "Suites Share Plans"), and (iii) 35,756 Suites Common Shares were
reserved for issuance upon exercise of outstanding stock options to purchase
Suites Common Shares granted under the Suites Share Plans or otherwise (the
"Suites Common Shares Options"). On the date of this Agreement, except as
set forth above in this Section 3.1(c), no shares of capital stock or other
voting securities of Suites were issued, reserved for issuance or
outstanding. All outstanding shares of capital stock of Suites are duly
authorized, validly issued, fully paid and nonassessable and not subject to
preemptive rights. Except (A) for the Suites Class B Convertible Shares and
the Suites Common Shares Options, (B) as set forth in Schedule 3.1(c) to the
Suites Disclosure Letter, and (C) as otherwise permitted under Section 4.1,
there are no outstanding securities, options, stock appreciation rights,
warrants, calls, rights, commitments, agreements, arrangements or
undertakings of any kind to which Suites or any Suites Subsidiary is a party
or by which such entity is bound, obligating Suites

A-10

or any Suites Subsidiary to issue, deliver or sell, or cause to be issued,
delivered or sold, additional shares of capital stock, voting securities or
other ownership interests of Suites or any Suites Subsidiary or obligating
Suites or any Suites Subsidiary to issue, grant, extend or enter into any
such security, option, warrant, call, right, commitment, agreement,
arrangement or undertaking.

(d) Authority; Noncontravention; Consents. Suites has the requisite
corporate power and authority to enter into this Agreement and, subject to
approval of the Merger, this Agreement and the other transactions
contemplated hereby by the requisite vote of the holders of the Suites
Common Shares (the "Suites Common Shareholder Approval"), to consummate the
Merger and the other transactions contemplated by this Agreement. The
execution and delivery of this Agreement by Suites and the consummation by
Suites of the transactions contemplated hereby have been duly authorized by
all necessary corporate action on the part of Suites, subject to receipt of
the Suites Common Shareholder Approval. This Agreement has been duly
executed and delivered by Suites and constitutes valid and binding
obligations of Suites, enforceable against Suites in accordance with its
terms, subject to applicable bankruptcy, insolvency, moratorium or other
similar laws relating to creditors' rights and general principles of equity.
Except as set forth in Schedule 3.1(d) to the Suites Disclosure Letter, the
execution and delivery of this Agreement by Suites do not, and the
consummation of the transactions contemplated hereby and compliance by
Suites with the provisions of this Agreement will not, conflict with, or
result in any violation of, or default (with or without notice or lapse of
time, or both) under, or give rise to a right of termination, cancellation
or acceleration of any obligation or to loss of a material benefit under, or
result in the creation of any Lien upon any of the properties or assets of
Suites or any Suites Subsidiary under, (i) the charter or by-laws of Suites
or the comparable charter or organizational documents or partnership or
similar agreement (as the case may be) of any Suites Subsidiary, each as
amended or supplemented to the date of this Agreement, (ii) any loan or
credit agreement, note, bond, mortgage, indenture, reciprocal easement
agreement, lease or other agreement, instrument, permit, concession,
franchise or license applicable to Suites or any Suites Subsidiary or their
respective properties or assets or (iii) subject to the governmental filings
and other matters referred to in the following sentence, any judgment,
order, decree, statute, law, ordinance, rule or regulation (collectively,
"Laws") applicable to Suites or any Suites Subsidiary, or their respective
properties or assets, other than, in the case of clause (ii) or (iii), any
such conflicts, violations, defaults, rights or Liens that individually or
in the aggregate would not (x) have a Suites Material Adverse Effect or (y)
prevent the consummation of the Merger or the other transactions
contemplated hereby. No consent, approval, order or authorization of, or
registration, declaration or filing with, any federal, state or local
government or any court, administrative or regulatory agency or commission
or other governmental authority or agency (a "Governmental Entity"), is
required by or with respect to Suites or any Suites Subsidiary in connection
with the execution and delivery of this Agreement by Suites or the
consummation by Suites of any of the transactions contemplated hereby and
thereby, except for (i) the filing with the Securities and Exchange
Commission (the "SEC") of (x) a proxy statement relating to the approval by
Suites shareholders of the Merger and the other transactions contemplated
hereby (as amended or supplemented from time to time, the "Proxy
Statement"), (y) the registration statement on Form S-4 of the Company, of
which the Proxy Statement shall be a part (the "Registration Statement")
under the Securities Act of 1933, as amended (the "Securities Act") relating
to the issuance of the Merger Consideration, and (z) such reports under
Section 13(a) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), as may be required in connection with this Agreement, the
Merger and the other transactions contemplated by this Agreement, (ii) such
filings as may be required in connection with the payment of any Transfer
and Gains Taxes (as defined herein), and (iii) such other consents,
approvals, orders, authorizations, registrations, declarations and filings
(A) as are set forth in Schedule 3.1(d) to the Suites Disclosure Letter or
(B) as may be required under federal, state, local or foreign Environmental
Laws (as defined herein) or (C) which, if not obtained or made, would not
prevent or delay in any material respect the consummation of the Merger or
the other transactions contemplated hereby or otherwise prevent Suites from
performing its obligations under this Agreement in any material respect or
have, individually or in the aggregate, a Suites Material Adverse Effect.

A-11

(e) SEC Documents; Financial Statements; Undisclosed Liabilities. Suites
has filed all required reports, schedules, forms, statements and other
documents with the SEC since January 1, 1999 (the "Suites SEC Documents").
All of the Suites SEC Documents (other than preliminary material), as of
their respective filing dates, complied in all material respects with all
applicable requirements of the Securities Act and the Exchange Act and, in
each case, the rules and regulations promulgated thereunder applicable to
such Suites SEC Documents. None of the Suites SEC Documents at the time of
filing contained any untrue statement of a material fact or omitted to state
any material fact required to be stated therein or necessary in order to
make the statements therein, in light of the circumstances under which they
were made, not misleading, except to the extent such statements have been
modified or superseded by later filed Suites SEC Documents. Other than as
set forth in Schedule 3.1(e) to the Suites Disclosure Letter, there is no
unresolved violation, criticism or exception by any Governmental Entity of
which Suites has received written notice with respect to any Suites report
or statement which, if resolved in a manner unfavorable to Suites, could
have a Suites Material Adverse Effect. The consolidated financial statements
of Suites included in the Suites SEC Documents complied as to form in all
material respects with applicable accounting requirements and the published
rules and regulations of the SEC with respect thereto, have been prepared in
accordance with generally accepted accounting principles ("GAAP") (except,
in the case of interim financial statements, as permitted by Forms 10-Q or
8-K of the SEC) applied on a consistent basis during the periods involved
(except as may be indicated in the notes thereto) and fairly presented, in
accordance with the applicable requirements of GAAP, the consolidated
financial position of Suites and the Suites Subsidiaries taken as a whole,
as of the dates thereof and the consolidated results of operations and cash
flows for the periods then ended (subject, in the case of interim financial
statements, to normal year-end adjustments). Suites has no Suites
Subsidiaries which are not consolidated for accounting purposes.

(f) Absence of Certain Changes or Events. Except as disclosed in the
Suites SEC Documents or in Schedule 3.1(f) to the Suites Disclosure Letter,
since the date of the most recent financial statements included in the
Suites SEC Documents (the "Suites Financial Statement Date") and to the date
of this Agreement, but not thereafter with respect to clause (a) of this
Section 3.1(f), Suites and the Suites Subsidiaries have conducted their
business only in the ordinary course and there has not been (a) any material
adverse change in the business, financial condition or results of operations
of Suites and the Suites Subsidiaries taken as a whole, that has resulted or
would result, individually or in the aggregate, in a Suites Material Adverse
Effect, nor has there been any occurrence or circumstance that with the
passage of time would reasonably be expected to result in a Suites Material
Adverse Effect, (b) except for regular quarterly distributions (in the case
of Suites) not in excess of $0.201 per Suites Common Share with customary
record and payment dates, any declaration, setting aside or payment of any
dividend or other distribution (whether in cash, stock or property) with
respect to the Suites Common Shares, (c) any split, combination or
reclassification of any Suites Common Shares or any issuance or the
authorization of any issuance of any other securities in respect of, in lieu
of or in substitution for, or giving the right to acquire by exchange or
exercise, shares of its beneficial interest or any issuance of an ownership
interest in, any Suites Subsidiary except as contemplated by this Agreement,
(d) any damage, destruction or loss, whether or not covered by insurance,
that has or would have a Suites Material Adverse Effect, (e) any change in
accounting methods, principles or practices by Suites or any Suites
Subsidiary materially affecting its assets, liabilities or business, except
insofar as may have been disclosed in Suites SEC Documents or required by a
change in GAAP or (f) any amendment of any employment, consulting,
severance, retention or any other agreement between Suites and any officer
or director of Suites.

(g) Litigation. Except as disclosed in the Suites SEC Documents or in
Schedule 3.1(g) to the Suites Disclosure Letter, and other than personal
injury and other routine tort litigation arising from the ordinary course of
operations of Suites and the Suites Subsidiaries which is covered by
adequate insurance, there is no suit, action or proceeding pending or, to
the knowledge of Suites, threatened against or affecting Suites or any
Suites Subsidiary that, individually or in the aggregate, could reasonably
be expected to (i) have a Suites Material Adverse Effect or (ii) prevent the
consummation of the Merger or any of the other transactions contemplated
hereby, nor is there any judgment, decree, injunction, rule or order of any

A-12

Governmental Entity or arbitrator outstanding against Suites or any Suites
Subsidiary having, or which, insofar as reasonably can be foreseen, in the
future would have, any such effect.

(h) Benefit Plans; ERISA Compliance.

(i) All employee benefits plans and other benefit arrangements
covering employees of Suites and the Suites Subsidiaries is listed in
the Suites Disclosure Letter. True and complete copies of the Suites
Benefit Plans (as defined herein) have been made available to the
Company. Except as disclosed in the Suites SEC Documents or in Schedule
3.1(h)(i) to the Suites Disclosure Letter, since the date of the most
recent audited financial statements included in the Suites SEC
Documents, there has not been any adoption or amendment in any material
respect by Suites or any Suites Subsidiary of any bonus, pension, profit
sharing, deferred compensation, incentive compensation, stock ownership,
stock purchase, stock option, phantom stock, retirement, vacation,
severance, disability, death benefit, hospitalization, medical or other
employee benefit plan, arrangement or understanding (whether or not
legally binding) providing benefits to any current or former employee,
officer or director of Suites or any Suites Subsidiary or any person
affiliated with Suites under Section 414(b), (c), (m) or (o) of the Code
(collectively, "Suites Benefit Plans").

(ii) Except as described in the Suites SEC Documents or in Schedule
3.1(h)(ii) to the Suites Disclosure Letter or as would not have a Suites
Material Adverse Effect, (A) all Suites Benefit Plans, including any
such plan that is an "employee benefit plan" as defined in Section 3(3)
of the Employee Retirement Income Security Act of 1974, as amended
("ERISA"), are in compliance with all applicable requirements of law,
including ERISA and the Code, and (B) neither Suites nor any Suites
Subsidiary has any liabilities or obligations with respect to any such
Suites Benefit Plan, whether accrued, contingent or otherwise (other
than obligations to make contributions and pay benefits and
administrative costs incurred in the ordinary course), nor to the
knowledge of Suites are any such liabilities or obligations expected to
be incurred. Except as set forth in Schedule 3.1(h)(ii) to the Suites
Disclosure Letter, the execution of, and performance of the transactions
contemplated in, this Agreement will not (either alone or together with
the occurrence of any additional or subsequent events) constitute an
event under any Suites Benefit Plan, policy, arrangement or agreement,
trust or loan that will or may result in any payment (whether of
severance pay or otherwise), acceleration, forgiveness of indebtedness,
vesting, distribution, increase in benefits or obligation to fund
benefits with respect to any employee or director. The only severance
agreements or severance policies applicable to Suites or the Suites
Subsidiaries are the agreement and policies specifically referred to in
Schedule 3.1(h)(ii) to the Suites Disclosure Letter.

(iii) Except as may be set forth in Schedule 3.1(h)(iii) to the
Suites Disclosure Letter, there are no pending or, to the Knowledge of
Suites, threatened claims against or otherwise involving any of the
Suites Benefit Plans and no suit, action or other litigation (excluding
claims for benefits incurred in the ordinary course of Suites Benefit
Plan activities) has been brought against or with respect to any such
Suites Benefit Plan, except for any of the foregoing which would not
have a Suites Material Adverse Effect.

(i) Taxes.

(i) Each of Suites and each Suites Subsidiary has timely filed all
material Tax Returns (as defined herein) and reports required to be
filed by it (after giving effect to any filing extension properly
granted by a Governmental Entity having authority to do so). Each such
Tax Return is true, correct and complete in all material respects.
Suites and each Suites Subsidiary have paid (or Suites has paid on their
behalf), within the time and manner prescribed by law, all material
Taxes (as defined herein) that are due and payable. As used in this
Agreement, "Taxes" shall mean any federal, state, local or foreign
income, gross receipts, license, payroll, employment withholding,
property, sales, excise or other tax or governmental charges of any
nature whatsoever, together with any penalties, interest or additions
thereto and "Tax Return" shall mean any return, declaration, report,
claim for refund, or information

A-13

return or statement relating to Taxes, including any schedule or
attachment thereto, and including any amendment thereof.

(ii) Suites (A) for all of its taxable years commencing with the
year ending December 31, 1999 through the most recent December 31, has
been subject to taxation as a real estate investment trust ("REIT")
under the Code within the meaning of Section 856 of the Code and has
satisfied the requirements to qualify as a REIT for such years, (B) has
operated, and intends to continue to operate, in such a manner as to
qualify as a REIT for its tax year ending December 31, 2002, and (C) has
not taken or omitted to take any action which could reasonably be
expected to result in a challenge to its status as a REIT, and, to
Suites' Knowledge, no such challenge is pending or threatened. Each
Suites Subsidiary which is a partnership or files Tax Returns as a
partnership for federal income tax purposes has since its inception been
classified for federal income tax purposes as a partnership and not as a
corporation or as an association taxable as a corporation.

(iii) Except as may be set forth in Schedule 3.1(i)(iii) to the
Suites Disclosure Letter, neither Suites nor any of its Subsidiaries is
a party to any pending action or proceeding by any governmental
authority for assessment or collection of taxes, and no claim for
assessment or collection of taxes has been asserted against it.

(j) No Loans or Payments to Employees, Officers or Directors. Except as
set forth in the Suites SEC Documents, or Schedule 3.1(h)(ii) or 3.1(j) to
the Suites Disclosure Letter or as otherwise specifically provided for in
this Agreement there is no (i) loan outstanding from or to any employee,
officer or director of Suites, (ii) employment or severance contract or
other arrangement with respect to severance with respect to any employee,
officer or director of Suites or any Suites Subsidiary, (iii) other
agreement requiring payments to be made on a change of control or otherwise
as a result of the consummation of the Merger or any of the other
transactions contemplated hereby with respect to any employee, officer or
director of Suites or any Suites Subsidiary or (iv) any agreement to appoint
or nominate any person as a director of Suites or the Company.

(k) Brokers; Schedule of Fees and Expenses. No broker, investment
banker, financial advisor or other person, other than Wachovia Securities,
Inc. ("Wachovia Securities"), the fees and expenses of which, as set forth
in a letter agreement between Suites and Wachovia Securities (a true and
complete copy of which has been provided by Suites to the Company), have
previously been disclosed to the Company, is entitled to any broker's,
finder's, financial advisor's or other similar fee or commission in
connection with the transactions contemplated hereby based upon arrangements
made by or on behalf of Suites or any Suites Subsidiary.

(l) Compliance with Laws. Except as disclosed in the Suites SEC
Documents and except as set forth in Schedule 3.1(l) to the Suites
Disclosure Letter, neither Suites nor any of the Suites Subsidiaries has
violated or failed to comply with any statute, law, ordinance, regulation,
rule, judgment, decree or order of any Governmental Entity applicable to its
business, properties or operations, except for violations and failures to
comply that would not, individually or in the aggregate, reasonably be
expected to result in a Suites Material Adverse Effect.

(m) Contracts; Debt Instruments. Neither Suites nor any Suites
Subsidiary is in violation of or in default under, in any material respect
(nor does there exist any condition which upon the passage of time or the
giving of notice or both would cause such a violation of or default under),
any material loan or credit agreement, note, bond, mortgage, indenture,
lease, or any agreement to acquire real property, or any other material
contract, agreement, arrangement or understanding, to which it is a party or
by which it or any of its properties or assets is bound, except as set forth
in Schedule 3.1(m) to the Suites Disclosure Letter and except for violations
or defaults that would not, individually or in the aggregate, result in a
Suites Material Adverse Effect.

(n) Environmental Matters. Except as disclosed in Schedule 3.1(n) to
the Suites Disclosure Letter or in the environmental audits/reports listed
therein, each of Suites and each Suites Subsidiary has obtained all
licenses, permits, authorizations, approvals and consents from Governmental
Entities which are required

A-14

in respect of its business, operations, assets or properties under any
applicable Environmental Law (as defined below) and each of Suites and each
Suites Subsidiary is in compliance in all material respects with the terms
and conditions of all such licenses, permits, authorizations, approvals and
consents and with any applicable Law of any Governmental Entity relating to
human health, safety or protection of the environment ("Environmental
Laws"), except for violations and failures to comply which would not,
individually or in the aggregate, have a Suites Material Adverse Effect.

(o) Suites Properties. Except as listed in Schedule 3.1(o) to the
Suites Disclosure Letter or except as listed in the title insurance
policies, reports or the surveys, copies of which were made available for
review to the Company: (i) Suites or a Suites Subsidiary owns fee simple
title to each of the real properties reflected on the most recent balance
sheet of Suites included in the Suites SEC Documents or as identified in
Schedule 3.1(o) to the Suites Disclosure Letter (the "Suites Properties"),
which are all of the real estate properties owned by them, free and clear of
liens, mortgages or deeds of trust, claims against title, charges which are
liens, security interests or other encumbrances on title ("Encumbrances");
(ii) the Suites Properties are not subject to any rights of way, written
agreements, laws, ordinances and regulations affecting building use or
occupancy, or reservations of an interest in title (collectively, "Property
Restrictions"), except for (a) Property Restrictions imposed or promulgated
by law or any Governmental Entity with respect to real property, including
zoning regulations, provided they do not materially adversely affect the
current use of the Suites Properties, (b) mechanics', carriers', workmen's,
repairmen's liens and other Encumbrances, Property Restrictions and other
limitations of any kind, if any, which have heretofore been bonded or which
individually or in the aggregate do not exceed $100,000, do not materially
detract from the value of or materially interfere with the present use of
any of the Suites Properties subject thereto or affected thereby, and do not
otherwise materially impair business operations conducted by Suites and the
Suites Subsidiaries and which have arisen or been incurred only in its
construction or renovation activities or in the ordinary course of business;
(iii) valid policies of title insurance have been issued insuring Suites' or
a Suites Subsidiary's fee simple title to the Suites Properties except as
noted therein, and such policies are, at the date hereof, in full force and
effect and no claim has been made against any such policy; (iv) there is no
certificate, permit or license from any Governmental Entity having
jurisdiction over any of the Suites Properties or any agreement, easement or
any other right which is necessary to permit the lawful use and operation of
the buildings and improvements on any of the Suites Properties or which is
necessary to permit the lawful use and operation of all driveways, roads and
other means of egress and ingress to and from any of the Suites Properties
that has not been obtained and is not in full force and effect, or any
pending threat of modification or cancellation of any of same; (v) neither
Suites nor a Suites Subsidiary has received written notice of any violation
of any federal, state or municipal law, ordinance, order, regulation or
requirement affecting any portion of any of the Suites Properties issued by
any Governmental Entity; (vi) neither Suites nor a Suites Subsidiary has
received notice to the effect that there are (a) condemnation or rezoning
proceedings that are pending or threatened with respect to any of the Suites
Properties or (b) zoning, building or similar laws, codes, ordinances,
orders or regulations that are or will be violated by the continued
maintenance, operation or use of any buildings or other improvements on any
of the Suites Properties or by the continued maintenance, operation or use
of the parking areas.

(p) Books and Records.

(i) The books of account and other financial records of Suites and
each Suites Subsidiary are in all material respects true, complete and
correct, have been maintained in accordance with good business
practices, and are accurately reflected in all material respects in the
financial statements included in the Suites SEC Documents.

(ii) Suites has previously delivered or made available to the
Company true and correct copies of the charter and by-laws of Suites, as
amended to date, and the charter, by-laws, organization documents and
partnership agreements of the Suites Subsidiaries, and all amendments
thereto. Suites has also delivered to the Company evidence of its
director and officer liability insurance policy.

(iii) The minute books and other records of corporate or partnership
proceedings of Suites and each Suites Subsidiary that have previously
been made available to the Company, contain in all

A-15

material respects accurate records of all meetings and accurately
reflect in all material respects all other corporate action of the
shareholders and directors and any committees of the Board of Directors
of Suites and the Suites Subsidiaries which are corporations.

(q) Opinion of Financial Advisor. Wachovia Securities has delivered its
opinion, addressed to the special committee of the Board of Directors of
Suites and satisfactory to Suites, with regard to the fairness, from a
financial point of view, to the holders of Suites Common Shares (excluding
the Company or any affiliate thereof) of the Common Shares Consideration to
be paid to such shareholders by the Company pursuant to the Merger. Suites
or Wachovia Securities will provide to the Company a photocopy of the
written version of the opinion described in this Section 3.1(q) as soon as
it is available.

(r) Registration Statement. The information furnished by Suites to the
Company for inclusion in the Registration Statement will not, as of the
effective date of the Registration Statement, contain an untrue statement of
a material fact or omit to state a material fact required to be stated
therein or necessary to make the statements therein not misleading.

(s) Vote Required. Except as set forth in the following sentence, the
only votes of the holders of any class or series of Suites' capital stock
necessary (under applicable law or otherwise) to approve the Merger, this
Agreement and the other transactions contemplated hereby are the affirmative
vote of (i) at least a majority of the outstanding Suites Common Shares and
(ii) at least a majority of shares present and voting excluding Suites
Common Shares owned by or voted under the control of a Suites director or
the Company. By executing this Agreement, Glade M. Knight, Debra A. Jones
and Stanley J. Olander, Jr. (the "Additional Signatories") represent that
they collectively own all of the outstanding Suites Class B Convertible
Shares, and they hereby consent to and approve the Merger, this Agreement
and the other transactions contemplated hereby.

(t) Labor Matters. Neither Suites nor any of its Subsidiaries is a
party to, or bound by, any collective bargaining agreement, contract or
other agreement or understanding with a labor union or labor union
organization. There is no unfair labor practice or labor arbitration
proceeding pending or, to the Knowledge of Suites threatened against Suites
or its Subsidiaries relating to their business, except for any such
proceeding as would not have a Suites Material Adverse Effect. To the
Knowledge of Suites, there are no organizational efforts with respect to the
formation of a collective bargaining unit presently being made or threatened
involving employees of Suites or any of its Subsidiaries.

(u) Solicitation of Transactions. As of the date of this Agreement,
Suites has not directly or indirectly, through any officer, director,
employee, agent, investment banker, financial advisor, attorney, accountant,
broker, finder or other representative, initiated or solicited (including by
way of furnishing nonpublic information or assistance) any inquiries or the
making of any proposal that constitutes, or may reasonably be expected to
lead to, any Competing Transaction (as defined in Section 5.6), or
authorized or permitted any of its officers, directors, employees, agents,
attorneys, investment bankers, financial advisors, accountants, brokers,
finders or other representatives to take any such action.

SECTION 3.2 Representations and Warranties of the Company. The Company
represents and warrants to Suites as follows:

(a) Organization, Standing and Corporate Power of the Company. The
Company is a corporation duly organized and validly existing under the laws
of Virginia and has the requisite corporate power and authority to carry on
its business as now being conducted. The Company is duly qualified or
licensed to do business and is in good standing in each jurisdiction in
which the nature of its business or the ownership or leasing of its
properties makes such qualification or licensing necessary, other than in
such jurisdictions where the failure to be so qualified or licensed,
individually or in the aggregate, would not have a material adverse effect
on the business, properties, assets, financial condition or results of
operations of the Company and the Company Subsidiaries (as defined below),
taken as a whole (a "Company Material Adverse Effect"). As used herein,
"Company Subsidiary" shall mean any corporation, partnership, limited
liability company, joint venture or other legal entity of which the Company
(either directly or through or together with another Company Subsidiary)
owns any capital stock or other equity interests of such entity.

A-16

(b) The Company Subsidiaries. Schedule 3.2(b) to the Company Disclosure
Letter (as defined herein) sets forth each Company Subsidiary and the
ownership interest therein of the Company. Except as set forth in Schedule
3.2(b) to the Company Disclosure Letter, (i) all the outstanding shares of
capital stock of each Company Subsidiary that is a corporation have been
validly issued and are fully paid and nonassessable and are owned by the
Company, by another Company Subsidiary or by the Company and another Company
Subsidiary, free and clear of all Liens and (ii) all equity interests in
each Company Subsidiary that is a partnership or limited liability company
are owned by the Company or by the Company and another Company Subsidiary
free and clear of all Liens. Each Company Subsidiary that is a corporation
is duly incorporated and validly existing under the laws of its jurisdiction
of incorporation and has the requisite corporate power and authority to
carry on its business as now being conducted and each Company Subsidiary
that is a partnership or limited liability company is duly organized and
validly existing under the laws of its jurisdiction of organization and has
the requisite power and authority to carry on its business as now being
conducted. Each Company Subsidiary is duly qualified or licensed to do
business and is in good standing in each jurisdiction in which the nature of
its business or the ownership or leasing of its properties makes such
qualification or licensing necessary, other than in such jurisdictions where
the failure to be so qualified or licensed individually or in the aggregate,
would not have a Company Material Adverse Effect. Except as will be
disclosed in the Company Disclosure Letter and except for interests in the
Company Subsidiaries, neither the Company nor any Company Subsidiary owns
directly or indirectly any interest or investment (whether equity or debt)
in any corporation, partnership, joint venture, business, trust or entity
(other than investments in short-term investment securities).

(c) Capital Structure. The authorized capital stock of the Company
consists of 200,000,000 Company Common Shares, 200,000,000 Series A
Preferred Shares, no par value (the "Company Series A Shares"), 240,000
Series B Preferred Convertible Shares, no par value (the "Company Series B
Shares") and 15,000,000 additional Preferred Shares ("Company Additional
Preferred Shares"). On the date hereof, (i) 29,320,298 Company Common
Shares, 29,320,288 Company Series A Shares, 240,000 Company Series B Shares
and no Company Additional Preferred Shares were issued and outstanding, (ii)
1,997,424 Company Common Shares were available for issuance under the
Company's stock option plans (the "Company Plans"), and (iii) 42,718 Company
Common Shares were reserved for issuance upon exercise of outstanding stock
options to purchase Company Common Shares granted under the Company Plans
(the "Company Share Options"). On the date of this Agreement, except as set
forth in this Section 3.2(c), no shares of capital stock or other voting
securities of the Company were issued, reserved for issuance or outstanding.
All outstanding shares of capital stock of the Company are, and all shares
which may be issued pursuant to this Agreement will be when issued, duly
authorized, validly issued, fully paid and nonassessable and not subject to
preemptive rights. Except (A) for the Company Share Options, (B) as set
forth in Schedule 3.2(c) to the Company Disclosure Letter and (C) as
otherwise permitted under Section 4.2, as of the date of this Agreement
there are no outstanding securities, options, stock appreciation rights,
warrants, calls, rights, commitments, agreements, arrangements or
undertakings of any kind to which the Company or any Company Subsidiary is a
party or by which such entity is bound, obligating the Company or any
Company Subsidiary to issue, deliver or sell, or cause to be issued,
delivered or sold, additional shares of capital stock, voting securities or
other ownership interests of the Company or of any Company Subsidiary or
obligating the Company or any Company Subsidiary to issue, grant, extend or
enter into any such security, option, warrant, call, right, commitment,
agreement, arrangement or undertaking.

(d) Authority; Noncontravention; Consents. The Company has the
requisite corporate power and authority to enter into this Agreement and,
subject to approval of the Merger, this Agreement and the other transactions
contemplated hereby by the requisite vote of the holders of the Company
Common Shares (the "Company Common Shareholder Approval") to consummate the
transactions contemplated by this Agreement to which the Company is a party.
The execution and delivery of this Agreement by the Company and the
consummation by the Company of the transactions contemplated hereby to which
the Company is a party have been duly authorized by all necessary corporate
action on the part of the Company, including the approval of the Company's
Board of Directors, subject to receipt of Company Common Shareholder
Approval. This Agreement has been duly executed and delivered by the Company
and constitutes valid and

A-17

binding obligations of the Company, enforceable against the Company in
accordance with its terms, subject to applicable bankruptcy, insolvency,
moratorium or other similar laws relating to creditors' rights and general
principles of equity. Except as set forth in Schedule 3.2(d) to the Company
Disclosure Letter, the execution and delivery of this Agreement by the
Company does not, and the consummation of the transactions contemplated
hereby to which the Company is a party and compliance by the Company with
the provisions of this Agreement will not, conflict with, or result in any
violation of, or default (with or without notice or lapse of time, or both)
under, or give rise to a right of termination, cancellation or acceleration
of any obligation or to loss of a material benefit under, or result in the
creation of any Lien upon any of the properties or assets of the Company or
any Company Subsidiary under, (i) the Company Charter or Company By-Laws or
the comparable charter or organizational documents or partnership or similar
agreement (as the case may be) of any Company Subsidiary, each as amended or
supplemented to the date of this Agreement, (ii) any loan or credit
agreement, note, bond, mortgage, indenture, reciprocal easement agreement,
lease or other agreement, instrument, permit, concession, franchise or
license applicable to the Company or any Company Subsidiary or their
respective properties or assets or (iii) subject to the governmental filings
and other matters referred to in the following sentence, any Laws applicable
to the Company or any Company Subsidiary or their respective properties or
assets, other than, in the case of clause (ii) or (iii), any such conflicts,
violations, defaults, rights or Liens that individually or in the aggregate
would not (x) have a Company Material Adverse Effect or (y) prevent the
consummation of the Merger or the other transactions contemplated hereby. No
consent, approval, order or authorization of, or registration, declaration
or filing with, any Governmental Entity is required by or with respect to
the Company or any Company Subsidiary in connection with the execution and
delivery of this Agreement by the Company or the consummation by the Company
of any of the transactions contemplated hereby and thereby, except for (i)
the filing with the SEC of (x) a proxy statement relating to the approval by
Company shareholders of the Merger and the other transactions contemplated
hereby (as amended or supplemented from time to time, the "Proxy
Statement"), (y) the Registration Statement relating to the issuance of the
Merger Consideration and (z) such reports under Section 13(a) of the
Exchange Act as may be required in connection with this Agreement and the
other transactions contemplated by this Agreement, (ii) the filing of the
Articles of Merger for the Merger with the State Corporation Commission of
the Commonwealth of Virginia, (iii) such filings as may be required in
connection with the payment of any Transfer and Gains Taxes and (iv) such
other consents, approvals, orders, authorizations, registrations,
declarations and filings (A) as are set forth in Schedule 3.2(d) to the
Company Disclosure Letter or (B) as may be required under federal, state or
local Environmental Laws or (C) which, if not obtained or made, would not
prevent or delay in any material respect the consummation of any of the
transactions contemplated by this Agreement or otherwise prevent the Company
from performing its obligations under this Agreement in any material respect
or have, individually or in the aggregate, a Company Material Adverse Effect.

(e) SEC Documents; Financial Statements; Undisclosed Liabilities. The
Company has filed all required reports, schedules, forms, statements and
other documents with the SEC since January 1, 2001 (the "Company SEC
Documents"). All of the Company SEC Documents (other than preliminary
material), as of their respective filing dates, complied in all material
respects with all applicable requirements of the Securities Act and the
Exchange Act and, in each case, the rules and regulations promulgated
thereunder applicable to such Company SEC Documents. None of the Company SEC
Documents at the time of filing contained any untrue statement of a material
fact or omitted to state any material fact required to be stated therein or
necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading, except to the
extent such statements have been modified or superseded by later filed
Company SEC Documents. Other than as set forth in Schedule 3.2(e) to the
Company Disclosure Letter, there is no unresolved violation, criticism or
exception by any Governmental Entity of which the Company has received
written notice with respect to the Company report or statement which, if
resolved in a manner unfavorable to the Company, could have a Company
Material Adverse Effect. The consolidated financial statements of the
Company included in the Company SEC Documents complied as to form in all
material respects with applicable accounting requirements and the published
rules and regulations of the SEC with respect thereto, have been prepared in
accordance with GAAP (except, in the case of interim

A-18

financial statements, as permitted by Forms 10-Q and 8-K of the SEC) applied
on a consistent basis during the periods involved (except as may be
indicated in the notes thereto) and fairly presented, in accordance with the
applicable requirements of GAAP, the consolidated financial position of the
Company and the Company Subsidiaries, taken as a whole, as of the dates
thereof and the consolidated results of operations and cash flows for the
periods then ended (subject, in the case of interim financial statements, to
normal year-end adjustments). Other than as set forth in Schedule 3.2(e) to
the Company Disclosure Letter, the Company has no Company Subsidiaries which
are not consolidated for accounting purposes.

(f) Absence of Certain Changes or Events. Except as disclosed in the
Company SEC Documents or in Schedule 3.2(f) to the Company Disclosure
Letter, since the date of the most recent financial statements included in
the Company SEC Documents (the "Company Financial Statement Date") and to
the date of this Agreement, but not thereafter with respect to clause (a) of
this Section 3.2(f), the Company and the Company Subsidiaries have conducted
their business only in the ordinary course and there has not been (a) any
material adverse change in the business, financial condition or results of
operations of the Company and the Company Subsidiaries taken as a whole,
that has resulted or would result, individually or in the aggregate, in a
Company Material Adverse Effect, nor has there been any occurrence or
circumstance that with the passage of time would reasonably be expected to
result in a Company Material Adverse Effect, (b) except for (i) the Company
Extra-Ordinary Dividend and (ii) regular quarterly distributions not in
excess of $.25 per Company Common Share with customary record and payment
dates, any declaration, setting aside or payment of any dividend or other
distribution (whether in cash, stock or property) with respect to any of the
Company Common Shares, (c) any split, combination or reclassification of any
Company Common Shares or any issuance or the authorization of any issuance
of any other securities in respect of, in lieu of or in substitution for, or
giving the right to acquire by exchange or exercise, Company Common Shares
or any issuance of an ownership interest in, any Company Subsidiary except
as contemplated by this Agreement, (d) any damage, destruction or loss,
whether or not covered by insurance, that has or would have a Company
Material Adverse Effect, (e) any change in accounting methods, principles or
practices by the Company or any Company Subsidiary materially affecting its
assets, liabilities or business, except insofar as may have been disclosed
in Company SEC Documents or required by a change in GAAP or (f) any
amendment of any employment, consulting, severance, retention or any other
agreement between the Company and any officer or director of the Company.

(g) Litigation. Except as disclosed in the Company SEC Documents or in
Schedule 3.2(g) of the Company Disclosure Letter, and other than personal
injury and other routine tort litigation arising from the ordinary course of
operations of the Company or the Company Subsidiaries which is covered by
adequate insurance, there is no suit, action or proceeding pending or, to
the knowledge of the Company, threatened against or affecting the Company or
any Company Subsidiary that, individually or in the aggregate, could
reasonably be expected to (i) have a Company Material Adverse Effect or (ii)
prevent the consummation of the Merger or any of the other transactions
contemplated hereby, nor is there any judgment, decree, injunction, rule or
order of any Governmental Entity or arbitrator outstanding against the
Company or any Company Subsidiary having, or which, insofar as reasonably
can be foreseen, in the future would have, any such effect.

(h) Absence of Changes in Benefit Plans; ERISA Compliance.

(i) All employee benefits plans and other benefit arrangements
covering employees of the Company and the Company Subsidiaries is listed
in the Company Disclosure Letter. True and complete copies of the
Company Benefit Plans (as defined herein) have been made available to
Suites. Except as disclosed in the Company SEC Documents or in Schedule
3.2(h)(i) to the Company Disclosure Letter, since the date of the most
recent audited financial statements included in the Company SEC
Documents, there has not been any adoption or amendment in any material
respect by the Company or any Company Subsidiary of any bonus, pension,
profit sharing, deferred compensation, incentive compensation, stock
ownership, stock purchase, stock option, phantom stock, retirement,
vacation, severance, disability, death benefit, hospitalization, medical
or other employee benefit plan, arrangement or understanding (whether or
not legally binding) providing benefits to any current or

A-19

former employee, officer or director of the Company or any Company
Subsidiary or any person affiliated with the Company under Section
414(b), (c), (m) or (o) of the Code (collectively, "Company Benefit
Plans").

(ii) Except as described in the Company SEC Documents or in Schedule
3.2(h)(ii) to the Company Disclosure Letter or as would not have a
Company Material Adverse Effect, (A) all Company Benefit Plans,
including any such plan that is an "employee benefit plan" as defined in
Section 3(3) of ERISA, are in compliance with all applicable
requirements of law, including ERISA and the Code, and (B) neither the
Company nor any Company Subsidiary has any liabilities or obligations
with respect to any such Company Benefit Plans, whether accrued,
contingent or otherwise (other than obligations to make contributions
and pay benefits and administrative costs incurred in the ordinary
course), nor to the knowledge of the Company are any such liabilities or
obligations expected to be incurred. Except as set forth in Schedule
3.2(h)(ii) to the Company Disclosure Letter, the execution of, and
performance of the transactions contemplated in, this Agreement will not
(either alone or together with the occurrence of any additional or
subsequent events) constitute an event under any Company Benefit Plan,
policy, arrangement or agreement, trust or loan that will or may result
in any payment (whether of severance pay or otherwise), acceleration,
forgiveness of indebtedness, vesting, distribution, increase in benefits
or obligation to fund benefits with respect to any employee or director.
The only severance agreements or severance policies applicable to the
Company or the Company Subsidiaries are the agreements and policies
specifically referred to in Schedule 3.2(h)(ii) to the Company
Disclosure Letter.

(iii) Except as may be set forth in Schedule 3.2(h)(iii) to the
Company Disclosure Letter, there are no pending or, to the Knowledge of
the Company, threatened claims against or otherwise involving any of the
Company Benefit Plans and no suit, action or other litigation (excluding
claims for benefits incurred in the ordinary course of the Company
Benefit Plan activities) has been brought against or with respect to any
such Company Benefit Plan, except for any of the foregoing which would
not have a Company Material Adverse Effect.

(i) Taxes.

(i) Each of the Company and each Company Subsidiary has timely filed
with the appropriate taxing authority all material Tax Returns and
reports required to be filed by it (after giving effect to any filing
extension properly granted by a Governmental Entity having authority to
do so). Each such Tax Return is true, correct and complete in all
material respects. The Company and each Company Subsidiary have paid (or
the Company has paid on their behalf), within the time and manner
prescribed by law, all material Taxes that are due and payable.

(ii) The Company (A) for all of its taxable years commencing with
the year ended December 31, 2001 through the most recent December 31,
has been subject to taxation as a REIT within the meaning of Section 856
of the Code and has satisfied the requirements to qualify as a REIT for
such years, (B) has operated, and intends to continue to operate, in
such a manner as to qualify as a REIT for its tax year ending December
31, 2002, and (C) has not taken or omitted to take any action which
could reasonably be expected to result in a challenge to its status as a
REIT, and, to the Company's knowledge, no such challenge is pending or
threatened. Each Company Subsidiary which is a partnership or files Tax
Returns as a partnership for federal income tax purposes has since its
inception been classified for federal income tax purposes as a
partnership and not as a corporation or as an association taxable as a
corporation.

(iii) Except as may be set forth in Schedule 3.2(i)(iii) to the
Company Disclosure Letter, neither the Company nor any of its
Subsidiaries is a party to any pending action or proceeding by any
governmental authority for assessment or collection of taxes, and no
claim for assessment or collection of taxes has been asserted against it.

(j) No Loans or Payments to Employees, Officers or Directors. Except as
set forth in Schedule 3.2(h)(ii) or 3.2(j) to the Company Disclosure Letter
or as otherwise specifically provided for in this

A-20

Agreement, there is no (i) loan outstanding from or to any employee, officer
or director of the Company, (ii) employment or severance contract or other
arrangement with respect to severance with respect to any employee, officer
or director of the Company or any Company Subsidiary, (iii) other agreement
requiring payments to be made on a change of control or otherwise as a
result of the consummation of the Merger or the other transactions
contemplated hereby with respect to any employee, officer or director of the
Company or any Company Subsidiary or (iv) any agreement to appoint or
nominate any person as a director of the Company or any Company Subsidiary.

(k) Brokers; Opinion of Financial Advisor. No broker, investment
banker, financial advisor or other person, other than Merrill Lynch, Pierce,
Fenner & Smith Incorporated ("Merrill Lynch"), the fees and expenses of
which, as set forth in a letter agreement between the Company and Merrill
Lynch, (a true and complete copy of which has been provided by the Company
to Suites), have previously been disclosed to Suites, is entitled to any
broker's, finder's, financial advisor's or other similar fee or commission
in connection with the transactions contemplated hereby based upon
arrangements made by or on behalf of the Company or any Company Subsidiary.
Merrill Lynch has delivered its opinion, addressed to the special committee
of the Board of Directors of the Company and satisfactory to the Company,
with regard to the fairness, from a financial point of view, to the Company
of the consideration to be paid by the Company pursuant to the Merger. The
Company or Merrill Lynch will provide to Suites a photocopy of the written
version of the opinion described in this Section 3.2(k) as soon as it is
available.

(l) Compliance with Laws. Except as disclosed in the Company SEC
Documents and except as set forth in Schedule 3.2(l) to the Company
Disclosure Letter, neither the Company nor any of the Company Subsidiaries
has violated or failed to comply with any Laws of any Governmental Entity
applicable to its business, properties or operations, except for violations
and failures to comply that would not, individually or in the aggregate,
reasonably be expected to result in a Company Material Adverse Effect.

(m) Contracts; Debt Instruments. Neither the Company nor any Company
Subsidiary is in violation of or in default under, in any material respect
(nor does there exist any condition which upon the passage of time or the
giving of notice or both would cause such a violation of or default under),
any material loan or credit agreement, note, bond, mortgage, indenture,
lease or any agreement to acquire real property, or any other material
contract, agreement, arrangement or understanding, to which it is a party or
by which it or any of its properties or assets is bound, except as set forth
in Schedule 3.2(m) to the Company Disclosure Letter and except for
violations or defaults that would not, individually or in the aggregate,
result in a Company Material Adverse Effect.

(n) Environmental Matters. Except as disclosed in Schedule 3.2(n) to
the Company Disclosure Letter or in the environmental audits/reports listed
thereon, each of the Company and each Company Subsidiary has obtained all
licenses, permits, authorizations, approvals and consents from Governmental
Entities which are required in respect of its business, operations, assets
or properties under any applicable Environmental Law, and each of the
Company and each Company Subsidiary is in compliance in all material
respects with the terms and conditions of all such licenses, permits,
authorizations, approvals and consents and with any applicable Environmental
Law, except for violations and failures to comply which would not,
individually or in the aggregate, have a Company Material Adverse Effect.

(o) Company Properties. Except as listed in Schedule 3.2(o) to the
Company Disclosure Letter or except as listed on the title insurance
policies, reports or the surveys, copies of which were made available for
review to Suites: (i) the Company or a Company Subsidiary owns fee simple
title to each of the real properties reflected on the most recent balance
sheet of the Company included in the Company SEC Documents or as identified
in Schedule 3.2(o) to the Company Disclosure Letter (the "Company
Properties"), which are all of the real estate properties owned by them,
free and clear of Encumbrances, (ii) the Company Properties are not subject
to any Property Restrictions, except for (a) Property Restrictions imposed
or promulgated by law or any Governmental Entity with respect to real
property, including zoning regulations, provided they do not materially
adversely affect the current use of the Company Properties, (b) mechanics',
carriers', workmen's, repairmen's liens and other Encumbrances, Property
Restrictions and other limitations of any kind, if any, which have
heretofore been bonded or which individually or in the

A-21

aggregate do not exceed $100,000, do not materially detract from the value
of or materially interfere with the present use of any of the Company
Properties subject thereto or affected thereby, and do not otherwise
materially impair business operations conducted by the Company and the
Company Subsidiaries and which have arisen or been incurred only in its
construction or renovation activities or in the ordinary course of business;
(iii) valid policies of title insurance have been issued insuring the
Company's or a Company Subsidiary's fee simple title to the Company
Properties except as noted therein, and such policies are, at the date
hereof, in full force and effect and no claim has been made against any such
policy; (iv) there is no certificate, permit or license from any
Governmental Entity having jurisdiction over any of the Company Properties
or any agreement, easement or any other rights which is necessary to permit
the lawful use and operation of the buildings and improvements on any of the
Company properties or which is necessary to permit the lawful use and
operation of all driveways, roads and other means of egress and ingress to
and from any of the Company Properties that has not been obtained and is not
in full force and effect, or any pending threat of modification or
cancellation of any of same; (v) neither the Company nor a Company
Subsidiary has received written notice of any violation of any federal,
state or municipal law, ordinance, order, regulation or requirement
affecting any portion of any of the Company Properties issued by any
Governmental Entity; (vi) neither the Company nor a Company Subsidiary has
received notice to the effect that there are (a) condemnation or rezoning
proceedings that are pending or threatened with respect to any of the
Company Properties or (b) zoning, building or similar laws, codes,
ordinances, orders or regulations that are or will be violated by the
continued maintenance, operation or use of any buildings or other
improvements on any of the Company Properties or by the continued
maintenance, operation or use of the parking areas.

(p) Books and Records.

(i) The books of account and other financial records of the Company
and each Company Subsidiary are in all material respects true, complete
and correct, have been maintained in accordance with good business
practices, and are accurately reflected in all material respects in the
financial statements included in the Company SEC Documents.

(ii) The Company has previously delivered or made available to
Suites true and correct copies of the Company Charter and Company
By-Laws, as amended to date, and the charter, by-laws, organizational
documents, partnership agreement and operating agreement of its
Subsidiaries, and all amendments thereto. The Company has also delivered
to Suites evidence of its director and officer liability insurance
policy.

(iii) The minute books and other records of corporate, partnership
or limited liability proceedings of the Company and each Company
Subsidiary that have previously been made available to Suites, contain
in all material respects accurate records of all meetings and accurately
reflect in all material respects all other corporate action of the
shareholders and directors and any committees of the Boards of Directors
of the Company and the Company Subsidiaries which are corporations.

(q) Vote Required The only vote of the holders of any class or series of
the Company's capital stock necessary (under applicable law or otherwise) to
approve the Merger, this Agreement and the other transactions contemplated
hereby is the affirmative vote of at least a majority of the Company Common
Shares present and voting, excluding Company Common Shares owned by or voted
under the control of a Company director or Suites.

(r) Labor Matters. Neither the Company nor any of its Subsidiaries is a
party to, or bound by, any collective bargaining agreement, contract or
other agreement or understanding with a labor union or labor union
organization. There is no unfair labor practice or labor arbitration
proceeding pending or, to the Knowledge of the Company, threatened against
the Company or its Subsidiaries relating to their business, except for any
such proceeding as would not have a Company Material Adverse Effect. To the
Knowledge of the Company, there are no organizational efforts with respect
to the formation of a collective bargaining unit presently being made or
threatened involving employees of the Company or any of its Subsidiaries.

A-22

ARTICLE IV

Covenants

SECTION 4.1 Conduct of Business by Suites. During the period from the date
of this Agreement to the Effective Time, Suites shall, and shall cause each of
the Suites Subsidiaries to, carry on its businesses in the usual, regular and
ordinary course in substantially the same manner as heretofore conducted and,
to the extent consistent therewith, use commercially reasonable efforts to
preserve intact its current business organization, goodwill, ongoing businesses
and its status as a REIT within the meaning of the Code. Without limiting the
generality of the foregoing, the following additional restrictions shall apply:
During the period from the date of this Agreement to the Effective Time, except
as set forth in Schedule 4.1 to the Suites Disclosure Letter or as otherwise
contemplated by this Agreement, Suites shall not and shall cause the Suites
Subsidiaries not to (and not to authorize or commit or agree to):

(a) (i) except for regular quarterly dividends not in excess of $.201
per Suites Common Shares, with customary record and payment dates, declare,
set aside or pay any dividends on, or make any other distributions in
respect of, any of Suites capital shares; (ii) split, combine or reclassify
any capital stock or partnership interests or issue or authorize the
issuance of any other securities in respect of, in lieu of or in
substitution for shares of such capital stock or partnership interests or
(iii) purchase, redeem or otherwise acquire any shares of capital stock of
Suites;

(b) except as otherwise contemplated by this Agreement or in Schedule
4.1(b) of the Suites Disclosure Letter, amend the charter or by-laws of
Suites;

(d) issue, deliver or sell, or grant any option or other right in
respect of, any shares of capital stock or debt securities, any other voting
or redeemable securities of Suites or any Suites Subsidiary or any
securities convertible into, or any rights, warrants or options to acquire,
any such shares, voting securities or redeemable or convertible securities
except to Suites or a Suites Subsidiary;

(e) make or rescind any tax election (unless required by law or
necessary to preserve Suites' status as a REIT or the status of any Suites
Subsidiary that is a partnership for federal tax purposes);

(f) (i) change in any material manner any of its methods, principles or
practices of accounting in effect at the Suites Financial Statement Date, or
(ii) settle or compromise any claim, action, suit, litigation, proceeding,
arbitration, investigation, audit or controversy relating to taxes, except
in the case of settlements or compromises in an amount not to exceed,
individually or in the aggregate, $250,000, or change any of its methods of
reporting income or deductions for federal income tax purposes from those
employed in the preparation of its federal income tax return for the taxable
year ending December 31, 2001, except, in the case of clause (i), as may be
required by the SEC, applicable law or GAAP and with notice thereof to the
Company;

(g) without the Company's consent, which shall not be unreasonably
withheld, settle any stockholder derivative or class action claims arising
out of or in connection with the Merger or the other transactions
contemplated hereby;

(h) without the consent of the Company, enter into or amend or otherwise
modify any material agreement or arrangement with Persons that are
affiliates or, as of the date hereof, are officers, directors or employees
of Suites or any Suites Subsidiary; and

(i) during the period from the date of this Agreement to the date of the
Proxy Statement, Suites shall not enter into or permit any Suites Subsidiary
to enter into any transaction or series of transactions including the
acquisition of a property or properties unless (i) Suites is able to satisfy
and does satisfy any applicable requirement to include or incorporate by
reference into the Registration Statement financial statements relating to
all such transactions not later than 30 days after such requirement first
arises, or (ii) the Company shall otherwise consent.

SECTION 4.2 Conduct of Business by the Company. During the period from the
date of this Agreement to the Effective Time, the Company shall, and shall
cause each of the Company Subsidiaries to, carry on its businesses in the
usual, regular and ordinary course in substantially the same manner as
heretofore conducted

A-23

and, to the extent consistent therewith, use commercially reasonable efforts to
preserve intact its current business organization, goodwill, ongoing businesses
and its status as a REIT within the meaning of the Code. Without limiting the
generality of the foregoing, the following additional restrictions shall apply:
During the period from the date of this Agreement to the Effective Time, except
as set forth in Schedule 4.2 to the Company Disclosure Letter or as otherwise
contemplated by this Agreement, the Company shall not and shall cause the
Company Subsidiaries not to (and not to authorize or commit or agree to):

(a) (i) except for the Company Extra-Ordinary Dividend and regular
quarterly dividends not in excess of $.25 per Common Share, with customary
record and payment dates, declare, set aside or pay any dividends on, or
make any other distributions in respect of, any of the Company's capital
shares; (ii) split, combine or reclassify any capital stock or partnership
interests or issue or authorize the issuance of any other securities in
respect of, in lieu of or in substitution for shares of such capital stock
or partnership interests or (iii) purchase, redeem or otherwise acquire any
shares of capital stock of the Company;

(b) except as otherwise contemplated by this Agreement, or in Schedule
4.2(b) of the Company Disclosure Letter, amend the Company Charter or
Company By-Laws;

(d) issue, deliver or sell, or grant any option or other right in
respect of, any shares of capital stock or debt securities, any other voting
or redeemable securities of the Company or any Company Subsidiary or any
securities convertible into, or any rights, warrants or options to acquire,
any such shares, voting securities or redeemable or convertible securities
except to the Company or a Company Subsidiary;

(e) make or rescind any tax election (unless required by law or
necessary to preserve the Company's status as a REIT or the status of any
Company Subsidiary that is a partnership for federal tax purposes);

(f) (i) change in any material manner any of its methods, principles or
practices of accounting in effect at the Company Financial Statement Date,
or (ii) settle or compromise any claim, action, suit, litigation,
proceeding, arbitration, investigation, audit or controversy relating to
taxes, except in the case of settlements or compromises in an amount not to
exceed, individually or in the aggregate, $250,000, or change any of its
methods of reporting income or deductions for federal income tax purposes
from those employed in the preparation of its federal income tax return for
the taxable year ending December 31, 2001, except, in the case of clause
(i), as may be required by the SEC, applicable law or GAAP and with notice
thereof to Suites;

(g) without Suites' consent, which shall not be unreasonably withheld,
settle any stockholder derivative or class action claims arising out of or
in connection with the Merger or the other transactions contemplated hereby;

(h) without the consent of Suites, enter into or amend or otherwise
modify any material agreement or arrangement with Persons that are
affiliates or, as of the date hereof, are officers, directors or employees
of the Company or any Company Subsidiary; and

(i) during the period from the date of this Agreement to the date of the
Proxy Statement, the Company shall not enter into or permit any Company
Subsidiary to enter into any transaction or series of transactions involving
the acquisition of a property or properties unless (a) the Company is able
to satisfy and does satisfy any applicable requirement to include or
incorporate by reference into the Registration Statement financial
statements relating to all such transactions not later than 30 days after
such requirement first arises, or (b) Suites shall otherwise consent.

SECTION 4.3 Other Actions. Each of Suites and the Company shall not and
shall cause its respective Subsidiaries not to take any action that would
result in (i) any of the representations and warranties of such party (without
giving effect to any "Knowledge" qualification) set forth in this Agreement
that are qualified as to materiality becoming untrue in any material respect,
(ii) any of such representations and warranties (without giving effect to any
"Knowledge" qualification) that are not so qualified becoming untrue in any
respect or (iii) except as contemplated by Section 7.1 and 7.2, any of the
conditions to the Merger set forth in Article VI not being satisfied.

A-24

ARTICLE V

Additional Covenants

SECTION 5.1 Preparation of the Registration Statement and the Proxy
Statement; Shareholders Meetings.

(a) The Company and Suites shall cooperate and promptly prepare and the
Company shall file with the SEC as soon as practicable a Registration
Statement on Form S-4 (the "Form S-4") under the Securities Act, with
respect to the Units issuable in the Merger, a portion of which Registration
Statement shall also serve as the joint proxy statement with respect to the
meetings of the shareholders of Suites and of the Company in connection with
the Merger (the "Proxy Statement/Prospectus"). The respective parties will
cause the Proxy Statement/Prospectus and the Form S-4 to comply as to form
in all material respects with the applicable provisions of the Securities
Act, the Exchange Act and the rules and regulations promulgated thereunder.
The Company shall use all reasonable efforts, and Suites will cooperate with
the Company to have the Form S-4 declared effective by the SEC as promptly
as practicable. The Company shall use its best efforts to obtain, prior to
the effective date of the Form S-4, all necessary state securities law or
"Blue Sky" permits or approvals required to carry out the transactions
contemplated by this Agreement and will pay all expenses incident thereto.
The Company agrees that the Proxy Statement/Prospectus and each amendment or
supplement thereto, at the time of mailing thereof and at the time of the
respective meetings of shareholders of the Company and Suites, or, in the
case of the Form S-4 and each amendment or supplement thereto, at the time
it is filed or becomes effective, will not include an untrue statement of a
material fact or omit to state a material fact required to be stated therein
or necessary to make the statements therein, in light of the circumstances
under which they were made, not misleading. Suites agrees that the written
information provided by it specifically for inclusion in the Proxy
Statement/Prospectus and each amendment or supplement thereto, at the time
of mailing thereof and at the time of the respective meetings of
shareholders of the Company and Suites, or, in the case of written
information provided by Suites specifically for inclusion in the Form S-4 or
any amendments or supplements thereto, at the time it is filed or becomes
effective, will not include an untrue statement of a material fact or omit
to state a material fact required to be stated therein or necessary to make
the statements therein, in light of the circumstances under which they were
made, not misleading. The Company will advise Suites, promptly after it
receives notice thereof, of the time when the Form S-4 has become effective
or any supplement or amendment has been filed, the issuance of any stop
order, the suspension of the qualification of the Units issuable in
connection with the Merger for offering or sale in any jurisdiction, or any
request by the SEC for additional information.

(b) In connection with the preparation of the Proxy Statement and the
Registration Statement, the Company shall cause to be delivered to Suites,
prior to the mailing of such Proxy Statement, the opinion dated the date of
the Proxy Statement of McGuireWoods LLP, ("MW"), counsel to the Company,
subject to certificates, letters and assumptions, reasonably satisfactory to
Suites, that the Merger will qualify as a tax-free reorganization for the
Suites shareholders under Section 368(a) of the Code.

(c) Each of the Company and Suites will take all action necessary in
accordance with applicable law and its Articles of Incorporation and Bylaws
to convene a meeting of its shareholders (respectively, the "Company Common
Shareholders Meeting" and the "Suites Common Shareholders Meeting") as
promptly as practicable to consider and vote upon or otherwise to obtain the
consent of its shareholders, as required, to the transactions contemplated
hereby. Subject to Section 5.1(b), the Board of Directors of the Company and
the Board of Directors of Suites shall each take all lawful action to
solicit such consent, including, without limitation, timely mailing the
Proxy Statement/Prospectus. The Company and Suites shall coordinate and
cooperate with respect to the timing of such meetings and shall use their
best efforts to hold such meetings on the same day.

SECTION 5.2 Access to Information; Confidentiality.

(a) Subject to the requirements of confidentiality agreements with third
parties, each of Suites and the Company shall, and shall cause each of its
respective Subsidiaries to, afford to the other party and to the

A-25

special committees of the Boards of Directors, officers, employees,
accountants, counsel, financial advisors and other representatives of such
other party, reasonable access during normal business hours during the
period prior to the Effective Time to all their respective properties,
books, contracts, commitments, personnel and records and, during such
period, each of Suites and the Company shall, and shall cause each of its
respective Subsidiaries to, furnish promptly to the other party (a) a copy
of each report, schedule, registration statement and other document filed by
it during such period pursuant to the requirements of federal or state
securities laws and (b) all other information concerning its business,
properties and personnel as such other party may reasonably request.

(b) As used herein, "Confidential Material" means, with respect to
either party hereto (the "Providing Party"), all information (written or
oral) furnished (whether before or after the date hereof) by the Providing
Party and its directors, officers, employees, affiliates or representatives
of advisors, including counsel, lenders and financial advisors
(collectively, the "Providing Party Representatives") to the other party
hereto (the "Receiving Party") or such Receiving Party's directors,
officers, employees, affiliates or representative of advisors, including
counsel, lenders and financial advisors (collectively "the Receiving Party
Representatives") and all analyses, compilations, forecasts and other
studies or other documents prepared by the Providing Party or the Providing
Party Representatives in connection with its or their review of the
transactions contemplated by this Agreement which contain or reflect such
information. The term "Confidential Material" does not include, however,
information which (i) at the time of disclosure or thereafter is generally
available to and known by the public other than as a result of a disclosure
directly or indirectly by the Receiving Party or the Receiving Party
Representatives in violation of this Agreement, (ii) at the time of
disclosure was available on a nonconfidential basis from a source other than
the Providing Party or the Providing Party Representatives, providing that
such source is not and was not bound by a confidentiality agreement with the
Providing Party, (iii) was known by the Receiving Party prior to receiving
the Confidential Material from the Providing Party or has been independently
acquired or developed by the Receiving Party without violating any of its
obligations under this Agreement, or (iv) is contained in any Suites SEC
Documents or Company SEC Documents.

(c) Subject to paragraph (d) below or except as required by law, the
Confidential Material will be kept confidential and will not, without the
prior written consent of the Providing Party, be disclosed by the Receiving
Party or its Representatives, in whole or in part and will not be used by
the Receiving Party or its Representatives, directly or indirectly, for any
purpose other than in connection with this Agreement, the Merger or the
evaluating, negotiating or advising with respect to a transaction
contemplated herein. Moreover, each Receiving Party agrees to transmit
Confidential Material to its Representatives only if and to the extent that
such Representatives need to know the Confidential Material for purposes of
such transaction and are informed by such Receiving Party of the
confidential nature of the Confidential Material and of the terms of this
Section.

(d) In the event that either Receiving Party, its Representatives or
anyone to whom such Receiving Party or its Representatives supply the
Confidential Material, are requested or required (by oral questions,
interrogatories, requests for information or documents, subpoena, civil
investigative demand, any informal or formal investigation by any government
or governmental agency or authority or otherwise in connection with legal
processes) to disclose any Confidential Material, such Receiving Party
agrees (i) immediately to notify the Providing Party of the existence, terms
and circumstances surrounding such a request, (ii) to consult with the
Providing Party on the advisability of taking legally available steps to
resist or narrow such request and (iii) if disclosure of such information is
required, to furnish only that portion of the Confidential Material which,
in the opinion of such Receiving Party's counsel, such Receiving Party is
legally compelled to disclose and to cooperate with any action by the
Providing Party to obtain an appropriate protective order or otherwise
reliable assurances that confidential treatment will be accorded the
Confidential Material (it being agreed that the Providing Party shall
reimburse the Receiving Party for all reasonable out-of-pocket expenses
incurred by the Receiving Party in connection with such cooperation).

(e) In the event of the termination of this Agreement in accordance with
its terms, promptly upon request from either Providing Party, the Receiving
Party shall, except to the extent prevented by law,

A-26

redeliver to the Providing Party or destroy all tangible Confidential
Material and will not retain any copies, extracts or other reproductions
thereof in whole or in part. Any such destruction shall be certified in
writing to the Providing Party by an authorized officer of the Receiving
Party supervising the same. Notwithstanding the foregoing, each Receiving
Party and one Representative designated by each Receiving Party shall be
permitted to retain one permanent file copy of each document constituting
Confidential Material.

SECTION 5.3 Best Efforts; Notification.

(a) Upon the terms and subject to the conditions set forth in this
Agreement, each of the Company and Suites agrees to use its best efforts to
take, or cause to be taken, all actions, and to do, or cause to be done, and
to assist and cooperate with the other in doing, all things necessary,
proper or advisable to fulfill all conditions applicable to such party
pursuant to this Agreement and to consummate and make effective, in the most
expeditious manner practicable, the Merger and the other transactions
contemplated hereby, including (i) the obtaining of all necessary actions or
nonactions, waivers, consents and approvals from Governmental Entities and
the making of all necessary registrations and filings and the taking of all
reasonable steps as may be necessary to obtain an approval, waiver or
exemption from, or to avoid an action or proceeding by, any Governmental
Entity, (ii) the obtaining of all necessary consents, approvals, waivers or
exemption from non-governmental third parties; provided, however, that if
either party is obliged to make expenditures, or incur costs, expenses or
other liabilities to obtain the consent of any non-governmental party, it
shall consult reasonably with the other party upon reasonable notice prior
to making payment of any such amount, and in no event shall either Suites or
the Company make payment or payments of any such amount in obtaining such
consents in excess of $250,000 in the aggregate without obtaining the prior
written consent of the other, which consent shall not unreasonably be
withheld or delayed, (iii) the defending of any lawsuits or other legal
proceedings, whether judicial or administrative, challenging the Merger,
this Agreement or the consummation of any of the other transactions
contemplated hereby, including seeking to have any stay or temporary
restraining order entered by any court or other Governmental Entity vacated
or reversed, and (iv) the execution and delivery of any additional
instruments necessary to consummate the transactions contemplated by and to
fully carry out the purposes of, this Agreement; provided, however, that a
party shall not be obligated to take any action pursuant to the foregoing if
the taking of such action or the obtaining of any waiver, consent, approval
or exemption is reasonably likely to result in the imposition of a condition
or restriction of the type referred to in Section 6.1(d). In connection with
and without limiting the foregoing, Suites, the Company and their respective
Boards of Directors shall (i) take all action necessary so that no "fair
price," "business combination," "moratorium," "control share acquisition" or
any other anti- takeover statute or similar statute enacted under state or
federal laws of the United States or similar statute or regulation (a
"Takeover Statute") is or becomes applicable to the Merger, this Agreement
or any of the other transactions contemplated hereby and (ii) if any
Takeover Statute becomes applicable to the Merger, this Agreement, or any of
the other transactions contemplated hereby, take all action necessary so
that the Merger may be consummated as promptly as practicable on the terms
contemplated by this Agreement and otherwise to minimize the effect of such
Takeover Statute on the Merger or the consummation of any of the other
transactions contemplated hereby.

(b) Suites shall give prompt notice to the Company, and the Company
shall give prompt notice to Suites, if (i) any representation or warranty
made by it contained in this Agreement that is qualified as to materiality
becomes untrue or inaccurate in any material respect or any such
representation or warranty that is not so qualified becomes untrue or
inaccurate in any respect or (ii) it fails to comply with or satisfy in any
material respect any covenant, condition or agreement to be complied with or
satisfied by it under this Agreement; provided, however, that no such
notification shall affect the representations, warranties, covenants or
agreements of the parties or the conditions to the obligations of the
parties under this Agreement.

SECTION 5.4 Affiliates. Prior to the Closing Date, Suites shall deliver to
the Company a list identifying all persons who are, at the time this Agreement
is submitted for approval to the shareholders of Suites, an

A-27

"affiliate" of Suites for purposes of Rule 145 under the Securities Act. Suites
shall use its best efforts to cause each such affiliate to deliver on or prior
to the Closing Date written agreements stating that they will not offer, sell,
assign, transfer or otherwise dispose of any of the Units issued to them in the
Merger in violation of the Securities Act or the rules and regulations
thereunder.

SECTION 5.5 Tax Treatment. Each of the Company and Suites shall use its
best efforts to (a) cause the Merger to qualify as a tax-free reorganization
under Section 368(a) of the Code and (b) to obtain the opinion of counsel
referred to in Section 6.3(c). From and after the date of this Agreement and
until the Effective Time, neither the Company nor Suites nor any of their
respective Subsidiaries or other affiliates shall (i) knowingly take any
action, or knowingly fail to take any action, that would jeopardize
qualification of the Merger as a reorganization within the meaning of Section
368(a)(1)(A) of the Code; or (ii) enter into any contract, agreement,
commitment or arrangement with respect to the foregoing. Following the
Effective Time, the Company shall use its best efforts to conduct its business
in a manner that would not jeopardize the characterization of the Merger as a
reorganization within the meaning of Section 368(a)(1)(A) of the Code.

SECTION 5.6 No Solicitation of Transactions.

(a) Subject to Section 7.1, Suites shall not directly or indirectly,
through any officer, director, employee, agent, investment banker, financial
advisor, attorney, accountant, broker, finder or other representative,
initiate or solicit (including by way of furnishing nonpublic information or
assistance) any inquiries or the making of any proposal that constitutes, or
may reasonably be expected to lead to, any Suites Competing Transaction (as
defined herein), or authorize or permit any of its officers, directors,
employees, agents, attorneys, investment bankers, financial advisors,
accountants, brokers, finders or other representatives to take any such
action. Suites shall notify the Company in writing (as promptly as
practicable) of all of the material details relating to all inquiries and
proposals which it or any such officer, director, employee, agent,
investment banker, financial advisor, attorney, accountant, broker, finder
or other representative may receive relating to any transaction that
constitutes, or may reasonably be expected to lead to, any Suites Competing
Transaction (as defined herein) and if such inquiry or proposal is in
writing, Suites shall deliver to the Company a copy of such inquiry or
proposal. For purposes of this Agreement, "Suites Competing Transaction"
shall mean any of the following (other than the transactions contemplated by
this Agreement): (i) any merger, consolidation, share exchange, business
combination, or similar transaction involving Suites (or any of its
Subsidiaries); (ii) any sale, lease, exchange, mortgage, pledge, transfer or
other disposition of 5% or more (based upon the depreciated carrying cost of
the assets on the books of Suites) of the assets of Suites and its
Subsidiaries taken as a whole in a single transaction or series of related
transactions, excluding any bona fide financing transactions which do not,
individually or in the aggregate, have as a purpose or effect the sale or
transfer of control of such assets; (iii) any tender offer or exchange offer
for 5% or more of the outstanding shares of capital stock of Suites (or any
of its Subsidiaries) or the filing of a registration statement under the
Securities Act in connection therewith; or (iv) any public announcements of
a proposal, plan or intention to do any of the foregoing or any agreement to
engage in any of the foregoing.

(b) Subject to Section 7.2, the Company shall not directly or
indirectly, through any officer, director, employee, agent, investment
banker, financial advisor, attorney, accountant, broker, finder or other
representative, initiate or solicit (including by way of furnishing
nonpublic information or assistance) any inquiries or the making of any
proposal that constitutes, or may reasonably be expected to lead to, any
Company Competing Transaction (as defined herein), or authorize or permit
any of its officers, directors, employees, agents, attorneys, investment
bankers, financial advisors, accountants, brokers, finders or other
representatives to take any such action. The Company shall notify Suites in
writing (as promptly as practicable) of all of the material details relating
to all inquiries and proposals which it or any such officer, director,
employee, agent, investment banker, financial advisor, attorney, accountant,
broker, finder or other representative may receive relating to any
transaction that constitutes, or may reasonably be expected to lead to, any
Company Competing Transaction (as defined herein) and if such inquiry or
proposal is in writing, the Company shall deliver to Suites a copy of such
inquiry or proposal. For purposes of this Agreement,

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"Company Competing Transaction" shall mean any of the following (other than
the transactions contemplated by this Agreement): (i) any merger,
consolidation, share exchange, business combination, or similar transaction
involving the Company (or any of its Subsidiaries); (ii) any sale, lease,
exchange, mortgage, pledge, transfer or other disposition of 5% or more
(based upon the depreciated carrying cost of the assets on the books of the
Company) of the assets of the Company and its Subsidiaries taken as a whole
in a single transaction or series of related transactions, excluding any
bona fide financing transactions which do not, individually or in the
aggregate, have as a purpose or effect the sale or transfer of control of
such assets; (iii) any tender offer or exchange offer for 5% or more of the
outstanding shares of capital stock of the Company (or any of its
Subsidiaries) or the filing of a registration statement under the Securities
Act in connection therewith; or (iv) any public announcements of a proposal,
plan or intention to do any of the foregoing or any agreement to engage in
any of the foregoing. For purposes of this Agreement, "Competing
Transaction" shall mean both a "Suites Competing Transaction" and "Company
Competing Transaction."

(c) Subject only to Sections 7.1 and 7.2 of this Agreement, the Company
and Suites acknowledge and affirm that they intend this Agreement to be an
exclusive agreement, and accordingly, nothing in this Agreement is intended
to constitute a solicitation of an offer or proposal for a business
combination involving any other Person, it being acknowledged and agreed
that any such offer or proposal would interfere with the strategic
advantages and benefits that the Company and Suites expect to derive from
the Merger and the other transactions contemplated hereby.

SECTION 5.7 Public Announcements. The Company and Suites will consult with
each other before issuing, and provide the executive officers of each other the
opportunity to review and comment upon, any press release or other public
statements with respect to the Merger or the other transactions contemplated
hereby, and shall not issue any such press release or make any such public
statement prior to such consultation, except as may be required by applicable
law or court process. The parties agree that the initial press release to be
issued with respect to the execution of this Agreement will be in the form
agreed to by the parties hereto.

SECTION 5.8 Transfer and Gains Taxes. The Company and Suites shall
cooperate in the preparation, execution and filing of all returns,
questionnaires, applications or other documents regarding any real property
transfer or gains, sales, use, transfer, value added stock transfer and stamp
taxes, any transfer, recording, registration and other fees and any similar
taxes which become payable in connection with the Merger (together with any
related interests, penalties or additions to tax, "Transfer and Gains Taxes").

SECTION 5.9 Employee Matters.

(a) Employees. The Company shall have no liability or obligation to
Suites or its employees to employ or offer employment to any employee of
Suites or any group of employees of Suites. It is understood, however, that
on or after the Closing Date, the Company may, in its sole and absolute
discretion, offer employment to those employees. Nothing in this Agreement
shall limit the Company from taking any action at any time after the Closing
Date in respect of its employees or the terms and conditions of their
employment.

(b) Incentive Plans. At the Effective Time, each outstanding Suites
Common Shares Option shall be assumed by the Company and shall be deemed to
constitute an option to acquire, on the same terms and conditions as were
applicable under such Suites Common Shares Option, the same number of Units
as the holder of such Suites Common Shares Option would have been entitled
to receive pursuant to the Merger had such holder exercised such Suites
Common Shares Option in full immediately prior to the Effective Time.

(c) Termination of Benefit Plans. Except as otherwise provided in (b)
above, prior to the Closing Date, Suites shall terminate all Suites Benefit
Plans, and shall, to the extent permitted by law, discharge and terminate,
or cause to be discharged and terminated, all obligations, liabilities and
commitments of Suites, all Suites Subsidiaries and all participants in the
Suites Benefit Plans, including without limitation, stock appreciation
rights and notes given in payment of the exercise price of Suites Common
Shares Options. All

A-29

such obligations, liabilities and commitments which may not be discharged
and terminated prior to the Closing Date are identified in Schedule 5.9(c)
to the Suites Disclosure Letter.

(d) Cooperation. Suites and the Company shall cooperate in good faith
with respect to the effectuation of the covenants described in subsections
(a), (b) and (c) above.

SECTION 5.10 Indemnification.

(a) Indemnification Rights. For a period of six years from and after
the Effective Time, the Company shall indemnify the directors, officers,
employees or agents of Suites who at any time prior to the Effective Time
were entitled to indemnification under the Articles of Incorporation and
Bylaws of Suites or employment agreements between Suites and its officers
existing on the date hereof to the same extent as such directors, officers,
employees or agents are entitled to indemnification under such Articles of
Incorporation and Bylaws or existing employment agreements in respect of
actions or omissions occurring at or prior to the Effective Time (including,
without limitation, the transactions contemplated by this Agreement).

(b) Liability Coverage. The Company shall use its reasonable best
efforts to provide "run-off" or "tail" director and officer liability
coverage to the existing directors and officers of Suites without reduction
of existing coverage for a period of six years after the Effective Time.

(c) Successors and Assigns. The provisions of this Section 5.11 are
intended to be for the benefit of, and shall be enforceable by, each
indemnified party, his or her heirs and his or her personal representatives
and shall be binding on all successors and assigns of the Company and Suites.

SECTION 5.11 Comfort Letter. The Company and Suites shall use their best
efforts to cause to be delivered to the Company and Suites "comfort" letters of
Ernst & Young LLP, independent public accountants for the Company and Suites,
dated and delivered the date on which the Registration Statement shall become
effective and as of the Effective Time, and addressed to the Company and
Suites, in form and substance reasonably satisfactory to the Company and Suites
and reasonably customary in scope and substance for letters delivered by
independent public accountants in connection with transactions such as those
contemplated by this Agreement, including a Statement on Auditing Standards
Number 72 review of the audited financial statements, and Statement on Auditing
Standards Number 71 review of the Company's and Suites' interim unaudited
financial statements, each included, respectively, in the Company SEC Documents
and the Suites SEC Documents.

SECTION 5.12 Efforts to Fulfill Conditions. The Company and Suites each
shall use commercially reasonable efforts to insure that all conditions
precedent to its obligations hereunder are fulfilled at or prior to the Closing
Date.

SECTION 5.13 Cooperation of the Parties. The Company and Suites each shall
cooperate with the other in supplying such information as may be reasonably
requested by the other in connection with obtaining consents or approvals to
the transactions contemplated by this Agreement.

SECTION 5.14 No Recommendation to Shareholders. The Company and Suites
both acknowledge that neither the Board of Directors of the Company nor the
Board of Directors of Suites will make a recommendation with respect to the
Merger to its respective shareholders.

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ARTICLE VI

Conditions Precedent

SECTION 6.1 Conditions to Each Party's Obligation to Effect the
Merger. The respective obligation of Suites and the Company to effect the
Merger and to consummate the other transactions contemplated hereby is subject
to the satisfaction or waiver on or prior to the Effective Time of the
following conditions:

(a) Suites Common Shareholder Approval. The Suites Common Shareholder
Approval shall have been obtained.

(b) Company Common Shareholder Approval. The Company Common Shareholder
Approval shall have been obtained.

(c) Registration Statement. The Registration Statement shall have
become effective under the Securities Act and shall not be the subject of
any stop order or proceedings by the SEC seeking a stop order.

(d) No Injunctions or Restraints. No temporary restraining order,
preliminary or permanent injunction or other order issued by any court of
competent jurisdiction or other legal restraint or prohibition preventing
the consummation of the Merger or any of the other transactions contemplated
hereby shall be in effect.

(e) Certain Actions and Consents. All material actions by or in respect
of or filings with any Governmental Entity required for the consummation of
the Merger or any of the other transactions contemplated hereby shall have
been obtained or made.

SECTION 6.2 Conditions to Obligations of the Company. The obligations of
the Company to issue the Merger Consideration to the holders of Suites Common
Shares and Suites Class B Convertible Shares and to consummate the other
transactions contemplated hereby are further subject to the following
conditions, any one or more of which may be waived by the Company:

(a) Representations and Warranties. The representations and warranties
of Suites set forth in this Agreement shall be true and correct as of the
Closing Date, as though made on and as of the Closing Date, except to the
extent the representation or warranty is expressly limited by its terms to
another date, and the Company shall have received a certificate (which
certificate may be qualified by knowledge to the same extent as such
representations and warranties are so qualified) signed on behalf of Suites
by the chief executive officer or the chief financial officer of Suites to
such effect. This condition shall be deemed satisfied notwithstanding any
failure of a representation or warranty of Suites to be true and correct as
of the Closing Date if such failure (without giving effect to any
materiality qualification or standard contained in any such representation
or warranty), either individually or in the aggregate with any other such
failures, would not be reasonably likely to result in a Suites Material
Adverse Effect.

(b) Performance of Obligations of Suites. Suites shall have performed
in all material respects all obligations required to be performed by it
under this Agreement at or prior to the Effective Time, and the Company
shall have received a certificate signed on behalf of Suites by the chief
executive officer or the chief financial officer of Suites to such effect.

(c) Consents. All consents and waivers from third parties necessary in
connection with the consummation of the Merger and the other transactions
contemplated hereby shall have been obtained, other than such consents and
waivers from third parties, which, if not obtained, would not result,
individually or in the aggregate, in a Suites Material Adverse Effect.

(d) Absence of Changes. From the date of this Agreement through the
Effective Time, there shall not have occurred any change in the financial
condition, business or operations of Suites and its Subsidiaries, taken as a
whole, that would have or would be reasonably likely to have a Suites
Material Adverse Effect, other than any such change that affects both Suites
and the Company in a substantially similar manner.

A-31

(e) Fairness Opinion. The opinion of Merrill Lynch addressed to the
special committee of the Board of Directors of the Company that the
consideration to be paid by the Company pursuant to the Merger is fair, from
a financial point of view, to the Company shall have been issued and shall
not have been withdrawn or materially modified.

(f) Dissenters' Rights. The holders of no more than 1% of the
outstanding Suites Common Shares as of the applicable record date shall have
indicated their intention to exercise their dissenters' rights under the
VSCA.

SECTION 6.3 Conditions to Obligation of Suites. The obligations of Suites
to effect the Merger and to consummate the other transactions contemplated
hereby is further subject to the following conditions, any one or more of which
may be waived by Suites:

(a) Representations and Warranties. The representations and warranties
of the Company set forth in this Agreement shall be true and correct as of
the Closing Date, as though made on and as of the Closing Date, except to
the extent the representation or warranty is expressly limited by its terms
to another date, and Suites shall have received a certificate (which
certificate may be qualified by knowledge to the same extent as such
representations and warranties are so qualified) signed on behalf of the
Company by the chief executive officer or the chief financial officer of the
Company to such effect. This condition shall be deemed satisfied
notwithstanding any failure of a representation or warranty of the Company
to be true and correct as of the Closing Date if such failure (without
giving effect to any materiality qualification or standard contained in any
such representation or warranty), either individually or in the aggregate
with any other such failures, would not be reasonably likely to result in a
Company Material Adverse Effect.

(b) Performance of Obligations of the Company. The Company shall have
performed in all material respects all obligations required to be performed
by it under this Agreement at or prior to the Effective Time, and Suites
shall have received a certificate of the Company signed on behalf of the
Company by the chief executive officer or the chief financial officer of
such party to such effect.

(c) Opinion Relating to the Merger. Suites shall have received an
opinion dated as of the Closing Date of MW, subject to certificates, letters
and assumptions reasonably satisfactory to Suites that the Merger qualifies
as a tax-free reorganization for the holders of Suites Common Shares under
Section 368(a) of the Code.

(d) Consents. All consents and waivers from third parties necessary in
connection with the consummation of the Merger and the other transactions
contemplated hereby shall have been obtained, other than such consents and
waivers from third parties, which, if not obtained, would not result,
individually or in the aggregate, in a Company Material Adverse Effect.

(e) Absence of Changes. From the date of the Agreement through the
Effective Time, there shall not have occurred any change in the financial
condition, business or operations of the Company and its Subsidiaries, taken
as a whole, that would have or would be reasonably likely to have a Company
Material Adverse Effect other than any such change that affects both Suites
and the Company in a substantially similar manner.

(f) Fairness Opinion. The opinion of Wachovia Securities addressed to
the special committee of the Board of Directors of Suites that the Common
Shares Consideration to be paid to the holders of the Suites Common Shares
(excluding the Company or any affiliate thereof) by the Company pursuant to
the Merger is fair, from a financial point of view, to such holders shall
have been issued and shall not have been withdrawn or materially modified.

A-32

ARTICLE VII

Board Actions

SECTION 7.1 Suites Board Actions. Notwithstanding Section 5.6 or any other
provision of this Agreement to the contrary, to the extent required by the
fiduciary obligations of the Board of Directors of Suites, as determined in
good faith based on the advice of outside counsel, Suites may:

(a) disclose to its shareholders any information required to be
disclosed under applicable law;

(b) in response to an unsolicited request therefor, participate in
discussions or negotiations with, or furnish information with respect to
itself pursuant to a confidentiality agreement no less favorable to itself
than the provisions of Section 5.2 of this Agreement to, any person in
connection with a Suites Competing Transaction proposed by such person; and

(c) approve or recommend (and in connection therewith withdraw or modify
its approval of this Agreement and the Merger) a Suites Superior Competing
Transaction (as defined below) or enter into an agreement with respect to
such Suites Superior Competing Transaction (for purposes of this Agreement,
"Suites Superior Competing Transaction" means a bona fide proposal of a
Suites Competing Transaction made by a third party which a majority of the
members of the Board of Directors of Suites determines in good faith (based
on the advice of its investment banking firm) to be more favorable to its
shareholders than the Merger.

SECTION 7.2 Company Board Actions. Notwithstanding Section 5.6 or any
other provision of this Agreement to the contrary, to the extent required by
the fiduciary obligations of the Board of Directors of the Company, as
determined in good faith based on the advice of outside counsel, the Company
may:

(a) disclose to its shareholders any information required to be
disclosed under applicable law;

(b) in response to an unsolicited request therefor, participate in
discussions or negotiations with, or furnish information with respect to
itself pursuant to a confidentiality agreement no less favorable to itself
than the provisions of Section 5.2 of this Agreement to, any person in
connection with a Company Competing Transaction proposed by such person; and

(c) approve or recommend (and in connection therewith withdraw or modify
its approval of this Agreement and the Merger) a Company Superior Competing
Transaction (as defined below) or enter into an agreement with respect to
such Company Superior Competing Transaction (for purposes of this Agreement,
"Company Superior Competing Transaction" means a bona fide proposal of a
Company Competing Transaction made by a third party which a majority of the
members of the Board of Directors of the Company determines in good faith
(based on the advice of its investment banking firm) to be more favorable to
its shareholders than the Merger.

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ARTICLE VIII

Termination, Amendment and Waiver

SECTION 8.1 Termination. This Agreement may be terminated at any time
prior to the filing of the Articles of Merger for the Merger with the State
Corporation Commission of the Commonwealth of Virginia, whether before or after
the Suites Common Shareholder Approval or the Company Common Shareholder
Approval is obtained:

(a) by mutual written consent duly authorized by the respective Boards
of Directors of the Company and Suites;

(b) by the Company, upon a breach of any representation, warranty,
covenant or agreement on the part of Suites set forth in this Agreement, or
if any representation or warranty of Suites shall have become untrue, in
either case such that the conditions set forth in Section 6.2(a) or Section
6.2(b), as the case may be, would be incapable of being satisfied by
February 28, 2003 (as otherwise extended);

(c) by Suites, upon a breach of any representation, warranty, covenant
or agreement on the part of the Company set forth in this Agreement, or if
any representation or warranty of the Company shall have become untrue, in
either case such that the conditions set forth in Section 6.3(a) or Section
6.3(b), as the case may be, would be incapable of being satisfied by
February 28, 2003 (as otherwise extended);

(d) by either the Company or Suites, if any judgment, injunction, order,
decree or action by any Governmental Entity of competent authority
preventing the consummation of the Merger shall have become final and
nonappealable;

(e) by either the Company or Suites, if the Merger shall not have been
consummated before February 28, 2003; provided, however, that a party that
has willfully and materially breached a representation, warranty or covenant
of such party set forth in this Agreement shall not be entitled to exercise
its right to terminate under this Section 8.1(e);

(f) by either the Company or Suites (i) if, upon a vote at a duly held
Suites Common Shareholders Meeting or any adjournment thereof, the Suites
Common Shareholder Approval shall not have been obtained or (ii) if, upon a
vote at a duly held Company Common Shareholders Meeting or an adjournment
thereof, the Company Common Shareholder Approval shall not have been
obtained;

(g) by Suites, upon 10 days prior notice to the Company, if prior to the
Suites Common Shareholders Meeting, the Board of Directors of Suites shall
have withdrawn or modified in compliance with Section 7.1 hereof in any
manner adverse to the Company its approval of the Merger or this Agreement
in connection with the approval and recommendation of a Suites Superior
Competing Transaction;

(h) by the Company, if (i) prior to the Suites Common Shareholders
Meeting, the Board of Directors of Suites shall have withdrawn or modified
in any manner adverse to the Company its approval of the Merger or this
Agreement in connection with, or approved or recommended, any Suites
Superior Competing Transaction, (ii) Suites shall have entered into any
agreement with respect to any Suites Competing Transaction (other than a
confidentiality agreement as contemplated by Section 7.1(b)) or (iii) the
Board of Directors of Suites or any committee thereof shall have resolved to
do any of the foregoing;

(i) by the Company, upon 10 days prior notice to Suites, if prior to the
Company Common Shareholders Meeting, the Board of Directors of the Company
shall have withdrawn or modified in compliance with Section 7.2 hereof in
any manner adverse to Suites its approval of the Merger or this Agreement in
connection with the approval and recommendation of a Company Superior
Competing Transaction; or

(j) by Suites, if (i) prior to the Company Common Shareholders Meeting,
the Board of Directors of the Company shall have withdrawn or modified in
any manner adverse to Suites its approval of the Merger or this Agreement in
connection with, or approved or recommended, any Company Superior Competing
Transaction, (ii) the Company shall have entered into any agreement with
respect to any Company Competing Transaction (other than a confidentiality
agreement as contemplated by Section 7.2(b)) or (iii) the Board of Directors
of the Company or any committee thereof shall have resolved to do any of the
foregoing.

A-34

SECTION 8.2 Expenses.

(a) Except as otherwise specified in this Section 8.2 or agreed in
writing by the parties, all out-of-pocket costs and expenses incurred in
connection with this Agreement and the transactions contemplated hereby
shall be paid by the party incurring such cost or expense.

(b) If the Merger and the transactions contemplated by this Agreement
are consummated in accordance with this Agreement, all out-of-pocket costs
and expenses incurred in connection with this Agreement and the transactions
contemplated hereby shall be paid by the Company.

(c) Suites agrees that if this Agreement shall be terminated pursuant to
Section 8.1(g) or (h), then Suites will pay to the Company an amount equal
to the Company Break-Up Expenses (as defined herein). Payment of any of such
amount shall be made, as directed by the Company, by wire transfer of
immediately available funds promptly, but in no event later than two
business days after the amount is due as provided herein. The "Company
Break-Up Expenses" shall be an amount equal to the lesser of (i) the
Company's out-of-pocket expenses incurred on or after January 31, 2002 in
connection with this Agreement and the transactions contemplated hereby
(including, without limitation, all attorneys', accountants' and investment
bankers' fees and expenses) and (ii) $1,000,000.

(d) The Company agrees that if this Agreement shall be terminated
pursuant to Section 8.1(i) or (j), then the Company will pay to Suites an
amount equal to the Suites Break-Up Expenses (as defined herein). Payment of
any of such amounts shall be made, as directed by Suites, by wire transfer
of immediately available funds promptly, but in no event later than two
business days after the amount is due as provided herein. The "Suites
Break-Up Expenses" shall be an amount equal to the lesser of (i) Suites'
out-of-pocket expenses incurred on or after January 1, 2002 in connection
with this Agreement and the transactions contemplated hereby (including,
without limitation, all attorneys', accountants' and investment bankers'
fees and expenses) and (ii) $1,000,000.

(e) Suites and the Company agree that the agreements contained in
Section 8.2(c) and (d) above are an integral part of the transactions
contemplated by this Agreement and constitute liquidated damages and not a
penalty.

(f) In the event that the Company or Suites is required to file suit to
seek all or a portion of the amounts payable under this Section 8.2, and
such party prevails in such litigation, such party shall be entitled to
receive, in addition to all amounts that it is otherwise entitled to receive
under this Section 8.2 all expenses, including attorney's fees and expenses
which it has incurred in enforcing its rights hereunder.

SECTION 8.3 Effect of Termination. In the event of termination of this
Agreement by either Suites or the Company as provided in Section 8.1, this
Agreement shall forthwith become void and have no effect, without any liability
or obligation on the part of the Company, or Suites, other than the last
sentence of Section 5.2, Section 8.2, this Section 8.3 and Article IX and
except to the extent that such termination results from a willful breach by a
party of any of its representations, warranties, covenants or agreements set
forth in this Agreement.

SECTION 8.4 Amendment. This Agreement may be amended by the parties in
writing by action of their respective Boards of Directors at any time before or
after the Suites Shareholder Approval and the Company Shareholder Approval are
obtained and prior to the filing of the Articles of Merger with the State
Corporation Commission of the Commonwealth of Virginia; provided, however,
that, after the Suites Shareholder Approval or the Company Shareholder Approval
is obtained, no such amendment, modification or supplement shall alter the
amount or change the form of the consideration to be delivered to Suites'
shareholders.

SECTION 8.5 Extension; Waiver. At any time prior to the Effective Time,
each of Suites and the Company may (a) extend the time for the performance of
any of the obligations or other acts of the other party, (b) waive any
inaccuracies in the representations and warranties of the other party contained
in this Agreement or in any document delivered pursuant to this Agreement or
(c) subject to the proviso of Section 8.4, waive compliance with any of the
agreements or conditions of the other party contained in this Agreement. Any
agreement on the part of a party to any such extension or waiver shall be valid
only if set forth in an instrument in writing signed on behalf of such party.
The failure of any party to this Agreement to assert any of its rights under
this Agreement or otherwise shall not constitute a waiver of those rights.

A-35

ARTICLE IX

General Provisions

SECTION 9.1 Nonsurvival of Representations and Warranties. None of the
representations and warranties in this Agreement or in any instrument delivered
pursuant to this Agreement shall survive the Effective Time. This Section 9.1
shall not limit any covenant or agreement of the parties which by its terms
contemplates performance after the Effective Time.

SECTION 9.2 Notices. All notices, requests, claims, demands and other
communications under this Agreement shall be in writing and shall be deemed
given if delivered personally, sent by overnight courier (providing proof of
delivery) to the parties or sent by telecopy (providing confirmation of
transmission) at the following addresses or telecopy numbers (or at such other
address or telecopy number for a party as shall be specified by like notice):

(a) if to the Company or Acquisition Sub, if prior to the Effective Time,
to:

The Special Committee of the Apple Hospitality Two Board of Directors
c/o Bruce H. Matson, Esq.
LeClair Ryan, A Professional Corporation
701 East Main Street
11th Floor
Richmond, VA 23219
Fax: (804) 783-2294

with a copy to Glade M. Knight, Chief Executive Officer of the Company
(at the address set forth below), and after the Effective Time, to:

Apple Hospitality Two, Inc.
10 South 3rd Street
Richmond, VA 23219
Fax: (804) 344-8129

with a copy to:

McGuireWoods LLP
901 East Cary Street
One James Center
Richmond, VA 23219
Attn: Leslie A. Grandis, Esq.
Fax: (804) 775-1061

(b) if to Suites, prior to the Effective Time, to:

The Special Committee of the Apple Suites Board of Directors
c/o Lisa Kern Davenport & Company LLC
901 East Cary Street
One James Center
11th Floor
Richmond, VA 23219
Fax: (804) 866-6666

A-36

with a copy to:

Troutman Sanders LLP
1111 East Main Street
Richmond, VA 23219
Attn: Elizabeth G. Hester, Esq.
Fax: (804) 697-1339

and with a copy to Glade M. Knight, Chief Executive Officer of Suites (at
the address set forth below) and, after the Effective Time, to:

Apple Suites, Inc.
10 South 3rd Street
Richmond, VA 23219
Fax: (804) 344-8129

SECTION 9.3 Interpretation. When a reference is made in this Agreement to
a Section, such reference shall be to a Section of this Agreement unless
otherwise indicated. The table of contents and headings contained in this
Agreement are for reference purposes only and shall not affect in any way the
meaning or interpretation of this Agreement. Whenever the words "include,"
"includes" or "including" are used in this Agreement, they shall be deemed to
be followed by the words "without limitation."

SECTION 9.4 Counterparts. This Agreement may be executed in one or more
counterparts, all of which shall be considered one and the same agreement and
shall become effective when one or more counterparts have been signed by each
of the parties and delivered to the other parties.

SECTION 9.5 Entire Agreement; No Third-Party Beneficiaries. This Agreement
and the other agreements entered into in connection with the transactions
contemplated hereby (a) constitute the entire agreement and supersedes all
prior agreements and understandings, both written and oral, between the parties
with respect to the subject matter of this Agreement and, (b) except for the
provisions of Article II, Section 5.10, Section 5.11, and Section 5.12 are not
intended to confer upon any person other than the parties hereto any rights or
remedies.

SECTION 9.6 Governing Law. This Agreement shall be governed by, and
construed in accordance with, the laws of the Commonwealth of Virginia,
regardless of the laws that might otherwise govern under applicable principles
of conflict of laws thereof.

SECTION 9.7 Assignment. Neither this Agreement nor any of the rights,
interests or obligations under this Agreement shall be assigned or delegated,
in whole or in part, by operation of law or otherwise by any party without the
prior written consent of the other party. Subject to the preceding sentence,
this Agreement will be binding upon, inure to the benefit of, and be
enforceable by, the parties and their respective successors and assigns.

SECTION 9.8 Enforcement. The parties agree that irreparable damage would
occur in the event that any of the provisions of this Agreement were not
performed in accordance with their specific terms or were otherwise breached.
It is accordingly agreed that the parties shall be entitled to an injunction or
injunctions to prevent breaches of this Agreement and to enforce specifically
the terms and provisions of this Agreement in any court of the United States
located in the Commonwealth of Virginia or in any Virginia state court, this
being in addition to any other remedy to which they are entitled at law or in
equity. In addition, each of the parties hereto (a) consents to submit itself
(without making such submission exclusive) to the personal jurisdiction of any
federal court located in the Commonwealth of Virginia or any Virginia state
court in the event any dispute arises out of this Agreement or any of the
transactions contemplated by this Agreement and (b) agrees that it will not
attempt to deny or defeat such personal jurisdiction by motion or other request
for leave from any such court.

A-37

SECTION 9.9 Incorporation. The Suites Disclosure Letter and the Company
Disclosure Letter and all Exhibits attached hereto and thereto and referred to
herein and therein are hereby incorporated herein and made a part hereof for
all purposes as if fully set forth herein.

SECTION 9.10 Non-Recourse. None of the officers, directors or shareholders
of the Company shall be personally bound or have any personal liability
hereunder. Suites shall look solely to the assets of the Company for
satisfaction of any liability of the Company with respect to this Agreement and
any ancillary agreements to which it is a party. Suites will not seek recourse
or commence any action against any of the shareholders of the Company or any of
their personal assets, and will not commence any action for money judgments
against any of the directors or officers of the Company or seek recourse
against any of their personal assets, for the performance or payment of any
obligation of the Company hereunder or thereunder. Neither the officers,
directors nor shareholders of Suites shall be personally bound or have any
personal liability hereunder, except for the Additional Signatories with
respect to the provisions comprising the second sentence of Section 3.1(s). The
Company shall look solely to the assets of Suites for satisfaction of any
liability of Suites with respect to this Agreement and any ancillary agreements
to which it is a party. The Company will not seek recourse or commence any
action against any of the shareholders of Suites or any of their personal
assets, and will not commence any action for money judgments against any of the
directors or officers of Suites or seek recourse against any of their personal
assets, for the performance or payment of any obligation of Suites hereunder or
thereunder.

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ARTICLE X

Certain Definitions

SECTION 10.1 Certain Definitions. For purposes of this Agreement:

An "affiliate" of any person means another person that directly or
indirectly, through one or more intermediaries, controls, is controlled by,
or is under common control with, such first person.

"Suites Disclosure Letter" means the letter dated October 24, 2002
previously delivered to the Company by Suites disclosing certain information
in connection with this Agreement.

"Company Disclosure Letter" means the letter dated October 24, 2002
previously delivered to Suites by the Company disclosing certain information
in connection with this Agreement.

"Knowledge" where used herein with respect to Suites shall mean the
actual knowledge of any of the persons named in Schedule 10 to the Suites
Disclosure Letter and where used with respect to the Company shall mean the
actual knowledge of any of the persons named in Schedule 10 to the Company
Disclosure Letter. "Knowledge" shall not include the "constructive" or
deemed knowledge of any such persons, or the existence of facts or
circumstances which might constitute "reason to know" by such person or
which might lead to the conclusion that such person "should have known"
unless, in any such case, such person has actual knowledge of the matter in
question.

"Person" means an individual, corporation, partnership, limited liability
company, joint venture, association, trust, unincorporated organization or
other entity.

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IN WITNESS WHEREOF, the Company, Acquisition Sub and Suites have caused this
Agreement to be signed by their respective officers thereunto duly authorized,
all as of the date first written above.

APPLE HOSPITALITY TWO, INC.

By: /s/ GLADE M. KNIGHT
------------------------------
Name: Glade M. Knight
Title: Chief Executive Officer

APPLE SUITES, INC.

By: /s/ GLADE M. KNIGHT
------------------------------
Name: Glade M. Knight
Title: Chief Executive Officer

HOSPITALITY ACQUISITION COMPANY

By: /s/ GLADE M. KNIGHT
------------------------------
Name: Glade M. Knight
Title: Chief Executive Officer

Additional Signatories:
By executing below, the Additional Signatories confirm and agree to
the provisions comprising the second sentence of Section 3.1(s).

/s/ GLADE M. KNIGHT
- -------------------------
Glade M. Knight

/s/ DEBRA A. JONES
- -------------------------
Debra A. Jones

/s/ STANLEY J. OLANDER,
JR.
- -------------------------
Stanley J. Olander, Jr.

A-40

APPENDIX A

PLAN OF MERGER

Merging

Apple Suites, Inc.

With

Hospitality Acquisition Company

1. Parties to the Merger; Effective Date; Approval.

(a) In accordance with the Virginia Stock Corporation Act (the "VSCA"),
Apple Suites, Inc. ("Suites"), a Virginia corporation, shall be merged with
Hospitality Acquisition Company ("Acquisition Sub"), a Virginia corporation
and a wholly-owned subsidiary of Apple Hospitality Two, Inc.
("Hospitality"), a Virginia corporation (the "Merger"). Acquisition Sub will
be the surviving corporation.

(b) The Merger shall become effective at such time as Hospitality and
Suites shall specify in the articles of merger (the "Articles of Merger")
the parties shall file with the State Corporation Commission of the
Commonwealth of Virginia (the "SCC") to effect the merger (the time and day
the Merger become effective being, respectively, the "Effective Time" and
the "Effective Date").

(c) Suites shareholders shall approve the Merger, the Agreement and Plan
of Merger, dated October 24, 2002, among Hospitality, Suites and Acquisition
Sub (the "Agreement"), and the other transactions contemplated thereby, by
the following votes:

i. the affirmative vote of at least a majority of the outstanding
Suites common shares, no par value ("Suites Common Shares"); and

ii. the affirmative vote of at least a majority of the shares present
and voting, excluding Suites Common Shares owned by or voted under
the control of a Suites director or Hospitality.

2. Effects of the Merger. From and after the Effective Time:

(a) Acquisition Sub shall continue its corporate existence as a Virginia
corporation and the separate existence of Suites shall cease;

(b) the Merger shall have the effects set forth in the VSCA;
(c) Except as provided in Section 2(d), the Articles of Incorporation
and Bylaws of Acquisition Sub, as in effect immediately prior to the
Effective Time, shall not be affected by the Merger and shall continue to be
its Articles of Incorporation and Bylaws until amended or repealed in any
manner provided by law; and

(d) The Articles of Incorporation of Acquisition Sub shall be amended by
deleting Section 1 in its entirety and replacing it with the following:

"1. The name of the Corporation (the "Corporation") is Apple Suites,
Inc."

3. Effects of the Merger on Capital Stock. By virtue of the Merger and without
any action on the part of the holder of any Suites Common Shares:

(a) At the Effective Time, each issued and outstanding Suites Common
Share shall be converted (the "Exchange Ratio") into the right to receive
from Hospitality one unit (a "Unit") consisting of one common share, no par
value, of Hospitality and one Series A preferred share, no par value, of
Hospitality (the "Stock

A-41

Consideration") or at the election of the holder pursuant to Section 4 below
and subject to the limitations set forth in Section 5 below, $10.00 in cash
per share without any interest thereon (the "Cash Consideration" and,
together with the Stock Consideration, the "Common Shares Consideration").

(b) At the Effective Time, each issued and outstanding Suites Class B
convertible share, no par value ("Suites Class B Convertible Share") shall
be converted into the right to receive from Hospitality, two Units (the
"Class B Consideration" and, together with the Common Shares Consideration,
the "Merger Consideration").

(c) At the Effective Time, all such Suites Common Shares and Suites
Class B Convertible Shares shall no longer be outstanding and shall
automatically be canceled and retired.

4. Cash Election Procedure. Each holder (or beneficial owner through
appropriate and customary documentation and instructions) of outstanding
Suites Common Shares shall have the right to submit a request specifying
that such holder desires all such holder's Suites Common Shares to be
converted into the right to receive Cash Consideration in the Merger instead
of the Stock Consideration in accordance with the following procedure:

(a) Subject to Section 5 below, each such holder of Suites Common Shares
may specify in a request made in accordance with the provisions of this
Section 4 that all such holder's Suites Common Shares be converted into the
right to receive Cash Consideration in the Merger (a "Cash Election").

(b) An election form and other appropriate and customary transmittal
materials in such form as Hospitality and Suites shall mutually agree (the
"Election Form") shall be mailed thirty days prior to the anticipated
Effective Time or on such other date as Hospitality and Suites shall
mutually agree (the "Mailing Date") to each holder of record of Suites
Common Shares not more than five business days prior to the Mailing Date.

(c) Any Cash Election shall have been made properly only if the Exchange
Agent shall have received, by 5:00 p.m. local time at its principal office
on the second business day prior to the anticipated Effective Time (or such
other time and date as Hospitality and Suites shall mutually agree) (the
"Election Deadline"), an Election Form properly completed and signed.

(d) Any holder of Suites Common Shares may at any time prior to the
Election Deadline revoke or change his or her Cash Election by written
notice received by the Exchange Agent prior to the Election Deadline
accompanied by a properly completed and signed, revised Election Form. All
Cash Elections shall be revoked automatically if the Exchange Agent is
notified in writing by Hospitality or Suites that the Agreement has been
terminated. The Exchange Agent shall have reasonable discretion to determine
whether any election, or revocation or change has been properly or timely
made and to disregard immaterial defects in the Election Forms, and any good
faith decisions of the Election Agent regarding such matters shall be
binding and conclusive. The Exchange Agent shall be under no obligation to
notify any person of any defect in an Election Form.

(e) Within two business days after the Election Deadline, unless the
Effective Time has not yet occurred, in which case within one business day
prior to the Effective Time, Hospitality shall cause the Exchange Agent to
effect the allocation among the holders of Suites Common Shares of the
rights to receive Cash Consideration in the Merger in accordance with
Sections 5 and 6 of this Plan of Merger.

(f) Holders of Suites Common Shares not properly making a Cash Election
shall only receive the Stock Consideration.

5. Payment of Cash Consideration; Proration. The manner in which each
outstanding Suites Common Share as to which a Cash Election has been made
shall be converted into the right to receive the Cash Consideration at the
Effective Time shall be as follows:

(a) As is more fully set forth below, the aggregate number of
outstanding Suites Common Shares (the "Maximum Cash Conversion Number") to
be converted into the right to receive the Cash Consideration

A-42

pursuant to the Merger shall not exceed 2,500,000 or a maximum Cash
Consideration of $25,000,000 (the "Maximum Cash Consideration"); provided,
however, in the event that Cash Elections are received for a number of
Suites Common Shares that is greater than 2,500,000, Hospitality may, in its
sole discretion, at any time before the Effective Time, increase the
aggregate number of outstanding Suites Common Shares and maximum Cash
Consideration for which Cash Elections may be made to an amount not to
exceed 3,000,000 Suites Common Shares or $30,000,000, in which event the
terms "Maximum Cash Conversion Number" and "Maximum Cash Consideration"
shall refer respectively to the number of shares and Cash Consideration as
so increased.

(c) If Cash Elections are received for a number of Suites Common Shares
in the aggregate in excess of the Maximum Cash Conversion Number, then:

i. Subject to the provisions of clause (ii) below, the Exchange Agent
will distribute Cash Consideration with respect to the number of
such outstanding Suites Common Shares equal to the Maximum Cash
Conversion Number of outstanding Suites Common Shares;

ii. The distributions of Cash Consideration in respect of outstanding
Suites Common Shares contemplated by the preceding clause (i)
shall be made pro rata, rounded to the nearest whole share, based
on the ratio of the Maximum Cash Consideration to the aggregate
amount of cash that would be payable (absent a Maximum Cash
Conversion Number) in respect of all outstanding Suites Common
Shares for which Cash Elections have been properly made, among all
outstanding Suites Common Shares as to which Cash Elections have
been properly made; and

iii. Each outstanding Suites Common Share covered by a Cash Election
and not converted into the right to receive the Cash Consideration
as set forth in clause (i) above shall be converted in the Merger
into the right to receive the number of Units equal to the
Exchange Ratio.

6. Exchange Procedures.

(a) Prior to the Effective Time, Hospitality shall appoint a bank or
trust company to act as exchange agent (the "Exchange Agent") for the
exchange of the Merger Consideration for the issued and outstanding Suites
Common Shares and Suites Class B Convertible Shares.

(b) Hospitality shall provide to the Exchange Agent, on or before the
Effective Time, for the benefit of the holders of Suites Common Shares,
sufficient Stock Consideration and Cash Consideration to be exchanged for
the issued and outstanding Suites Common Shares pursuant to Section 3(a)
above and, for the benefit of the holders of Suites Class B Convertible
Shares, sufficient Units to be exchanged for the issued and outstanding
Suites Class B Convertible Shares pursuant to Section 3(b) above.

(c) As soon as reasonably practicable after the Effective Time, and in
no event later than 30 days following the Effective Time, the Exchange Agent
shall mail to each holder of record of outstanding Suites Common Shares and
Suites Class B Convertible Shares which were converted into the right to
receive the Merger Consideration, a letter of notification (which shall be
in a form and have such other provisions as Hospitality may reasonably
specify) describing the Merger Consideration issued to each such holder as a
consequence of the Merger.

(d) No certificates or script representing a fractional Unit shall be
issued, and such fractional share interests will not entitle the owner
thereof to vote or to any rights of a shareholder of Hospitality. Each holder

A-43

of Suites Common Shares who would otherwise be entitled to receive a
fractional Unit will be entitled to receive from the Exchange Agent in
accordance with the provisions of this Section 6(d), in lieu thereof, an
amount of cash (without interest) equal to the product of such fractional
interest, multiplied by $10.00.

(e) All Merger Consideration issued upon exchange of Suites Common
Shares and Suites Class B Convertible Shares in accordance with the terms of
this Section 6 shall be deemed to have been issued in full satisfaction of
all rights pertaining to the Suites Common Shares and Suites Class B
Convertible Shares, subject, however, to the obligation of Hospitality to
pay, without interest and not more than 60 days following the Effective
Time, any dividends or make any other distributions with a record date prior
to the Effective Time which may have been declared or made by Suites on such
shares in accordance with the terms of the Agreement or prior to the date of
the Agreement and which remain unpaid at the Effective Time and have not
been paid prior to such exchange, and there shall be no further registration
of transfers on the stock transfer books or Suites of the Suites Common
Shares and Suites Class B Convertible Shares which were outstanding
immediately prior to the Effective Time.

(f) None of Hospitality, Acquisition Sub, Suites or the Exchange Agent
shall be liable to any person in respect of any Merger Consideration
delivered to a public official pursuant to any applicable abandoned
property, escheat or similar law. Any portion of the Merger Consideration
delivered to the Exchange Agent pursuant to the Agreement that remains
unclaimed for six months after the Effective Time shall be redelivered by
the Exchange Agent to Hospitality, upon demand, and any holders of Suites
Common Shares which have not been exchanged as contemplated by Section 5
above shall thereafter look only to Hospitality for delivery of the Merger
Consideration, subject to applicable abandoned property, escheat and other
similar laws.

(g) Hospitality or the Exchange Agent shall be entitled to deduct and
withhold from the Merger Consideration otherwise payable pursuant to the
Agreement to any holder of Suites Common Shares such amounts as Hospitality
or the Exchange Agent is required to deduct and withhold with respect to the
making of such payment under the Internal Revenue Code, or any provision of
state, local or foreign tax law. To the extent that amounts are so withheld
by Hospitality or the Exchange Agent, such withheld amounts shall be treated
for all purposes of the Agreement as having been paid to the holder of
Suites Common Shares, as the case may be, in respect of which such deduction
and withholding was made by Hospitality or the Exchange Agent.

7. Dissenting Shareholders. Notwithstanding anything in the Agreement to the
contrary, holders of Suites Common Shares who have properly exercised,
perfected and not subsequently withdrawn or lost their dissenters' rights
with respect thereto in accordance with Article 15 of the VSCA, shall not
have any of such shares converted into the right to receive, or to become
exchangeable for, their applicable portion of the Merger Consideration. The
holders of such shares shall be entitled to receive payment of fair value of
such shares in accordance with the provisions of such Article 15, unless and
until such holders fail to perfect or shall have effectively withdrawn or
lost their dissenters' rights under Article 15 of the VSCA. If, after the
Effective Time, any such holder fails to perfect or shall have effectively
withdrawn or lost such right, each of such holder's shares shall thereupon
be treated as if it had been converted into the right to receive, and become
exchangeable for, at the Effective Time, the applicable portion of the
Merger Consideration, without interest thereon, as provided in Section 3
above. Hospitality shall be responsible for all payments to be made under
Article 15 of the VSCA in respect of such dissenting shares.

8. Termination and Amendment.

(a) The Agreement may be terminated at any time prior to the filing of
the Articles of Merger for the Merger with the SCC as provided in the
Agreement.

(b) This Plan of Merger may be amended by the parties in writing by
action of their respective boards of directors at any time before or after
the Suites shareholders approve this Plan of Merger, and prior to the filing
of the Articles of Merger with the SCC; provided, however, that, after the
Suites shareholders approve this Plan of Merger, no such amendment,
modification or supplement shall alter the amount or change the form of the
consideration to be delivered to Suites' shareholders.

A-44

ANNEX B

October 23, 2002

Special Committee of the Board of Directors
Apple Hospitality Two, Inc.
10 South Third Street
Richmond, Virginia 23219

Members of the Special Committee of the Board of Directors:

Apple Suites, Inc. (the "Company"), Apple Hospitality Two, Inc. (the
"Acquiror") and Hospitality Acquisition Company, a wholly-owned subsidiary of
the Acquiror (the "Acquisition Sub"), propose to enter into an Agreement and
Plan of Merger (the "Merger Agreement") pursuant to which the Company will be
merged with and into the Acquisition Sub in a transaction (the "Merger") in
which each issued and outstanding share of the Company's common stock, no par
value (a "Company Share"), will be converted into the right to receive one unit
(a "Unit") consisting of one common share, no par value, of the Acquiror
("Acquiror Common Shares") and one Series A Preferred Share, no par value, of
the Acquiror (together, the "Stock Consideration") or, at the election of each
holder of Company Shares, $10.00 per share in cash (the "Cash Consideration"
and together with the Stock Consideration, the "Common Shares Consideration").
Also pursuant to the Merger, each issued and outstanding share of the Company's
Class B Convertible Shares, no par value (the "Class B Shares"), will be
converted into the right to receive two Units (the "Class B Consideration").
The aggregate Common Shares Consideration and the aggregate Class B
Consideration payable in the Merger to the holders of Company Shares and Class
B Shares is referred to as the "Merger Consideration". As is more fully set
forth in the Merger Agreement, the aggregate Cash Consideration payable in the
Merger shall not exceed $25,000,000; provided that the Acquiror may, in its
sole discretion, increase such amount to $30,000,000. Also pursuant to the
Merger Agreement, prior to the consummation of the Merger the Acquiror will
declare a $15 million distribution with a record date prior to the Merger to be
paid pro rata to the holders of Acquiror Common Shares following the
consummation of the Merger.

You have asked us whether, in our opinion, the Merger Consideration to be
paid by the Acquiror pursuant to the Merger is fair from a financial point of
view to the Acquiror.

In arriving at the opinion set forth below, we have, among other things:

(1) Reviewed certain publicly available business and financial information
relating to the Company and the Acquiror that we deemed to be relevant;

(2) Reviewed certain information, including financial forecasts, relating to
the business, earnings, cash flow, assets, liabilities and prospects of
the Company and the Acquiror furnished to us by the Company and the
Acquiror, respectively;

(3) Conducted discussions with members of senior management and
representatives of the Company and the Acquiror concerning the matters
described in clauses 1 and 2 above, as well as their respective
businesses and prospects before and after giving effect to the Merger;

(4) Participated in certain discussions and negotiations among
representatives of the Company and the Acquiror and their financial and
legal advisors;

(5) Reviewed the potential pro forma impact of the Merger;

(6) Reviewed a draft dated October 22, 2002 of the Merger Agreement; and

(7) Reviewed such other financial studies and analyses and took into account
such other matters as we deemed necessary, including our assessment of
general economic, market and monetary conditions.

B-1

In preparing our opinion, we have assumed and relied on the accuracy and
completeness of all information supplied or otherwise made available to us,
discussed with or reviewed by or for us, or publicly available, and we have not
assumed any responsibility for independently verifying such information or
undertaken an independent evaluation or appraisal of any of the assets or
liabilities of the Company or the Acquiror or been furnished with any such
evaluation or appraisal. In addition, we have not assumed any obligation to
conduct any physical inspection of the properties or facilities of the Company
or the Acquiror. With respect to the financial forecast information furnished
to or discussed with us by the Company or the Acquiror, we have assumed that
they have been reasonably prepared and reflect the best currently available
estimates and judgment of the Company's or the Acquiror's management as to the
expected future financial performance of the Company or the Acquiror, as the
case may be. We have also assumed that (i) the final form of the Merger
Agreement will be substantially similar to the last draft reviewed by us, (ii)
the Merger will qualify as a tax-free reorganization under section 368(a) of
the Internal Revenue Code of 1986, as amended (the "Code"), and (iii) both the
Company and the Acquiror qualify as real estate investment trusts under the
Code.

You have advised us that the Acquiror will purchase the outside advisory
company for the Company and the Acquiror (which is owned by management of the
Acquiror and the Company) and terminate such advisory company's advisory
agreements with the Company and the Acquiror (the "Advisor Acquisition"). We
express no opinion with respect to the Advisor Acquisition or any other
arrangement between the Acquiror or the Company and such advisory company or
management.

Our opinion is necessarily based upon market, economic and other conditions
as they exist and can be evaluated on, and on the information made available to
us as of, the date hereof. We have assumed that in the course of obtaining the
necessary regulatory or other consents or approvals (contractual or otherwise)
for the Merger, no restrictions, including any divestiture requirements or
amendments or modifications, will be imposed that will have a material adverse
effect on the contemplated benefits of the Merger.

We are acting as financial advisor to the Acquiror in connection with the
Merger and will receive a fee from the Acquiror for our services. In addition,
the Acquiror has agreed to indemnify us for certain liabilities arising out of
our engagement. We have, in the past, provided financial advisory and financing
services to various affiliates of the Acquiror and/or the Company and may
continue to do so and have received, and may receive, fees for the rendering of
such services. Merrill Lynch has also been engaged as financial advisor to
parties who have sold significant portfolios to the Acquiror in the past two
years.

This opinion is solely for the use and benefit of the Board of Directors and
the Special Committee of the Board of Directors of the Acquiror. We were not
requested to opine on, and our opinion does not address, the relative merits of
the underlying business decision by the Acquiror to engage in the Merger as
compared to alternative business strategies that might exist for the Acquiror.
Our opinion does not constitute a recommendation to any shareholder of the
Acquiror as to how such shareholder should vote on the proposed Merger or any
matter related thereto.

We are not expressing any opinion herein as to the price at which the
Acquiror shares might trade following the announcement or consummation of the
Merger in any public market or private transaction.

On the basis of and subject to the foregoing, we are of the opinion that, as
of the date hereof, the Merger Consideration is fair from a financial point of
view to the Acquiror.

Very truly yours,

MERRILL LYNCH, PIERCE, FENNER & SMITH
INCORPORATED

B-2

ANNEX C

October 23, 2002

Special Committee of the Board of Directors Apple Suites, Inc.
10 South Byrd Street
Richmond, VA 23219

Ms. Kern and Mr. Waters:

You have asked Wachovia Securities ("Wachovia Securities") to advise you
with respect to the fairness, from a financial point of view, of the Common
Shares Consideration to be received by the holders of Suites Common Shares
(excluding Apple Hospitality Two, Inc. ("Hospitality") and any affiliate
thereof) pursuant to the Agreement and Plan of Merger, draft dated as of
October 22, 2002 (the "Agreement"), among Hospitality, Apple Suites, Inc.
("Suites"), and Hospitality Acquisition Company. Capitalized terms in this
letter shall have the meaning ascribed to them in the Agreement unless the
context clearly requires otherwise.

Pursuant to the Agreement, Suites will be merged with and into Hospitality
Acquisition Company at the Effective Time. Each issued and outstanding Suites
Common Share will be converted into the right to receive from Hospitality one
unit, consisting of one common share, no par value, of Hospitality and one
Series A Preferred Share, no par value, of Hospitality, or, at the election of
the holder, $10.00 in cash per share subject to certain proration requirements
for cash elections exceeding in the aggregate 2,500,000 shares, or 3,000,000
shares at Hospitality's discretion (collectively, the "Common Shares
Consideration").

In arriving at our opinion, we have, among other things:

Reviewed the Agreement, including the financial terms of the Agreement.

Reviewed certain business, financial and other information, including
financial forecasts, regarding Suites and Hospitality that was publicly
available or furnished to us by management, and have discussed each
company's business and prospects with its management.

Considered certain financial data for Suites and Hospitality and compared
that data with similar data regarding certain other publicly traded
companies that we deemed to be relevant.

Compared the proposed financial terms of the Agreement with the financial
terms of certain other business combinations and transactions that we deemed
to be relevant.

Reviewed Suites' and Hospitality's financial contributions to the combined
entity on a pro forma basis without giving effect to the potential
transaction synergies and costs.

Calculated a net asset value per common share for each company based on 2003
projected net operating income, adjusted for capital reserves.

Developed discounted cash flow models of Suites and Hospitality.

Reviewed the potential pro forma financial impact of the Merger on
Hospitality.

Considered other information such as financial studies, analyses and
investigations, as well as financial and economic and market criteria that
we deemed to be relevant.

In rendering our opinion, we have relied upon the accuracy and completeness
of the foregoing financial and other information, and we have not assumed any
responsibility for any independent verification of such information. With
respect to Suites' and Hospitality's financial forecasts, we have assumed, with
the permission of Suites, that they have been reasonably prepared and reflect
the best current estimates and judgments of management as to the future
financial performance of the companies. We have discussed Suites' and
Hospitality's financial projections with the management of Suites and
Hospitality, but we assume no

C-1

responsibility for and express no view as to Suites' and Hospitality's
financial projections or the assumptions upon which they are based. In arriving
at our opinion, we have not made or been provided with any comprehensive
evaluations or appraisals of the assets or liabilities of Suites or Hospitality.

In rendering our opinion, we have assumed that the Merger contemplated by
the Agreement will be consummated on the terms described in the Agreement,
without waiver of any material terms or conditions, that the Agreement reviewed
by us would not differ materially from the merger agreement actually executed,
and that in the course of obtaining any necessary legal, regulatory or third
party consents and/or approvals, no restrictions will be imposed that will have
a material adverse effect on the Merger or other actions contemplated by the
Agreement. In addition, we assumed that the Merger will be accounted for as a
tax-free "reorganization" within the meaning of Section 368(a) of the Code. Our
opinion is necessarily based on economic, market, financial and other
conditions and the information made available to us as of the date hereof.
Although subsequent developments may affect this opinion, we do not have any
obligation to update, revise or reaffirm this opinion. Our opinion does not
address the relative merits of the Merger or other actions contemplated by the
Agreement compared with other business strategies that may have been considered
by management and/or Suites' Board of Directors or any committee thereof.

Wachovia Securities is a trade name of Wachovia Securities, Inc., an
investment banking subsidiary and affiliate of Wachovia Corporation. We have
been engaged to render certain financial advisory services to the Special
Committee of the Board of Directors of Suites in connection with the Agreement
and will receive a fee for such services, which include the delivery of this
opinion. Wachovia Securities did not participate in the negotiations related to
the Agreement. Wachovia Securities and its affiliates (including Wachovia
Corporation and its affiliates) currently have certain other relationships with
Suites and Hospitality. In September 2002, Wachovia Securities closed on an $83
million non-recourse mortgage financing for Hospitality, intended to be sold
through our conduit. In September 2000, Wachovia Securities closed on a $50
million non-recourse mortgage financing for Suites, intended to be sold through
our conduit.

It is understood that this opinion is solely for the information and use of
the Special Committee of the Board of Directors and the Board of Directors of
Suites in connection with its consideration of the Agreement and shall not
confer any rights or remedies upon the shareholders of Suites or any other
person or be used or relied upon for any other purpose. Our opinion does not
address the merits of the underlying decision by Suites to enter into the
Agreement and does not and shall not constitute a recommendation to any
shareholder of Suites as to how such shareholder should vote in connection with
the Agreement or any other matter related thereto. Our opinion may not be
summarized, excerpted from, or otherwise publicly referred to without our prior
written consent.

Based upon and subject to the foregoing, our experience as investment
bankers, our work as described above, and other factors we deem to be relevant,
it is our opinion that, as of the date hereof, the Common Shares Consideration
to be received by holders of Suites Common Shares (excluding Hospitality and
any affiliate thereof) pursuant to the Agreement is fair, from a financial
point of view, to such holders.

Very truly yours,

WACHOVIA SECURITIES

C-2

ANNEX D

ARTICLE 15 OF THE VIRGINIA STOCK CORPORATION ACT

(S) 13.1-729

Definitions

In this article:

"Corporation" means the issuer of the shares held by a dissenter before the
corporate action, except that (i) with respect to a merger, "corporation" means
the surviving domestic or foreign corporation or limited liability company by
merger of that issuer, and (ii) with respect to a share exchange, "corporation"
means the acquiring corporation by share exchange, rather than the issuer, if
the plan of share exchange places the responsibility for dissenters' rights on
the acquiring corporation.

"Dissenter" means a shareholder who is entitled to dissent from corporate
action under (S) 13.1-730 and who exercises that right when and in the manner
required by (S)(S) 13.1-732 through 13.1-739.

"Fair value," with respect to a dissenter's shares, means the value of the
shares immediately before the effectuation of the corporate action to which the
dissenter objects, excluding any appreciation or depreciation in anticipation
of the corporate action unless exclusion would be inequitable.

"Interest" means interest from the effective date of the corporate action
until the date of payment, at the average rate currently paid by the
corporation on its principal bank loans or, if none, at a rate that is fair and
equitable under all the circumstances.

"Record shareholder" means the person in whose name shares are registered in
the records of a corporation or the beneficial owner of shares to the extent of
the rights granted by a nominee certificate on file with a corporation.

"Beneficial shareholder" means the person who is a beneficial owner of
shares held by a nominee as the record shareholder.

"Shareholder" means the record shareholder or the beneficial shareholder.

(S) 13.1-730

Right to dissent

A. A shareholder is entitled to dissent from, and obtain payment of the
fair value of his shares in the event of, any of the following corporate
actions:

1. Consummation of a plan of merger to which the corporation is a party
(i) if shareholder approval is required for the merger by (S) 13.1-718 or
the articles of incorporation and the shareholder is entitled to vote on the
merger or (ii) if the corporation is a subsidiary that is merged with its
parent under (S) 13.1-719;

2. Consummation of a plan of share exchange to which the corporation is
a party as the corporation whose shares will be acquired, if the shareholder
is entitled to vote on the plan;

3. Consummation of a sale or exchange of all, or substantially all, of
the property of the corporation if the shareholder was entitled to vote on
the sale or exchange or if the sale or exchange was in furtherance of a
dissolution on which the shareholder was entitled to vote, provided that
such dissenter's rights shall not apply in the case of (i) a sale or
exchange pursuant to court order, or (ii) a sale for cash pursuant to a plan
by which all or substantially all of the net proceeds of the sale will be
distributed to the shareholders within one year after the date of sale;

D-1

4. Any corporate action taken pursuant to a shareholder vote to the
extent the articles of incorporation, bylaws, or a resolution of the board
of directors provides that voting or nonvoting shareholders are entitled to
dissent and obtain payment for their shares.

B. A shareholder entitled to dissent and obtain payment for his shares
under this article may not challenge the corporate action creating his
entitlement unless the action is unlawful or fraudulent with respect to the
shareholder or the corporation.

C. Notwithstanding any other provision of this article, with respect to a
plan of merger or share exchange or a sale or exchange of property there shall
be no right of dissent in favor of holders of shares of any class or series
which, at the record date fixed to determine the shareholders entitled to
receive notice of and to vote at the meeting at which the plan of merger or
share exchange or the sale or exchange of property is to be acted on, were (i)
listed on a national securities exchange or on the National Association of
Securities Dealers Automated Quotation System (NASDAQ) or (ii) held by at least
2,000 record shareholders, unless in either case:

1. The articles of incorporation of the corporation issuing such shares
provide otherwise;

2. In the case of a plan of merger or share exchange, the holders of the
class or series are required under the plan of merger or share exchange to
accept for such shares anything except:

a. Cash;

b. Shares or membership interests, or shares or membership interests
and cash in lieu of fractional shares (i) of the surviving or acquiring
corporation or limited liability company or (ii) of any other
corporation or limited liability company which, at the record date fixed
to determine the shareholders entitled to receive notice of and to vote
at the meeting at which the plan of merger or share exchange is to be
acted on, were either listed subject to notice of issuance on a national
securities exchange or held of record by at least 2,000 record
shareholders or members; or

c. A combination of cash and shares or membership interests as set
forth in subdivisions 2 a and 2 b of this subsection; or

3. The transaction to be voted on is an "affiliated transaction" and is
not approved by a majority of "disinterested directors" as such terms are
defined in (S) 13.1-725.

D. The right of a dissenting shareholder to obtain payment of the fair
value of his shares shall terminate upon the occurrence of any one of the
following events:

1. The proposed corporate action is abandoned or rescinded;

2. A court having jurisdiction permanently enjoins or sets aside the
corporate action; or

3. His demand for payment is withdrawn with the written consent of the
corporation.

(S) 13.1-731

Dissent by nominees and beneficial owners

A. A record shareholder may assert dissenters' rights as to fewer than all
the shares registered in his name only if he dissents with respect to all
shares beneficially owned by any one person and notifies the corporation in
writing of the name and address of each person on whose behalf he asserts
dissenters' rights. The rights of a partial dissenter under this subsection are
determined as if the shares as to which he dissents and his other shares were
registered in the names of different shareholders.

B. A beneficial shareholder may assert dissenters' rights as to shares held
on his behalf only if:

1. He submits to the corporation the record shareholder's written
consent to the dissent not later than the time the beneficial shareholder
asserts dissenters' rights; and

D-2

2. He does so with respect to all shares of which he is the beneficial
shareholder or over which he has power to direct the vote.

(S) 13.1-732

Notice of dissenters' rights

A. If proposed corporate action creating dissenters' rights under (S)
13.1-730 is submitted to a vote at a shareholders' meeting, the meeting notice
shall state that shareholders are or may be entitled to assert dissenters'
rights under this article and be accompanied by a copy of this article.

B. If corporate action creating dissenters' rights under (S) 13.1-730 is
taken without a vote of shareholders, the corporation, during the ten-day
period after the effectuation of such corporate action, shall notify in writing
all record shareholders entitled to assert dissenters' rights that the action
was taken and send them the dissenters' notice described in (S) 13.1-734.

(S) 13.1-733

Notice of intent to demand payment

A. If proposed corporate action creating dissenters' rights under (S)
13.1-730 is submitted to a vote at a shareholders' meeting, a shareholder who
wishes to assert dissenters' rights (i) shall deliver to the corporation before
the vote is taken written notice of his intent to demand payment for his shares
if the proposed action is effectuated and (ii) shall not vote such shares in
favor of the proposed action.

B. A shareholder who does not satisfy the requirements of subsection A of
this section is not entitled to payment for his shares under this article.

(S) 13.1-734

Dissenters' notice

A. If proposed corporate action creating dissenters' rights under (S)
13.1-730 is authorized at a shareholders' meeting, the corporation, during the
ten-day period after the effectuation of such corporate action, shall deliver a
dissenters' notice in writing to all shareholders who satisfied the
requirements of (S) 13.1-733.

B. The dissenters' notice shall:

1. State where the payment demand shall be sent and where and when
certificates for certificated shares shall be deposited;

2. Inform holders of uncertificated shares to what extent transfer of
the shares will be restricted after the payment demand is received;

3. Supply a form for demanding payment that includes the date of the
first announcement to news media or to shareholders of the terms of the
proposed corporate action and requires that the person asserting dissenters'
rights certify whether or not he acquired beneficial ownership of the shares
before or after that date;

4. Set a date by which the corporation must receive the payment demand,
which date may not be fewer than thirty nor more than sixty days after the
date of delivery of the dissenters' notice; and

5. Be accompanied by a copy of this article.

D-3

(S) 13.1-735

Duty to demand payment

A. A shareholder sent a dissenters' notice described in (S) 13.1-734 shall
demand payment, certify that he acquired beneficial ownership of the shares
before or after the date required to be set forth in the dissenters' notice
pursuant to subdivision 3 of subsection B of (S) 13.1-734, and, in the case of
certificated shares, deposit his certificates in accordance with the terms of
the notice.

B. The shareholder who deposits his shares pursuant to subsection A of this
section retains all other rights of a shareholder except to the extent that
these rights are canceled or modified by the taking of the proposed corporate
action.

C. A shareholder who does not demand payment and deposits his share
certificates where required, each by the date set in the dissenters' notice, is
not entitled to payment for his shares under this article.

(S) 13.1-736

Share restrictions

A. The corporation may restrict the transfer of uncertificated shares from
the date the demand for their payment is received.

B. The person for whom dissenters' rights are asserted as to uncertificated
shares retains all other rights of a shareholder except to the extent that
these rights are canceled or modified by the taking of the proposed corporate
action.

(S) 13.1-737

Payment

A. Except as provided in (S) 13.1-738, within thirty days after receipt of
a payment demand made pursuant to (S) 13.1-735, the corporation shall pay the
dissenter the amount the corporation estimates to be the fair value of his
shares, plus accrued interest. The obligation of the corporation under this
paragraph may be enforced (i) by the circuit court in the city or county where
the corporation's principal office is located, or, if none in this
Commonwealth, where its registered office is located or (ii) at the election of
any dissenter residing or having its principal office in the Commonwealth, by
the circuit court in the city or county where the dissenter resides or has its
principal office. The court shall dispose of the complaint on an expedited
basis.

B. The payment shall be accompanied by:

1. The corporation's balance sheet as of the end of a fiscal year ending
not more than sixteen months before the effective date of the corporate
action creating dissenters' rights, an income statement for that year, a
statement of changes in shareholders' equity for that year, and the latest
available interim financial statements, if any;

2. An explanation of how the corporation estimated the fair value of the
shares and of how the interest was calculated;

3. A statement of the dissenters' right to demand payment under (S)
13.1-739; and

4. A copy of this article.

(S) 13.1-738

After-acquired shares

A. A corporation may elect to withhold payment required by (S) 13.1-737
from a dissenter unless he was the beneficial owner of the shares on the date
of the first publication by news media or the first announcement to

D-4

shareholders generally, whichever is earlier, of the terms of the proposed
corporate action, as set forth in the dissenters' notice.

B. To the extent the corporation elects to withhold payment under
subsection A of this section, after taking the proposed corporate action, it
shall estimate the fair value of the shares, plus accrued interest, and shall
offer to pay this amount to each dissenter who agrees to accept it in full
satisfaction of his demand. The corporation shall send with its offer an
explanation of how it estimated the fair value of the shares and of how the
interest was calculated, and a statement of the dissenter's right to demand
payment under (S) 13.1-739.

(S) 13.1-739

Procedure if shareholder dissatisfied with payment or offer

A. A dissenter may notify the corporation in writing of his own estimate of
the fair value of his shares and amount of interest due, and demand payment of
his estimate (less any payment under (S) 13.1-737), or reject the corporation's
offer under (S) 13.1-738 and demand payment of the fair value of his shares and
interest due, if the dissenter believes that the amount paid under (S) 13.1-737
or offered under (S) 13.1-738 is less than the fair value of his shares or that
the interest due is incorrectly calculated.

B. A dissenter waives his right to demand payment under this section unless
he notifies the corporation of his demand in writing under subsection A of this
section within thirty days after the corporation made or offered payment for
his shares.

(S) 13.1-740

Court action

A. If a demand for payment under (S) 13.1-739 remains unsettled, the
corporation shall commence a proceeding within sixty days after receiving the
payment demand and petition the circuit court in the city or county described
in subsection B of this section to determine the fair value of the shares and
accrued interest. If the corporation does not commence the proceeding within
the sixty-day period, it shall pay each dissenter whose demand remains
unsettled the amount demanded.

B. The corporation shall commence the proceeding in the city or county
where its principal office is located, or, if none in this Commonwealth, where
its registered office is located. If the corporation is a foreign corporation
without a registered office in this Commonwealth, it shall commence the
proceeding in the city or county in this Commonwealth where the registered
office of the domestic corporation merged with or whose shares were acquired by
the foreign corporation was located.

C. The corporation shall make all dissenters, whether or not residents of
this Commonwealth, whose demands remain unsettled parties to the proceeding as
in an action against their shares and all parties shall be served with a copy
of the petition. Nonresidents may be served by registered or certified mail or
by publication as provided by law.

D. The corporation may join as a party to the proceeding any shareholder
who claims to be a dissenter but who has not, in the opinion of the
corporation, complied with the provisions of this article. If the court
determines that such shareholder has not complied with the provisions of this
article, he shall be dismissed as a party.

E. The jurisdiction of the court in which the proceeding is commenced under
subsection B of this section is plenary and exclusive. The court may appoint
one or more persons as appraisers to receive evidence and recommend a decision
on the question of fair value. The appraisers have the powers described in the
order appointing them, or in any amendment to it. The dissenters are entitled
to the same discovery rights as parties in other civil proceedings.

D-5

F. Each dissenter made a party to the proceeding is entitled to judgment
(i) for the amount, if any, by which the court finds the fair value of his
shares, plus interest, exceeds the amount paid by the corporation or (ii) for
the fair value, plus accrued interest, of his after-acquired shares for which
the corporation elected to withhold payment under (S) 13.1-738.

(S) 13.1-741

Court costs and counsel fees

A. The court in an appraisal proceeding commenced under (S) 13.1-740 shall
determine all costs of the proceeding, including the reasonable compensation
and expenses of appraisers appointed by the court. The court shall assess the
costs against the corporation, except that the court may assess costs against
all or some of the dissenters, in amounts the court finds equitable, to the
extent the court finds the dissenters did not act in good faith in demanding
payment under (S) 13.1-739.

B. The court may also assess the reasonable fees and expenses of experts,
excluding those of counsel, for the respective parties, in amounts the court
finds equitable:

1. Against the corporation and in favor of any or all dissenters if the
court finds the corporation did not substantially comply with the
requirements of (S)(S) 13.1-732 through 13.1-739; or

2. Against either the corporation or a dissenter, in favor of any other
party, if the court finds that the party against whom the fees and expenses
are assessed did not act in good faith with respect to the rights provided
by this article.

C. If the court finds that the services of counsel for any dissenter were
of substantial benefit to other dissenters similarly situated, the court may
award to these counsel reasonable fees to be paid out of the amounts awarded
the dissenters who were benefited.

D. In a proceeding commenced under subsection A of (S) 13.1-737 the court
shall assess the costs against the corporation, except that the court may
assess costs against all or some of the dissenters who are parties to the
proceeding, in amounts the court finds equitable, to the extent the court finds
that such parties did not act in good faith in instituting the proceeding.

D-6

PROXY

APPLE SUITES, INC.

THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS

The undersigned hereby appoints David S. McKenney, J. Philip Hart and
Martin B. Richards as Proxies, each with the power to appoint his substitute,
and hereby authorizes them to represent and to vote as designated below all the
common shares of Apple Suites, Inc. held of record by the undersigned on
December 20, 2002, at the Special Meeting of Shareholders to be held on
January 30, 2003 or any adjournment thereof.

1. To approve and adopt the Agreement and Plan of Merger, dated as of
October 24, 2002, as amended, by and among Apple Hospitality Two, Inc., Apple
Suites, Inc. and Hospitality Acquisition Company, a subsidiary of Apple
Hospitality Two, Inc., including the related plan of merger (the "Merger
Agreement"), by which Apple Suites, Inc. is to merge with and into Hospitality
Acquisition Company, a subsidiary of Apple Hospitality Two, Inc. (the "Merger")
and approve the Merger.

FOR AGAINST ABSTAIN
--- ------- -------

[ ] [ ] [ ]

2. In their discretion, the Proxies are authorized to vote upon such
other matters as may properly come before the Special Meeting to the extent such
are matters (i) that the board of directors did not know, a reasonable time
before the solicitation of proxies, were to be presented at the Special Meeting,
or (ii) that are incident to the conduct of the Special Meeting.

This Proxy when properly executed will be voted in the manner directed
herein by the undersigned shareholder. If no direction is made, this Proxy will
be voted for each of the proposals listed above.

(Continued on the reverse side).

Please indicate whether you plan to attend the Special Meeting in person:
[ ] Yes [ ] No

Dated: ________________, 200
-- -----------------------------------
Print Name

-----------------------------------
Signature

Signature if held jointly

Please print exact name(s) in which shares are registered, and
sign exactly as name appears. When shares are held by joint
tenants, both should sign. When signing as attorney, executor,
administrator, trustee or guardian, please give full title as
such. If a corporation, please sign in full corporate name by
President or other authorized officer. If a
partnership, please sign in partnership name by
authorized person.

Please mark, sign, date and return the Proxy Card promptly using
the enclosed envelope.

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

APPLE SUITES, INC.

Cash Election Form
(for Record Holders)

Dated December 20, 2002

To Elect to Receive Cash for Apple Suites, Inc. Common Shares in the Merger.
- -------------------------------------------------------------------------------

WACHOVIA BANK, N.A., THE EXCHANGE AGENT, MUST RECEIVE THIS CASH ELECTION FORM,
PROPERLY COMPLETED AND SIGNED, NO LATER THAN 5:00 P.M., EASTERN TIME, ON JANUARY
29, 2003 (THE "ELECTION CUTOFF DATE"), IN ORDER FOR YOU TO ELECT TO RECEIVE CASH
CONSIDERATION IN THE MERGER.

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

This Cash Election Form is being delivered to you in connection with
the Agreement and Plan of Merger dated as of October 24, 2002, as amended (the
"Agreement"), among Apple Hospitality Two, Inc. ("Hospitality"), Apple Suites,
Inc. ("Suites") and Hospitality Acquisition Company. Enclosed with this Cash
Election Form is a joint proxy statement/prospectus dated December 20, 2002 that
provides information about the proposed merger transaction contemplated by the
Agreement, in which Suites will become a subsidiary of Hospitality. If the
merger is completed, holders of Suites common shares will receive either:

o a Hospitality unit, consisting of one Hospitality common share and one
Hospitality Series A preferred share, for each Suites common share; or

o if elected by a Suites common shareholder, $10.00 in cash per Suites
common share, subject to a $25 million limit on the cash to be paid in
the merger.

If a holder of Suites common shares elects to receive cash for his or her Suites
common shares, and more Suites shareholders elect to receive cash than the
maximum amount of cash available for payment, such shareholder will receive a
combination of cash and Hospitality units for his or her Suites common shares,
based on a pro rata distribution of the cash available for payment in the
merger. For purposes of calculating the pro rata distribution, fractional Suites
common shares will be rounded to the nearest whole share. Hospitality, at its
sole discretion, prior to the effective time of the merger, may determine to
increase the maximum amount of cash consideration to be paid in the merger to an
amount not to exceed $30 million.

This material is being forwarded to you as the record holder of Suites
common shares. The purpose of this Cash Election Form is to allow you to elect
to receive the cash consideration provided in the merger for the Suites common
shares that you hold of record. If you wish to only receive Hospitality units in
the merger for the Suites common shares that you hold of record, you do not need
to complete this Cash Election Form.

An election for the Suites common shares that you hold of record may
only be made by you as

the record holder. Accordingly, we request instructions as to whether you wish
to elect to receive the cash consideration in the merger in exchange for the
Suites common shares you hold of record.

A holder of Suites common shares that would like to receive the cash
consideration in the merger must elect to receive the cash consideration for all
of the Suites common shares that he or she holds beneficially in an account. If
a holder has more than one account, however, that holder may make different
elections for each of his or her accounts. You are only permitted to elect to
receive the cash consideration for a portion of the Suites common shares that
you hold of record if: (i) you hold Suites common shares on account for more
than one beneficial owner; and (ii) separate beneficial owners for whom you hold
Suites common shares have instructed you to exchange their entire position for
the cash consideration and Hospitality units, respectively.

Your election is subject to all of the terms and conditions set forth
in the Agreement and the joint proxy statement/prospectus. You should pay
particular attention to the pro-ration provisions described in the Agreement and
the joint proxy statement/prospectus. The total amount of cash that can be paid
to Suites common shareholders is fixed at $25 million, unless Hospitality, at
its sole discretion prior to the effective time of the merger, determines to
increase the maximum amount of cash consideration to be paid in the merger to an
amount not to exceed $30 million. The form of consideration that a holder
ultimately receives will depend upon his or her election and the election of the
other Suites common shareholders. Regardless of whether a holder elects to
receive the cash consideration, the holder may receive some consideration in
Hospitality units.

The merger is subject to certain conditions set forth in the joint
proxy statement/prospectus in the section captioned "THE MERGER AGREEMENT -
Conditions to Consummate the Merger."

If you wish to exchange common shares for the cash consideration in the
merger, please so elect by completing, executing and returning to the Exchange
Agent this Cash Election Form. A reply envelope is enclosed. Your Cash Election
Form should be sent to the Exchange Agent as promptly as possible, but the
Exchange Agent must receive your Cash Election Form no later than the Election
Cutoff Date, 5:00 p.m., Eastern Time, on January 29, 2003. We will not permit
holders of Suites common shares to elect to receive the cash consideration after
the Election Cutoff Date, and Suites common shareholders that do not return a
Cash Election Form, properly completed, prior to the Election Cutoff Date, will
receive only Hospitality units for their Suites common shares.

You may withdraw or change your cash election by submitting a revised
Cash Election Form, however, the Exchange Agent must receive your revised Cash
Election Form prior to the Election Cutoff Date.

[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]

CASH ELECTION FORM

The undersigned acknowledge(s) receipt of our letter and the enclosed
material referred to therein relating to the proposed merger of Apple Suites,
Inc. with and into Hospitality Acquisition Company, a subsidiary of Apple
Hospitality Two, Inc. This will elect to exchange the Suites common shares
indicated below, held by you of record, upon and subject to the terms and
conditions set forth in the joint proxy statement/prospectus, for the cash
consideration offered in the merger.

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

Item 1. Name(s), address(es), telephone number(s) and tax identification
number(s) (if an entity) of registered holders(s) of Suites common shares.
(Please fill in blanks)

------------------------------------
------------------------------------
------------------------------------
------------------------------------
Phone number: ( ) ----------------
Tax ID (if an entity) --------------

Item 2. Election to receive the cash consideration.

- --------- Number of Suites common shares you wish to elect to receive
$10.00 in cash per Suites common share, subject to the
limit on the cash to be paid in the merger.(1)
(Number)

(1) The undersigned understands that if a holder of Suites common shares
wishes to exchange his or her Suites common shares for the cash
consideration in the merger, such holder must exchange all of his or
her Suites common shares held beneficially in an account for the cash
consideration in the merger.

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

PLEASE SIGN HERE

- ---------------- ------------------------------------
(Date) (Name(s); Please Print)

------------------------------------
(Signature)

------------------------------------
(Title or Capacity - If held by an entity)

------------------------------------
(Signature if held jointly)

------------------------------------
(Title or Capacity - If held by an entity)

THIS COMPLETED CASH ELECTION FORM MUST BE RECEIVED BY WACHOVIA BANK, N.A., THE
EXCHANGE AGENT, BEFORE 5:00 P.M., EASTERN TIME, ON JANUARY 29, 2003, THE
ELECTION CUTOFF DATE. A REPLY ENVELOPE IS ENCLOSED, OR FAX THIS CASH ELECTION
FORM TO THE EXCHANGE AGENT AT 704-590-7599. IF YOU HAVE ANY QUESTIONS, CALL THE
EXCHANGE AGENT AT 704-590-7385.