AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON SEPTEMBER 20, 2000
FILE NO. 333-77055

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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

POST-EFFECTIVE
AMENDMENT NO. 4
TO
FORM S-11
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933

APPLE SUITES, INC.
(Exact name of registrant as specified in governing instruments)

9 North Third Street, Richmond, Virginia 23219
(Address of principal executive offices)

Glade M. Knight
9 North Third Street, Richmond, Virginia 23219
(Name and address of agent for service)

Copy to:
Martin B. Richards
McGuireWoods LLP
One James Center, 901 East Cary Street, Richmond, Virginia 23219

APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: From time to
time after the effective date of this Registration Statement.

If any of the securities being registered on this Form are to be
offered on a delayed or continuous basis pursuant to Rule 415 under the
Securities Act of 1933, check the following box. [X]

If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]

If this Form is a post-effective amendment filed pursuant to Rule
462(c) under the Securities Act, check the following box and list the Securities
Act registration statement number of the earlier effective registration
statement for the same offering. [ ]

If this Form is a post-effective amendment filed pursuant to Rule
462(d) under the Securities Act, check the following box and list the Securities
Act registration statement number of the earlier effective registration
statement for the same offering. [ ]

If delivery of the prospectus is expected to be made pursuant to Rule
434, please check the following box. [ ]

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APPLE SUITES, INC.
CROSS REFERENCE SHEET TO
PART I (INFORMATION REQUIRED IN PROSPECTUS)

ITEM NUMBER AND CAPTION LOCATION IN PROSPECTUS
----------------------- ----------------------

1. Forepart of Registration Statement and
Outside Front Cover Page of Prospectus.......... (located as indicated)

2. Inside Front and Outside Back Cover
Pages of Prospectus............................. (located as indicated)

3. Summary Information, Risk Factors and
Ratio of Earnings to Fixed Charges.............. Summary; Risk Factors; Summary of
Organizational Documents - Shareholder
Liability

4. Determination of Offering Price................. Risk Factors - The Per-Share Offering Prices
Have Been Established Arbitrarily

5. Dilution........................................ Risk Factors - Our Shareholders' Interests
May Be Diluted; Summary of Organizational
Documents - Issuance of Securities

6. Selling Security Holders........................ Not Applicable

7. Plan of Distribution............................ Plan of Distribution

8. Use of Proceeds................................. Use of Proceeds

9. Selected Financial Data......................... Supplement No. 5; Supplement No. 7;
Supplement No. 8

10. Management's Discussion and Analysis
of Financial Condition and Results of
Operations...................................... Management's Discussion and Analysis of
Financial Condition; Supplement No. 5;
Supplement No. 6; Supplement No. 8

11. General Information as to Registrant............ Summary; Business; Management

12. Policy with Respect to Certain Activities....... Summary; Investment Objectives and
Policies; Summary of Organizational
Documents; Reports to Shareholders

13. Investment Policies of Registrant............... Summary; Investment Objectives and
Policies; Supplement No. 8

14. Description of Real Estate...................... Business; Supplement No. 5; Supplement
No. 6; Supplement No. 7

15. Operating Data.................................. Business

16. Tax Treatment of Registrant and its
Security Holders................................ Summary; Federal Income Tax Considerations

17. Market Price of and Dividends on the
Registrant's Common Equity and
Related Stockholder Matters..................... Distribution Policy

18. Description of Registrant's Securities.......... Summary; Description of Capital Stock

19. Legal Proceedings............................... Business - Legal Proceedings

20. Security Ownership of Certain
Beneficial Owners and Management................ Prinncipal and Management Shareholders;
Supplement No. 5

21. Directors and Executive Officers................ Management

22. Executive Compensation.......................... Compensation; Management

23. Certain Relationships and Related
Transactions.................................... Summary; Compensation; Conflicts of
Interests; Management; Apple Suites
Advisors, Inc. and Affiliates

24. Selection, Management and Custody of
Registrant's Investments........................ Summary; Compensation; Conflicts of
Interests; Investment Objectives and Policies;
Management; Apple Suites Advisors, Inc. and
Affiliates

25. Policies with Respect to Certain
Transactions.................................... Investment Objectives and Policies; Conflicts
of Interests

26. Limitation of Liability......................... Risk Factors; Summary of Organizational
Documents

27. Financial Statements and Information............ Index to Balance Sheet; Supplement No. 5;
Supplement No. 6; Supplement No. 7;
Supplement No. 8

28. Interests of Named Experts and Counsel.......... Legal Matters

29. Disclosure of Commission Position on
Indemnification for Securities Act Liabilities.. Risk Factors; Summary of Organizational
Documents

STICKER SUPPLEMENT TO
SUPPLEMENT NO. 5 DATED MARCH 21, 2000,
SUPPLEMENT NO. 6 DATED MAY 31, 2000,
SUPPLEMENT NO. 7 DATED JUNE 20, 2000, AND
SUPPLEMENT NO. 8 DATED SEPTEMBER 20, 2000

SUPPLEMENT NOS. 5, 6, 7 AND 8 TO BE USED WITH
PROSPECTUS DATED AUGUST 3, 1999

SUMMARY OF SUPPLEMENTS TO PROSPECTUS
(SEE THE SUPPLEMENTS FOR ADDITIONAL INFORMATION)

Supplement No. 5 dated March 21, 2000 (incorporating and replacing all prior
Supplements in use, No. 1 though 4):

(1) Reports on our purchase, either directly or through a subsidiary,
of eleven extended-stay hotels for an aggregate purchase price of $91,426,000

(2) Reports on the short-term financing of 75% of the aggregate
purchase price, or $68,569,500, secured by the properties and having maturity
dates of October 1, 2000, December 1, 2000 and January 1, 2001

(3) Reports on the manner in which the hotels are being leased,
operated and managed, including a summary of the material contracts affecting
these matters

(4) Provides certain other information about us and the hotels we have
purchased

Supplement No. 6 dated May 31, 2000:

(1) Reports on our purchase, through a subsidiary, of a long-term
leasehold interest in an extended-stay hotel for a purchase price of $15,489,000

(2) Reports on the short-term financing of 75% of the purchase price,
or $11,616,750, secured by the property and having a maturity date of April 28,
2001

(3) Reports on the manner in which the hotel is being leased, operated
and managed, including a summary of the material contracts affecting these
matters

(4) Provides certain other information about us and the hotel

Supplement No. 7 dated June 20, 2000:

(1) Reports on the potential refinancing of our short-term debt

(2) Reports on the possible purchase of an additional extended-stay
hotel

(3) Provides certain updated information about our hotels

Supplement No. 8 dated September 20, 2000:

(1) Confirms our purchase of an additional extended-stay hotel

(2) Reports on the refinancing of a portion of our short-term debt
with long-term loans in the aggregate amount of $50 million and an additional
short-term loan in the amount of $10 million

As of August 23, 1999, we had closed on the sale of 1,666,666.67 of our
common shares at a price of $9 per share, representing completion of the minimum
offering. As of September 8, 2000, we had closed on the sale of 4,328,994.33 of
our common shares at a price of $10 per share. These sales, when combined,
represent gross proceeds of $58,289,943 and proceeds net of selling commissions
and marketing expenses of $52,460,949. We are continuing the offering at $10 per
share in accordance with the prospectus.

We have paid a total real estate commission of $2,436,000, representing
2% of the aggregate purchase price for all of our hotels, to Apple Suites Realty
Group, Inc., which is our real estate broker and is owned by our Chairman and
Chief Executive Officer.

SUBJECT TO COMPLETION, DATED APRIL 26, 1999

PROSPECTUS

APPLE SUITES, INC.

COMMON SHARES

We are a Richmond, Virginia-based company. We plan to elect to be treated
as a real estate investment trust for federal income tax purposes. We will
focus on corporate apartments and extended-stay hotel properties located
primarily in selected southeastern and southwestern metropolitan areas.
However, we own no properties at this time.

This is an initial public offering of up to 30,166,666.67 common shares of
Apple Suites, Inc. If a minimum of 1,666,666.67 common shares are not sold
within one year after the date of this prospectus, we will terminate this
offering of common shares and all money received will be refunded to investors
with interest.

CONSIDER CAREFULLY THE RISK FACTORS BEGINNING ON PAGE 8 OF THIS
PROSPECTUS. THIS OFFERING INVOLVES CERTAIN RISKS AND INVESTMENT CONSIDERATIONS
INCLUDING:

o There will be no public trading market for the common shares for an
indefinite period of time, if ever. Investors may be unable to resell
their common shares or may be able to resell their common shares only at a
substantial discount from the purchase price.

o We will pay substantial compensation to third parties for advisory,
acquisition and disposition, and other services. This compensation has
been established without the benefit of arms-length negotiation.

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Proceeds to
Price to Apple Suites,
Public Commissions Inc.

Per Share(1) ............. $ 9.00 $ .675 $ 8.325
Minimum Offering ......... $ 15,000,000 $ 1,125,000 $ 13,875,000
Maximum Offering ......... $300,000,000 $22,500,000 $277,500,000

- --------------------------------------------------------------------------------
(1) Once the minimum offering of $15,000,000 is achieved, the per share
offering price will rise to $10 and the selling commission per share will
become $0.75.

NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR DETERMINED THAT
THIS PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.

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DAVID LERNER ASSOCIATES, INC.
477 JERICHO TURNPIKE, SYOSSET, NEW YORK 11791

THE DATE OF THIS PROSPECTUS IS APRIL 26, 1999.

TABLE OF CONTENTS

PAGE
-----

SUMMARY ........................................................................... 5
Apple Suites, Inc ................................................................ 5
The Advisor and Affiliates ....................................................... 5
Risk Factors ..................................................................... 5
The Offering ..................................................................... 5
Estimated use of Proceeds ........................................................ 6
Investment Objectives and Policies; Liquidity .................................... 6
Distributions Policy ............................................................. 6
Capital Stock .................................................................... 7
Compensation ..................................................................... 7
RISK FACTORS ...................................................................... 8
Absence of Public Trading Market ................................................. 8
Compensation to the Advisor and Affiliates is Payable Before Distributions and
Will Reduce Investors' Return .................................................. 8
Acquisition, Advisory and Other Fees and Expenses Will Reduce Return ............. 9
Conflicts of Interest ............................................................ 9
Investment in a Single Industry .................................................. 9
Dependence on Lessees Because We Are a Reit ...................................... 10
Lack of Control over Management and Operations of Our Properties ................. 10
Operational Limitations Associated with Franchise Agreements ..................... 10
Lack of Operating History; No Assurance of Success ............................... 10
Size of Offering -- Possible Lack of Diversification and Lower Return ............ 11
Delay in Investment in Real Property ............................................. 11
No Specified Properties .......................................................... 11
Arbitrary Share Offering Prices .................................................. 11
Operating Risks .................................................................. 11
Competition ...................................................................... 11
Adverse Consequences of Failure to Qualify as a Reit ............................. 11
Market Illiquidity ............................................................... 12
No Restriction on Changes in Investment and Financing Policies ................... 12
Potential Dilution of Shareholders' Interests .................................... 12
Certain Anti-takeover Provisions; Ownership Limits ............................... 13
Possible Environmental Liabilities ............................................... 13
Costs of Compliance with Americans with Disabilities Act and Similar Laws ........ 13
Year 2000 ........................................................................ 13
Risks Associated with Forward-Looking Statements Included in this Prospectus ..... 14
ESTIMATED USE OF PROCEEDS ......................................................... 15
COMPENSATION ...................................................................... 17
CONFLICTS OF INTERESTS ............................................................ 19
General .......................................................................... 19
Transactions with Affiliates and Related Parties ................................. 19
Competition between Us and Affiliates ............................................ 20
Competition for Management Services .............................................. 20
POLICIES WITH RESPECT TO CERTAIN ACTIVITIES ....................................... 21

PAGE
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Investment Policies ................................................ 21
Borrowing Policies ................................................. 21
Reserves ........................................................... 22
Sale Policies ...................................................... 22
Changes in Objectives and Policies ................................. 22
DISTRIBUTIONS POLICY ................................................ 24
BUSINESS ............................................................ 25
General ............................................................ 25
Business Strategies ................................................ 25
Description of Leases .............................................. 25
Term ............................................................... 25
Base Rent; Participating Rent ...................................... 25
Homewood Suites .................................................... 26
Other Real Estate Investments ...................................... 26
Legal Proceedings .................................................. 26
Regulation ......................................................... 26
General ............................................................ 26
Americans With Disabilities Act .................................... 26
Environmental Matters .............................................. 27
Insurance .......................................................... 28
Available Information .............................................. 28
MANAGEMENT .......................................................... 29
Classification of the Board ........................................ 29
Committees of the Board ............................................ 30
Director Compensation .............................................. 30
Indemnification and Insurance ...................................... 30
Officer Compensation ............................................... 30
Stock Incentive Plan ............................................... 30
The Incentive Plan ................................................. 31
Directors' Plan .................................................... 32
Stock Option Grants ................................................ 33
THE ADVISOR AND AFFILIATES .......................................... 34
General ............................................................ 34
The Advisory Agreement ............................................. 34
Apple Suites Realty Group, Inc ..................................... 35
Prior Performance of Programs Sponsored by Glade M. Knight ......... 36
PRINCIPAL AND MANAGEMENT SHAREHOLDERS ............................... 37
FEDERAL INCOME TAX CONSIDERATIONS ................................... 38
General ............................................................ 38
REIT Qualification ................................................. 38
Sources of Gross Income ............................................ 39
75% Gross Income Test .............................................. 39
95% Gross Income Test .............................................. 40
Failing the 75% or 95% Tests; Reasonable Cause ..................... 40
Character of Assets Owned .......................................... 41

iii

PAGE
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Annual Distributions to Shareholders ................................. 41
Taxation as a Reit ................................................... 42
Failure to Qualify as a Reit ......................................... 43
Taxation of Shareholders ............................................. 43
Backup Withholding ................................................... 44
Taxation of Tax Exempt Entities ...................................... 44
Taxation of Foreign Investors ........................................ 45
State and Local Taxes ................................................ 46
ERISA CONSIDERATIONS .................................................. 46
CAPITALIZATION ........................................................ 48
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS ............................................ 49
Overview .............................................................. 49
PLAN OF DISTRIBUTION .................................................. 50
DESCRIPTION OF CAPITAL STOCK .......................................... 53
Dividend and Distribution Rights ..................................... 53
Voting Rights ........................................................ 53
Preferred Stock ...................................................... 54
Restrictions on Transfer ............................................. 54
Facilities for Transferring Common Shares............................. 55
Warrants ............................................................. 56
SUMMARY OF ORGANIZATIONAL DOCUMENTS ................................... 57
Board of Directors ................................................... 57
Responsibility of Board of Directors, Advisor, Officers and Employees 57
Issuance of Securities ............................................... 58
Redemption and Restrictions on Transfer .............................. 59
Amendment ............................................................ 59
Shareholder Liability ................................................ 59
SALES LITERATURE ...................................................... 60
REPORTS TO SHAREHOLDERS ............................................... 60
LEGAL MATTERS ......................................................... 60
EXPERTS ............................................................... 60
INDEX TO FINANCIAL STATEMENTS ......................................... F-1

SUMMARY

The following information supplements, and should be read in conjunction
with, the information contained in this prospectus.

APPLE SUITES, INC.

We are a Richmond, Virginia-based company. We plan to elect to be treated
as a real estate investment trust for federal income tax purposes. As a real
estate investment trust, we will generally not be subject to federal income
tax. We will, however, be subject to a number of organizational and operational
requirements and limitations.

We will focus on corporate apartments and extended-stay hotel properties
located primarily in selected southeastern and southwestern metropolitan areas.
However, we own no properties at this time.

We are located at 306 East Main Street, Richmond, Virginia and our
telephone number is (804) 643-1761.

THE ADVISOR AND AFFILIATES

Apple Suites Advisors, Inc. will provide us with the day-to-day management
of our company. Apple Suites Advisors, Inc. does not have any significant
assets. Apple Suites Realty Group, Inc. will provide us with property
acquisition and disposition services. Apple Suites Realty Group, Inc. has no
significant assets.

Because we are precluded under federal tax laws from operating our
corporate apartments and extended-stay hotel properties, we will enter into
leases for each of our hotel properties. We anticipate that substantially all
our hotel properties will be leased to Apple Suites Management, Inc. Apple
Suites Management, Inc. has no significant assets.

All of the common shares of the Apple Suites Advisors, Inc., Apple Suites
Realty Group, Inc. and Apple Suites Management, Inc. are owned by Glade M.
Knight, who is our president and Chairman of the Board.

To avoid confusion with Apple Suites, Inc., we will refer in this
prospectus to Apple Suites Advisors, Inc. as the Advisor and to Apple Suites
Realty Group, Inc. as the Broker.

RISK FACTORS

AN INVESTMENT IN OUR SECURITIES INVOLVES A NUMBER OF RISKS. WE URGE YOU TO
CAREFULLY CONSIDER THE MATTERS DISCUSSED UNDER "RISK FACTORS" BEGINNING ON PAGE
8 BEFORE YOU DECIDE TO PURCHASE OUR COMMON SHARES.

THE OFFERING

We are offering common shares at $9 per common share until a minimum of
1,666,666.67 common shares ($15,000,000) have been sold. Thereafter, the common
shares will be offered at $10 per common share. The common shares are being
offered through David Lerner Associates, Inc.

If at least $15,000,000 of common shares have not been sold within one
year after the date of this prospectus, we will terminate this offering of
common shares and all moneys received will be refunded to investors with
interest.

This offering of common shares will continue until all the common shares
offered under this prospectus have been sold or until one year from the date of
this prospectus, unless we terminate the offering at an earlier date or extend
the offering for up to an additional year. In some states,

extension of the offering may not be allowed or may be allowed only upon
certain conditions. An initial closing will occur after the minimum offering of
$15,000,000 is achieved. Thereafter, closings will occur from time to time
during the offering period.

ESTIMATED USE OF PROCEEDS. The proceeds of the offering will be used (i)
to pay expenses and fees of selling the common shares; (ii) to invest in
properties; (iii) to pay expenses and fees associated with acquiring
properties; and (iv) to establish a working capital reserve. See "Estimated Use
of Proceeds."

On April 20, 1999, we obtained a line of credit in a principal amount of
up to $1 million to fund our start-up costs. The lender is First Union National
Bank. This line of credit bears interest at LIBOR plus 1.50%. Interest is
payable monthly and the principal balance and all accrued interest are due in
full on October 20, 1999. Glade M. Knight, our president and Chairman of the
Board, has guaranteed repayment of the loan. We expect to repay this debt with
proceeds from the sale of common shares.

INVESTMENT OBJECTIVES AND POLICIES; LIQUIDITY. Prior to this offering
there has been no public market for the common shares, and initially such a
market is not expected to develop. We do not plan to cause the 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 we, acting through our Board of Directors, may cause the common shares to
be so listed or quoted if the Board of Directors determines such action to be
prudent, there can be no assurance that such an event will ever occur.
Prospective shareholders should view the common shares as illiquid and must be
prepared to hold their investment for an indefinite length of time. Currently,
we expect that within approximately three (3) years from the initial closing,
we will use our best efforts either (i) to cause the common shares to be listed
on a national securities exchange or quoted on the NASDAQ National Market
System or (ii) to dispose of substantially all of our properties in a manner
which will permit distributions to shareholders of cash or marketable
securities. Either course of action will be conditioned on the Board of
Directors determining such action to be prudent and in the best interests of
the shareholders, and would be intended to provide shareholders with liquidity
either by initiating the development of a market for the common shares or by
disposing of properties and distributing to shareholders cash or other
securities then being actively traded. However, we are under no obligation to
take any of the foregoing actions, and any such action, if taken, might be
taken after the referenced three-year period. See "Risk Factors -- Absence of
Public Trading Market."

We intend to purchase our properties either on an all-cash basis or using
limited interim borrowings. We will endeavor to repay any interim borrowing
with proceeds from the sale of common shares and thereafter to hold our
properties on an unleveraged basis. However, for the purpose of flexibility in
operations, we have the right, subject to the approval of the Board of
Directors, to borrow. See "Policies with Respect to Certain Activities --
Borrowing Policies."

The investment return to shareholders from us will likely be less than
could be obtained by a shareholder's direct acquisition and ownership of the
same properties because (i) we will pay, partly to affiliates of certain
members of the Board of Directors, substantial "front-end" fees (that is, fees
paid directly from funds received from sales of the common shares) to sell the
shares and acquire properties, which will reduce the net proceeds available for
investment in properties; and (ii) we will likely pay, principally to the
Advisor and the Broker substantial advisory and related compensation, which
will reduce funds available for distribution to shareholders.

DISTRIBUTIONS POLICY

We intend to make distributions in accordance with federal income tax
rules applicable to real estate investment trusts. We intend to pay regular
quarterly distributions to our shareholders.

CAPITAL STOCK

Our authorized capital stock consists of 200,000,000 common shares, no par
value, 240,000 Class B Convertible shares, no par value, and 15,000,000 shares
of preferred stock, no par value. As of the date of this prospectus, there were
10 common shares of our company issued and outstanding. See "Principal and
Management Shareholders."

COMPENSATION

We do not pay our officers salaries. Our officers are also officers of the
Advisor and the Broker which are entitled to receive fees for services rendered
by them to us. Our officers are, in essence, compensated by those entities. The
compensation and reimbursements payable to the Advisor and the Broker are
listed below. See "Compensation." Except as indicated, the maximum dollar
amount of such compensation and reimbursements is not now determinable.

o The Advisor is entitled to receive an annual asset management fee, based upon
the ratio of "Funds from Operations" to "Total Contributions" (this ratio
is called the "Return Ratio") of between 0.1% and 0.25% of Total
Contributions. The percentage used to determine the asset management fee
will be 0.1% if the Return Ratio for the preceding calendar quarter is 6%
or less, 0.15% if the Return Ratio for the preceding calendar quarter is
more than 6% but not more than 8%, and 0.25% if the Return Ratio for the
preceding calendar quarter is more than 8%. ("Funds from Operations" is
defined as net income (computed in accordance with generally accepted
accounting principles) excluding gains (or losses) from debt restructuring
and sales of property, plus depreciation of real property, and after
adjustments for significant non-recurring items and unconsolidated
partnerships and joint ventures, if any. "Total Contributions" is defined
as the gross proceeds from the sale of the common shares.) See "The Advisor
and Affiliates -- The Advisory Agreement."

o Assuming the minimum offering amount of $15,000,000 is sold, the annual asset
management fee would be between $15,000 and $37,500. Assuming the maximum
offering amount of $300,000,000 is sold, the annual asset management fee
would be between $300,000 and $750,000. We believe that "Funds from
Operations" is an appropriate measure to use in determining the fees to be
paid to the Advisor because it ties compensation to an indicator of
performance, namely an industry-recognized measure of funds available from
operations. "Funds from Operations" is not the same as cash generated from
operating activities in accordance with generally accepted accounting
principles, and, therefore, should not be considered as an alternative to
net income as an indication of the company's performance or to cash flows
as a measure of liquidity.

o The Broker will serve as the real estate broker in connection with our
purchases and sales of properties, and will receive fees from us of up to
2% of the gross purchase price of each property and up to 2% of the gross
sale prices. If the person from whom we purchase or to whom we sell a
property pays any fee to the Broker that amount will decrease the amount of
our obligation to the Broker. The Broker will not be entitled to any
disposition fee in connection with a sale of a property by us to any
affiliate of the Broker, but will be reimbursed for its costs in marketing
such property. See "Compensation."

o The Advisor and the Broker will be entitled to reimbursement for actual costs
incurred by them in connection with the operation of our Company.

o Under certain circumstances we may request that the Advisor and the Broker
provide other services or property to us under certain conditions in
exchange for fees. Those circumstances generally include the requirement
that the transaction be approved by the affirmative vote of a majority of
the "Independent Directors," who are those directors who are not affiliated
with either the Advisor or the Broker. We currently have no plans to
request the material services or property of the type described in this
paragraph.

RISK FACTORS

An investment in our common shares involves various risks. You should
carefully consider the following information, in conjunction with the other
information contained in this prospectus, before making a decision to purchase
our common shares.

ABSENCE OF PUBLIC TRADING MARKET

Prior to this offering, there has been no public market for our common
shares, and initially we do not expect such a market to develop. We do not plan
to cause our 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 we, acting through our Board of Directors, may cause
the common shares to be so listed or quoted if the Board of Directors
determines such action to be prudent, there can be no assurance that such an
event will ever occur. Prospective shareholders should view the common shares
as illiquid and must be prepared to hold their shares for an indefinite length
of time. Shareholders may be unable to resell their common shares at all, or
may be able to resell them only later at a substantial discount from the
purchase price. Thus, the purchase of common shares should be considered a
long-term investment.

Currently, we expect that within approximately three (3) years from the
initial closing of the $15,000,000 minimum offering, we will use our best
efforts either (i) to cause our common shares to be listed on a national
securities exchange or quoted on the NASDAQ National Market System or (ii) to
dispose of substantially all of our properties in a manner which will permit
distributions to our shareholders of cash or marketable securities. Either type
of action will be conditioned on the Board of Directors determining such an
action to be prudent and in the best interests of our shareholders, and would
be intended to provide shareholders with liquidity either by initiating the
development of a market for our common shares or by disposing of properties and
distributing to our shareholders cash or other securities then being actively
traded. However, we are under no obligation to take any of the foregoing
actions, and any such action, if taken, might be taken after the three-year
period mentioned above.

The feasibility of causing our common shares to be listed or quoted will
depend upon many factors, many of which are not presently determinable or are
not within our control. These factors would include general economic and market
conditions, our satisfaction of the legal listing or quotation requirements in
effect at such time, our economic performance during the interim period, and
our financial condition at the time listing or quotation is considered. In
addition, the size of our company (in terms of its total assets and the
diversification of its property portfolio), which will reflect the number of
shares sold in this offering, will bear upon the feasibility of listing or
quoting our shares for trading. In general, a smaller company size may make it
less feasible for us to cause the listing or quotation of our common shares.

The feasibility of disposing of our properties will also depend on many
factors, many of which are not presently determinable or are not within our
control. General economic and market conditions will affect the demand, if any,
for our properties and the prices which might be offered for them. Adverse
developments affecting the market value of our properties after acquisition of
a property by us may materially affect its market value. Even if some
properties are attractive to prospective purchasers, we may determine that it
is imprudent to dispose of only a portion of our portfolio. Conversely, the
larger we are, the less likely it is that we will be able to dispose of
substantially all of our properties within a relatively short period of time.
If we receive marketable securities or other property, rather than cash, for
the sale of our properties, we and any subsequent holders of such property will
bear a risk of decrease in the value of such property.

COMPENSATION TO THE ADVISOR AND AFFILIATES IS PAYABLE BEFORE DISTRIBUTIONS AND
WILL REDUCE INVESTORS' RETURN

The Advisor and the Broker will receive substantial compensation from us
in exchange for various services they have agreed to render to us. See
"Compensation." This compensation has been established without the benefits of
arms-length negotiation, and the payment of such compensation from proceeds of
the offering and property revenues will reduce the amount of proceeds available
for investment in

properties, or the cash available for distribution, and will therefore tend to
reduce the return on our shareholders' investments. In addition, the
compensation is generally payable regardless of our profitability, and is
generally payable prior to, and without regard to whether we have sufficient
cash for distributions.

ACQUISITION, ADVISORY AND OTHER FEES AND EXPENSES WILL REDUCE RETURN

The investment return to our shareholders likely will be less than could
be obtained by a shareholder's direct acquisition and ownership of the same
properties because (i) we will pay, principally to affiliates of certain
members of the Board of Directors, substantial "front-end" fees and expenses to
sell the common shares, and acquire properties, which will reduce the net
proceeds available for investment in properties; and (ii) we will pay,
principally to the Advisor and the Broker substantial advisory and related
compensation, which will reduce cash available for distribution to
shareholders. Thus, for example, if only 86.5% of the gross proceeds of the
offering are available for investment in properties revenues may be reduced by
13.5% compared to revenues in the absence of such front-end fees.

CONFLICTS OF INTEREST

The Advisor and the Broker will be subject to various conflicts of
interest in their dealings with us. See "Conflicts of Interest." Generally,
such conflicts of interest arise because certain of our directors and officers
(i) are also principals in other companies which will enter into contracts with
us (principally for asset management and acquisition and disposition services),
and (ii) are, and will in the future be, principals in other real estate
investment transactions or programs which may compete with us. Other possible
transactions involving conflicts of interest include our acquisition of
properties or borrowings from the Advisor or an affiliate (which is permitted
under the conditions summarized in "Investment Objectives and Policies -
Investment Criteria and -- Borrowing Policies").

We will pay the Broker an acquisition fee in connection with each
acquisition of a property, and a disposition fee in connection with certain
property dispositions. As a consequence, the Broker may have an incentive to
recommend the purchase or disposition of a property, in order to receive a fee,
rather than based upon our best interests. The Advisor will receive a fee which
is a percentage of the total consideration we receive from sale of common
shares and therefore it could have an incentive to close the sales of shares as
rapidly as possible.

As discussed under "Conflicts of Interest," we have implemented certain
policies and procedures designed to eliminate or ameliorate the effects of
potential conflicts of interest. For example, our business and affairs,
including, without limitation, all of the relationships between us, on the one
hand, and the Advisor and the Broker on the other hand, are under the
supervision and control of our Board of Directors, a majority of whom is not
affiliated with either entity. In evaluating the significance of a majority of
the Board of Directors being unaffiliated, prospective shareholders should bear
in mind that Mr. Knight may have an influence on the Board of Directors
disproportionate in relation to his voting power, since he is involved with our
management and our properties on a daily basis. In general, if a person with
responsibilities to both us and to an entity either contracting with or
competing against us were to resolve a potential conflict of interest against
our interest, our operations could be adversely affected. However, in light of
the policies and procedures implemented to ameliorate the effects of potential
conflicts of interest, we do not believe that the potential conflicts of
interest will have a material adverse effect upon our ability to realize our
investment objectives, although there can be no assurance to this effect.

INVESTMENT IN A SINGLE INDUSTRY

Our current strategy is to acquire interests primarily in corporate
apartment and extended-stay hotel properties. As a result, we are subject to
the risks inherent in investing in a single industry. A downturn in the
corporate apartment and extended-stay hotel industry may have more pronounced
effects on the amount of cash available to us for distribution than if we had
diversified our investments.

DEPENDENCE ON LESSEES BECAUSE WE ARE A REIT

Due to certain federal income tax restrictions, we cannot directly operate
our corporate apartment and extended-stay hotel properties. Therefore, we
intend to lease our corporate apartment and extended-stay hotel properties to
lessees who will manage the properties. Our revenues and our ability to make
distributions to our shareholders will depend solely upon the ability of our
lessees to make rent payments under their leases. Generally, we will receive
from our lessees, under our leases, both a base rent and a percentage of gross
sales above a certain minimum level. As a result, we will participate in the
economic operations of our properties only through our share of gross revenue.
Any failure by our lessees to make their rent payments would adversely affect
our ability to make distributions to our shareholders.

Our lessees will be affected by factors beyond their control such as
changes in general economic conditions, the level of demand for corporate
apartment and extended-stay hotel facilities and the related services of our
properties, competition in the lodging and hospitality industry, the ability of
our lessees to maintain and increase gross revenues at our properties, and
other factors relating to the operations of our properties.

Although failure on the part of our lessees to materially comply with the
terms of a lease (including failure to pay rent when due) will give us the
non-exclusive right to terminate the lease, repossess the property and enforce
the payment obligations under the lease, we would then be required to find
another lessee to lease the property since we cannot operate corporate
apartment and extended-stay hotel properties directly. In addition, it is
possible that we would be unable to enforce the payment obligations under the
leases following any termination. There can be no assurance that we would be
able to find another lessee or that, if another lessee were found, we would be
able to enter into a new lease on terms as favorable to us.

LACK OF CONTROL OVER MANAGEMENT AND OPERATIONS OF OUR PROPERTIES

In order to maintain our real estate investment trust status, we may not
operate our properties. We will be dependent on the ability of our lessees to
operate and manage our properties. As a result, we will be unable to directly
implement strategic business decisions with respect to the determination of
corporate and extended-stay hotel rates, food and beverage operations and
certain similar matters.

OPERATIONAL LIMITATIONS ASSOCIATED WITH FRANCHISE AGREEMENTS

Our lessees will operate a substantial number of our properties pursuant
to franchise or license agreements with nationally recognized hotel brands.
These franchise agreements may contain specific standards for, and restrictions
and limitations on, the operation and maintenance of our properties in order to
maintain uniformity within the franchisor system. Those limitations may
conflict with our philosophy of creating specific business plans tailored to
each property and to each market.

Such standards are subject to change over time, in some cases at the
direction of the franchisor, and may restrict our lessees' ability, as
franchisee, to make improvements or modifications to a property without the
consent of the franchisor. In addition, compliance with such standards could
require our lessees, as franchisees, to incur significant expenses or capital
expenditures. Action or inaction on our part or by our lessees could result in
a breach of such standards or other terms and conditions of the 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, we 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.

LACK OF OPERATING HISTORY; NO ASSURANCE OF SUCCESS

We do not have an operating history. There is no assurance that we will
operate successfully or achieve our objectives.

SIZE OF OFFERING -- POSSIBLE LACK OF DIVERSIFICATION AND LOWER RETURN

We initially will be funded with contributions of not less than
$15,000,000. Our profitability could be affected by the number of common shares
sold. In the event we receive only the minimum offering of $15,000,000, we will
invest in fewer properties. The fewer properties purchased, the greater the
potential adverse effect of a single unproductive property upon our
profitability since a reduced degree of diversification will exist among our
properties. In addition, the returns on those common shares sold will be
reduced as a result of allocating our expenses among the smaller number of
shares.

DELAY IN INVESTMENT IN REAL PROPERTY

We may experience delays in finding suitable properties to acquire.
Pending investment of the proceeds of this offering in real estate, and to the
extent such proceeds are not invested in real estate as described herein, the
proceeds may be invested in certain permitted temporary investments. See
"Investment Objectives and Policies -- General." The rate of return on those
investments has fluctuated in recent years and may be different from the return
obtainable from real property.

NO SPECIFIED PROPERTIES

The specific properties in which the proceeds of this offering are to be
invested have not been identified as of the date of this prospectus. A
prospective shareholder will, therefore, have no information as to the
identification or location of specific properties to be purchased by us, or as
to the financing terms (if any) or other relevant economic and financial data
affecting those properties. However, when at any time during the offering
period we believe that there is a reasonable probability that any specific
property will be acquired, this prospectus will be supplemented to provide a
description of the property and the anticipated terms of its purchase,
financing and management.

ARBITRARY SHARE OFFERING PRICES

The per-share offering prices ($9 until the minimum offering of
$15,000,000 is achieved and thereafter $10) have been established arbitrarily
by us. Neither prospective investors nor shareholders should assume that the
per-share prices reflect the intrinsic or realizable value of the common shares
or otherwise reflects our value, earnings or other objective measures of worth.
The increase in the per-share offering price from $9 to $10 once the minimum
offering is achieved is also not based upon or reflective of any objective
indicia of increased company or share value.

OPERATING RISKS

Our properties are subject to all operating risks common to corporate
apartment and extended-stay hotel properties, such as the risk of increased
unemployment in markets where our properties are located. The occurrence of any
or all of these risks might adversely affect occupancy or rental rates. In
addition, increases in operating costs due to inflation and other factors may
not necessarily be offset by increased rents. These properties will also be
subject to the risk that tenants will be unable or unwilling to pay rent
increases. The local markets may limit the extent to which rents may be
increased to meet increased operating expenses without decreasing occupancy
rates. If our properties do not generate sufficient revenue to meet operating
expenses, including debt service and capital expenditures, our cash flow and
our ability to make distributions to shareholders may be adversely affected.

COMPETITION

Our properties compete directly with other corporate apartment and
extended-stay hotel properties and other short-term rental properties in
markets in which our properties are located. We generally compete on the basis
of location, quality and rates. Such competition could reduce our occupancy
levels and rental revenues, which could adversely affect our operations.

ADVERSE CONSEQUENCES OF FAILURE TO QUALIFY AS A REIT

Qualification as a real estate investment trust, or REIT, involves the
application of highly technical and complex Internal Revenue Code provisions
for which there are limited judicial or administrative interpretations.
Qualification is also subject to various factual matters and circumstances not
entirely

within our control. For example, in order to qualify as a REIT, at least 95% of
our gross income in any year must be derived from qualifying sources and we
must make distributions to our shareholders annually aggregating at least 95%
of our taxable income, excluding net capital gains. New legislation,
regulations, administrative interpretations or court decisions could change the
tax laws with respect to qualification as a REIT or the federal income tax
consequences of such qualification.

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

MARKET ILLIQUIDITY

Real estate investments are relatively illiquid. Such illiquidity will
tend to limit our ability to promptly vary our portfolio in response to changes
in economic or other conditions. In addition, provisions of the Internal
Revenue Code relating to REITs limit our ability to sell properties held for
fewer than four years. This limitation may affect our ability to sell
properties without adversely affecting returns to our shareholders.

NO RESTRICTION ON CHANGES IN INVESTMENT AND FINANCING POLICIES

Our Board of Directors approves our investment and financing policies,
including our policies with respect to growth, debt, capitalization and payment
of distributions. Although the 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 a vote of our shareholders. A change in
these policies could adversely affect our financial condition or results of
operations and could adversely affect the market price of our securities. See
"Policies with Respect to Certain Activities."

POTENTIAL DILUTION OF SHAREHOLDERS' INTERESTS

Glade M. Knight, who is a Director, Chairman of the Board and President,
and others will hold certain Class B Convertible shares which are convertible
into common shares, as described under "Principal and Management Shareholders."
The conversion by them of such Class B Convertible shares into common shares
will result in dilution of the shareholders' interests. Assuming all common
shares offered by this prospectus are sold, and all of the authorized Class B
Convertible shares are converted into common shares, the holders of the Class B
Convertible shares would own approximately 5.98% of the total number of common
shares outstanding.

The Board of Directors is authorized, without shareholder approval, to
cause the Company to issue additional common shares or to raise capital through
the issuance of preferred stock, options, warrants and other rights, on such
terms and for such consideration as the Board of Directors in its sole
discretion may determine. See "Summary of Organizational Documents -- Issuance
of Securities." Any such issuance could result in dilution of the equity of the
shareholders. Without limiting the generality of the foregoing, the Board of
Directors may, in its sole discretion, authorize us to issue common shares or
other equity or debt securities, (1) to persons from whom we purchase property,
as part or all of the purchase price of the property, or (2) to the Advisors or
the Broker in lieu of cash payments required under the Advisory Agreement or
other contract or obligation. The Board of Directors, in its sole discretion,
may determine the value of any common shares or other equity or debt securities
issued in consideration of property or services provided, or to be provided, to
us, except that while common shares are offered by us to the public, the public
offering price of such shares shall be deemed their value.

We have adopted two stock incentive plans for the benefit of our directors
and certain of our employees and of the Advisors and the Broker. See
"Management -- Stock Incentive Plans." The effect of the exercise of such
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, we expressly reserve the right to implement a dividend
reinvestment plan involving the issuance of additional shares by us, at an
issue price determined by the Board of Directors.

CERTAIN ANTITAKEOVER PROVISIONS; OWNERSHIP LIMITS

OWNERSHIP LIMITS. Our bylaws contain restrictions on stock ownership which
may discourage third parties from making acquisition proposals. These same
antitakeover provisions may also impede our shareholders' ability to change our
management.

In order to maintain our qualification as a REIT, no more than 50% in
value of our outstanding shares of capital stock may be owned, directly or
indirectly, by five or fewer individuals or entities. As a result, our bylaws
prohibit ownership, either directly or indirectly, of more than 9.8% of the
common shares by any shareholder. Our board may waive this ownership limitation
on a case-by-case basis. As a result, without our board's approval, no person
may acquire more than 9.8% of our outstanding common shares, thereby limiting a
third-party's ability to acquire control of us. See "Description of Capital
Stock" and "Federal Income Tax Considerations."

PREFERRED STOCK. Our articles of incorporation authorize the Board to
issue up to 15,000,000 shares of preferred stock and to establish the
preference and rights of any such shares. See "Description of Capital Stock."
Thus, our board could create a new class of preferred stock with voting or
other rights senior to any existing class of stock. These rights could delay or
prevent a change in control even if such a change were in our shareholders'
best interest.

POSSIBLE ENVIRONMENTAL LIABILITIES

LIABILITY FOR HAZARDOUS SUBSTANCES. Various federal, state and local
environmental laws impose responsibilities on an owner or operator of real
estate and subject such persons to potential liabilities. Typical provisions of
such 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 such substances.

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

The costs of investigation, remediation or removal of hazardous substances
may be substantial. In addition, the presence of hazardous substances on one of
our properties, or the failure to properly remediate a contaminated property,
could adversely affect our ability to sell or rent the property or to borrow
using the property as collateral.

COSTS OF COMPLIANCE WITH AMERICANS WITH DISABILITIES ACT AND SIMILAR LAWS

Our properties will be 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 we purchase, or may
restrict further renovations thereof, with respect to access by disabled
persons. Noncompliance with any such 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 we currently anticipate, or if the changes must be made on a
more accelerated basis, our ability to make expected distributions could be
adversely affected.

YEAR 2000

Many of the world's computer systems currently record years in a two-digit
format. Those computer systems will be unable to properly interpret dates
beyond the year 1999, which could lead to disruptions in our operations
(commonly referred to as the "Year 2000" issue). Although we are currently
examining

our systems for Year 2000 compliance, we cannot guarantee that all of our
systems will be Year 2000 compliant or that other companies on which we rely
will be timely converted. As a result, our operations could be adversely
affected.

RISKS ASSOCIATED WITH FORWARD-LOOKING STATEMENTS INCLUDED IN THIS PROSPECTUS

This prospectus contains certain forward-looking statements within the
meaning of federal securities laws which are intended to be covered by the safe
harbors created thereby. These statements include our plans and objectives for
future operations, including plans and objectives relating to future growth and
availability of funds. These forward-looking statements are based on current
expectations that involve numerous risks and uncertainties. Assumptions
relating to these statements involve judgments with respect to, among other
things, future economic, competitive and market conditions and future business
decisions, all of which are difficult or impossible to accurately predict and
many of which are beyond our control. Although we believe the assumptions
underlying the forward-looking statements are reasonable, any of the
assumptions could be inaccurate and, therefore, there can be no assurance that
these forward-looking statements will prove to be accurate. In light of the
significant uncertainties inherent in these forward-looking statements, the
inclusion of such information should not be regarded as a representation by us
or any other person that our objectives and plans will be achieved.

ESTIMATED USE OF PROCEEDS

We intend to invest the net proceeds of this offering in equity ownership
interests in corporate apartment and extended-stay hotel properties located
primarily in selected southeastern and southwestern metropolitan areas of the
United States. Pending such investment and to the extent the proceeds are not
invested in real estate as described herein, the proceeds may be invested in
certain permitted types of temporary investments. All proceeds of this offering
received by us must be invested or committed for investment in properties or
allocated to working capital reserves or used by us for other proper purposes
within the later of two years after commencement of the offering or one year
after termination of the offering; any proceeds not invested or committed for
investment or allocated to working capital reserves or used by us for other
proper purposes by the end of such time period shall be returned to investors
within 30 days after the expiration of such period, but we may elect to return
such proceeds earlier if, and to the extent, required by applicable law
(including to the extent necessary to avoid characterization as an "investment
company"). The proceeds of this offering will be received and held in trust for
the benefit of investors in compliance with applicable securities laws, to be
used only for the purposes set forth herein.

As described under "The Advisor and Affiliates," our bylaws prohibit our
total "Organizational and Offering Expenses" from exceeding 15% of Total
Contributions. "Organizational and Offering Expenses" means, generally, all
expenses incurred in organizing us and offering and selling the common shares,
including selling commissions and fees, legal fees and accounting fees, and
federal, state and other regulatory filing fees. The bylaws also prohibit the
total of all "Acquisition Fees" (defined generally as all fees and commissions
paid by any party in connection with our purchase of real property) and
"Acquisition Expenses" (defined generally as all expenses related to the
selection or acquisition of properties by us) paid in connection with an
acquisition of a property from exceeding 6% of the contract price for the
property (unless such excess is approved by the Board of Directors, as
described therein). Any Organizational and Offering Expenses or Acquisition
Fees and Acquisition Expenses incurred by us in excess of the permitted limits
shall be payable by the Advisor to us immediately upon our demand.

As indicated below, we expect, that once the minimum offering of
$15,000,000 is completed, that 87.0% of the gross offering proceeds will be
available for investment in properties and 0.5% will be allocated to our
working capital reserve. However, subject generally to the limitation in our
bylaws on permitted Organization and Offering Expenses, and Acquisition Fees
and Acquisition Expenses, the percentage of gross offering proceeds available
for investment could be less.

As discussed under "Compensation," the Advisor and the Broker will be
entitled to reimbursement for expenses incurred by them on our behalf as well
as, among other fees, a real estate commission equal to 2% of the proceeds of
the offering used to pay each property's gross purchase price (which does not
include amounts budgeted for repairs and improvements), which constitutes an
"Acquisition Fee."

The following table reflects the intended application of the proceeds from
the sale of the common shares.

MINIMUM OFFERING MAXIMUM OFFERING
----------------------------- ------------------------------
% OF % OF
GROSS GROSS
AMOUNT PROCEEDS AMOUNT PROCEEDS
-------------- ------------ --------------- ------------

Gross Proceeds (1) ............................. $15,000,000 100.00% $300,000,000 100.00%
Less
Offering Expenses (2) ......................... 450,000 3.00% 1,500,000 0.50%
Selling Commissions (3) ....................... 1,125,000 7.50% 22,500,000 7.50%
Marketing Expense Allowance (3) ............... 375,000 2.50% 7,500,000 2.50%
----------- ------ ------------ ------
Net Proceeds after Offering Costs .............. $13,050,000 87.00% $268,500,000 89.50%
Less Acquisition Fees and Expenses (4) ......... 300,000 2.00% 6,000,000 2.00%
----------- ------ ------------ ------
Proceeds Available for Investment and
Working Capital ............................... $12,750,000 85.00% $262,500,000 87.50%
Less Working Capital Reserve (5) ............... 75,000 0.50% 1,500,000 0.50%
----------- ------ ------------ ------
Net Amount Available for Investment in
Properties (6) ................................ $12,675,000 84.50% $261,000,000 87.00%
=========== ====== ============ ======

- ----------
(1) The Shares are being offered on a "best-efforts" basis.

(2) These amounts reflect our estimate of offering expenses, exclusive of the
selling commissions and the marketing expense allowance payable to David
Lerner Associates, Inc. If the offering expenses are greater than the
amounts indicated, the amount of proceeds available for investment will
decrease, and if these expenses are less, the amount available for
investment will increase.

(3) Payable to David Lerner Associates, Inc.

(4) These amounts include a real estate commission payable to the Broker in an
amount equal to 2% of the proceeds of the offering used to pay the
purchase price of each property acquired (which does not include amounts
budgeted for repairs and improvements) plus our estimates of other
expenses and fees which will be incurred in connection with property
acquisitions.

(5) Until used, amounts in our working capital reserve, together with any other
proceeds not invested in properties or used for other company purposes,
will be invested in certain permitted temporary investments such as U.S.
Government securities or similar highly liquid instruments. See
"Investment Objectives and Policies -- General."

(6) We expect the investment properties to be corporate apartments and
extended-stay hotel properties located primarily in selected southeastern
and southwestern metropolitan areas of the United States. See "Investment
Objectives and Policies."

COMPENSATION

The table below describes the compensation and reimbursement which we will
pay to the Advisor and the Broker. Since these entities are entitled to certain
fees for services rendered by them to us, we do not pay salaries to our
officers who are also officers of the Advisor and the Broker.

We will pay David Lerner Associates, Inc. selling commissions equal to
7.5% of the purchase price of the common shares and a marketing expense
allowance equal to 2.5% of the purchase price of the common shares. If the
minimum offering of $15,000,000 is sold, the selling commissions would be
$1,125,000 and the marketing expense allowance would be $375,000. If the
maximum offering of $300,000,000 is sold, the selling commissions would be
$22,500,000 and the marketing expense allowance would be $7,500,000. David
Lerner Associates, Inc. and the Advisor are not related and are not affiliates.
See "Plan of Distribution."

PERSON RECEIVING
COMPENSATION (1) TYPE OF COMPENSATION AMOUNT OF COMPENSATION (2)
- ----------------------------- ----------------------------------------- ------------------------------------------

ACQUISITION PHASE
Apple Suites Realty Group, Real estate commission for acquiring 2% of the proceeds of the offering used
Inc. our properties to pay the purchase prices of the
properties purchased by us. (3)
OPERATIONAL PHASE
Apple Suites Advisors, Inc Asset management fee for managing Annual fee based upon a ratio of Funds
our day-to-day operations From Operations to Total
Contributions ranging from 0.1% of
Total Contributions to 0.25% of Total
Contributions (payable quarterly) -- a
maximum of $37,500 per year if the
minimum offering is sold; a maximum
of $750,000 per year if the maximum
offering is sold. (4)
Apple Suites Advisors, Inc. Reimbursement for costs and Amount is indeterminate
and Apple Suites Realty expenses incurred on our behalf, as
Group, Inc. described in Note (5)
DISPOSITION PHASE
Apple Suites Realty Group, Real estate commission for selling Up to 2% of the gross sales prices of the
Inc. our properties properties sold by us. (6)
ALL PHASES
Apple Suites Advisors, Inc. Payment for services and property Amount is indeterminate
and Apple Suites Realty (7)
Group, Inc.

- ----------
(1) As discussed in this section and under "Conflicts of Interest," the Advisor
and the Broker will receive different types of compensation for services
rendered in connection with the acquisition and disposition of our
properties, as well as the management of our day-to-day operations. As
discussed under "Conflicts of Interest," the receipt of such fees could
result in potential conflicts of interest for persons who participate in
decision making on behalf of both our company and these other entities.

(2) Except as otherwise indicated in this table (including these notes), the
specific amounts of compensation or reimbursement payable to the Advisor
and the Broker are not now known and generally will depend upon factors
determinable only at the time of payment. Compensation payable to these
entities may be shared or reallocated among them or their affiliates in
their sole discretion as they may agree. However, compensation and
reimbursements which would exceed specified limits or ceilings cannot be
recovered by them or their affiliates through reclassification into a
different category.

(3) Under a Property Acquisition/Disposition Agreement with us, the Broker has
agreed to serve as the real estate broker in connection with both our
purchases and sales of properties. In exchange for these services, the
Broker will be entitled to a fee from us of 2% of the gross purchase price
(which does not include amounts budgeted for repairs and improvements) of
each property purchased by us. If the person from whom we purchase or to
whom we sell a property pays any fee to the Broker that amount will
decrease the amount of our obligation to the Broker. See "The Advisor and
Affiliates" -- the Broker.

(4) "Total Contributions" means the gross offering proceeds which have been
received from time to time from the sale of the common shares. Under a
Advisory Agreement with the Advisor we are obligated to pay an asset
management fee which is a percentage of Total Contributions. The
applicable percentage used to calculate the asset management fee is based
on the ratio of Funds from Operations to Total Contributions (such ratio
being referred to as the "Return Ratio") for the preceding calendar
quarter. The per annum asset management fee is initially equal to the
following with respect to each calendar quarter: 0.1% of Total
Contributions if the Return Ratio for the preceding calendar quarter is 6%
or less; 0.15% of Total Contributions if the Return Ratio for the
preceding calendar quarter is more than 6% but not more than 8%; and 0.25%
of Total Contributions if the Return Ratio for the preceding calendar
quarter is above 8%. Assuming the minimum offering ($15,000,000) is sold,
the annual asset management fee would be between $15,000 and $37,500.
Assuming the maximum offering ($300,000,000) is sold, the annual asset
management fee would be between $300,000 and $750,000. See "The Advisor
and Affiliates."

(5) The Advisor and the Broker will be reimbursed for all direct costs of
acquiring and operating our properties and of goods and materials used for
or by us and obtained from entities that are not affiliated with the
Advisor. These costs and expenses include, but are not limited to, legal
fees and expenses, travel and communication expenses, expenses relating to
shareholder communications, costs of appraisals, non-refundable option
payments on property not acquired, accounting fees and expenses, title
insurance, and all other fees, costs and expenses directly attributable to
the acquisition and ownership of our properties. Operating expenses
reimbursable to the Advisor and the Broker are subject to the overall
limitation on operating expenses discussed under "The Advisor and
Affiliates -- The Advisory Agreement," but the amount of reimbursement is
not otherwise limited.

(6) Under the Property Acquisition/Disposition Agreement described in note (3),
the Broker also will be entitled to a fee from us in connection with our
sale of each property equal to 2% of the gross sales price of the property
if, and only if, the sales price exceeds the sum of (1) our cost basis in
the property (consisting of the original purchase price plus any and all
capitalized costs and expenditures connected with the property) plus (2)
10% of such cost basis. For purposes of such calculation, our cost basis
will not be reduced by depreciation. See "The Advisor and Affiliates --
the Broker.

(7) The Advisor and the Broker may provide other services or property to us
under certain conditions, and will be entitled to compensation or payment
therefor. The conditions, which are summarized under "Conflicts of
Interest -- Transactions with Affiliates and Related Parties," include the
requirement that each transaction be approved by the affirmative vote of a
majority of the independent directors. Currently, there are no
arrangements or proposed arrangements between us, on the one hand, and
these two entities, on the other hand, for the provision of other services
or property to us or the payment of compensation or reimbursement
therefor. If any other arrangements arise in the future, the terms of the
arrangements, including the compensation or reimbursement payable
thereunder, will be subject to the restrictions in our bylaws. The
compensation, reimbursement or payment could take the form of cash or
property, including common shares.

CONFLICTS OF INTERESTS

GENERAL

We may be subject to various conflicts of interest arising from our
relationship with the Advisor and the Broker and with certain directors. The
Advisor and the Broker and the directors are not restricted from engaging for
their own account in business activities of the type conducted by us, and
occasions may arise when our interests conflict with those of one or more of
the directors, the Advisor and the Broker. The Advisor and the Broker and the
directors are accountable to us and our shareholders as fiduciaries, and
consequently must exercise good faith and integrity in handling our affairs.

The Advisor and the Broker will assist us in the acquisition,
organization, servicing, management and disposition of investments. At this
time, the Advisor will provide services exclusively to us, but it may perform
similar services for other parties, both affiliated and unaffiliated, in the
future.

The receipt of various fees from us by the Advisor and the Broker may
result in potential conflicts of interest for persons who participate in
decision making on behalf of both us and these other entities. For example,
because the Broker will receive a 2% commission upon each purchase by us of a
property, and a commission of 2% upon each sale by us of a property if certain
conditions are met, its compensation will increase in proportion to the number
of properties purchased and sold by us and the properties' purchase and sale
prices. The Advisor asset management fee is a percentage of total contributions
(that is, total proceeds received from time to time by us from the sales of its
Shares). Accordingly, it has an incentive to see that sales of common shares
are closed as quickly as possible by us.

The Advisor and the Broker do not intend to take any action or make any
decision on our behalf which is based, wholly or in part, upon a consideration
of the compensation payable to them as a consequence of such action or
decision. In addition, the presence on the Board of Directors of independent
directors is intended to ameliorate or eliminate the potential impact of
conflicts of interest for persons who participate in decision making on behalf
of both us and the Advisor or the Broker.

The Board of Directors, the Advisor and the Broker will also be subject to
the various conflicts of interest described below. As described below, certain
policies and procedures will be implemented to eliminate or ameliorate the
effect of potential conflicts of interest. By way of illustration, the bylaws
place certain limitations on the terms of contracts between us and the Advisor
or the Broker designed to ensure that such contracts are not less favorable to
us than would be available from an unaffiliated party. However, certain
potential conflicts of interest (such as the potential conflict of interest
experienced by an individual who has executive or management responsibilities
with respect to multiple entities) are not easily susceptible to resolution.
Prospective shareholders are entitled to rely on the general fiduciary duties
of the directors, the Advisor and the Broker as well as the specific policies
and procedures designed to eliminate or ameliorate potential conflicts of
interest described below. the Advisor and the Broker believe that general legal
principles dealing with fiduciary and similar duties of corporate officers and
directors, combined with specific contractual provisions in the agreements
between us, on the one hand, and the Advisor and the Broker on the other hand,
will provide substantial protection for the interests of the shareholders.
Thus, the Advisor and the Broker do not believe that the potential conflicts of
interests described herein will have a material adverse effect upon our ability
to realize our investment objectives.

TRANSACTIONS WITH AFFILIATES AND RELATED PARTIES

At the time of initial closing, the Board of Directors will consist of
eight members, five of whom are independent directors and three of whom are not
independent directors. At all times on and after initial closing, a majority of
the Board of Directors must be independent directors. The directors who are not
independent directors are affiliated with the Advisor or the Broker. Under our
bylaws, any transaction (whether a sale or acquisition of assets, any borrowing
or lending, any agreement for the provision of property or services, or
otherwise) between us, on the one hand, and the Advisor and the Broker on the
other hand (excluding only the entering into, and the initial term under, the
Advisory Agreement and the Property Acquisition/Disposition Agreement, each of
which agreement is described in this prospectus) is

permitted only if such transaction has been approved by the affirmative vote of
a majority in number of all of the independent directors. In addition, under
the bylaws, any such transaction must meet certain conditions, including that
the transaction be in all respects fair and reasonable to our shareholders. If
any such proposed transaction involves the purchase of property, the purchase
must be on terms not less favorable to us than those prevailing for
arm's-length transactions concerning comparable property, and at a price to us
no greater than the cost of the asset to the seller unless a majority of the
independent directors determines that substantial justification for such excess
exists. Examples of substantial justification might include, without
limitation, an extended holding period or capital improvements by the seller
which would support a higher purchase price.

The Advisor and the Broker will receive compensation from us for providing
many different services. The fees payable and expenses reimbursable are subject
to the general limitation on operation expenses. See "Compensation." The Board
of Directors will have oversight responsibility with respect to any such
relationships and will attempt to ensure that they are structured to be no less
favorable to us than our relationships with the unrelated persons or entities
and are consistent with our objectives and policies.

COMPETITION BETWEEN US AND AFFILIATES

Affiliates of the Advisor and the Broker may form additional REITs,
limited partnerships and other entities to engage in activities similar to
ours, although the Advisor and the Broker have no present intention of
organizing any additional REITs. However, until such time as more than 95% of
the proceeds of this offering are invested, the Advisor and the Broker shall
present to us any suitable investment opportunity before offering it to any
other affiliated entity. The competing activities of the Advisor and the Broker
may involve certain conflicts of interest. For example, affiliates of the
Advisor and the Broker are interested in the continuing success of previously
formed ventures because they have fiduciary responsibilities to investors in
those ventures, they may be personally liable on certain obligations of those
ventures and they have equity and incentive interests in those ventures.
Conflicts of interest would also exist if properties acquired by us compete
with properties owned or managed by affiliates of the Advisor and the Broker.
Conflicts of interest may also arise in the future if we sell, finance or
refinance properties at the same time as ventures developed by affiliates the
Advisor and the Broker.

COMPETITION FOR MANAGEMENT SERVICES

Certain officers and directors of the Advisor and the Broker are also
officers or directors of one or more entities affiliated with the Advisor and
the Broker which engage in the brokerage, sale, operation, or management of
real estate. Affiliates of the Advisor and the Broker presently are acting as
general partners in a number of limited partnerships engaged in real estate
investments. Accordingly, certain members of our Board of Directors and the
officers and directors of the Advisor and the Broker may have conflicts of
interest in allocating management time and services between us and other
entities.

POLICIES WITH RESPECT TO CERTAIN ACTIVITIES

The following is a discussion of our current policies with respect to
investments, financing and certain other activities. These policies have been
established by our management. These policies may be amended or waived from
time to time at the discretion of our Board of Directors without a vote of our
shareholders. No assurance can be given that our investment objectives will be
attained or that our value will not decrease.

INVESTMENT POLICIES

INVESTMENTS IN REAL ESTATE OR INTERESTS IN REAL ESTATE. Our primary
business objective is to maximize shareholder value by maintaining long-term
growth in cash available for distribution to our shareholders. We intend to
pursue this objective by acquiring corporate apartment and extended-stay hotel
properties for long-term ownership and to lease these properties to hotel
operating companies for their management, and thereby seek to maximize current
and long-term net income and the value of our assets. Our policy is to acquire
and develop assets where we believe opportunities exist for acceptable
investment returns.

We expect to pursue our investment objectives primarily through the direct
ownership of corporate apartment and extended-stay hotel properties primarily
located in our target markets. However, future investment activities will not
be limited to any geographic area or product type or to a specified percentage
of our assets.

Although we are not currently doing so, we may also participate with other
entities in property ownership, through joint ventures or other types of common
ownership. Equity investments may be subject to existing mortgage financing and
other indebtedness which have priority over our equity interests.

PERIODIC REVIEW OF ASSETS. We reserve the right to dispose of any property
if we determine the disposition of such property is in our best interests and
the best interests of our shareholders.

BORROWING POLICIES

To maximize our potential cash flow and minimize our risk, we intend to
purchase our properties either on an "all-cash" or unleveraged basis, or using
limited interim borrowings. We will endeavor to repay any interim borrowings
with proceeds from the sale of common shares and thereafter to hold our
properties on an unleveraged basis. However, for the purpose of flexibility in
operations, we will have the right, subject to the approval of the Board of
Directors, to borrow.

One purpose of borrowing could be to permit our acquisition of additional
properties through the "leveraging" of shareholders' equity contributions.
Alternatively, we might find it necessary to borrow to permit the payment of
operating deficits at properties we already own. Furthermore, although not
anticipated, properties may be financed or refinanced if the Board of Directors
deems it in the best interests of shareholders because, for example,
indebtedness can be incurred on favorable terms and the incurring of
indebtedness is expected to improve the shareholders' after-tax cash return on
invested capital. See "Sale Policies" below.

Loans we obtain may be evidenced by promissory notes secured by mortgages
on our properties. As a general policy, we would seek to obtain mortgages
securing indebtedness which encumber only the particular property to which the
indebtedness relates, but recourse on such loans may include all of our assets.
If recourse on any loan incurred by us to acquire or refinance any particular
property includes all of our assets, the equity in other properties could be
reduced or eliminated through foreclosure on that loan.

Subject to the approval of the Board of Directors, we may borrow from the
Advisor or the Broker or establish a line of credit with a bank or other
lender. Those entities are under no obligation to make any such loans, however.
After the initial closing of $15,000,000, any loans made by them must be
approved by a majority of the independent directors as being fair, competitive
and commercially reasonable and no less favorable to us than loans between
unaffiliated lenders and borrowers under the same circumstances.

After the initial closing of $15,000,000, our bylaws will prohibit us from
incurring debt (secured or unsecured) if such debt would result in aggregate
debt exceeding 100% of "Net Assets" (defined generally to mean assets at cost),
before subtracting liabilities, unless the excess borrowing is approved by a
majority of the independent directors and disclosed to the shareholders as
required by the bylaws. The bylaws also will prohibit us from allowing
aggregate borrowings to exceed 50% of our "Adjusted Net Asset Value" (defined
generally to mean assets at fair market value), before subtracting liabilities
subject to the same exception. In addition, the bylaws will provide that the
aggregate borrowings must be reasonable in relation to our Net Assets and must
be reviewed quarterly by the Directors. Subject to the foregoing limitations on
the permitted maximum amount of debt, there is no limitation on the number of
mortgages or deeds of trust which may be placed against any particular
property.

RESERVES

A portion of the proceeds of this offering will be reserved to meet
working capital needs and contingencies associated with our operations. We will
initially allocate to our working capital reserve not less than 0.5% of the
proceeds of the offering. As long as we own any properties, we will retain as
working capital reserves an amount equal to at least 0.5% of the proceeds of
the offering, subject to review and re-evaluation by the Board of Directors. If
such reserves and any other available income become insufficient to cover our
operating expenses and liabilities, it may be necessary to obtain additional
funds by borrowing, refinancing properties or liquidating our investment in one
or more properties.

SALE POLICIES

We are under no obligation to sell our investment properties, and
currently anticipate that we will hold our investment properties for an
indefinite length of time. However, a sale of one or more properties may occur
at any time if the Advisor deems it advisable for us based upon current
economic considerations, and the Board of Directors concurs with such decision.
In deciding whether to sell a property, the Advisor will also take into
consideration such factors as the amount of appreciation in value, if any, to
be realized, federal, state and local tax consequences, the possible risks of
continued ownership and the anticipated advantages to be gained for the
shareholders from sale of a property versus continuing to hold such property.

Currently, we expect that within approximately three (3) years from the
initial closing, we will use our best efforts either (i) to cause the common
shares to be listed on a national securities exchange or quoted on the NASDAQ
National Market System or (ii) to dispose of substantially all of our
properties in a manner which will permit distributions to our shareholders of
cash or marketable securities. The taking of either type of action would be
conditioned on the Board of Directors determining such action to be prudent and
in the best interests of the shareholders, and would be intended to provide
shareholders with liquidity either by initiating the development of a market
for the common shares or by disposing of properties and distributing to
shareholders cash or other securities then being actively traded. However, we
are under no obligation to take any of the foregoing actions, and any such
action, if taken, might be taken after the referenced three-year period.

CHANGES IN OBJECTIVES AND POLICIES

Subject to the limitations in the articles of incorporation, the bylaws
and the Virginia Stock Corporation Act, the powers of our company will be
exercised by or under the authority of, and the business and affairs of our
company will be controlled by, the Board of Directors. The Board of Directors
also has the right and power to establish policies concerning investments and
the right, power and obligation to monitor the procedures, investment
operations and performance of our company.

In general, the articles of incorporation and the bylaws can be amended
only with the affirmative vote of a majority of the outstanding common shares,
except that the bylaws may be amended by the Board of Directors if necessary to
comply with the REIT provisions of the Internal Revenue Code or with other
applicable laws and regulations. The bylaws contain certain restrictions on our
activities and prohibit us from engaging in certain activities.

Within the express restrictions and prohibitions of the bylaws, the
articles of incorporation and applicable law, however, the Board of Directors
has significant discretion to modify our investment objectives and policies, as
stated in this prospectus. We have no present intention to modify any of such
investment objectives and policies, and it is anticipated that any such
modification would occur only if business and economic factors affecting us
made our stated investment objectives and policies unworkable or imprudent. By
way of illustration only, the Board of Directors could elect to acquire
residential apartment communities, or to acquire one or more commercial
properties in addition to corporate apartment and extended-stay hotel
properties.

Thus, while this prospectus accurately and fully discloses our current
investment objectives and policies, prospective shareholders must be aware that
the Board of Directors, acting consistently with our organizational documents,
applicable law and their fiduciary obligations, may elect to modify or expand
such objectives and policies from time to time. Any such action by the Board of
Directors would be based upon the perceived best interests of our company and
the shareholders.

DISTRIBUTIONS POLICY

In accordance with applicable REIT requirements, we will make
distributions in accordance with the Internal Revenue Code.

Distributions will be at the discretion of our Board of Directors and will
depend upon factors including:

-- the gross revenues we receive from our properties,

-- our operating expenses,

-- our interest expense incurred in borrowing, and

-- capital expenditures.

We anticipate distributions will exceed net income determined in
accordance with generally accepted accounting principles due to non-cash
expenses, primarily depreciation and amortization.

Distributions to the extent of our current and accumulated earnings and
profits for federal income tax purposes generally will be taxable to
shareholders as ordinary dividend income, ordinary gain or capital gain.
Distributions in excess of such earnings and profits generally will be treated
as a non-taxable deduction of the shareholder's basis in the common shares to
the extent thereof (which may have the effect of deferring taxation until such
shareholder's sale of the common shares), and thereafter as taxable gain.

BUSINESS

GENERAL

We are a Richmond, Virginia-based real estate investment trust focused on
corporate apartment and extended-stay hotel properties located primarily in
selected southeastern and southwestern metropolitan areas. We currently own no
properties.

BUSINESS STRATEGIES

Our primary business objective is to maximize shareholder value by
maintaining long-term growth in funds from operations for distributions to our
shareholders. To achieve this objective, we will focus on maximizing the
internal growth of our portfolio through the acquisition of properties that
have strong cash flow growth potential and are located in our target markets.
We intend to pursue this objective by acquiring corporate apartment and
extended-stay hotel properties for long-term ownership and to lease these
properties to hotel operating companies for their management, and thereby seek
to maximize current and long-term net income and the value of our assets.

Because we are prohibited under the federal tax laws from operating our
corporate apartments and extended stay hotel properties, we will enter into
leases for each of our hotel properties. We anticipate that substantially all
of our extended-stay hotel properties will be leased to Apple Suites
Management, Inc.

Apple Suites Management, Inc. is a Virginia corporation, the principal
shareholder and chief executive officer of which is Glade M. Knight. It is
anticipated that Apple Suites Management, Inc. will enter into franchise
agreements with Promus Hotels, Inc. with respect to certain extended-stay hotel
properties.

DESCRIPTION OF LEASES

We plan to enter into a lease for each of our hotel properties. We
anticipate that substantially all of our properties will be leased to and
operated by Apple Suites Management, Inc. on the following anticipated terms
and conditions.

TERM. We anticipate that each lease of an applicable property will provide
for an initial term of years commencing on the date on which the property is
acquired. We anticipate that each lease will provide the lessee with renewal
options, provided that (a) the lessee will not have the right to a renewal if
there shall have occurred a change in the tax law that would permit us to
operate the hotel properties directly and (b) the rent for each renewal term
will be adjusted to reflect the then fair market rental value of the property.
If we are unable to agree upon the then fair market rental value of a property,
the lease will terminate upon the expiration of the then current term and Apple
Suites Management, Inc. will thereupon have a right of first refusal to lease
the property from us on such terms as we may have agreed upon with a
third-party lessee.

BASE RENT; PARTICIPATING RENT. We anticipate that each lease will require
the lessee to pay (i) fixed monthly base rent, (ii) on a monthly basis, the
excess of "participating rent" over base rent, with participating rent based on
certain percentages of room revenue, food and beverage revenue and telephone
and other revenue at each property, and (iii) certain other amounts, including
interest accrued on any late payments or charges. Base rent and participating
rent may increase annually by a percentage equal to the percentage increase in
the consumer price index compared to the prior year. Base rent will be payable
monthly in advance. Participating rent may be payable in arrears based on a
monthly schedule adjusted to reflect the seasonal variations in the property's
revenue.

In addition to rent, the leases may require the lessee to pay many of the
following items: liability insurance; real estate and personal property taxes
and assessments; casualty insurance, including loss of income insurance; and
all costs and expenses and all utility and other charges incurred in the
operation of the properties. The leases may also provide for rent reductions
and abatements in the event of damage or destruction or a partial taking of any
property.

HOMEWOOD SUITES(Reg. TM)

Consistent with our strategy to invest in corporate apartments and
extended-stay hotel properties, we plan to purchase a number of Homewood
Suites(Reg. TM) properties in selected southeastern and southwestern
metropolitan areas. There are currently more than 70 Homewood Suites(Reg. TM)
properties in the United States.

Homewood Suites(Reg. TM) offers upscale, all-suites, high-quality,
residential-style lodging with a comprehensive package of guest services and
amenities, for extended-stay business and leisure travelers. Homewood
Suites(Reg. TM) properties are designed to meet the needs of the business and
leisure traveler whose stay is typically five nights or more. Homewood
Suites(Reg. TM) was designed for people working on field assignments,
relocating to a new community, attending seminars and conventions,
participating in corporate training programs, taking an extended vacation or
attending a family event.

Homewood Suites(Reg. TM) properties consist of suites built around a
central hospitality center or lodge. Homewood Suites(Reg. TM) provides spacious
residential-style quarters with separate living and sleeping areas large enough
for work, study, entertaining or relaxation. Each suite features a fully
equipped kitchen and worksite with two telephones featuring data ports and
voice mail. Each lodge or hospitality center features a complete executive
center with fax machine and photocopier in addition to an exercise center,
swimming pool and other recreational facilities.

Homewood Suites(Reg. TM) is a service mark owned by Promus Hotels, Inc.
Promus Hotels, Inc., its subsidiaries or affiliates own the following
trademarks and service marks: Doubletree(Reg. TM), Doubletree Guest Suites(Reg.
TM), Embassy Suites(Reg. TM), Club Hotel by Doubletree(Reg. TM), Hampton
Inn(Reg. TM), Hampton Inn & Suites(Reg. TM), Embassy Vacation Resort(Reg. TM)
and Hampton Vacation Resort/SM/. Promus Hotels, Inc., its subsidiaries or
affiliates serve guests in more than 1,275 hotels and more than 186,000 rooms
and suites.

OTHER REAL ESTATE INVESTMENTS.

Although we anticipate that our focus will be on corporate apartments and
extended-stay hotel properties our bylaws and articles of incorporation do not
preclude us from acquiring other residential properties. Although we currently
own no properties we may acquire other real estate assets including, but not
limited to, multi-family residential properties and other income producing
properties in addition to corporate apartments and extended-stay hotel
properties. The purchase of any property will, of course, be based upon the
perceived best interests of the company and the shareholders. Regardless of the
mix of properties we may own, our primary business objective is to maximize
shareholder value by acquiring properties that have strong cash flow growth
potential and are located in our target markets.

LEGAL PROCEEDINGS

We are not presently subject to any material litigation. To our knowledge,
there is no material litigation threatened against us. We may occasionally be
subjected to routine litigation arising in the ordinary course of business,
which is expected to be covered by liability insurance and none of which is
expected to have a material adverse effect on our business, financial
condition, results of operations or cash flows.

REGULATION

GENERAL. Our properties may be subject to various laws, ordinances and
regulations, including regulations relating to recreational facilities such as
swimming pools, activity centers and other common areas. We believe we will
have the necessary permits and approvals under present laws, ordinances and
regulations to operate our business in the manner described herein.

AMERICANS WITH DISABILITIES ACT. Our properties will need to comply with
Title III of the Americans with Disabilities Act of 1990 (the "ADA") to the
extent they are "public accommodations" and/or "commercial facilities" under
the ADA. Compliance with ADA requirements could require removal of structural
barriers to handicapped access in certain public areas of the properties where
such removal is readily achievable.

ENVIRONMENTAL MATTERS

Under federal, state and local environmental laws, ordinances and
regulations, a current or previous owner or operator of real estate may be
required to investigate and remediate hazardous or toxic substances or
petroleum product releases at such property and may be held liable to a
government entity or third party for property damage, investigation and
remediation costs incurred by such parties in connection with such
contamination. These laws typically impose cleanup responsibility and liability
without regard to whether the owner or operator knew of, or caused the presence
of, the contaminants. The costs of investigation, remediation or removal of
such substances may be substantial, and the presence of such substances, or the
failure to properly remediate such substances, may adversely affect the owner's
ability to sell or rent such real estate or to borrow using such real estate as
collateral.

In addition, some environmental laws create a lien on the contaminated
site in favor of the government for damages and costs incurred in connection
with the contamination. Individuals who arrange for the disposal or treatment
of hazardous or toxic substances may be held liable for the costs of
investigation, remediation or removal of such hazardous or toxic substances at
or from the disposal or treatment facility regardless of whether such facility
is owned or operated by such person. Finally, the owner of a site may be
subject to common law claims by third parties based on damages and costs
resulting from environmental contamination emanating from a site.

Federal, state and local laws, ordinances and regulations also govern the
removal, encapsulation or disturbance of asbestos-containing materials ("ACMs")
when such materials are in poor condition or in the event of the remodeling,
renovation or demolition of a building. These laws may impose liability for the
release of ACMs and may provide for third parties to seek recovery from owners
or operators of real estate for personal injury associated with ACMs. In
connection with the ownership and operation of its properties, we may be
potentially liable for costs in connection with ACMs or other hazardous or
toxic substances.

Prior to acquisition, all of our properties will have been the subject of
environmental assessments, which are intended to reveal information regarding,
and to evaluate the environmental condition of, the surveyed properties and
surrounding properties. These assessments will generally include:

-- a historical review,

-- a public records review,

-- a preliminary site investigation of the site and surrounding
properties,

-- screening for the presence of asbestos,

-- screening for equipment containing polychlorinated biphenyls,

-- screening for underground storage tanks, and

-- the preparation of a written report.

These assessments generally will not include soil sampling or subsurface
investigations.

Nevertheless, it is possible that these assessments will not reveal all
environmental liabilities or that there are unknown material environmental
liabilities. Moreover, we cannot guarantee that

-- future laws, ordinances or regulations will not require any material
expenditures by or impose any material liabilities in connection with
environmental conditions by or on us or our properties,

-- the environmental condition of a property we purchase will not be
adversely affected by residents and occupants of the property, by the
condition of properties in the vicinity, such as the presence of
underground storage tanks, or by unrelated third parties, or

-- prior owners of any property we purchase will not have created unknown
environmental problems.

We believe our properties will be in compliance in all material respects
with all Federal, state and local laws, ordinances and regulations regarding
hazardous or toxic substances or petroleum products.

INSURANCE

We will carry comprehensive liability, fire, extended coverage and rental
loss insurance with respect to any property we acquire, with policy
specifications, insured limits and deductibles customarily carried for similar
properties. There are, however, certain types of losses (such as losses arising
from earthquakes or wars) that are not generally insured because they are
either uninsurable or not economically insurable. Should an uninsured loss or a
loss in excess of insured limits occur, we could lose our capital invested in
the affected property, as well as the anticipated future revenues from such
property and would continue to be obligated on any mortgage indebtedness or
other obligations related to the property. We could be adversely affected by
any such loss.

AVAILABLE INFORMATION

We have filed a registration statement, of which this prospectus is a
part, on Form S-11 with the Securities and Exchange Commission (the
"Commission") relating to this offering of common shares. This prospectus does
not contain all of the information in the registration statement and the
exhibits and financial statements included with the registration statement. If
we describe the contents of any contract or other document in this prospectus,
the description may not necessarily be a complete description. You should refer
to the copy of the document filed as an exhibit to the registration statement
or incorporated by reference for a complete description. You can obtain copies
of the registration statement and the exhibits for a fee from the Commission at
its principal office in Washington, D.C.

We also file periodic reports, proxy statements and other information with
the Commission. You can review and copy these documents at the offices of the
Commission in Washington, D.C. and at the Commission's regional offices in
Chicago, Illinois and New York, New York. The Commission also maintains an
Internet web site that contains these documents and other information regarding
registrants that file electronically. The Internet address of the Commission's
web site is: http://www.sec.gov.

We will furnish our shareholders with annual reports containing financial
statements audited by our independent auditors.

MANAGEMENT

We are managed by our Board of Directors, elected annually by our
shareholders. The directors are responsible for appointing our executive
officers and for determining our strategic direction. The executive officers
serve at the discretion of the Board and are chosen annually by the Board at
its first meeting following the annual meeting of shareholders. As of the date
of this prospectus, the following table sets forth the names and ages of our
executive officers and directors and the positions held by each individual.

NAME AGE POSITION
- ---------------------------- ----- -----------------------------------

Glade M. Knight ............ 55 Chairman, Chief Executive Officer,
President and Secretary
Lisa B. Kern ............... 38 Director
Bruce H. Matson ............ 41 Director
Michael S. Waters .......... 44 Director
Robert M. Wily ............. 49 Director

GLADE M. KNIGHT. Mr. Knight is our Chairman of the Board, Chief Executive
Officer and President. He is also the chief executive officer and sole
shareholder of the Advisor and the Broker and Apple Suites Management, Inc.

Mr. Knight founded and serves as Chairman of the Board and President of
Apple Residential Income Trust, Inc. and Cornerstone Realty Income Trust, Inc.,
which are real estate investment trusts. Cornerstone Realty Income Trust, Inc.,
a publicly traded company, acquires, owns and operates apartment complexes in
the mid-Atlantic and southeastern regions of the United States. Apple
Residential Income Trust, Inc., an SEC registrant, acquires, owns and operates
apartment complexes in Texas.

Mr. Knight is Chairman of the Board of Trustees of Southern Virginia
College in Buena Vista, Virginia. Mr. Knight is also a member of the advisory
board to the Graduate School of Real Estate and Urban Land Development at
Virginia Commonwealth University. He has served on a National Advisory Council
for Brigham Young University and is a founding member of and active lecturer
for the university's Entrepreneurial Department of the Graduate School of
Business Management.

LISA B. KERN. Ms. Kern is a portfolio manager and Vice President of
Davenport & Co., LLC, an investment banking firm, in Richmond, Virginia.
Previously, Ms. Kern was a Vice President with Crestar Bank's Trust and
Investment Management Group from 1989 to 1996. Ms. Kern is also a director of
Apple Residential Income Trust, Inc.

BRUCE H. MATSON. Mr. Matson is a Vice President and director of the law
firm of LeClair Ryan, a Professional Corporation, in Richmond, Virginia. Mr.
Matson has practiced law since 1983. He is also a director of Apple Residential
Income Trust, Inc.

MICHAEL S. WATERS. Mr. Waters is President and co-founder of Partnership
Marketing, Inc. From 1995 through 1998, Mr. Waters served as Vice President and
general manager of GT Foods, a division of GoodTimes Home Video. Prior to that
time he served as Vice President and general manager for George Weston Ltd.

ROBERT M. WILY. Mr. Wily is the Deputy Chief, Article III Judges Division,
of the Administrative Office of the U.S. Courts. He has served as the Clerk of
Court for both the United States Bankruptcy Court for the Eastern District of
Virginia and the District of Utah. Prior to those positions, Mr. Wily was in
the private practice of law.

CLASSIFICATION OF THE BOARD

The Board is divided into three classes. The terms of the first, second
and third classes expire in 2000, 2001, and 2002, respectively. Directors of
each class are elected for three year terms upon the expiration of the current
class' term. The staggered terms for directors may affect our shareholders'
ability to effect a change in control even if a change in control were in our
shareholders' best interest.

COMMITTEES OF THE BOARD

The Board has an Executive Committee, an Audit Committee and a
Compensation Committee.

The Executive Committee has all powers of the Board except for those which
require action by all directors under our Articles or Bylaws or under
applicable law.

The Audit Committee's function is to make recommendations concerning the
engagement of independent public accountants, review with the independent
public accountants the plans and results of the audit engagement, approve
professional services provided by the independent public accountants, review
the independence of the independent public accountants, consider the range of
audit and non-audit fees and review the adequacy of our internal accounting
controls.

The Compensation Committee recommends compensation for our executive
officers to the Board and administers our Stock Option Plan (the "Stock Option
Plan").

DIRECTOR COMPENSATION

We will pay to each director who is not an affiliate of the Advisor an
annual fee of $5,000 plus $500 for each meeting of the full Board of Directors
attended by such person in person ($100 if any are attended by telephonic
means). There will be no additional compensation for serving on a committee or
attending a committee meeting. We will, however, reimburse all directors for
their travel and other out-of-pocket expenses incurred in connection with
attending any meeting of the Board of Directors or any committee, and for
carrying on the business of our company, including reimbursement for expenses
for any on-site review of properties presented for acquisition or of new
markets. Directors who are affiliates of the Advisor receive no compensation
from us for their service as directors. These directors, however, are
remunerated indirectly by their relationship to the Advisor and its affiliated
companies and are reimbursed by us for their expenses in attending meetings of
the Board of Directors or a committee and in carrying on the business of our
company.

INDEMNIFICATION AND INSURANCE

See "Summary of Organizational Documents -- Responsibility of Board of
Directors, Advisor, Officers and Employees" for a description of the nature of
our obligation to indemnify our directors and officers and certain others in
certain situations.

We intend to obtain, and pay the cost of, directors' and officers'
liability insurance coverage which insures (i) the directors and officers from
any claim arising out of an alleged wrongful act by the directors and officers
in their respective capacities as directors and officers of our company, and
(ii) us to the extent that we have indemnified the directors and officers for
such loss.

OFFICER COMPENSATION

Our officers are not paid salaries by us. Our officers are officers of the
Advisor and the Broker which are entitled to certain fees for services rendered
by them to us. Thus, our officers are, in essence, compensated by the Advisor
and the Broker. See "Compensation" for a description of the fees payable to the
Advisor and the Broker.

STOCK INCENTIVE PLANS

We plan to adopt two stock incentive plans which are described below. For
purposes of the description below, the term "Offering" means the Initial
Offering plus all additional offerings and sales of common shares which may
occur during the five-year period beginning May 1, 1999 and ending April 30,
2004. The term "Initial Offering" means the offering of common shares made
pursuant to this prospectus.

The aggregate number of common shares reserved for issuance under the two
stock incentive plans is (1) 80,000 shares, plus (2) 6.425% of the number of
shares sold in the Initial Offering in excess of the minimum offering, plus (3)
6.2% of the number of shares sold in the Offering above the Initial Offering.

THE INCENTIVE PLAN

Under one plan (the "Incentive Plan"), incentive awards may be granted to
certain employees (including officers and directors who are employees) of the
Company, or of the Advisor or the Broker (the latter two companies being
sometimes referred to herein as the "Apple Suites Companies"). Of the Directors
of the Company, initially Mr. Knight will be a participant in the Incentive
Plan. Such incentive awards may be in the form of stock options or restricted
stock (as described below). Under the Incentive Plan, the number of Shares
reserved for issuance is equal to an aggregate of (1) 35,000 common shares,
plus (2) 4.625% of the number of Shares sold in the Initial Offering in excess
of the minimum offering, plus (3) 4.4% of the number of the shares sold in the
Offering above the Initial Offering. If an option is canceled, terminates or
lapses unexercised, any unissued common shares allocable to such option may be
subjected again to an incentive award. The purpose of the Incentive Plan is to
attract and retain the services of experienced and qualified employees who are
acting on behalf of us, either directly or through the Apple Suites Companies,
in a way that enhances the identification of such employees' interests with
those of the shareholders.

The Incentive Plan will be administered by a Compensation Committee of the
Board of Directors (the "Committee"). Notwithstanding anything to the contrary
in this prospectus (including our organizational documents referred to herein),
the Committee must have a minimum of two members who are not eligible to
participate in the Incentive Plan or any similar plan other than the Directors'
Plan (described below).

Subject to the provisions of the Incentive Plan, the Committee has
authority to determine (i) when to grant incentive awards, (ii) which eligible
employees will receive incentive awards, (iii) whether the award will be an
option or restricted stock, and the number of common shares to be allocated to
each incentive award. The Committee may impose conditions on the exercise of
options and upon the transfer of restricted stock received under the Plan, and
may impose such other restrictions and requirements as it may deem appropriate.

Stock Options

An option granted under the Incentive Plan will not be transferrable by
the option holder except by will or by the laws of descent and distribution,
and will be exercisable only at such times as may be specified by the
Committee. During the lifetime of the option holder the option may be exercised
only while the option holder is in our employ or in the employ of one of the
Apple Suites Companies, or within 60 days after termination of employment. In
the event the termination is due to death or disability, the option will be
exercisable for a 180-day period thereafter.

The exercise price of the options will be not less than 100% of the fair
market value of the common shares as of the date of grant of the option.

The Committee has discretion to take such actions as it deems appropriate
with respect to outstanding options in the event of a sale of substantially all
of the stock or assets of our company, a merger of the Apple Suites Companies
in which an option holder is employed, or the occurrence of similar events.
Adjustments will be made in the terms of options and the number of common
shares which may be issued under the Incentive Plan in the event of a future
stock dividend, stock split or similar pro rata change in the number of
outstanding shares or the future creation or issuance to shareholders generally
of rights, options or warrants for the purchase of common shares.

Options granted under the Incentive Plan are non-qualified stock options,
not intended to qualify for favorable incentive stock option tax treatment
under the Internal Revenue Code.

Restricted Stock

Restricted stock issued pursuant to the Incentive Plan is subject to the
following general restrictions: (i) none of such shares may be sold,
transferred, pledged, or otherwise encumbered or disposed of until the
restrictions on such shares shall have lapsed or been removed under the
provisions of the Incentive Plan, and (ii) if a holder of restricted stock
ceases to be employed by us or one of the Apple Suites Companies, he will
forfeit any shares of restricted stock on which the restrictions have not
lapsed or been otherwise removed.

The Committee will establish as to each share of restricted stock issued
under the Incentive Plan the terms and conditions upon which the restrictions
on such shares shall lapse. Such terms and conditions may include, without
limitation, the lapsing of such restrictions at the end of a specified period
of time, or as a result of the disability, death or retirement of the
participant. In addition, the Committee may, at any time, in its sole
discretion, accelerate the time at which any or all restrictions will lapse or
remove any or all such restrictions.

Amendment of the Incentive Plan and Incentive Awards

The Board of Directors may amend the Incentive Plan in such respects as it
deems advisable; provided that our shareholders must approve any amendment that
would (i) materially increase the benefits accruing to participants under the
Incentive Plan, (ii) materially increase the number of common shares that may
be issued under the Incentive Plan, or (iii) materially modify the requirements
of eligibility for participation in the Incentive Plan. Incentive awards
granted under the Incentive Plan may be amended with the consent of the
recipient so long as the amended award is consistent with the terms of the
Plan.

DIRECTORS' PLAN

We also plan to adopt a stock option plan for members of our Board of
Directors who are not employees of our company or the Apple Suites Companies
(the "Directors' Plan"). Under the Directors' Plan, the number of shares
reserved for issuance is equal to 45,000 shares plus 1.8% of the number of
Shares sold in the Offering in excess of the minimum offering of $15,000,000.

A Director is eligible to receive an option under the Directors' Plan if
the Director is not otherwise an employee of our or any Apple Suites Company or
any subsidiary of our company and was not an employee of any of such entities
for a period of at least one year before the date of grant of an option under
the Plan. Four members of the Board (all of the Directors except Mr. Knight)
are expected initially to qualify to receive options under the Directors' Plan.

The Directors' plan will be administered by the Board of Directors. Grants
of stock options to eligible Directors under the Plan will be automatic.
However, the Board of Directors has certain powers vested in it by the terms of
the Plan, including, without limitation, the authority (within the limitations
described therein) to prescribe the form of the agreement embodying awards of
stock options under the Plan, to construe the Plan, to determine all questions
arising under the Plan, and to adopt and amend rules and regulations for the
administration of the Plan as it may deem desirable. Any decision of the Board
of Directors in the administration of the Directors' Plan will be final and
conclusive. The Board of Directors may act only by a majority of its members in
office, except members thereof may authorize any one or more of their number,
or any officer, to execute and deliver documents on behalf of the Board of
Directors.

The Directors' Plan provides for the following automatic option awards:

(1) As of the initial closing of the common shares, each eligible director
will receive an option to purchase 5,500 shares plus 0.0125% of the number of
shares in excess of the minimum offering sold by the initial closing.

(2) As of each June 1 during the years 2001 through 2005 (inclusive), each
eligible Director shall automatically receive an option to purchase 0.02% of
the number of common shares issued and outstanding on that date.

(3) As of the election as a Director of any new person who qualifies as an
eligible Director, such eligible Director will automatically receive an option
to purchase 5,000 Shares.

The purpose of the Directors' Plan is to enhance the identification of the
participating Directors' interests with those of the shareholders.

The exercise price for each option granted under the Directors' Plan will
be 100% of the fair market value on the date of grant; no consideration will be
paid to us for the granting of the option. Options granted under the Directors'
Plan will have a term of 10 years and will be fully exercisable six months

after the date of grant. If an optionee ceases to serve as a Director of the
Company prior to the expiration of the six-month period following the date of
grant, the option will terminate on the date of such termination of service as
a Director. If an optionee ceases to serve as a Director of the Company after
the expiration of the six-month period following the date of grant, the option
will terminate three years after the date of termination of service, or on
expiration of the option, whichever is earlier.

Options granted under the Directors' Plan are non-transferable other than
by will or the laws of descent and distribution upon the death of the optionee
and, during the lifetime of the optionee, are exercisable only by him. Payment
upon exercise of an option under the Directors' Plan may be made in cash or
with our company's common shares of equivalent value.

The Board of Directors may suspend or discontinue the Directors' Plan or
revise or amend the Plan in any respect; provided, however, that without
approval of the shareholders no revision or amendment may increase the number
of common shares subject to the Plan or materially increase the benefits
accruing under the Plan. In addition, the Directors' Plan may not be amended
more than once every six months other than to comply with changes in the
Internal Revenue Code or ERISA.

STOCK OPTION GRANTS

As of the date of this prospectus, there have been no grants under the
Incentive Plan or the Directors' Plan.

THE ADVISOR AND AFFILIATES

GENERAL

On or before the initial closing of the minimum offering of $15,000,00, we
will enter into an Advisory Agreement with Apple Suites Advisors, Inc. (the
"Advisor") who will among other things, seek to obtain, investigate, evaluate
and recommend property investment opportunities for us, serve as property
investment advisor and consultant in connection with investment policy
decisions made by the Board of Directors and, subject to their direction,
supervise our day-to-day operations. The Advisor is a Virginia corporation all
of the common shares of which are owned by Glade M. Knight. Glade M. Knight is
the sole director of the Advisor and also its sole officer (serving as its
chairman, Chief Executive Officer, President and Secretary).

The term "affiliate" as used in this document refers generally to a person
or entity which is related to another specific person or entity through common
control, through significant (10% or more) equity ownership, or by serving as
an officer or director (or in a similar capacity) with such specified entity.
Affiliates of the Advisor include the Broker and Glade M. Knight.

THE ADVISORY AGREEMENT

The Advisory Agreement will have a five-year term and will be renewable
for additional two-year terms thereafter by the Board of Directors. The
Advisory Agreement provides that it may be terminated at any time by a majority
of the independent directors or the Advisor upon 60 days' written notice. Under
the Advisory Agreement, the Advisor undertakes to use its best efforts (i) to
supervise and arrange for the day-to-day management of our operations and (ii)
to assist us in maintaining a continuing and suitable property investment
program consistent with our investment policies and objectives. Under the
Advisory Agreement, generally, the Advisor is not required to, and will not,
advise us on investments in securities, i.e., the temporary investment of
offering proceeds pending investment of such proceeds in real property. It is
expected that we will generally make our own decisions with respect to such
temporary securities investments.

Pursuant to the Advisory Agreement, the Advisor will be entitled to an
annual asset management fee. The asset management fee is payable quarterly in
arrears. The amount of the asset management fee is a percentage of total
contributions. The applicable percentage used to calculate the asset management
fee is based on the ratio of funds from operations to total contributions (such
ratio being referred to as the "Return Ratio") for the preceding calendar
quarter. The per annum asset management fee is initially equal to the following
with respect to each calendar quarter: 0.1% of total contributions if the
Return Ratio for the preceding calendar quarter is 6% or less; 0.15% of total
contributions if the Return Ratio for the preceding calendar quarter is more
than 6% but not more than 8%; and 0.25% of total contributions if the Return
Ratio for the preceding calendar quarter is above 8%. See "Compensation." the
Advisor will also receive reimbursement for certain direct expenses and
allocable overhead incurred in connection with its provision of services to us.

The bylaws require the independent directors to monitor the Advisor's
performance under the Advisory Agreement and to determine at least annually
that the amount of compensation we pay to the Advisor is reasonable, based on
such factors as they deem appropriate, including: the amount of the asset
management fee in relation to the size, composition and profitability of our
investments; the success of the Advisor in selecting opportunities that meet
our investment objectives; the rates charged by other investment advisors
performing comparable services; the amount of additional revenues realized by
it for other services performed for us; the quality and extent of service and
advice furnished by it; the performance of our investments and the quality of
our investments in relation to any investments generated by it for its own
account.

Our bylaws generally prohibit our operating expenses (generally defined as
all operating, general and administrative expenses, but excluding depreciation
and similar non-cash items and expenses of raising capital, interest, taxes and
costs related to asset acquisition, operation and disposition) from exceeding
in any year the greater of 2% of our total "Average Invested Assets" (generally
defined as the

monthly average of the aggregate book value of Company assets invested in real
estate, before deducting depreciation) or 25% of our "Net Income" (generally
defined as the revenues for any period, less expenses other than depreciation
or similar non-cash items) for such year. Unless the independent directors
conclude that a higher level of expenses is justified based upon unusual and
nonrecurring factors which they deem sufficient, the Advisor must reimburse us
for the amount of any such excess. It must make such reimbursement within 120
days from the end of our fiscal year. The Advisor will be entitled to be repaid
such reimbursements in succeeding fiscal years to the extent actual operating
expenses are less than the permitted levels. In determining that unusual and
nonrecurring factors are present, the independent directors will be entitled to
consider all relevant factors pertaining to our business and operations, and
will be required to explain their conclusion in written disclosure to the
shareholders. The Advisor generally would expect to pay any required
reimbursement out of compensation received from us in the current or prior
years. However, there can be no assurance that it would have the financial
ability to fulfill its reimbursement obligations.

Our bylaws further prohibit the total organizational and offering expenses
(including selling commissions) from exceeding 15% of the total contributions.
Furthermore, the total of all acquisition fees and acquisition expenses paid by
us in connection with the purchase of a property by us shall be reasonable and
shall in no event exceed an amount equal to 6% of the contract price for the
property, unless a majority of the Board of Directors (including a majority of
the independent directors) not otherwise interested in the transaction approves
the transaction as being commercially competitive, fair and reasonable to us.
For purposes of the foregoing limitation, the "contract price for the property"
means the amount actually paid or allocated to the purchase, development,
construction or improvement of the property, exclusive of acquisition fees and
acquisition expenses. Any organizational and offering expenses or acquisition
fees and acquisition expenses incurred by us in excess of the permitted limits
shall be payable by the Advisor immediately upon our demand.

The foregoing is only a summary of the Advisory Agreement. A copy of the
form of such agreement has been filed as an exhibit to the registration
statement of which this prospectus is a part; reference is made to the
agreement for a complete statement of its provisions.

APPLE SUITES REALTY GROUP, INC.

Apple Suites Realty Group, Inc. (the "Broker") is a Virginia corporation
which was organized on March 11, 1999. The Broker will be engaged in the
business of management of real property and the solution of financial and
marketing problems related to investments in real property.

We will enter into a Property Acquisition/Disposition Agreement with the
Broker under which the Broker has agreed to act as a real estate broker in
connection with our purchases and sales of properties. Under such agreement,
the Broker is entitled to a real estate commission equal to 2% of the gross
purchase prices of our properties, payable by us in connection with each
purchase; provided that during the course of this offering, the total real
estate commission payable to the Broker cannot exceed $6,000,000. Under such
agreements, the Broker is also entitled to a real estate commission equal to 2%
of the gross sales prices of our properties, payable by us in connection with
each property sale if, but only if, any such property is sold and the sales
price exceeds the sum of (1) our cost basis in the property (consisting of the
original purchase price plus any and all capitalized costs and expenditures
connected with the property) plus (2) 10% of such cost basis. For purposes of
such calculation, our cost basis will not be reduced by depreciation. If the
sales price of a particular property does not equal the required amount, no
real estate commission is payable, but the Broker is still entitled to payment
from us of its "direct costs" incurred in marketing such property where "direct
costs" refers to a reasonable allocation of all costs, including salaries of
personnel, overhead and utilities, allocable to services in marketing such
property. The fees and expenses payable by us to the Broker upon sale of a
property will also be payable if we sell our shares, merge with another entity,
or undertake a similar transaction, the purpose or effect of which is, in
essence, to dispose of some or all of our properties. In any case other than an
actual sale of properties, we and the Broker will in good faith agree upon an
allocation of purchase price to each property which is disposed of for the
purpose of calculating any fees and expenses payable to the Broker. If the
person from whom we purchase or to whom we sell a property pays any fee to the
Broker such

amount will decrease the amount of our obligation to the Broker. The agreement
will have an initial term of five years and will renew automatically for
successive terms of five years unless either party to the agreement elects not
to renew by notice sent to the other party within 60 days before the end of any
term.

A copy of the form of Property Acquisition/Disposition Agreement has been
filed as an exhibit to the registration statement of which this prospectus is a
part, and reference is made to the agreement for a complete description of its
provisions.

Subject to the conditions applicable generally to transactions between us
and affiliates of the Advisor (see "Conflicts of Interest -- Transactions with
Affiliates and Related Parties"), the Broker or an affiliate may render
services to us in connection with our financings or refinancings, and would be
entitled to compensation for such services. As of the date of this prospectus,
there are no specific agreements for any such services.

Glade M. Knight is the sole shareholder and Director of the Broker as well
as its sole officer, serving as Chairman, Chief Executive Officer, President
and Secretary.

PRIOR PERFORMANCE OF PROGRAMS SPONSORED BY GLADE M. KNIGHT

The following paragraphs contain information on certain prior programs
sponsored by Glade M. Knight to invest in real estate. The information set
forth is current as of April 20, 1999. This information should not be
considered to be indicative of our capitalization or operations. Purchasers of
the common shares will not have any interest in the entities referred to in
this section or in any of the properties owned by such entities.

Mr. Knight was principally responsible for the organization of Cornerstone
Realty Income Trust, Inc. ("Cornerstone"), a real estate investment trust
organized to acquire and own apartment complexes in the mid-Atlantic and
southeastern regions of the country. Between December 1992 and October 1996,
Cornerstone sold approximately $300 million in common shares to approximately
12,000 investors. Cornerstone currently has approximately 20,000 investors. The
net proceeds of the Cornerstone public offering were used to acquire 58
apartment communities in Virginia, North and South Carolina, and Georgia. The
Advisor will, upon request of any investor or prospective investor, provide at
no cost a copy of the most recent Report on Form 10-K filed by Cornerstone with
the Securities and Exchange Commission. For a reasonable fee, the Advisor will
also provide copies of the exhibits to the Report on Form 10-K.

Mr. Knight was principally responsible for the organization of Apple
Residential Income Trust, Inc. ("Apple"), a real estate investment trust
organized to acquire and own apartment complexes in the regions of the country.
Between January 1997 and February 1999, Apple sold approximately $300 million
in common shares to approximately 11,000 investors. The net proceeds of the
Apple public offering were used to acquire 26 apartment communities in Texas.
The Advisor will, upon request of any investor or prospective investor, provide
at no cost a copy of the most recent Report on Form 10-K filed by Apple with
the Securities and Exchange Commission. For a reasonable fee, the Advisor will
also provide copies of the exhibits to the Report on Form 10-K.

On March 30, 1999, Cornerstone and Apple announced that they had entered
into a definitive merger agreement. The merger is subject to the approval of
Cornerstone's and Apple's shareholders, as well as other customary closing
conditions.

Part II of our Registration Statement (which is not a part of this
prospectus) contains a more detailed summary of the 58 property acquisitions by
Cornerstone and the 26 property acquisitions by Apple. the Advisor will provide
a copy of such summary without charge upon request of any investor or
prospective investor.

PRINCIPAL AND MANAGEMENT SHAREHOLDERS

Beneficial ownership of our common shares, and options to purchase our
common shares (exercisable currently or within 60 days), held by our directors
and officers as of the date of this prospectus, are indicated in the table
below. Each person named in the table has sole voting and investment powers as
to such shares or shares such powers with his spouse and minor children, if
any.

NUMBER OF SHARES PERCENT OF AGGREGATE
NAME BENEFICIALLY OWNED OUTSTANDING SHARES OWNED
- ------------------------------------- -------------------- -------------------------

Apple Suites Advisors, Inc. ......... 10 100%

In addition to the foregoing, Glade M. Knight, who is a Director, Chairman
of the Board and President of our company, will own 202,500 "Class B
Convertible shares" for himself and for the benefit of others. In addition, two
other individuals will each own 18,750 Class B Convertible Shares. The Class B
Convertible shares are convertible into common shares pursuant to the formula
and on the terms and conditions set forth below. The Class B Convertible shares
will be issued by the Company to Mr. Knight and others on or before the initial
closing of the minimum offering of $15,000,000, in exchange for the payment by
them of $0.10 per Class B Convertible share, or an aggregate of $24,000.

There are no dividends payable on the Class B Convertible shares. Upon our
liquidation, the holder of the Class B Convertible shares is entitled to a
liquidation payment of $0.10 per Class B Convertible share before any
distribution of liquidation proceeds to the holders of the common shares.
Holders of more than two-thirds of the Class B Convertible shares must approve
any proposed amendment to the Articles of incorporation that would adversely
affect the Class B Convertible shares. The Class B Convertible shares are
convertible into common shares upon and for 180 days following the occurrence
of either of the following events: (1) substantially all of our assets, stock
or business is sold or otherwise transferred, whether through sale, exchange,
merger, consolidation, lease, share exchange or otherwise, or (2) the Advisory
Agreement with the Advisor is terminated or not renewed (the events described
in this clause (2), a "Self-Administration Conversion"). Upon the occurrence of
either triggering event, each Class B Convertible share is convertible into a
number of common shares based upon the gross proceeds raised through the date
of conversion in the offering made by this prospectus according to the
following formula:

GROSS PROCEEDS RAISED FROM SALES NUMBER OF COMMON SHARES
OF COMMON SHARES THROUGH DATE OF THROUGH CONVERSION OF ONE
CONVERSION CLASS B CONVERTIBLE SHARE
- ---------------------------------- --------------------------

$50 million..................... 1.0
$100 million.................... 2.0
$150 million.................... 3.5
$200 million.................... 5.3
$250 million.................... 6.7
$300 million.................... 8.0

No additional consideration is due upon the conversion of the Class B
Convertible Shares. The conversion into common shares of the Class B
Convertible Shares will result in dilution of the shareholders' interests.

FEDERAL INCOME TAX CONSIDERATIONS

GENERAL

The following summary of material federal income tax considerations that
may be relevant to a holder of common shares is based on current law and is not
intended as tax advice. The following discussion, which is not exhaustive of
all possible tax considerations, does not include a detailed discussion of any
state, local or foreign tax considerations. Nor does it discuss all of the
aspects of federal income taxation that may be relevant to a prospective
shareholder in light of his or her particular circumstances or to certain types
of shareholders (including insurance companies, tax-exempt entities, financial
institutions or broker-dealers, foreign corporations and persons who are not
citizens or residents of the United States) who are subject to special
treatment under the federal income tax laws.

The statements in this discussion are based on current provisions of the
Internal Revenue Code, existing, temporary and currently proposed Treasury
Regulations under the Code, the legislative history of the Code, existing
administrative rulings and practices of the IRS and judicial decisions. No
assurance can be given that legislative, judicial or administrative changes
will not affect the accuracy of any statements in this prospectus with respect
to transactions entered into or contemplated prior to the effective date of
such changes.

THIS DISCUSSION IS NOT INTENDED AS A SUBSTITUTE FOR CAREFUL TAX PLANNING.
EACH PROSPECTIVE PURCHASER OF COMMON SHARES IS ADVISED TO CONSULT WITH HIS OR
HER OWN TAX ADVISOR REGARDING THE SPECIFIC TAX CONSEQUENCES TO HIM OR HER OF
THE PURCHASE, OWNERSHIP AND DISPOSITION OF COMMON SHARES IN AN ENTITY ELECTING
TO BE TAXED AS A REIT, INCLUDING THE FEDERAL, STATE, LOCAL, FOREIGN AND OTHER
TAX CONSEQUENCES OF SUCH PURCHASE, OWNERSHIP, DISPOSITION AND ELECTION, AND OF
POTENTIAL CHANGES IN APPLICABLE TAX LAWS.

We will elect to be treated as a REIT for federal income tax purposes
commencing with our taxable year ended December 31, 1999. Based on assumptions
and representations summarized below, McGuire, Woods, Battle & Boothe LLP, our
legal counsel, is of the opinion that beginning with our taxable year ended
December 31, 1999:

-- we are organized and operate in conformity with the requirements for
qualification and taxation as a REIT under the Code, and

-- our proposed 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. McGuire, Woods, Battle & Boothe 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. See "-- Failure to Qualify as a
REIT." 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 certain 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 Articles provide
restrictions on transfers of our common shares, as well as provisions that
automatically convert shares of stock into nonvoting, non-dividend paying
Excess Stock 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 maintain records disclosing the actual ownership of common
shares. To do so, we will 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 (i.e., the persons required to include
in gross income the REIT dividends). A list of those persons failing or
refusing to comply with this demand will 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 certain other information.

We currently satisfy, and expect to continue to satisfy, each of the
requirements discussed above. We also currently satisfy, and expect to continue
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 any such
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 which 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 such 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 the Company's trade or business,
referred to below as "dealer property");

-- income from the operation and gain from the sale of certain property
acquired in connection with the foreclosure of a mortgage securing that
property ("foreclosure 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" (described below).

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
certain dealer property held by us for at least four years.

We expect that substantially all of our operating gross income will be
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.

Also excluded from "rents from real property" is rent received from a
person or corporation in which we (or any of its 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 ("Related Party Tenant
Rent"). 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 (applying
standards that govern in evaluating whether rent from real property would be
unrelated business taxable income when received by a tax exempt owner of the
property). 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 such 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."

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 certain types of such income. This type
of income will not qualify for the 75% test or 95% test but is not expected to
be significant and such income, together with other non-qualifying income
(including related party tenant rent), 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. We may in the
future establish subsidiaries in which we will hold less than 10% of the voting
stock. The gross income generated by these subsidiaries would not be included
in our gross income. However, dividends from such 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% or 95% income tests for
such year, multiplied by a fraction intended to reflect our profitability. See
"-- Taxation as a REIT."

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 (including receivables) 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
certain interests in real property, shares in other REITs and certain options,
but excluding 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, we will not be permitted to own (1) securities of any one
non-governmental issuer that represent more than 5% of the value of our total
assets or (2) more than 10% of the outstanding voting securities of any single
issuer. 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 currently
comply with, and expect to continue 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 95%
of our net ordinary income (capital gain is not required to be distributed).
More precisely, we must distribute an amount equal to (1) 95% of the sum of (a)
our "REIT Taxable Income" before deduction of dividends paid and excluding any
net capital gain and (b) any net income from foreclosure property less the tax
on such income, minus (2) limited categories of "excess noncash 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 certain 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 95% 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 ourselves and our shareholders.

-- 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 (1) within 12 months of the end of
such taxable year and (2) no later than our next regular distribution
payment.

Dividends that are paid after the close of a taxable year that do not
qualify under the rule governing payments made in January (described above)
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 the 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 (a) 85% of the Company's "ordinary income" plus (b) 95% of the
Company's capital gain net income plus (c) any undistributed income from prior
periods.

Dividends that are paid after the close of a taxable year that do not
qualify under the rule governing payments made in January described above will
be taxable to our shareholders in the year paid, even though we may be able to
take them into account for a prior year. We will incur a nondeductible excise

tax equal to 4% will for each calendar year to the extent that dividends
declared and distributed or deemed distributed before December 31 are less than
the sum of (a) 85% of our "ordinary income" plus (b) 95% of our capital gain
net income plus (Copyright) 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, no assurance
can be given 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 95% distribution requirement.

If we fail to meet the 95% 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" (i.e., taxation at
both the corporate and shareholder levels) 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 such class is entitled to such preference. We do
not anticipate we will pay any such preferential dividends. Because Excess
Stock will represent a separate class of outstanding shares, the fact that
those shares will not be entitled to dividends should not adversely affect our
ability to deduct dividend payments.

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

-- any income or gain from foreclosure property will be taxed at the
highest corporate rate (currently 35%);

-- a confiscatory tax of 100% applies to any net income from prohibited
transactions, which are, in general, certain 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
previously described, but still qualify for REIT status under the
reasonable cause exception to those tests, a 100% tax would be Imposed
equal to the amount obtained by multiplying (1) the greater of the
amount, if any, by which we failed either the 75% income test or the 95%
income test, times (2) the ratio of our REIT Taxable Income to our gross
income (excluding capital gain and certain 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 (1) 85% of our REIT ordinary income for such year, (2) 95% of our
REIT capital gain net income for such year, and (3) any undistributed
taxable income from prior years, we would be subject to a 4% excise tax
on the excess of such required distribution over the amounts actually
distributed; and

-- under regulations that are to be promulgated, 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 such
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 the company and our shareholders. 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
such 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 such net long-term capital
gain. Our shareholders would receive a credit for such shareholder's
proportionate share of the tax paid by us on such 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.

Future regulations may require that the shareholders take into account,
for purposes of computing their individual alternative minimum tax liability,
certain of our tax preference items.

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 common
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 the
Company's 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. 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 31%. 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 certain 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 (the
"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 1,2000, subject
to certain transition rules. Prospective investors should consult their own tax
advisors concerning the adoption of the Final Regulations and the potential
effect on their ownership of common shares or Preferred Stock.

TAXATION OF TAX EXEMPT ENTITIES

In general, a tax exempt entity that is a shareholder will not be subject
to tax on distributions with respect to our shares or gain realized on the sale
of our shares. In Revenue Ruling 66-106, the IRS confirmed that a REIT's
distributions to a tax exempt employees' pension trust did not constitute
unrelated business taxable income ("UBTI"). A tax exempt entity may be subject
to UBTI, however, to the extent that it has financed the acquisition of its
shares with "acquisition indebtedness" within the meaning of the Code. The
Revenue Reconciliation Act of 1993 has modified the rules for tax exempt
employees' pension and profit sharing trusts which qualify under Section 401(a)
of the Code and are exempt from tax under Section 501(a) of the Code
("qualified trusts") for tax years beginning after December 31, 1993. In
determining the number of shareholders a REIT has for purposes of the "50%
test" described above under "-- REIT Qualification --," generally, any stock
held by a qualified trust will be treated as held directly by its beneficiaries
in proportion to their actuarial interests in such trust and will not be
treated as held by such trust.

A qualified trust owning more than 10% of a REIT may be required to treat
a percentage of dividends from the REIT as UBTI. The percentage is determined
by dividing the REIT's gross income, less direct expenses related thereto,
derived from an unrelated trade or business for the year (determined as if the
REIT were a qualified trust) by the gross income of the REIT for the year in
which the dividends are paid. However, if this percentage is less than 5%,
dividends are not treated as UBTI. These UBTI rules apply only if the REIT
qualifies as a REIT because of the change in the 50% test discussed above and
if the trust is "predominantly held" by qualified trusts. A REIT is
predominantly held by qualified trusts if at least one pension trust owns more
than 25% of the value of the REIT or a group of pension trusts each owning more
than 10% of the value of the REIT collectively own more than 50% of the value
of the REIT. The Company does not currently meet either of these requirements.

For social clubs, voluntary employee benefit associations, supplemental
unemployment benefit trusts and qualified group legal services plans exempt
from federal income taxation under Sections 501(c)(7), (c)(9), (c)(17) and
(c)(20) of the Code, respectively, income from an investment our securities
will constitute UBTI unless the organization is able to deduct an amount
properly set aside or placed in reserve for certain purposes so as to offset
the unrelated business taxable income generated by the investment our
securities. These prospective investors should consult their own tax advisors
concerning the "set aside" and reserve requirements.

TAXATION OF FOREIGN INVESTORS

The rules governing federal income taxation of nonresident alien
individuals, foreign corporations, foreign partnerships and other foreign
shareholders (collectively, "Non-U.S. Shareholders") are complex and no attempt
will be made herein to provide more than a summary of such rules. Prospective
Non-U.S. Shareholders should consult with their own tax advisors to determine
the impact of federal, state and local income tax laws with regard to an
investment in common shares or Preferred Stock, including any reporting
requirements, as well as the tax treatment of such an investment under the laws
of their home country.

Dividends that are not attributable to gain from our sales or exchanges of
United States real property interests and not designated us as capital gain
dividends will be treated as dividends of ordinary income to the extent that
they are made out of our current or accumulated earnings and profits. Such
dividends ordinarily will be subject to a withholding tax equal to 30% of the
gross amount of the dividend unless an applicable tax treaty reduces or
eliminates that tax. However, if income from the investment in the common
shares or Preferred Stock is treated as effectively connected with the Non-U.S.
Shareholder's conduct of a United States trade or business, the Non-U.S.
Shareholder generally will be subject to a tax at graduated rates, in the same
manner as U.S. shareholders are taxed with respect to such dividends (and may
also be subject to the 30% branch profits tax in the case of a shareholder that
is a foreign corporation).

For withholding tax purposes, we are currently required to treat all
distributions as if made out of current and accumulated earnings and profits.
Therefore we withhold at the rate of 30%, or a reduced treaty rate if
applicable, on the amount of any distribution (other than distributions
designated as capital gain dividends) made to a Non-U.S. Shareholder unless (1)
the Non-U.S. Shareholder files on IRS Form 1001 claiming that a lower treaty
rate applies or (2) the Non-U.S. Shareholder files an IRS Form 4224 with the
Company claiming that the dividend is effectively connected income.

Under the Final Regulations, generally effective for distributions on or
after January 1, 2000, we would not be required to withhold at the 30% rate on
distributions we reasonably estimate to be in excess of our current and
accumulated earnings and profits. Dividends in excess of our current and
accumulated earnings and profits will not be taxable to a shareholder to the
extent they do not exceed the adjusted basis of the shareholder's shares.
Instead, they will reduce the adjusted basis of such shares. To the extent that
such dividends exceed the adjusted basis of a Non-U.S. Shareholder's shares,
they will give rise to tax liability if the Non-U.S. Shareholder would
otherwise be subject to tax on any gain from the sale or disposition of his
shares, as described below. If it cannot be determined at the time a dividend
is paid whether or not such dividend will be in excess of current and
accumulated earnings and profits, the dividends will be subject to withholding.

We do not intend to make quarterly estimates of that portion of dividends
that are in excess of earnings and profits, and, as a result, all dividends
will be subject to such withholding. However, the Non-U.S. Shareholder may seek
a refund of such amounts from the IRS.

For any year in which we qualify as a REIT, distributions that are
attributable to gain from our sales or exchanges of United States real property
interests will be taxed to a Non-U.S. Shareholder under the provisions of the
Foreign Investment in Real Property Tax Act of 1980 ("FIRPTA"). Under FIRPTA,
those dividends are taxed to a Non-U.S. Shareholder as if such gain were
effectively connected with a United States business. Non-U.S. Shareholders
would thus be taxed at the normal capital gain rates applicable to U.S.
shareholders, subject to applicable alternative minimum tax and a special
alternative

minimum tax in the case of nonresident alien individuals. Also, dividends
subject to FIRPTA may be subject to a 30% branch profits tax in the hands of a
corporate Non-U.S. Shareholder not entitled to treaty exemption. We are
required by the Code and applicable Treasury Regulations to withhold 35% of any
dividend that we could designate as a capital gain dividend. This amount is
creditable against the Non-U.S. Shareholder's FIRPTA tax liability.

Gain recognized by a Non-U.S. Shareholder upon a sale of shares generally
will not be taxed under FIRPTA if we are a "domestically controlled REIT,"
defined generally as a REIT in which at all times during a specified testing
period, less than 50% in value of the shares was held directly or indirectly by
foreign persons. We believe we are a "domestically controlled REIT," and
therefore the sale of shares is not subject to taxation under FIRPTA. Because
the common shares are publicly traded, however, no assurance can be given that
we will remain a "domestically controlled REIT." However, gain not subject to
FIRPTA will be taxable to a Non-U.S. Shareholder if:

-- investment in the common shares or Preferred Stock is effectively
connected with the Non-U.S. Shareholder's United States trade or
business, in which case the Non-U.S. Shareholder will be subject to the
same treatment as U.S. shareholders with respect to such gain (and may
also be subject to the 30% branch profits tax in the case of a corporate
Non-U.S. Shareholder), or

-- the Non-U.S. Shareholder is a nonresident alien individual who was
present in the United States for 183 days or more during the taxable
year and has a "tax home" in the United States, in which case the
nonresident alien individual will be subject to a 30% withholding tax on
the individual's capital gains.

If we were not a domestically controlled REIT, whether or not a Non-U.S.
Shareholder's sale of common shares or Preferred Stock would be subject to tax
under FIRPTA would depend on whether or not the common shares or Preferred
Stock were regularly traded on an established securities market (such as the
NYSE) and on the size of selling Non-U.S. Shareholder's interest in our
securities. If the gain on the sale of shares were to be subject to taxation
under FIRPTA, the Non-U.S. Shareholder will be subject to the same treatment as
U.S. shareholders with respect to such gain and the purchaser of such common
shares or Preferred Stock may be required to withhold 10% of the gross purchase
price. Any FIRPTA taxation would be subject to applicable alternative minimum
tax and a special alternative minimum tax in the case of nonresident alien
individuals.

STATE AND LOCAL TAXES

We may be subject to state or local taxation in various state or local
jurisdictions, including those in which we transact business. In addition, our
shareholders may also be subject to state or local taxation. Consequently,
prospective shareholders should consult their own tax advisors regarding the
effect of state and local tax laws on an investment in our securities.

ERISA CONSIDERATIONS

A fiduciary of a pension, profit-sharing, retirement employee benefit
plan, individual retirement account ("IRA"), or Keogh Plan (each, a "Plan")
subject to the Employee Retirement Income Security Act of 1974, as amended
("ERISA"), should consider the fiduciary standards under ERISA in the context
of the Plan's particular circumstances before authorizing an investment of a
portion of such Plan's assets in common shares. In particular, the fiduciary
should consider:

-- whether the investment satisfies the diversification requirements of
Section 404(a)(1)(c) of ERISA,

-- whether the investment is in accordance with the documents and
instruments governing the Plan as required by Section 404(a)(1)(D) of
ERISA,

-- whether the investment is for the exclusive purpose of providing
benefits to participants in the Plan and their beneficiaries, or
defraying reasonable administrative expenses of the Plan, and

-- whether the investment is prudent under ERISA.

In addition to the general fiduciary standards of investment prudence and
diversification, specific provisions of ERISA and the Internal Revenue Code of
1986 (the "Code") prohibit a wide range of transactions involving the assets of
a Plan and transactions with persons who have specified relationships to the
Plan. Such persons are referred to as "parties in interest" in ERISA and as
"disqualified persons" in the Code. Thus, a fiduciary of a Plan considering an
investment in common shares should also consider whether acquiring or
continuing to hold common shares, either directly or indirectly, might
constitute a prohibited transaction.

The Department of Labor (the "DOL") has issued final regulations (the
"Regulations") as to what constitutes assets of an employee benefit plan under
ERISA. Under these Regulations, if a Plan acquires an equity interest that is
neither a "publicly offered security" nor a security issued by an investment
company registered under the Investment Company Act of 1940, as amended, then
for purposes of fiduciary and prohibited transaction provisions under ERISA and
the Code, the assets of the Plan would include both the equity interest and an
undivided interest in each of the entity's underlying assets, unless an
exemption applies.

The Regulations define a publicly-offered security as a security that is:

-- "widely held"

-- "freely transferable," and

-- either part of a class of securities registered under the Exchange Act,
or sold pursuant to an effective registration statement under the
Securities Act, provided the securities are registered under the
Exchange Act within 120 days after the end of the fiscal year of the
issuer during which the offering occurred.

The Regulations provide that a security is "widely held" only if it is
part of a class of securities that is owned by 100 or more investors
independent of the issuer and of one another. However, a security will not fail
to be "widely held" if the number of independent investors falls below 100
subsequent to the initial public offering as a result of events beyond the
issuer's control. The Regulations further provide that whether a security is
"freely transferable" is a factual question to be determined on the basis of
all relevant facts and circumstances. The Regulations also provide that when a
security is part of an offering in which the minimum investment is $10,000 or
less, the existence of certain restrictions ordinarily will not, along or in
combination, affect the finding that such securities are freely transferable.

We believe that the restrictions imposed under our bylaws on the transfer
common shares are limited to the restrictions on transfer generally permitted
under the Regulations, and are not likely to result in the failure of the
common shares to be "freely transferable." We also believe that the
restrictions that apply to the common shares held by us, or which may be
derived from contractual arrangements requested by David Lerner Associates in
connection with common shares are unlikely to result in the failure of the
common shares to be "freely transferable." Nonetheless, no assurance can be
given that the DOL and/or the U.S. Treasury Department could not reach a
contrary conclusion. Finally, the common shares offered are securities that
will be registered under the Securities Act and are or will be registered under
the Exchange Act.

Assuming that the common shares satisfy the definition of publicly-offered
securities, described above, the underlying assets will not be deemed to be
"plan assets" of any Plan that invests in the securities offered hereby.

Notwithstanding the above, the Regulations provide that even if a security
offered hereunder were not a publicly-traded security, investment by a Plan
herein would not include the underlying assets if equity participation by
benefit plan investors will not be significant. Under the Regulations, equity
participation is significant if 25 percent or more in the security is held by
benefit plan investors. It is expected that 75 percent of the common shares are
expected to be held, at all times, by investors other than benefit plan
investors. The term "benefit plan investors" generally includes the plans
described above.

CAPITALIZATION

The capitalization of the Company as of March 31, 1999, and as adjusted to
reflect the issuance and sale of the common shares offered hereby assuming the
minimum offering and maximum offering is set forth in the table below. The
following table does not reflect offering and organizational costs and other
anticipated uses of proceeds, as described under "Estimated Use of Proceeds."

AS ADJUSTED
--------------------------------
MINIMUM MAXIMUM
ACTUAL OFFERING OFFERING
-------- -------------- ---------------

Common Shares; no par value; 10 shares issued,
1,666,666.67 and 30,166,666.67 shares issued as
adjusted, respectively ........................ $100 $15,000,100 $300,000,100

MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

OVERVIEW

We were organized on March 5, 1999 and have no operations to date. In
addition, we currently own no properties. We intend to qualify as a REIT under
the Internal Revenue Code. In order to maintain our qualification as a REIT, we
will be obligated to distribute annually at least 95% of our taxable income to
our shareholders.

The proceeds of this offering and the cash flow generated from properties
we will acquire and any short term investments will be our principal source of
liquidity. In addition, although we intend to purchase properties on an
all-cash basis or using short-term interim debt, we reserve the right to borrow
funds if we deem it prudent. See "Policies with Respect to Certain Activities
- -- Borrowing Policies."

We anticipate that our cash flow will be adequate to cover our operating
expenses and to permit us to meet our anticipated liquidity requirements,
including distribution requirements. Inflation may increase our operating
costs, including our costs on bank borrowings, if any.

We intend to establish a working capital reserve of at least 0.5% of the
proceeds from this offering. This reserve, in combination with income from our
properties and short term investments, is anticipated to satisfy our liquidity
requirements.

PLAN OF DISTRIBUTION

The Company is offering to sell the common shares using the service of
David Lerner Associates, Inc. as the managing dealer, and other broker-dealers
selected by the managing dealer ("Selected Dealers"). The common shares are
being offered on a "best efforts" basis, meaning that the managing dealer and
Selected Dealers are not obligated to purchase any common shares. No common
shares will be sold unless at least the minimum offering of $15,000,000 in
shares has been sold no later than one year after the date of this prospectus.
If the minimum offering of shares is not sold by that date, the offering will
terminate and all funds deposited by investors into the escrow account will be
promptly refunded in full, together with each investor's share of any interest
earned thereon (less withholding of taxes in respect to payment of interest, if
applicable). First Union National Bank will act as escrow agent for the escrow
account until the minimum offering of shares is sold.

The common shares are offered at $9 per share until the minimum offering
of $15,000,000 in shares is achieved. Thereafter, the common shares will be
offered at $10 per share.

The offering of common shares is expected to terminate when all shares
offered hereby have been sold or one year from the date hereof, unless extended
by us for up to an additional year. In some states, extension of the offering
may not be allowed, or may be allowed only upon certain conditions.

Purchasers will be sold common shares at one or more closings. Following
the sale of the minimum offering, additional closings will be held from time to
time during the offering period as orders are received. The final closing will
be held shortly after the termination of the offering period or, if earlier,
upon the sale of all the common shares. It is expected that after the closing
of the sale of the minimum offering, purchasers will be sold common shares no
later than the last day of the calendar month following the month in which
their orders are received. Funds received during the offering but after the
initial disbursement of funds may be held in escrow for the benefit of
purchasers until the next closing, and then disbursed to us.

In no event are we required to accept the subscription of any prospective
investor, and no such subscription shall become binding on us until a properly
completed Subscription Agreement prepared and executed by the prospective
investor has been accepted by our duly authorized representative. We will
either accept or reject each subscription within four business days from the
receipt of the subscription by David Lerner Associates, Inc. or a Selected
Dealer.

We intend to hold investors' funds in escrow until the minimum offering of
$15,000,000 is achieved and the initial closing has occurred. Thereafter,
investors' funds will not be held in escrow pending each applicable closing. We
intend to cause to be paid from the escrow account in connection with the
minimum offering of $15,000,000 each investor's share of net interest on
escrowed funds, whether or not the investor's subscription for shares is
accepted. We reserve the right to adopt reasonable simplifying conventions or
assumptions in determining each investor's share of such net interest.
Investors' subscriptions will be revocable by written notice delivered to the
escrow agent at least five days before the initial closing. Subject to the
foregoing, an investor's subscription funds may remain in escrow for an
indefinite period of time.

It is expected that shareholders will be able to elect to reinvest any
distributions from us in additional common shares available in this offering,
for as long as this offering continues. This option is referred to herein as
the "Additional Share Option." Any purchase by reinvestment of distributions
would be at the same price per share and on the same terms applicable generally
to subscriptions in this offering effective at the time of reinvestment. We
reserve the right to establish rules governing such reinvestment, as well as
the right to modify or terminate such Additional Share Option at any time. We
estimate that approximately 500,000 Shares ($5,000,000 at $10 per share)
offered through this prospectus will be purchased through shareholders'
reinvestment of distributions in common shares pursuant to the Additional Share
Option described in this paragraph, but the number of shares which will be so
purchased cannot be determined at this time.

Subject to the Additional Share Option being available through the
broker-dealer which initially sells a shareholder his common shares, a
shareholder will be able to elect the option by directing, on his Subscription
Agreement, that cash distributions be reinvested in additional shares.
Distributions

attributable to any calendar quarter will then be used to purchase common
shares in this offering. As described under "Federal Income Tax Consequences --
Federal Income Taxation of the Shareholders," a shareholder who elects the
Additional Share Option will be taxed as if he had received his distributions
which are used to purchase additional shares. A shareholder may elect to
terminate his participation in the Additional Share Option at any time by
written notice sent it or to the broker-dealer through which the Shareholder
initially purchased shares. The notice will be effective with respect to
distributions attributable to any calendar quarter if it is sent at least 10
days before the end of such calendar quarter.

Funds not invested in real properties may be invested by us in United
States Government securities, certificates of deposit of banks located in the
United States having a net worth of at least $50,000,000, bank repurchase
agreements covering the securities of the United States Government or United
States governmental agencies issued by banks located in the United States
having a new worth of at least $50,000,000, bankers' acceptances, prime
commercial paper or similar highly liquid investments (such as money market
funds selected by the Company) or evidences of indebtedness.

We will pay to David Lerner Associates, Inc. selling commissions on all
sales made in an amount equal to 7.5% of the purchase price of the Shares
($0.675 per share purchased at $9 per share and $0.75 per share purchased at
$10 per share). We will also pay to David Lerner Associates, Inc. a marketing
expense allowance equal to 2.5% of the purchase price of the shares, as a
non-accountable reimbursement for expenses incurred by it in connection with
the offer and sale of the common shares. The marketing expense allowance will
equal $0.225 per share purchased at $9 per share and $0.25 per share purchased
at $10 per share. The selling commissions and marketing expense allowance are
payable to David Lerner Associates, Inc. at the times of the issuance of common
shares to purchasers.

Prospective investors are advised that David Lerner Associates, Inc.,
reserves the right to purchase common shares, on the same terms applicable
generally to sales pursuant to this prospectus, for its own account, at any
time and in any amounts, to the extent not prohibited by relevant law.

The Agency Agreement among us, the Advisor and the Broker and David Lerner
Associates, Inc. permits David Lerner Associates, Inc. to use the services of
other broker-dealers in offering and selling the common shares, subject to our
approval. David Lerner Associates, Inc. will pay the compensation owing to such
broker-dealers out of the selling commissions or marketing expense allowance
payable to it. Sales by such broker-dealers would be carried on in accordance
with customary securities distribution procedures. David Lerner Associates,
Inc. may be deemed to be an "underwriter" for purposes of the Securities Act in
connection with this offering. Purchasers' checks are to be made payable to
"First Union National Bank, Escrow Agent" or as otherwise directed by David
Lerner Associates, Inc.

Purchasers are required to purchase a minimum of $5,000 in common shares
($2,000 in common shares for Qualified Plans). the Advisor and the Broker may
purchase in this offering up to 2.5% of the total number of shares sold in the
offering, on the same terms and conditions as the public. If the Advisor and
the Broker purchase any common shares, they will be permitted to vote on any
matters submitted to a vote of holders of the common shares. Any purchase of
shares in this offering by the Advisor and the Broker must be for investment,
and not for resale or distribution. The shares described in this paragraph are
exclusive of the shares which may be issued under our stock incentive plans.
See "Management -- Stock Incentive Plans."

There has been no previous market for any of our common shares. The
initial offering price for the common shares is arbitrary and was determined on
the basis of the proposed capitalization of our company, market conditions and
other relevant factors.

We, the Advisor and the Broker have agreed to indemnify David Lerner
Associates, Inc. and other broker-dealers against certain liabilities,
including liabilities under the Securities Act. No indemnification is provided
for willful misfeasance, bad faith, gross negligence or reckless disregard of
duties under the Securities Act by any of such persons.

The company has agreed to sell to David Lerner Associates, Inc. for an
aggregate of $100, warrants (the "Warrants") to purchase 10% of the shares sold
up to 3,000,000 common shares at an exercise price of $16.50 per common share
(165% of the public offering price per common share). The Warrants may

not be sold, transferred, assigned or hypothecated for one year from the date
of their issuance, except to the officers and employees of David Lerner
Associates, Inc. and are exercisable at any time and from time to time, in
whole or in part, during the five-year period commencing on the date of the
final closing after the termination of this offering (the "Warrant Exercise
Term"). During the Warrant Exercise Term, the holders of the Warrants are
given, at nominal cost, the opportunity to profit from a rise in the market
price of the common shares. To the extent that the Warrants are exercised,
dilution to the interests of the shareholders will occur. Further, the terms
upon which we may be able to obtain additional equity capital may be adversely
affected since the holders of the Warrants can be expected to exercise them at
a time when we would, in all likelihood, be able to obtain any needed capital
on terms more favorable to us than those provided in the Warrants. Any profit
realized by David Lerner Associates on the sale of the Warrants may be deemed
additional underwriting compensation. We have agreed, at the request of the
holders of a majority of the Warrants, at our expense, to register the Warrants
under the Securities Act on one occasion during the Warrant Exercise Term and
to include the Warrants in any appropriate registration statement which is
filed by us during the seven years following the date of this prospectus.

DESCRIPTION OF CAPITAL STOCK

The information set forth below is only a summary of our terms of our
common shares. You should refer to our articles of incorporation (the
"Articles"), and bylaws for a complete description of the common shares.

Our authorized capital stock consists of 200,000,000 common shares, no par
value, 240,000 Class B Convertible shares, no par value and 15,000,000 shares
of preferred stock, no par value. Each common share will be fully paid and
nonassessable upon issuance and payment therefor. As of the date of this
prospectus, there were 10 common shares issued and outstanding. All 240,000
authorized Class B Convertible shares will be held by Glade M. Knight and two
other individuals. See "Principal and Management Shareholders."

DIVIDEND AND DISTRIBUTION RIGHTS

Our common shares have equal rights in connection with:

-- dividends

-- distributions, and

-- liquidations.

If our Board of Directors determines, in its sole discretion, to declare a
dividend, the right to such dividend is subject to the following restrictions:

-- the dividend rights of the common shares may be subordinate to any other
shares or new series of stock our Board may authorize in the future, and

-- the amount the dividend is limited by law.

If we liquidate our assets or dissolve entirely, the holders of the common
shares will share, on a pro rata basis, in the assets we are legally allowed to
distribute. We must pay all of our known debts and liabilities or have made
adequate provision for payment of these debts and liabilities before holders of
common shares can share in our assets.

Holders of 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 our securities.

VOTING RIGHTS

Each outstanding common share entitles the holder to one vote on all
matters submitted to a vote of shareholders. The holders of common shares 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 stock. There is no cumulative voting in the election of directors.
Therefore the holders of a majority of the outstanding common shares can elect
all of the directors then standing for election and the holders of the
remaining shares will not be able to elect any directors.

Our Articles state that a majority of common shares outstanding and
entitled to vote on a matter may approve our company to take any of the
following actions:

-- dissolve,

-- amend our charter or articles of incorporation,

-- merge,

-- sell all or substantially all of our assets, or

-- engage in share exchange or similar transactions;

except for amendments to our articles of incorporation relating to the
classification of the board of directors. This matter requires the approval of
at least two-thirds of the shares entitled to vote.

The transfer agent and registrar for the common shares is First Union
National Bank.

PREFERRED STOCK

Our Articles of Incorporation authorize our issuance of up to 15 million
shares of preferred stock. No shares of preferred stock have been issued.

We believe that the authorization to issue shares of preferred stock
benefit us and our shareholders by permitting flexibility in financing
additional growth, giving us additional financing options in our corporate
planning and in responding to developments in our business, including financing
of additional acquisitions and other general corporate purposes. Having
authorized preferred stock available for issuance in the future gives us the
ability to respond to future developments and allow preferred stock to be
issued without the expense and delay of a special shareholders' meeting.

At present, we have no specific financing or acquisition plans involving
the issuance of preferred stock and we do not propose to fix the
characteristics of any series of shares of preferred stock in anticipation of
issuing preferred stock. We cannot now predict whether or to what extent, if
any, preferred stock 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 common
shares will be subject to the prior rights of the holders of any
subsequently-issued preferred stock. Unless otherwise required by applicable
law or regulation, the preferred stock would be issuable without further
authorization by holders of the common shares and on such terms and for such
consideration as may be determined by the Board of Directors. The preferred
stock 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 shares of preferred stock could
be given rights that are superior to certain rights of holders of common shares
and a series having preferential distribution rights could limit common share
distributions and reduce the amount holders of common shares would otherwise
receive on dissolution of our company.

RESTRICTIONS ON TRANSFER

To qualify as a REIT under the Code, our 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 our issued and outstanding 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 our Board of Directors believes it is essential that we maintain our
REIT status, our bylaws provide that no person may own or be deemed to own more
than 9.8% (the "Ownership Limit") of the aggregate value of all of our
outstanding common shares. The Board may exempt a proposed transferee from the
Ownership Limit. In connection therewith, the Board may require opinions of
counsel, affidavits, undertakings or agreements as it may deem necessary or
advisable in order to determine or ensure our status as a REIT.

Any acquisition or transfer of common shares that would: (1) result in the
common shares being owned by fewer than 100 persons or (2) result in our being
"closely-held" within the meaning of Section 856(h) of the Code, will be null
and void, and the intended transferee will acquire no rights to the common
shares. The foregoing restrictions on transferability and ownership will not
apply if the Board determines it is no longer in our best interests to attempt
to qualify, or to continue to qualify, as a REIT and our Articles are amended
accordingly.

Any purported transfer of common shares that would result in a person
owning shares of capital stock in excess of the Ownership Limit will result in
the shares subject to such purported transfer being automatically exchanged for
an equal number of shares of Excess Stock. Under our bylaws, Excess Stock will
be deemed to have been transferred to us as trustee of a separate trust (the
"Trust") for the exclusive benefit of the person or persons to whom the
interest in the Trust can ultimately be transferred.

Excess Stock is not transferable, but the interest in the Trust
representing the Excess Stock may be transferable. A holder of an interest in
the Trust representing Excess Stock may transfer such interest if the proposed
transferee could hold our stock without triggering the Excess Stock provisions.
The transfer must also be made at a price not to exceed the price paid by the
purported transferee or, if no consideration was paid, the Market Price
measured on the date of the original attempted transfer. If these conditions
are met, any Excess Stock involved will automatically be exchanged for the
common shares or preferred stock to which the Excess Stock is attributable.

We may also purchase Excess Stock at a price equal to the lesser of:

-- the price paid for the shares of capital stock by the intended
transferee or, if no consideration was paid, the Market Price of the
shares of capital stock resulting in Excess Stock, measured on the date
of the transfer, or

-- the Market Price of the shares of capital stock resulting in Excess
Stock measured on the date on which we elect to purchase the Excess
Stock.

"Market Price" means the average daily closing price of a share if listed
on a national securities exchange or quoted on NASDAQ National Market. If the
shares are not then traded on any exchange or quotation system, Market Price
will be the mean between the average closing bid prices and the average closing
asked prices. In each case, Market Price is measured during the 30-calendar day
period ending on the business day prior to the measurement date. If there have
been no sales or published bid and asked quotations with respect to such shares
during this 30-day period, the Market Price will be as determined in good faith
by our Board.

From and after the intended transfer to the purported transferee of the
shares of Excess Stock, the purported transferee will cease to be entitled to
distributions, except upon liquidation, voting rights and other benefits with
respect to the Excess Stock. The purported transferee will retain the right to
payment of the purchase price for the applicable shares of underlying capital
stock. Any dividend or distribution paid to a purported transferee on Excess
Stock prior to our discovery that the shares have been transferred in violation
of our bylaws must be repaid upon demand.

If the foregoing transfer restrictions are determined to be void or
invalid by virtue of any legal decision, statute, rule or regulation, then the
intended transferee of any Excess Stock may be deemed, at our option, to have
acted as an agent on our behalf in acquiring the Excess Stock and to hold the
Excess Stock on our behalf. All certificates representing shares of capital
stock will bear a legend referring to the restrictions described above.

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 our board deems reasonably necessary to
comply with the provisions of the Code applicable to a REIT, to comply with the
requirements of any taxing authority or governmental agency or to determine any
such compliance.

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.

FACILITIES FOR TRANSFERRING COMMON SHARES

David Lerner Associates may, but is not obligated to, assist shareholders
who desire to transfer their common shares. In the event David Lerner
Associates provides assistance, it will be entitled to receive compensation as
specified by it. Any assistance offered by David Lerner Associates may be
terminated or modified at any time without notice, and any fee charged for
transfer assistance may be modified or terminated at any time and without
notice. David Lerner Associates currently has no plans for rendering the type
of assistance referred to in this paragraph. This assistance, if offered, would
likely consist of informally matching isolated potential buyers and sellers,
and would not represent the creation of any "market" for the common shares.

No public market for the common shares currently exists. We do not plan to
cause the 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 we may cause the common shares to be listed or quoted
if our board of directors determines that action to be prudent, there can be no
assurance that such an event will ever occur. Prospective shareholders should
view the common shares as illiquid and must be prepared to hold their
investment for an indefinite length of time.

WARRANTS

We have agreed to sell to David Lerner Associates, Inc. for an aggregate
of $100, warrants (the "Warrants") to purchase 10% of the shares sold in this
offering, up to 3,000,000 common shares at an exercise price of $16.50 per
common share (165% of the public offering price per common share). The Warrants
may not be sold, transferred, assigned or hypothecated for one year from the
date of this prospectus, except to the officers and employees of David Lerner
Associates, Inc. and are exercisable at any time and from time to time, in
whole or in part, during the five-year period commencing on the date of the
final closing after the termination of this offering (the "Warrant Exercise
Term"). During the Warrant Exercise Term, the holders of the Warrants are
given, at nominal cost, the opportunity to profit from a rise in the market
price of the common shares. To the extent that the Warrants are exercised,
dilution to the interests of the shareholders will occur. We have agreed, at
the request of the holders of a majority of the Warrants, at our expense, to
register the Warrants under the Securities Act on one occasion during the
Warrant Exercise Term and to include the Warrants in any appropriate
registration statement which is filed by us during the seven years following
the date of this prospectus.

SUMMARY OF ORGANIZATIONAL DOCUMENTS

The following is a summary of the principal provisions of our articles of
incorporation and bylaws, some of which may be described or referred to
elsewhere in this prospectus. Neither this summary nor such descriptions
appearing elsewhere in this prospectus purport to be, or should be considered,
a complete statement of the terms and conditions of the articles of
incorporation or bylaws or any specific provision thereof, and this summary and
all such descriptions are qualified in their entirety by reference to, and the
provisions of, the articles of incorporation and bylaws, which have been filed
as exhibits to the registration statement of which this prospectus is a part.
Our articles of incorporation have been reviewed and approved unanimously by
the Board of Directors.

BOARD OF DIRECTORS

The Board of Directors, subject to specific limitations in the articles of
incorporation and those imposed by law, has full, exclusive, and absolute
power, control and authority over our property and business. The Board of
Directors, without approval of the shareholders, may alter our investment
policies in view of changes in economic circumstances and other relevant
factors, subject to the investment restrictions set forth in the bylaws.

A director may be removed (i) for cause by the vote or written consent of
all directors other than the director whose removal is being considered, or
(ii) with or without cause at a special meeting of the shareholders by vote of
a majority of the outstanding common shares. "For cause" is defined as willful
violations of the articles of incorporation or bylaws, or gross negligence in
the performance of a director's duties. Any vacancies in the office of director
may be filled by a majority of the directors continuing in office or at a
special meeting of shareholders by vote of a majority of the common shares
present at a meeting at which there is a quorum. Any director so elected shall
hold office for the remainder of his predecessor's term. The number of
directors shall not be less than three nor more than 15. At the time of initial
closing, there will be five directors, a majority of whom are independent
directors. See "Management." The holders of the common shares are entitled to
vote on the election or removal of the Board of Directors, with each common
share entitled to one vote.

The Board of Directors is empowered to fix the compensation of all
officers and the Board of Directors. Under the bylaws, directors may receive
reasonable compensation for their services as directors and officers and
reimbursement of their expenses, and we may pay a director such compensation
for special services, including legal and accounting services, as the Board of
Directors deems reasonable. The Board of Directors may delegate certain of its
powers to an executive committee, which must be comprised of at least three
directors, the majority of whom are Independent Directors. At all times a
majority of the directors and a majority of the members of any board committee
shall be independent directors, except that upon the death, removal, or
resignation of an independent director such requirement shall not be applicable
for 60 days.

RESPONSIBILITY OF BOARD OF DIRECTORS, ADVISOR, OFFICERS AND EMPLOYEES

Our articles of incorporation provide that the directors and officers
shall have no liability to us or our shareholders in actions by or in the right
of the company unless such officer or director has engaged in willful
misconduct or a knowing violation of the criminal law or of any federal or
state securities laws. The Advisory Agreement provides that the Advisor shall
have no liability to us or our shareholders unless it has engaged in gross
negligence or willful misconduct. Generally, claimants must look solely to our
property for satisfaction of claims arising in connection with the affairs of
our company. The articles of incorporation and the Advisory Agreement,
respectively, provide that we shall indemnify any present or former director,
officer, employee or agent and the Advisor against any expense or liability in
an action brought against such person if the directors (excluding the
indemnified party) determine in good faith that the director, officer, employee
or agent or the Advisor was acting in good faith within what he or it
reasonably believed to be the scope of his or its employment or authority and
for a purpose which he or it reasonably believed to be in the best interests of
the company or shareholders, and that the liability was not the result of
willful misconduct, bad faith, reckless disregard of duties or violation of the
criminal law. Indemnification is not allowed for any liability imposed by
judgment, and costs associated therewith,

including attorneys' fees, arising from or out of a violation of federal or
state securities laws associated with the public offering of the common shares
unless (i) there has been a successful adjudication on the merits of each count
involving alleged securities law violations as to the particular indemnitee, or
(ii) such claims have been dismissed with prejudice on the merits by a court of
competent jurisdiction as to the particular indemnitee, or (iii) a court of
competent jurisdiction approves a settlement of the claims against a particular
indemnitee. To the extent that the foregoing indemnification provisions purport
to include indemnification for liabilities arising under the Securities Act, in
the opinion of the Securities and Exchange Commission, such indemnification is
contrary to public policy and therefore unenforceable.

In the absence of the special exculpation and indemnification provisions
in the articles of incorporation, the directors and officers would have greater
accountability to us under Virginia statutory law. In the absence of a special
provision in the articles of incorporation, a director or officer of a Virginia
corporation would have financial liability for misconduct equal to the greater
of $100,000 or the amount of cash compensation received by the director or
officer from the corporation during the twelve preceding months. Virginia law
permits, but does not require, a corporation to indemnify a director if the
director conducted himself in good faith and believed that his conduct was in
the best interests (or in certain cases at least not opposed to the best
interests) of the corporation. As noted above, the articles of incorporation
require indemnification under the circumstances indicated, and therefore
provide rights more favorable to the directors and officers than would be
afforded by Virginia law alone.

Although no Virginia court has passed upon the nature of the
accountability owed by an entity like the Advisor to an entity like us, it is
almost certain that the exculpation and indemnification provisions benefiting
the Advisor under the Advisory Agreement are more beneficial to the Advisor
than would be the result in the absence of such provisions. Since the Advisor
has a contractual relationship with us, in the absence of special exculpation
and indemnification provisions in the Advisory Agreement, a court would likely
hold that the Advisor is liable for ordinary negligence and ordinary
misconduct, in addition to the more egregious misconduct for which the Advisor
is liable under the Advisory Agreement.

The exculpation and indemnification provisions in the articles of
incorporation and the Advisory Agreement have been adopted to help induce the
beneficiaries of such provisions to agree to serve on behalf of our company or
the Advisor by providing a degree of protection from liability for alleged
mistakes in making decisions and taking actions. Such exculpation and
indemnification provisions have been adopted, in part, in response to a
perceived increase generally in shareholders' litigation alleging director and
officer misconduct. The exculpation and indemnification provisions in the
articles of incorporation and the Advisory Agreement may result in a
shareholder or our company having a more limited right of action against a
director, the Advisor or its affiliates than he or it would otherwise have had
in the absence of such provisions. Conversely, the presence of such provisions
may have the effect of conferring greater discretion upon the directors, the
Advisor and its affiliates in making decisions and taking actions with respect
to us. Subject to the exculpation and indemnification provisions in the
articles of incorporation, the Advisory Agreement, and as otherwise provided by
law, the Advisor and the directors and officers are accountable to us and our
shareholders as fiduciaries and must exercise good faith and integrity in
handling our affairs. As noted above, however, the exculpation and
indemnification provisions in the articles of incorporation and the Advisory
Agreement represent a material change from the accountability which would be
imposed upon the directors, officers, the Advisor and its affiliates in the
absence of such contractual provisions. Thus, such fiduciary duties will be
materially different from such fiduciary duties as they would exist in the
absence of the provisions of the articles of incorporation and the Advisory
Agreement.

ISSUANCE OF SECURITIES

The Board of Directors may in its discretion issue additional common
shares or other equity or debt securities, including options, warrants, and
other rights, on such terms and for such consideration as it may deem
advisable. See "Risk Factors -- Potential Dilution of Shareholders' Interests."
Without limiting the generality of the foregoing, the Board of Directors may,
in its sole discretion, issue shares of stock or other equity or debt
securities, (1) to persons from whom we purchases property, as part or all of
the purchase price of the property, or (2) to the Advisor and the Broker in
lieu of cash payments

required under the Advisory Agreement or other contract or obligation. The
Board of Directors, in its sole discretion, may determine the value of any
shares or other equity or debt securities issued in consideration of property
or services provided, or to be provided, to us, except that while shares are
offered by us to the public, the public offering price of such common shares
shall be deemed their value.

We have adopted two stock incentive plans for the benefit of our directors
and certain employees and for the benefit of certain employees of the Advisor
and the Broker. See "Management -- Stock Incentive Plans."

REDEMPTION AND RESTRICTIONS ON TRANSFER

For us to qualify as a REIT under the Internal Revenue Code, not more than
50% of our outstanding shares may be owned directly or indirectly by five or
fewer individuals during the last half of any year other than the first year,
and after the first year all shares must be owned by 100 or more persons during
at least 335 days of a taxable year of 12 months or during a proportionate part
of a shorter taxable year. As a means of attempting to ensure compliance with
these requirements, the bylaws provide that we may prohibit any person from
directly or indirectly acquiring ownership (beneficial or otherwise) of Excess
Shares. See "Description of Capital Stock -- Repurchase of Shares and
Restrictions on Transfer."

AMENDMENT

The articles of incorporation and the bylaws generally may be amended or
altered or we may be dissolved by the affirmative vote of the holders of a
majority of the outstanding common shares, with each shareholder entitled to
cast one vote per common share held. Our articles and bylaws may not be amended
unless approved by the vote of the holders of a majority of the common shares,
except in limited circumstances. The Board of Directors may, without
shareholder approval, amend the articles of incorporation to create series of
preferred stock and define the terms of such series. The Board of Directors
may, without shareholder approval, amend the bylaws (1) to bring the bylaws
into conformity with the REIT provisions of the Code or other law or
regulation, or the requirements of any state securities administrator, (2) to
correct any ambiguity in the bylaws or resolve any inconsistency between the
bylaws and the articles of incorporation, (3) to make any change in the bylaws
not materially adverse to the interests of the shareholders, or (4) to permit
us to take any action or fulfill any obligation which we are legally permitted
or obligated to take or fulfill.

SHAREHOLDER LIABILITY

The holders of our shares shall not be liable personally on account of any
obligation of our company.

SALES LITERATURE

We may use certain sales or marketing literature in connection with the
offering of the common shares. Sales or marketing materials which may be used
include a sales brochure highlighting our company. The literature may also
include a brochure describing the Advisor and the Broker and affiliates and a
"tombstone" advertisement, mailer and introductory letter. We may, from time to
time, also utilize brochures describing completed or proposed property
acquisitions, summaries of our company or of the offering of the common shares,
and discussions of REIT investments generally.

The offering is, however, made only by means of this prospectus. Except as
described herein, we have not authorized the use of other supplemental
literature in connection with the offering other than marketing bulletins to be
used internally by broker-dealers. Although the information contained in such
literature does not conflict with any of the information contained in this
prospectus, the material does not purport to be complete, and should not be
considered as a part of this prospectus or the registration statement of which
this prospectus is a part, as incorporated in this prospectus or the
registration statement by reference, or as forming the basis of the offering of
the common shares described herein.

REPORTS TO SHAREHOLDERS

Financial information contained in all reports to shareholders will be
prepared in accordance with generally accepted accounting principles. The
annual report, which will contain financial statements audited by a nationally
recognized accounting firm, will be furnished within 120 days following the
close of each fiscal year. The annual report will contain a complete statement
of compensation and fees paid or accrued by us to the Advisor and the Broker
together with a description of any new agreements. Under the bylaws, we are
also obligated to send to our shareholders quarterly reports after the end of
the first three calendar quarters of each year. Such quarterly reports will
include unaudited financial statements prepared in accordance with generally
accepted accounting principles, a statement of fees paid during the quarter to
the Advisor and the Broker and a reasonable summary of our activities during
the quarter. The shareholders also have the right under applicable law to
obtain other information about us.

We will file a report meeting the requirements of Form 8-K under the
Exchange Act if, after the termination of the offering, a commitment is made
involving the use of 10 percent or more of the net proceeds of the offering and
will provide the information contained in such report to the shareholders at
least once each quarter after the termination of this offering.

LEGAL MATTERS

Certain legal matters in connection with the common shares will be passed
upon for us by McGuire, Woods, Battle and Boothe LLP, Richmond, Virginia.

EXPERTS

Ernst & Young LLP, independent auditors, have audited our balance sheet at
March 26, 1999, as set forth in their report. We've included our balance sheet
in the prospectus and in the registration statement in reliance on Ernst &
Young LLP's report, given on their authority as experts in accounting and
auditing.

APPLE SUITES, INC.
INDEX TO BALANCE SHEET

MARCH 26, 1999

PAGE
-----

Report of Independent Auditors ........... F-2
Balance Sheet at March 26, 1999 .......... F-3
Notes to Balance Sheet ................... F-4

F-1

REPORT OF INDEPENDENT AUDITORS

The Board of Directors and Shareholder of
Apple Suites, Inc.

We have audited the accompanying balance sheet of Apple Suites, Inc. as of
March 26, 1999. This balance sheet is the responsibility of the Company's
management. Our responsibility is to express an opinion on this balance sheet
based on our audit.

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

In our opinion, the balance sheet referred to above presents fairly, in
all material respects, the financial position of Apple Suites, Inc. at March
26, 1999, in conformity with generally accepted accounting principles.

/s/ Ernst & Young LLP

Richmond, Virginia
April 21, 1999

F-2

APPLE SUITES, INC.

BALANCE SHEET

MARCH 26, 1999

ASSETS
Cash ................................................................... $100
====
STOCKHOLDER'S EQUITY
Preferred stock, authorized 15,000,000 shares; none issued and outstanding --
Class B convertible stock, no par value, authorized 240,000 shares; none
issued and outstanding ................................................ --
Common stock, no par value authorized 200,000,000 shares; issued and
outstanding 10 shares ................................................. $100
----
$100
====

See accompanying notes to balance sheet.

F-3

APPLE SUITES, INC.
NOTES TO BALANCE SHEET

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Organization

Apple Suites, Inc. (the "Company") is a Virginia corporation that intends
to qualify as a real estate investment trust ("REIT") for federal income tax
purposes. The Company, which has no operating history, was formed to invest
primarily in extended stay hotels in the southeastern and southwestern United
States. Initial capitalization occurred on March 5, 1999, when 10 shares of
common stock were purchased by Apple Suites Advisors, Inc. (see Note 3).

SIGNIFICANT ACCOUNTING POLICIES

Income Taxes

The Company intends to make an election to be treated, and expects to
qualify, as a REIT under the Internal Revenue Code of 1986, as amended. As a
REIT, the Company will be allowed a deduction for the amount of dividends paid
to its shareholders, thereby subjecting the distributed net income of the
Company to taxation only at the shareholder level. The Company's continued
qualification as a REIT will depend on its compliance with numerous
requirements, including requirements as to the nature of its income and
distribution of dividends.

Use of Estimates

The preparation of the financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.

Start Up costs

Start up costs incurred other than offering costs will be expensed upon
the successful completion of the minimum offering (see Note 3).

2. OFFERING OF SHARES

The Company intends to raise capital through a "best-efforts" offering of
shares by David Lerner Associates, Inc. (the "Managing Dealer"), which will
receive selling commissions and a marketing expense allowance based on proceeds
of the shares sold.

A minimum offering of 1,666,666 shares ($15,000,000) must be sold within
one year from the beginning of this offering or the offering will terminate and
investors' subscription payments, with interest, will be refunded to investors.
Pending sale of such minimum offering amount, investors' subscription payments
will be placed in an escrow account.

3. RELATED PARTIES

The Company has negotiated, but not signed, a Property Acquisition and
Disposition Agreement with Apple Suites Realty Group, Inc. ("ASRG"), to acquire
and dispose of real estate assets for the Company. A fee of 2% of the purchase
price or sale price in addition to certain reimbursable expenses will be
payable for these services.

The Company has negotiated, but not signed, an Advisory Agreement with
Apple Suites Advisors, Inc. ("ASA") to provide management of the Company and
its assets. An annual fee ranging from .1% to .25% of total contributions
received by the Company in addition to certain reimbursable expenses will be
payable for these services.

F-4

APPLE SUITES, INC.

NOTES TO BALANCE SHEET - (CONTINUED)
3. RELATED PARTIES - (CONTINUED)

ASRG and ASA are 100% owned by Glade M. Knight, Chairman and President of
the Company. ASRG and ASA may purchase in the " best efforts" offering up to
2.5% of the total number of shares sold in the offering.

Affiliates of the Company have incurred certain organization and offering
costs on behalf of the Company. Upon successful completion of the minimum
offering (see Note 2), the Company will reimburse the affiliates for these
organizational and offering costs. The Company is not responsible for these
costs in the event that the offering is not successfully completed.

On April 20, 1999, the Company obtained a line of credit in a principal
amount of up to $1 million to fund certain offering costs. The loan bears
interest at LIBOR plus 1.50%. Interest is payable monthly and the principal
balance and all accrued interest are due in full on October 20, 1999. Glade M.
Knight has guaranteed repayment of the loan.

4. STOCK INCENTIVE PLANS

The Company intends to adopt two stock incentive plans (the "Incentive
Plan" and "Directors' Plan") to provide incentives to attract and retain
directors, officers and key employees. The plans provide for the grant of
options to purchase a specified number of shares of common stock ("Options") or
grants of restricted shares of common stock ("Restricted Stock") to selected
employees and directors of the Company and certain affiliates. Following
consummation of the offering, a Compensation Committee ("Committee") will be
established to implement and administer the plans. The Committee will be
responsible for granting Options and shares of Restricted Stock and for
establishing the exercise price of Options and the terms and conditions of
Restricted Stock.

5. CLASS B CONVERTIBLE STOCK

The Company has authorized 240,000 shares of Class B Convertible Stock.
The Company will issue 202,500 Class B Convertible Shares to Glade M. Knight,
Chairman and President of the Company, and a combined 37,500 Class B
Convertible Shares to two other individuals. The Class B Convertible Shares
will be issued by the Company on or before the initial closing of the minimum
offering of $15,000,000, in exchange for payment of $.10 per Class B
Convertible Share, or an aggregate of $24,000. There will be no dividends
payable on the Class B Convertible Shares. On liquidation of the Company, the
holders of the Class B Convertible Shares will be entitled to a liquidation
payment of $.10 per share before any distribution of liquidation proceeds to
holders of the Common Shares. Holders of more than two-thirds of the Class B
Convertible Shares must approve any proposed amendment to the Articles of
Incorporation that would adversely affect the Class B Convertible Shares or
create a new class of stock senior to, or on a parity with, the Class B
Convertible Shares. The Class B Convertible Shares may not be redeemed by the
Company.

Each holder of outstanding Class B Convertible Shares shall have the right
to convert any of such shares into Common Shares of the Company upon and for
180 days following the occurrence of either of the following conversion events:

(1) the sale or transfer of substantially all of the Company's assets,
stock or business, whether through sale, exchange, merger,
consolidation, lease, share exchange or otherwise, or

(2) the termination or expiration without renewal of the Advisory Agreement
with ASA, and if the Company ceases to use ASRG to provide
substantially all of its property acquisition and disposition services.

Upon the occurrence of either conversion event, each Class B Convertible
Share may be converted into a number of Common Shares based upon the gross
proceeds raised through the date of conversion in the public offering or
offerings of the Company's Common Shares made by the Company's prospectus
according to the following formula:

F-5

APPLE SUITES, INC.

NOTES TO BALANCE SHEET - (CONTINUED)
5. CLASS B CONVERTIBLE STOCK - (CONTINUED)

NUMBER OF COMMON SHARES
GROSS PROCEEDS RAISED FROM THROUGH CONVERSION OF ONE
SALES OF COMMON SHARES THROUGH CLASS B CONVERTIBLE SHARE
DATE OF CONVERSION (THE INITIAL "CONVERSION RATIO")
- -------------------------------- ---------------------------------

$ 50 million ................. 1.0
$100 million ................. 2.0
$150 million ................. 3.5
$200 million ................. 5.3
$250 million ................. 6.7
$300 million ................. 8.0

No additional consideration is due upon the conversion of the Class B
Convertible Shares. Upon the probable occurrence of a conversion event, the
Company will record expense for the difference between the market value of the
Company's Common Stock and issue price of the Class B Convertible Shares.

6. WARRANTS

The Company has agreed to sell to the Managing Dealer for an aggregate of
$100, warrants (the "Warrants") to purchase 10% of the shares sold in this
offering, up to 3,000,000 common shares at an exercise price of $16.50 per
common share (165% of the public offering price per common share). The Warrants
may not be sold, transferred, assigned or hypothecated for one year from the
date of the "best-efforts" offering prospectus, except to the officers and
employees of the Managing Dealer and are exercisable at any time and from time
to time, in whole or in part, during the five-year period commencing on the
date of the final closing after the termination of the offering (the "Warrant
Exercise Term"). At the Company's expense, the Company intends to register the
Warrants under the Securities Act on one occasion during the Warrant Exercise
Term and to include the Warrants in any appropriate registration statement
which is filed by the Company during the seven years following the date of the
"best efforts" offering prospectus.

7. YEAR 2000 (UNAUDITED)

Many of the computer systems currently in use record years in a two-digit
format. Those computer systems will be unable to properly interpret dates
beyond the year 1999, which could lead to disruptions in operations (commonly
referred to as the "Year 2000" issue). Although the Company is currently
examining the systems it will employ for Year 2000 compliance, we cannot
guarantee that all Company systems will be Year 2000 compliant or that other
companies on which the Company may rely will be timely converted. As a result,
the Company's operations could be adversely affected by this issue.

F-6

SUPPLEMENT NO.5 DATED MARCH 21, 2000 TO BE USED WITH PROSPECTUS DATED AUGUST 3,
1999.

SUPPLEMENT NO. 5 DATED MARCH 21, 2000

TO PROSPECTUS DATED AUGUST 3, 1999

APPLE SUITES, INC.

The following information supplements the prospectus of Apple Suites, Inc.
dated August 3, 1999 and is part of the prospectus. THIS SUPPLEMENT NO. 5
INCORPORATES AND THEREFORE REPLACES ALL SUPPLEMENTS PREVIOUSLY IN USE
(SUPPLEMENTS 1, 2, 3 AND 4). PROSPECTIVE INVESTORS SHOULD CAREFULLY REVIEW THE
PROSPECTUS AND THIS SUPPLEMENT.

TABLE OF CONTENTS FOR SUPPLEMENT NO. 5

Status of the Offering..............................................................................S - 2
Recent Developments.................................................................................S - 2
Company Management..................................................................................S - 3
Our Properties......................................................................................S - 3
Property Acquisitions...............................................................................S - 4
Overview...................................................................................S - 4
Ownership and Leasing of Hotels............................................................S - 5
Hotel Supplies and Franchise Fees..........................................................S - 6
Description of Financing...................................................................S - 7
Licensing And Management...................................................................S - 9
Potential Economic Risk and Benefit Involving Apple Suites Management......................S - 9
Summary of Material Contracts.......................................................................S - 10
Description of Properties...........................................................................S - 17
Management's Discussion and Analysis................................................................S - 46
Selected Financial Data.............................................................................S - 51
Update Concerning Prior Programs....................................................................S - 52
Experts.............................................................................................S - 57
Index to Financial Statements.......................................................................F - 1

The prospectus and this supplement contain forward-looking statements
within the meaning of the federal securities laws which are intended to be
covered by the safe harbors created by those laws. These statements include our
plans and objectives for future operations, including plans and objectives
relating to future growth and availability of funds. These forward-looking
statements are based on current expectations that involve numerous risks and
uncertainties. Assumptions relating to these statements involve judgments with
respect to, among other things, the continuation of our offering of common
shares, future economic, competitive and market conditions and future business
decisions. All of these matters are difficult or impossible to predict
accurately and many of them are beyond our control. Although we believe the
assumptions underlying the forward-looking statements, and the forward-looking
statements themselves, are reasonable, any of the assumptions could be
inaccurate and, therefore, there can be no assurance that these forward-looking
statements will prove to be accurate. In light of the significant uncertainties
inherent in these forward-looking statements, the inclusion of this information
should not be regarded as a representation by us or any other person that our
objectives and plans, which we consider to be reasonable, will be achieved.

S-1

STATUS OF THE OFFERING

We completed the minimum offering of common shares at $9 per share on
August 23, 1999. We are continuing the offering at $10 per share in accordance
with the prospectus.

As of March 17, 2000, we had closed on the following sales of our common
shares:

Proceeds Net of Selling
Price Per Number of Gross Commissions and Marketing
Common Share Common Shares Sold Proceeds Expense Allowance
------------ ------------------ ------------ --------------------------

$ 9 1,666,666.67 $15,000,000 $13,500,000
$10 2,256,256.00 22,562,560 20,306,304
------------ ---------- ----------
TOTAL 3,922,922.67 $37,562,560 $33,806,304
============ ========== ==========

We have purchased, either directly or through our subsidiaries, a total of
11 extended-stay hotels with the net proceeds of our offering. All of our hotels
are licensed with Homewood Suites(R) by Hilton, which is a registered service
mark of Hilton Hotels Corporation. A summary of our hotels appears below.

RECENT DEVELOPMENTS

As discussed in detail below, we have a total of $68.6 million in notes
payable in connection with the purchase of our hotels. Final principal payments
are due as follows: (a) $34 million on October 1, 2000, (b) $30.2 million on
November 1, 2000, and (c) $4.4 million on January 1, 2001. We plan to pay these
notes with the proceeds from our continuous "best efforts" offering of common
shares. However, based on the current rate at which equity is being raised by
the offering, we may need to seek other measures to repay these loans. We
currently are holding discussions with several lenders to obtain financing for
the hotels and are exploring both unsecured and secured financing arrangements.

Although no firm financing commitments have been received, we believe,
based on discussions with lenders and other market indicators, that we can
obtain sufficient financing prior to maturity of the notes. Obtaining
refinancing is dependent upon a number of factors, including: (a) continued
operation of the hotels at or near current occupancy and room rate levels, as
the hotel leases are based on a percentage of hotel suite income, (b) the
general level of interest rates, including credit spreads for real estate based
lending, and (c) general economic conditions.

There is no assurance that we will be able to obtain financing to repay our
current outstanding debt. If we are unable to obtain such financing and if our
offering proceeds are insufficient, we would be subject to a number of default
remedies, including possible loss of the hotels through foreclosure. Depending
on the terms of any financing

S-2

we obtain, we may need to modify our borrowing policy, as described in the
prospectus, of holding our properties on an all-cash basis over the long-term.

COMPANY MANAGEMENT

On August 16, 1999, we added four individuals to our board of directors.
Those four individuals are Lisa B. Kern, Bruce H. Matson, Michael S. Waters and
Robert M. Wily (all of whom are described in the prospectus).

On the same date, Glade M. Knight, who is our Chairman, Chief Executive
Officer and President, was authorized by the board of directors to close the
purchase of hotels on our behalf as he deems in our best interests. He also was
authorized to cause us to borrow, on either a secured or an unsecured basis, up
to 75% of the purchase price for such hotels. We expect to repay any such
borrowing from the proceeds of our ongoing offering and sale of common shares.
There can be no assurance, however, that we will actually receive proceeds
sufficient for that purpose.

From August 1999 through March 2000, C. Douglas Schepker served as our
Senior Vice President and Chief Operating Officer. His duties were assumed by
Glade M. Knight in March 2000.

OUR PROPERTIES

(Map of United States shows general location of hotels)

[GRAPHICS OMITTED]

S-3

Date of Name Total Date of Name Total
Purchase of Hotel Suites Purchase of Hotel Suites
- -------- -------- ------ -------- -------- ------

September 1999 Dallas - Addison 120 November 1999 Atlanta - Peachtree 92
September 1999 Dallas - Irving/Las Colinas 136 November 1999 Baltimore - BWI Airport 147
September 1999 North Dallas - Plano 99 November 1999 Clearwater 112
September 1999 Richmond - West End 123 November 1999 Detroit - Warren 76
October 1999 Atlanta - Galleria/Cumberland 124 November 1999 Salt Lake City - Midvale 98
December 1999 Jackson-Ridgeland 91

PROPERTY ACQUISITIONS

OVERVIEW

We used the proceeds from our offering of common shares to pay 25% of the
purchase price for each hotel to Promus Hotels, Inc., or an affiliate, as the
seller. Promus Hotels, Inc. is a wholly-owned subsidiary of Hilton Hotels
Corporation. The balance, or 75% of the purchase price for each hotel, is being
financed by Promus Hotels, Inc. as short-term or "bridge financing" (described
in further detail below). We paid a 2% real estate commission on the total
purchase price for each hotel to Apple Suites Realty Group, Inc., as our real
estate broker. This corporation is owned by Glade M. Knight, who is our
president and chief executive officer. The following table summarizes the
purchase information for our hotels:

Hotel Purchase Amount Real Estate
Name Price Financed (75%) Commission
- ----- ---------- ------------- -----------

Dallas - Addison $9,500,000 $7,125,000 $190,000
Dallas - Irving/Las Colinas 11,200,000 8,400,000 224,000
North Dallas - Plano 5,400,000 4,050,000 108,000
Richmond - West End 9,400,000 7,050,000 188,000
Atlanta - Galleria/Cumberland 9,800,000 7,350,000 196,000
Atlanta - Peachtree 4,033,000 3,024,750 80,660
Baltimore - BWI Airport 16,348,000 12,261,000 326,960
Clearwater 10,416,000 7,812,000 208,320
Detroit - Warren 4,330,000 3,247,500 86,600
Salt Lake City - Midvale 5,153,000 3,864,750 103,060
Jackson - Ridgeland 5,846,000 4,384,500 116,920
----------- ----------- ----------

TOTAL $91,426,000 $68,569,500 $1,828,520
=========== =========== ==========

S-4

OWNERSHIP AND LEASING OF HOTELS

We directly purchased the hotels located in states other than Texas. The
hotels that we own directly have been leased to Apple Suites Management, Inc.
under a master hotel lease agreement dated as of September 20, 1999. This
agreement is among the material contracts described below.

We purchased the hotels in Texas through one of our subsidiaries, Apple
Suites REIT Limited Partnership, a Virginia limited partnership, based on
business and tax planning considerations. We have two wholly-owned subsidiaries
that serve as the sole general partner and sole limited partner of this limited
partnership. The sole general partner is Apple Suites General, Inc., a Virginia
corporation. It holds a one percent partnership interest. The sole limited
partner is Apple Suites LP, Inc., a Virginia corporation. It holds a ninety-nine
percent partnership interest. Glade M. Knight is the sole director of these two
corporate partners.

Under a master hotel lease agreement dated as of September 20, 1999, the
three hotels in Texas have been leased to Apple Suites Services Limited
Partnership, a Virginia limited partnership. This limited partnership is a
subsidiary of Apple Suites Management, Inc. Two direct wholly-owned subsidiaries
of Apple Suites Management, Inc. serve as the sole general partner and sole
limited partner of the limited partnership. The sole general partner is Apple
Suites Services General, Inc., a Virginia corporation. It holds a one percent
partnership interest. The sole limited partner is Apple Suites Services Limited,
Inc., a Virginia corporation. It holds a ninety-nine percent partnership
interest. Glade M. Knight is the sole director of these two corporate partners.

The following chart shows the ownership and leasing structure for our
hotels in Texas:

S-5

(All entities shown below are organized under Virginia law)

[GRAPHICS OMITTED]

For simplicity, the general term "Apple Suites Management" will be used
where appropriate as a combined reference to the entities that lease our hotels
(Apple Suites Management, Inc. and its subsidiary, Apple Suites Services Limited
Partnership).

HOTEL SUPPLIES AND FRANCHISE FEES

We have provided Apple Suites Management with funds for the purchase of
certain hotel supplies (such as sheets, towels and so forth), and with funds for
the payment of hotel franchise fees to Promus Hotels, Inc. Apple Suites
Management is obligated to repay us under the promissory notes described below:

S-6

Month of Principal Amount Principal Amount
Promissory Note (Supplies) (Franchise Fees)
--------------- ---------- ----------------

September 1999 $ 47,800 $215,550
October 1999 12,400 55,800
November 1999 52,500 251,550
December 1999 9,100 45,000
------ -------
TOTAL $121,800 $567,900
======= =======

Each promissory note provides for an annual interest rate of nine percent
(9%), which would increase to twelve percent (12%) if a default occurs. After
the initial payment of interest only, amortized payments of principal and
interest are due in monthly installments. The promissory notes with respect to
hotel supplies are payable to us in sixty-one (61) monthly installments. The
promissory notes with respect to franchise fees are payable to us in one hundred
twenty-one (121) monthly installments.

DESCRIPTION OF FINANCING

As indicated above, Promus Hotels, Inc. is financing 75% of the purchase
price of our hotels. The amounts we owe to Promus Hotels, Inc. are evidenced by
the following promissory notes:

Original Remaining
Month of Principal Principal as of Annual Rate Date of
Promissory Note Amount March 1, 2000 of Interest Maturity
--------------- ------ ------------- ----------- --------

September 1999 $26,625,000 $26,625,000 8.5% October 1, 2000
October 1999 $ 7,350,000 $ 7,350,000 8.5% October 1, 2000
November 1999 $30,210,000 $30,210,000 8.5% December 1, 2000
December 1999 $ 4,384,500 $ 4,384,500 8.5% January 1, 2001
----------- -----------
TOTAL $68,569,500 $68,569,500
========== ==========

We consider the financing from Promus Hotels, Inc. to be "bridge financing"
because of its short-term nature (that is, each promissory note reaches maturity
within approximately one year of its date of execution). Despite the temporary
use of bridge financing, over the long-term we will seek to hold our properties
on an all-cash basis, as indicated in the prospectus.

The promissory notes have several provisions in common, which include the
following:

o monthly interest payments, based on the actual number of days per
month
o our delivery of monthly notices to specify the net equity proceeds
from our offering
o our right to prepay the notes, in whole or in part, without premium or
penalty
o a late payment premium of four percent (4%) for any payment not made
within ten (10) days of its due date

S-7

Revenue from the operation of the hotels will be used to pay interest under
the promissory notes we have made to Promus Hotels, Inc. The "net equity
proceeds" from our offering of common shares will be the source of our principal
payments. The phrase "net equity proceeds" means the total proceeds from our
offering of common shares, as reduced by selling commissions, a marketing
expense allowance, closing costs, various fees and charges (legal, accounting,
and so forth), a working capital reserve and a reserve for renovations, repairs
and replacements of capital improvements.

Under an October 1999 letter agreement, we were permitted to use such net
equity proceeds to pay 25% of the purchase price for additional hotels,
including the hotels we purchased in November and December of 1999. Furthermore,
Hilton Hotels Corporation, the parent company of Promus Hotels, Inc. has agreed
to defer principal payments until the earlier of April 28, 2000 or our purchase
of two additional extended-stay hotels licensed with Homewood Suites(R) by
Hilton. Otherwise, to the extent that we have such net equity proceeds, we are
obligated to make monthly principal payments under the promissory notes dated as
of September 20, 1999 and October 5, 1999. Once those promissory notes are paid
in full, we will have a similar obligation to make monthly principal payments
under the other promissory notes. Assuming the September and October promissory
notes are paid in full by their common maturity date of October 1, 2000,
principal under the November promissory note will be due in two monthly
installments ending on December 1, 2000, and principal under the remaining
promissory note will be due in a single installment on its maturity date of
January 1, 2001.

To date, we have made all scheduled interest payments under the promissory
notes. The aggregate amount of our interest payments through March 2000 is
$2,508,767.

There can be no assurance that the net equity proceeds from our offering of
common shares will be sufficient to pay principal under the promissory notes on
or before the required due dates. The following amounts would be due on the
maturity dates of the promissory notes, assuming that interest payments continue
to be made on schedule and that no payments of principal are made before those
maturity dates:

Month of Date of If Principal Due Then Total Due
Promissory Note Maturity at Maturity Equals at Maturity Equals
--------------- -------- ------------------ ------------------

September 1999 October 1, 2000 $26,625,000 $26,811,010
October 1999 October 1, 2000 $ 7,350,000 $ 7,401,349
November 1999 December 1, 2000 $30,210,000 $30,421,056
December 1999 January 1, 2001 $ 4,384,500 $ 4,415,131
----------- ----------
TOTAL $68,569,500 $69,048,546
========== ==========

In the event of a default under the promissory notes, various remedies are
available to Promus Hotels, Inc. under certain deeds of trust, which are
described below in the Summary of Material Contracts.

S-8

LICENSING AND MANAGEMENT

We expect that our hotels will continue to be licensed with Homewood
Suites(R) by Hilton. To help achieve that result, Apple Suites Management has
executed separate license agreements with Promus Hotels, Inc. for each of our
hotels. Promus Hotels, Inc. is managing each of the hotels under separate
management agreements with Apple Suites Management. These license and management
agreements are among the material contracts described below.

POTENTIAL ECONOMIC RISK AND BENEFIT INVOLVING APPLE SUITES MANAGEMENT

Because federal tax laws prohibit us from directly operating our hotels, we
have leased them to Apple Suites Management, Inc. or its subsidiary (Apple
Suites Services Limited Partnership). Our president and chief executive officer,
Glade M. Knight, is the sole shareholder of Apple Suites Management, Inc.

The master hotel lease agreements have been structured to minimize, to the
extent possible, the economic benefit to Apple Suites Management, Inc. and to
maximize the rental income we receive from the hotels. However, revenues from
operating the hotels may exceed payment obligations under the master hotel lease
agreements, the license agreements and the management agreements. To the extent
that operating income remains after those payment obligations are met, Apple
Suites Management, Inc. will realize an economic benefit. The extent of this
potential economic benefit cannot be determined at this time because it depends,
in part, on future hotel revenues.

Apple Suites Management, Inc. has agreed that it will retain its net
income, if any, rather than distribute such income to Glade M. Knight. This
agreement will remain in effect for the duration of the master hotel lease
agreements, to help ensure that Apple Suites Management, Inc. will be able to
make its rent payments.

If the cash flow from the operations of the hotels and the retained
earnings of Apple Suites Management, Inc. are insufficient to make the rental
payments due under the master lease agreements, Apple Suites Management, Inc.
can receive additional funding under two funding commitments. The funding
commitments are dated as of September 17, 1999, and have been made by Glade M.
Knight and Apple Suites Realty Group, Inc., which is wholly-owned by Mr. Knight.
These funding commitments are payable on demand by Apple Suites Management, Inc.
Under each funding commitment, Apple Suites Management, Inc. can make one or
more demands for funding, subject to two qualifications. First, the aggregate
payments under the funding commitments shall not exceed $2 million. Second, the
demands for payment shall be limited, in amount and frequency, to those demands
that are reasonably necessary to satisfy any capitalization or net worth
requirements of Apple Suites Management, Inc., or payment obligations under the
master hotel lease agreements for our hotels. Apple Suites Management, Inc. is
not required to repay the funds it receives under the funding commitments.

S-9

SUMMARY OF MATERIAL CONTRACTS

DEEDS OF TRUST AND RELATED DOCUMENTS

Each of our hotels is subject to a mortgage on its real property, a
security interest in its personal property, and an assignment of hotel rents and
revenues, all in favor of Promus Hotels, Inc. (As described above, Promus
Hotels, Inc. provided financing for our hotel purchases). These encumbrances are
created by substantially similar documents. For simplicity, we will refer to
each of these documents as a "deed of trust."

We are subject to various requirements under the deeds of trust. For
instance, we must maintain adequate insurance on the hotels and we must not
grant any further assignments of rents or leases with respect to the hotels.

Each deed of trust contains a substantially similar definition of events of
default. In each case, the events of default include (without limitation) any
default that occurs under any of the promissory notes or under another deed of
trust, and any sale of the secured property without the prior consent of Promus
Hotels, Inc. Upon any event of default, various remedies are available to Promus
Hotels, Inc. Those remedies include, for example (a) declaring the entire
principal balance under the promissory notes, and all accrued and unpaid
interest, to be due and payable immediately; (b) taking possession of the
secured property, including the hotels; and (c) collecting hotel rents and
revenues, or foreclosing on the hotels, to satisfy unpaid amounts under the
promissory notes. Each deed of trust requires us to pay any costs that may be
incurred in exercising such remedies.

At each closing on our purchase of a hotel or group of hotels, we further
encumbered the hotels we already owned with additional deeds of trust or with
negative pledges. The negative pledges apply to three of our hotels (Richmond -
West End, Clearwater and Baltimore - BWI Airport). The negative pledges prohibit
any transfer or further encumbrance of the hotels, in whole or in part, without
the prior written consent of Promus Hotels, Inc. Each negative pledge was
executed concurrently with a particular promissory note, and will terminate when
its corresponding promissory note is paid in full.

ENVIRONMENTAL INDEMNITIES

A separate environmental indemnity applies to each of our hotels. The
indemnities are substantially similar and protect Promus Hotels, Inc. in the
event that we undertake any corrective work to remove or eliminate hazardous
materials from the hotels. Hazardous materials are defined in the indemnities to
include, for example, asbestos and other toxic materials. We are not aware of
any hazardous materials at the hotels, but there can be no assurance that such
materials are not present.

S-10

Under the indemnities, we have agreed to indemnify and protect Promus
Hotels, Inc. from any losses that it may incur because of (a) the
nonperformance, or delayed performance and completion, of corrective work; or
(b) the enforcement of the indemnities. The indemnity for a particular hotel
corresponds to the promissory note that was executed at closing on the purchase
of that hotel. In general, each indemnity will terminate when its corresponding
promissory note is paid in full. However, the indemnities will continue with
respect to those litigation or administrative claims, if any, that involve
indemnified losses and that are pending at the date of full payment. In
addition, for a period of four years after the date of such full payment, we
will be obligated to pay any enforcement costs for subsequent litigation or
administrative claims.

MASTER HOTEL LEASE AGREEMENTS

All of our hotels, except the hotels in Texas, have been leased to Apple
Suites Management, Inc. These leases were created by a master hotel lease
agreement dated September 20, 1999, which has been supplemented to include the
hotels we purchased after that date. The hotels in Texas have been leased to
Apple Suites Services Limited Partnership under a separate and substantially
similar master hotel lease agreement dated September 20, 1999.

Each master hotel lease agreement has an initial term of ten years. Apple
Suites Management has the option to extend the lease term for two additional
five-year periods, provided that Apple Suites Management is not in default at
the end of the prior term or at the time the option is exercised. If the first
option is exercised, rental payments would continue to be adjusted as provided
in the master lease agreement. If the second option is exercised, we must
negotiate in good faith with Apple Suites Management to adjust the rental
payments to a market rate for similar hotels. If no agreement can be reached,
rental terms would be determined by an independent panel of experts in
evaluating hotel REIT leases.

We may terminate a master hotel lease agreement if we sell the hotels to a
third party, if there is a change of control of Apple Suites Management, or
based on any amendments to the Internal Revenue Code that would permit our
direct operation of the hotels or would make the lease structure unnecessary.
Upon any termination, we must compensate Apple Suites Management by paying the
fair market value of the lease as of such termination, or by offering to lease
one or more substitute hotels.

The master hotel lease agreements provide for an annual base rent, a
quarterly percentage rent and a quarterly sundry rent. Base rent is payable in
advance in equal monthly installments. Beginning in 2001, the base rent will be
adjusted annually in proportion to the Consumer Price Index. The following table
shows the initial base rents for each hotel:

S-11

Base Rent
Name of Hotel (1999 and 2000)
- ------------ ---------------

Dallas - Addison $638,220
Dallas - Irving/Las Colinas 824,340
North Dallas - Plano 501,930
Richmond - West End 674,190
Atlanta - Galleria/Cumberland 661,320
Atlanta - Peachtree 414,150
Baltimore - BWI Airport 895,750
Clearwater 664,150
Detroit - Warren 408,450
Salt Lake City - Midvale 438,150
Jackson - Ridgeland 462,750

Percentage rent is payable quarterly. The percentage rent for a particular
hotel depends on a formula that compares fixed "suite revenue breakpoints" with
a portion of "suite revenue," which is equal to gross revenue from suite rentals
(less sales and room taxes). Specifically, the percentage rent is equal to the
sum of (a) 17% of all year-to-date suite revenue, up to the applicable suite
revenue breakpoint; plus (b) 55% of the year-to-date suite revenue in excess of
the applicable suite revenue breakpoint, as reduced by base rent and percentage
rent paid year-to-date. Beginning in 2001, the suite revenue breakpoints will be
adjusted in proportion to the Consumer Price Index. Suite revenue breakpoints
have been determined for the first quarter of each year during the initial term
of the master hotel lease agreements. The suite revenue breakpoints for
subsequent quarters are determined by multiplying the first quarter values by
two, three or four, respectively. The following table shows the initial suite
revenue breakpoints for each hotel, before any adjustment due to the Consumer
Price Index:

Suite Revenue Breakpoints
for the First Quarter of the Indicated Years

Name of Hotel 2000 2001 2002 2003
- ------------- ---- ---- ---- ----

Dallas - Addison $256,255 $261,090 $265,925 $270,760
Dallas - Irving/Las Colinas 330,985 337,230 343,475 349,720
North Dallas - Plano 201,533 205,335 209,138 212,940
Richmond - West End 270,698 275,805 280,913 286,020
Atlanta - Galleria/Cumberland 265,530 270,540 275,550 280,560
Atlanta - Peachtree 134,599 138,740 144,953 149,094
Baltimore - BWI Airport 291,119 300,076 313,513 322,470
Clearwater 215,849 222,490 232,453 239,094
Detroit - Warren 132,746 136,831 142,958 147,042
Salt Lake City - Midvale 142,399 146,780 153,353 157,734
Jackson - Ridgeland 150,394 155,021 161,963 166,590

S-12

Name of Hotel 2004 2005 2006 2007 2008
- ------------- ---- ---- ---- ---- ----

Dallas - Addison $275,595 $280,430 $285,265 $290,100 $294,935
Dallas - Irving/Las Colinas 355,965 362,210 368,455 374,700 380,945
North Dallas - Plano 216,742 220,545 224,348 228,150 231,953
Richmond - West End 291,128 296,235 301,343 306,450 311,558
Atlanta - Galleria/Cumberland 285,570 290,580 295,590 300,600 305,610
Atlanta - Peachtree 153,236 157,377 161,519 165,660 169,802
Baltimore - BWI Airport 331,428 340,385 349,343 358,300 367,258
Clearwater 245,736 252,377 259,019 265,660 272,302
Detroit - Warren 151,127 155,211 159,296 163,380 167,465
Salt Lake City - Midvale 162,116 166,497 170,879 175,260 179,642
Jackson - Ridgeland 171,218 175,845 180,473 185,100 189,728

The sundry rent is payable quarterly and equals 99% of all sundry revenue,
which consists of revenue other than suite revenue less the amount of sundry
rent paid year-to-date.

Under the master hotel lease agreements, Apple Suites Management must pay
all taxes, other than real estate and personal property taxes, imposed on the
hotels. In addition, Apple Suites Management must provide and pay for hotel
utilities, such as electricity, gas, oil, water and sewer service. Apple Suites
Management also must maintain and pay for insurance with respect to the hotels,
including building insurance (with earthquake and flood insurance), equipment
insurance (against loss or damage to steam boilers and similar apparatus) and
loss of income insurance.

The master hotel lease agreements require Apple Suites Management to
maintain the hotels in good order and repair, except for ordinary wear and tear.
This requirement applies to any underground utilities and the structural
elements of the hotels, including the exterior walls and roofs. We are obligated
to maintain a reserve fund for periodic repair, replacement or refurbishing of
furniture, fixtures and equipment. Our payments to this reserve fund may equal
up to 5% of suite revenue.

HOTEL LICENSE AGREEMENTS

Each of our hotels is licensed with Homewood Suites(R) by Hilton under
separate and substantially similar license agreements with Promus Hotels, Inc..
Under the license agreements, Apple Suites Management has the right to operate
the hotels using the "System" established for all properties licensed with
Homewood Suites(R) by Hilton. The "System" includes access to a reservation
system, to advertising methods, to a "Standards Manual," and to other training,
information, programs and policies.

In exchange, Apple Suites Management has agreed to numerous requirements
and restrictions applicable to its operation of the hotel. Apple Suites
Management is also required to pay royalties and other fees, as described below.

Apple Suites Management will be subject to various operational requirements
pursuant to the license agreements and the Standards Manual. The Standards
Manual is subject to change at

S-13

any time. (As described below, Promus Hotels, Inc. will act as the manager of
the hotels under separate management agreements.) As a practical matter, many of
the requirements in the license agreements and Standards Manual will be the
responsibility of Promus Hotels, Inc. However, certain requirements will remain
the practical responsibility of Apple Suites Management. Furthermore, the
failure of Promus Hotels, Inc. to comply with the management agreements will
not, by itself, relieve Apple Suites Management from its obligations under the
license agreements. In such event, the remedies available to Apple Suites
Management may be limited to monetary damages for breach of the hotel management
agreements.

The hotels must be operated in accordance with the requirements established
by Promus Hotels, Inc. These requirements cover matters such as the types of
services and products that may be offered at the hotel, the style and type of
signage, the appearance and condition of the hotel, the use of the reservations
system for guests, adherence to a 100% Satisfaction Guarantee rule of operation,
required insurance coverage and other requirements.

Under the license agreements, Apple Suites Management may use the System
only during the 20-year term of the license agreements. The license agreements
are subject to early termination for various reasons, including default by Apple
Suites Managemen or its efforts to obtain bankruptcy protection. If a license
agreement is terminated for any reason, the hotel must immediately cease to
identify itself as having a license with Homewood Suites(R) by Hilton.

Apple Suites Management must pay the following monthly amounts to Promus
Hotels, Inc. in accordance with the license agreements: (a) A royalty fee equal
to 4% of the gross suites revenues (less sales and room taxes) received from
rental of suites at the hotels; (b) a marketing contribution equal to 4% of
gross suites revenues; (c) any amounts due Promus Hotels, Inc. for goods or
services provided by Promus Hotels, Inc. to Apple Suites Management; and (d) the
amount of sales, gross receipts or similar taxes imposed on Promus Hotels, Inc.
as a result of each payment described above. The 4% marketing contribution is
subject to change by Promus Hotels, Inc. from time to time. Furthermore, there
is no assurance that the marketing contribution from a hotel will be used to
fund advertising or marketing with respect to the hotel actually making the
contribution.

Under the license agreements, Promus Hotels, Inc. may require Apple Suites
Management to upgrade hotel facilities from time to time to meet current
standards, as then specified in the Standards Manual. We expect to pay the costs
of any required upgrades from the proceeds of our ongoing offering of common
shares, although there can be no assurance that such proceeds will be sufficient
for this purpose.

HOTEL MANAGEMENT AGREEMENTS

Each of our hotels is being managed by Promus Hotels, Inc. or an affiliate.
To simplify the following discussion, the manager will be referred to as "Promus
Hotels." The management of our hotels is governed by separate and substantially
similar management agreements with Apple Suites Management.

S-14

The management agreements require Promus Hotels to operate the hotels in
conformity with the hotel license agreements described above. Promus Hotels will
be responsible for directing the day-to-day activities of the hotels and
establishing policies and procedures relating to the management and operation of
the hotels.

As part of its responsibilities for directing the day-to-day activities of
the hotels, Promus Hotels will hire, supervise and determine the compensation
and terms of employment of all hotel personnel. Promus Hotels also will
determine the terms for admittance, room rates and all use of hotel rooms.
Promus Hotels will select and purchase all operating equipment and supplies for
the hotels. Promus Hotels will be responsible for (a) advertising and promoting
the hotels in coordination with the requirements of the license agreements
described above; and (b) obtaining and maintaining any permits and licenses
required to operate the hotels.

Each year, Promus Hotels will submit a proposed operating budget for each
hotel to Apple Suites Management for its approval. Each budget will include a
business plan describing the business objectives and strategies for each hotel
for the period covered by the budget. In addition, Promus Hotels will submit a
recommended capital budget to Apple Suites Management for its approval. The
capital budget will apply to furnishings, equipment and ordinary hotel capital
replacements needed to operate the hotels in accordance with the hotel license
agreements. At a minimum, each year's budget for capital improvements will
provide for capital expenditures that are required to meet the minimum standards
of the hotel license agreement, subject to the following limits: (a) 3% of
adjusted gross revenues for the first full year after the commencement of the
management agreement; (b) 4% of adjusted gross revenues for the second full year
after the commencement of the management agreement; and (c) 5% of adjusted gross
revenues for each year thereafter.

In exchange for performing the services described above, Promus Hotels will
receive a management fee, payable monthly. The management fee will equal 4% of
adjusted gross revenues. Adjusted gross revenues are defined generally as all
revenues derived from the hotels, as reduced by (a) refunds; (b) sales and other
similar taxes; (c) proceeds from the sale or other disposition of the hotels,
furnishings and other capital assets; (d) fire and extended coverage insurance
proceeds; (e) credits or refunds made to customers; (f) condemnation awards; (g)
proceeds of financing or refinancing of the hotels; (h) interest on bank
accounts; and (i) gratuities or service charges added to a customer's bill.

Prior to the second anniversary of the management agreement, a portion of
the management fee, equal to 1% of adjusted gross revenues, will be subordinated
to payment of a basic return to Apple Suites Management. The basic return is
generally equal to 11% of the purchase price for each hotel (and related
acquisition costs).

Each management agreement has a 15-year term. However, Apple Suites
Management may terminate any management agreement after its tenth anniversary.
If it does so, Promus Hotels will be entitled to a termination fee. The
termination fee generally is equal to (a) the aggregate management fees earned
during the preceding 24 months, if the termination occurs after the tenth
anniversary but on or before the 14th anniversary of the effective date of the
management agreement; or (b) the average monthly management fee earned during
the preceding

S-15

24 months times the number of full calendar months remaining in the term, if the
termination occurs after the 14th anniversary of the effective date of the
management agreement.

In addition, if the hotel license agreement for a particular hotel is
terminated, Promus Hotels may terminate the corresponding management agreement.
If Promus Hotels terminates the management agreement it will be entitled to a
termination fee equal to (a) an amount that ranges from $426,690 to $899,000
(depending on the hotel involved) if the termination occurs within two years of
the effective date of the management agreement; (b) 150% of the aggregate
monthly management fees earned during the preceding 24 months, if the
termination occurs after the second anniversary but on or before the tenth
anniversary of the effective date of the management agreement; (c) 75% of the
aggregate monthly management fees earned during the preceding 24 months, if the
termination occurs after the tenth anniversary but on or before the 14th
anniversary of the effective date of the management agreement; or (d) the
average monthly management fee earned during the preceding 24 months times the
number of full calendar months remaining in the term, if the termination occurs
after the 14th anniversary of the effective date of the management agreement.

Beginning in the first full calendar year of operations, Apple Suites
Management may terminate a management agreement if Promus Hotels fails to
achieve, in any two consecutive calendar years, a gross operating profit which
is at least equal to 85% of the annual budgeted gross operating profit. Promus
Hotels can avoid termination by making a cash payment to Apple Suites Management
that equals the difference between the gross operating profits achieved and 85%
of the budgeted gross operating profits for the second such year. Generally,
gross operating profit is defined as the amount by which adjusted gross revenues
exceed operating costs.

COMFORT LETTERS

Our decision to lease our hotels to Apple Suites Management is based upon
certain technical tax considerations that apply to us as a REIT for federal
income tax purposes. To address operational complexities and other potential
problems that may arise from using Apple Suites Management as the lessee of our
hotels and the party to the license agreements and management agreements, we
have entered into separate and substantially similar "Comfort Letters" with
Promus Hotels, Inc. with respect to each hotel. The comfort letters grant us
certain rights if problems arise under such agreements, or if the lease
structure is no longer necessary for tax purposes. The chief provisions of the
comfort letters are described below.

First, as long as we are the owner of the hotel and its corresponding
license agreement is in effect, Promus Hotels, Inc. has agreed to notify us of
any breach of any license agreement or management agreement by the lessee. We
will have 10 days to cure any monetary default and 30 days to cure any
non-monetary default. There is no opportunity to cure defaults not capable of
being cured (such as bankruptcy of the lessee or a transfer in violation of the
license agreement), but in such situation, a default would occur under the lease
and we would be able to terminate the lease.

Second, if there is a default under the lease and we elect to terminate the
lease, we have the right, which may be exercised within 90 days after giving
notice of termination to Promus

S-16

Hotels, Inc., to enter into a new lease agreement with a successor lessee. In
general, any such successor lessee must be majority owned and controlled by us
or our affiliates (which includes our directors and executive officers), must be
a person or entity that has adequate financial resources to perform under the
lease and must have a favorable reputation for integrity. The successor lessee
cannot be the franchisor or operator of a competing chain of hotels. If we enter
into a new lease, the successor lessee will have a right to enter into a new
license agreement and new management agreement with Promus Hotels, Inc. for the
balance of the original terms of those agreements. However, if we are unable to
provide a qualified successor lessee within such 90-day period, the license
agreement may be terminated at the option of Promus Hotels, Inc. and we will be
obligated to pay liquidated damages to Promus Hotels, Inc. In general,
liquidated damages are an amount equal to the total fees payable under the
license agreement for the three years prior to termination. If the hotel has
been open for less than three years, the amount is equal to the greater of: (a)
36 times the monthly average of fees payable for the period during which the
hotel has been open; or (b) 36 times the amount payable for the last full month
of operation prior to termination. If the hotel is open but has not been in
operation for a full month, liquidated damages equal $3,000 per suite in the
hotel.

Third, the comfort letters provide that if the income tax rules that apply
to REITs are amended to permit us to operate the hotel directly, we may give
notice of such tax change to Promus Hotels, Inc. and of our election to
terminate the lease. We then have the right to enter into a new license
agreement and a new management agreement for a term equal to the balance of the
original terms of such agreements.

DESCRIPTION OF PROPERTIES

Each of our hotels is an extended-stay hotel, and is licensed with Homewood
Suites(R) by Hilton. We believe that the majority of the guests at the hotels
during the past 12 months have been business travelers. We expect that this
pattern will continue.

Each suite consists of a bedroom and a living room, with an adjacent
kitchen area. The basic suite is known as a "Homewood Suite," which generally
has one double or king-size bed. Larger suites, known as "Master Suites" or
"Extended Double Suites" are also available. These suites have larger rooms,
with either one king-size bed or two smaller beds. The largest suites contain
two separate bedrooms. Wheelchair-accessible suites are available at each hotel.

The suites have many features and amenities in common. Most suites have
ceiling fans and two color televisions (one in the bedroom and one in the living
room). Some suites have fireplaces. Typical living room furniture includes a
sofa (often a fold-out sleeper sofa), coffee table and work/dining table with
chairs. Some living rooms contain a recliner and a videocassette player. The
kitchens vary, but generally have a microwave, refrigerator, dishwasher, coffee
maker and stove, together with basic cookware and utensils.

The hotel are marketed, in part, through the website for Homewood Suites(R)
by Hilton (http://www.homewood-suites.com), which is generally available 24
hours a day, seven days a week, around the world. Reservations may be made
directly through the web site. The

S-17

reservation system and the web site are linked to, and cross-marketed with, the
reservation systems and web sites for other hotel franchises that are owned and
operated by Hilton Hotel Corporation. Such cross-marketing may affect occupancy
at our hotels by directing travelers or potential guests toward, or away from,
our hotels.

The hotels were actively conducting business on the date of purchase. We
believe that the purchases were conducted without materially disrupting any
daily hotel operations. During the past 12 months, the hotels have been covered
with property and liability insurance, and we have arranged to continue such
coverage. We believe the hotels are adequately covered by insurance.

DALLAS - ADDISON

The Homewood Suites(R) Dallas - Addison is located on a 3.3 acre site at
4451 Beltline Road, Addison, Texas 75244. The hotel is approximately 15 miles
from downtown Dallas and 25 miles from the Dallas/Fort Worth International
Airport.

The hotel opened in July 1990. It has wood frame construction, with an
exterior of brick veneer and stucco. The hotel consists of four buildings, each
with two or three stories. The hotel contains 120 suites, which have a combined
rentable area of 61,440 square feet. The following types of suites are
available:

Type of Suite Number Available Square Feet/per Suite
-------------- ---------------- ---------------------

Master Suite 24 590
Homewood Suite 88 460
Two-Bedroom Suite 8 850

The hotel offers a 40-seat breakfast/lounge area, a meeting room that
accommodates 25 to 30 people, and a business center that offers guests the use
of a personal computer, a photocopier and an electric typewriter. Recreational
facilities include an outdoor pool, a whirlpool and an exercise room. The hotel
also contains a guest convenience store and laundry. The hotel has its own
parking lot with 136 spaces. The hotel provides complimentary shuttle service
within a 3 mile radius.

We believe that the hotel has been generally well maintained and is
generally in very good condition. Over the next 12 months, we plan to spend
approximately $400,000 on renovations or improvements. We expect that the
principal renovations and improvements will include: upgrading bathrooms and
kitchens, providing additional signage and replacing exterior doors. We expect
to pay for the costs of these renovations and improvements with proceeds from
our ongoing offering of common shares.

During 1999, the average stay at the hotel was approximately 6.2 nights,
and approximately 64.3% of the guests have stayed for five nights or more. In
general, occupancy at

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the hotel is not seasonal. The following table shows average daily occupancy
rates, expressed as a percentage, for the last five years:

Average Daily Occupancy Rate (calendar year)

1995 1996 1997 1998 1999
---- ---- ---- ---- ----

83.9% 78.4% 78.1% 76.9 % 73.8%

During 1999, the average daily rate per suite was $89.87, and the average
daily revenue per available suite was $66.30. As explained above, revenue from
the hotel's operations will be used to pay interest due under the promissory
note we executed in connection with our purchase of the hotel. There can be no
assurance, however, the proceeds of the offering will be sufficient to permit
such payments of principal. Assuming that no principal payments are made until
the maturity of the promissory note, and that the hotel continues to have the
level of revenue specified above, approximately 20.9% of the hotel's revenue
would be needed to cover its portion of the interest payments.

The hotel's current rate structure is based on length of stay and type of
suite, as summarized below:

Length of Stay Master Master
(number of nights) Homewood (king) (double) Two Bedroom
- ------------------ -------- ------ -------- -----------

1 to 4 $139 $139 $139 $179
5 to 11 109 109 109 149
12 to 29 89 89 89 129
30 or more 79 79 79 119

The hotel offers a weekend discount, which varies by type of suite and may
equal up to 33% off the basic rate. The discount is not available to guests who
stay for five nights or more. The hotel also offers discounts to guests who stay
under certain corporate accounts. These discounts are often negotiated with the
corporate customer and vary from account to account. During 1999, we estimate
that approximately 36.7% of the hotel's guests received a corporate discount.

The chief corporate accounts (as designated in the hotel's records)
include: MBNA, CSC, Santa Fe International, Lucent Technologies, Lawson
Software, People Soft, Business Jet, Stonebridge Technology and Acclivus. During
1999, the 10 largest corporate accounts were responsible for approximately 6.8%
of the hotel's occupancy. There can be no assurance, however, that the hotel
will continue to receive significant occupancy, or any occupancy, from the
corporate accounts identified above.

The table below shows the average effective annual rental per square foot
for the last five years:

S-19

1995 1996 1997 1998 1999
---- ---- ---- ---- ----

$56.35 $55.18 $54.05 $54.25 $47.26

The depreciable real property component of the hotel has a currently
estimated Federal tax basis of $7,312,316 and will be depreciated over a life of
39 years (or less, as permitted by the Internal Revenue Code) using the
straight-line method. The basis of the personal property component of the hotel
will be depreciated in accordance with the modified accelerated cost recovery
system of the Internal Revenue Code.

The following table summarizes the hotel's real estate tax information for
1999:

Tax Assessed Tax Rate Amount
Jurisdiction Value (per $100) of Tax
- ------------ ----- ---------- ------

County of Dallas $8,100,000 0.447699 $ 36,263.62
City of Dallas $8,100,000 1.460530 $118,302.93
Town of Addison $8,100,000 0.384600 $ 31,152.60
---------

TOTAL $185,719.15
==========

We estimate that the annual property tax on the expected improvements will
be approximately $4,500 or less.

At least five competing hotels are located within two miles of the hotel.
(The names of the competing franchises, as listed below, may be registered as
service marks or trade names.) Three of the competing hotels are newer than the
hotel. The newer competing hotels have franchises with Country Inn Suites,
Hilton Inn and Quality Inns. The other competing hotels have franchises with
Courtyard by Marriott and Residence Inn. We believe that the rates charged by
the hotel are generally competitive with the rates charged by these other
hotels. We are aware of ongoing or proposed construction for three extended-stay
hotels within approximately three miles of the hotel. We expect these new hotels
to be franchised with Marriott (in two instances) and Budget Suites.

DALLAS - IRVING/LAS COLINAS

The Homewood Suites(R) Dallas - Irving/Las Colinas is located on a 3.4 acre
site at 4300 Wingren Drive, Irving, Texas 75039. The hotel is approximately 11
miles from downtown Dallas and 10 miles from the Dallas/Fort Worth International
Airport.

The hotel opened in January 1990. It has wood frame construction, with an
exterior of brick veneer, stucco, and wood siding. The hotel consists of five
buildings, each with two or

S-20

three stories. The hotel contains 136 suites, which have a combined rentable
area of 80,144 square feet. The following types of suites are available:

Type of Suite Number Available Square Feet/per Suite
-------------- ---------------- ---------------------

Master Suite 20 620
Homewood Suite 108 560
Two-Bedroom Suite 8 908

The hotel offers a meeting room that accommodates 25 to 30 people, and a
business center that offers guests the use of a personal computer, a photocopier
and an electric typewriter. Recreational facilities include an outdoor pool, a
whirlpool, a basketball court and an exercise room. The hotel also contains a
guest convenience store and laundry. The hotel has its own parking lot with 181
spaces. The hotel provides complimentary shuttle service within a 3 mile radius.

We believe that the hotel has been generally well maintained and is
generally in very good condition. Over the next 12 months, we plan to spend
approximately $450,000 on renovations or improvements. We expect that the
principal renovations and improvements will include upgrading bathrooms,
repairing the parking lot and improving the meeting room. We expect to pay for
the costs of these renovations and improvements with proceeds from our ongoing
offering of common shares.

During 1999, the average stay at the hotel was approximately 4.5 nights,
and approximately 69.3% of the guests have stayed for five nights or more. In
general, occupancy at the hotel is not seasonal. The following table shows
average daily occupancy rates, expressed as a percentage, for the last five
years:

Average Daily Occupancy Rate (calendar year)

1995 1996 1997 1998 1999
---- ---- ---- ---- ----

75.2% 75.2% 77.8% 75.8 % 76.4%

During 1999, the average daily rate per suite was $94.71, and the average
daily revenue per available suite was $72.35. As explained above, revenue from
the hotel's operations will be used to pay interest due under the promissory
note we executed in connection with our purchase of the hotel. There can be no
assurance, however, the proceeds of the offering will be sufficient to permit
such payments of principal. Assuming that no principal payments are made until
the maturity of the promissory note, and that the hotel continues to have the
level of revenue specified above, approximately 19.9% of the hotel's revenue
would be needed to cover its portion of the interest payments.

The hotel's current rate structure is based on length of stay and type of
suite, as summarized below:

S-21

Length of Stay
(number of nights) Homewood Master Two Bedroom
- ------------------ -------- ------ -----------

1 to 4 $134 $134 $174
5 to 12 119 119 159
13 to 29 109 109 149
30 or more 89 89 129

The hotel offers a weekend discount, which varies by type of suite and may
equal up to 33% off the basic rate. The discount is not available to guests who
stay for five nights or more. The hotel also offers discounts to guests who stay
under certain corporate accounts. These discounts are often negotiated with the
corporate customer and vary from account to account. During 1999, we estimate
that approximately 65.4% of the hotel's guests received a corporate discount.

The chief corporate accounts (as designated in the hotel's records)
include: GTE, SAP America, Amdocs, Ernst & Young, Sprint, Oracle Corp., The
Associates, Caltex, Associates Corp. of North America and Olympus America Inc.
During 1999, the 10 largest corporate accounts were responsible for
approximately 25% of the hotel's occupancy. There can be no assurance, however,
that the hotel will continue to receive significant occupancy, or any occupancy,
from the corporate accounts identified above.

The table below shows the average effective annual rental per square foot
for the last five years:

1995 1996 1997 1998 1999
---- ---- ---- ---- ----

$42.17 $44.42 $46.85 $47.48 $44.81

The depreciable real property component of the hotel has a currently
estimated Federal tax basis of $8,292,872 and will be depreciated over a life of
39 years (or less, as permitted by the Internal Revenue Code) using the
straight-line method. The basis of the personal property component of the hotel
will be depreciated in accordance with the modified accelerated cost recovery
system of the Internal Revenue Code.

S-22

The following table summarizes the hotel's real estate tax information for
1999:

Tax Assessed Tax Rate Amount
Jurisdiction Value (per $100) of Tax
- ------------ ----- ---------- ------

County of Dallas $9,519,990 0.447699 $ 42,620.90
City of Irving $9,519,990 0.488000 $ 46,457.55
Irving School District $9,519,990 1.668400 $158,831.51
Dallas County Utility District $9,519,990 1.189800 $113,268.84
----------

TOTAL $361,178.80
==========

We estimate that the annual real estate tax on the expected improvements
will be approximately $8,500 or less.

At least five competing hotels are located within three miles of the hotel.
(The names of the competing franchises, as listed below, may be registered as
service marks or trade names.) Three of the competing hotels are newer than the
hotel. The newer competing hotels have franchises with AmeriSuites, StudioPlus
and Summerfield Suites. The other competing hotels have franchises with Harvey
Hotel Suites and Residence Inn. We believe that the rates charged by the hotel
are generally competitive with the rates charged by these other hotels. We are
aware of ongoing or proposed construction for two extended-stay hotels within
approximately five miles of the hotel. We have no definite franchising
information for these hotels.

NORTH DALLAS - PLANO

The Homewood Suites(R) Dallas - Plano is located on a 2.67 acre site in the
Preston Park Business Center. Its address is 4705 Old Sheppard Place, Plano,
Texas 75093. The hotel is approximately 23 miles from downtown Dallas and 20
miles from the Dallas/Fort Worth International Airport.

The hotel opened in April 1997. It has wood frame construction, with an
exterior of brick veneer and stucco. The hotel consists of a single four-story
building. The hotel contains 99 suites, which have a combined rentable area of
50,120 square feet. The following types of suites are available:

Type of Suite Number Available Square Feet/per Suite
-------------- ---------------- ---------------------

Extended Double Suite 37 510
Homewood Suite 55 460
Two-Bedroom Suite 7 850

S-23

The hotel offers a meeting room that accommodates 20-25 people, and a
business center that offers guests the use of a personal computer, a photocopier
and an electric typewriter. Recreational facilities include an outdoor pool and
whirlpool, an exercise room, and a sports court. The hotel also contains a guest
convenience store and laundry. The hotel has its own parking lot with 123
spaces. The hotel provides complimentary shuttle service within a 5 mile radius.

We believe that the hotel has been generally well maintained and is
generally in very good condition. Over the next 12 months, we plan to spend
approximately $28,000 on renovations or improvements. We expect that the
principal renovations and improvements will include interior upgrades and
landscaping. We expect to pay for the costs of these renovations and
improvements with proceeds from our ongoing offering of common shares.

During 1999, the average stay at the hotel was approximately 7.5 nights,
and approximately 63.7% of the guests have stayed for five nights or more. In
general, occupancy at the hotel is not seasonal. The following table shows
average daily occupancy rates, expressed as a percentage, since the opening of
the hotel:

Average Daily Occupancy Rate (calendar year)

1997 1998 1999
---- ---- ----

64.4% 70.9% 71.9%

During 1999, the average daily rate per suite was $79.86, and the average
daily revenue per available suite was $57.43. As explained above, revenue from
the hotel's operations will be used to pay interest due under the promissory
note we executed in connection with our purchase of the hotel. There can be no
assurance, however, the proceeds of the offering will be sufficient to permit
such payments of principal. Assuming that no principal payments are made until
the maturity of the promissory note, and that the hotel continues to have the
level of revenue specified above, approximately 16.6% of the hotel's revenue
would be needed to cover its portion of the interest payments.

The hotel's current rate structure is based on length of stay and type of
suite, as summarized below:

Length of Stay Extended
(number of nights) Homewood Double Two Bedroom
- ------------------ -------- -------- -----------

1 to 6 $109 $109 $149
7 to 29 69 69 109
30 or more 59 59 99

S-24

The hotel offers a weekend discount, which varies by type of suite and may
equal up to 33% off the basic rate. The discount is not available to guests who
stay for five nights or more. The hotel also offers discounts to guests who stay
under certain corporate accounts. These discounts are often negotiated with the
corporate customer and vary from account to account. During 1999, we estimate
that approximately 49.5% of the hotel's guests received a corporate discount.

The chief corporate accounts (as designated in the hotel's records) include
J.C. Penney, Dr. Pepper/7-Up, Alcatel, Arco, Raytheon, State Farm Insurance, Rug
Doctor, Sterling Software, Oracle Corp and Frito Lay . During 1999, the 10
largest corporate accounts were responsible for approximately 34% of the hotel's
occupancy. There can be no assurance, however, that the hotel will continue to
receive significant occupancy, or any occupancy, from the corporate accounts
identified above.

The table below shows the average effective annual rental per square foot
since the opening of the hotel:

1997 1998 1999
---- ---- ----

$38.87 $43.99 $41.41

The depreciable real property component of the hotel has a currently
estimated Federal tax basis of $4,713,290 and will be depreciated over a life of
39 years (or less, as permitted by the Internal Revenue Code) using the
straight-line method. The basis of the personal property component of the hotel
will be depreciated in accordance with the modified accelerated cost recovery
system of the Internal Revenue Code.

The following table summarizes the hotel's real estate tax information for
1999:

Tax Assessed Tax Rate Amount
Jurisdiction Value (per $100) of Tax
- ------------ ----- ---------- ------

County of Collin $7,124,145 2.35655 $167,884.04

We estimate that the annual property tax on the expected improvements will
be approximately $500 or less.

At least nine competing hotels are located within five miles of the hotel.
(The names of the competing franchises, as listed below, may be registered as
service marks or trade names.) Five of the competing hotels are newer than the
hotel. The newer competing hotels have franchises with AmeriSuites, Candlewood
Suites, Homegate Suites, Hawthorne Suites and Residence Inn. The other competing
hotels have franchises with Courtyard by Marriott (in two cases), Hampton Inn
Suites and Mainstay Suites. We believe that the rates charged by the hotel are
generally competitive with the rates charged by these other hotels. We are aware
of ongoing

S-25

or proposed construction for three extended-stay hotels within approximately
five miles of the hotel. Although we do not have complete franchising
information for these hotels, we expect three of them to be franchised with
Doubletree Suites, Marriott Townplace and Weston Suites.

RICHMOND - WEST END

The Homewood Suites(R) Richmond - West End is located on a 3.8 acre site in
the Innsbrook Corporate Center. Its address is 4100 Innslake Drive, Glen Allen,
Virginia 23060. The hotel is approximately 14 miles from downtown Richmond and
20 miles from the Richmond International Airport.

The hotel opened in May 1998. It has metal stud frame construction, with an
exterior of brick veneer and stucco. The hotel consists of a single four-story
building. The hotel contains 123 suites, which have a combined rentable area of
63,600 square feet. The following types of suites are available:

Type of Suite Number Available Square Feet/per Suite
-------------- ---------------- ---------------------

Homewood King Suite 98 500
Homewood Double Suite 18 500
Two-Bedroom Suite 7 800

The hotel offers a meeting room that accommodates up to 80 people, and a
business center that offers guests the use of a personal computer, a photocopier
and an electric typewriter. Recreational facilities include an outdoor pool, a
whirlpool and an exercise room. The hotel also contains a guest convenience
store and laundry. The hotel has its own parking lot with 136 spaces. The hotel
provides complimentary shuttle service within a 5 mile radius.

We believe that the hotel has been generally well maintained and is
generally in very good condition. Over the next 12 months, we plan to spend
approximately $100,000 on renovations or improvements. We expect that the
principal renovations and improvements will include installing new telephone
system and purchasing new furniture. We expect to pay for the costs of these
renovations and improvements with proceeds from our ongoing offering of common
shares.

During 1999, the average stay at the hotel was approximately 3.1 nights,
and approximately 52.1% of the guests have stayed for five nights or more. In
general, occupancy at the hotel is not seasonal. The following table shows
average daily occupancy rates, expressed as a percentage, since the opening of
the hotel:

Average Daily Occupancy Rate (calendar year)

1998 1999
---- ----

61.7 % 75.2%

S-26

During 1999, the average daily rate per suite was $82.95, and the average
daily revenue per available suite was $62.41. As explained above, revenue from
the hotel's operations will be used to pay interest due under the promissory
note we executed in connection with our purchase of the hotel. There can be no
assurance, however, the proceeds of the offering will be sufficient to permit
such payments of principal. Assuming that no principal payments are made until
the maturity of the promissory note, and that the hotel continues to have the
level of revenue specified above, approximately 21.4% of the hotel's revenue
would be needed to cover its portion of the interest payments.

The hotel's current rate structure is based on length of stay and type of
suite, as summarized below:

Length of Stay Homewood Homewood
(number of nights) (king bed) (double bed) Two Bedroom
- ------------------ ---------- ------------ -----------

1 to 4 $114 $114 $154
5 to 29 84 84 124
30 to 89 74 74 114
90 or more 74 74 114

The hotel offers a weekend discount, which varies by type of suite and may
equal up to 33% off the basic rate. The discount is not available to guests who
stay for five nights or more. The hotel also offers discounts to guests who stay
under certain corporate accounts. These discounts are often negotiated with the
corporate customer and vary from account to account. During 1999, we estimate
that approximately 79% of the hotel's guests received a corporate discount.

The chief corporate accounts (as designated in the hotel's records) include
Target, Capital One, Circuit City, First Union National Bank, Virginia Power,
Owens Minor, Saxon Mortgage Corp., Promus Hotels, Inc., Deloitte & Touche and
Old Dominion Electric Cooperative. During 1999, the 10 largest corporate
accounts were responsible for approximately 55% of the hotel's occupancy. There
can be no assurance, however, that the hotel will continue to receive
significant occupancy, or any occupancy, from the corporate accounts identified
above.

The table below shows the average effective annual rental per square foot
since the opening of the hotel:

1998 1999
---- ----

$37.80 $44.06

S-27

The depreciable real property component of the hotel has a currently
estimated Federal tax basis of $8,461,493 and will be depreciated over a life of
39 years (or less, as permitted by the Internal Revenue Code) using the
straight-line method. The basis of the personal property component of the hotel
will be depreciated in accordance with the modified accelerated cost recovery
system of the Internal Revenue Code.

The following table summarizes the hotel's real estate tax information for
1999:

Tax Assessed Tax Rate Amount
Jurisdiction Value (per $100) of Tax
- ------------ ----- ---------- ------

County of Henrico $5,806,300 0.9400 $54,579.22

We estimate that the annual property tax on the expected improvements will
be approximately $500 or less.

At least seven competing hotels are located within one mile of the hotel.
(The names of the competing franchises, as listed below, may be registered as
service marks or trade names.) Three of the competing hotels are newer than the
hotel. The newer competing hotels have franchises with Candlewood Suites,
Comfort Suites and Courtyard by Marriott. The other competing hotels have
franchises with AmeriSuites, Hampton Inn, Homestead Village and Residence Inn.
We believe that the rates charged by the hotel are generally competitive with
the rates charged by these other hotels. We are aware of ongoing or proposed
construction for three extended-stay hotels within approximately three miles of
the hotel. We expect these new hotels to be franchised with Holiday Inn Express,
Hilton Garden Inn and Marriott.

ATLANTA - GALLERIA/CUMBERLAND

The Homewood Suites(R) Atlanta - Galleria/Cumberland is located on a 3.7
acre site at 3200 Cobb Parkway, Atlanta, Georgia 30339. The hotel is
approximately 17 miles from downtown Atlanta and 35 miles from the Hartsfield
Atlanta International Airport.

The hotel opened in July 1990. It has wood frame construction, with an
exterior of brick veneer and wood siding. The hotel consists of four buildings,
each with two or three stories. The hotel contains 124 suites, which have a
combined rentable area of 85,600 square feet. The following types of suites are
available:

Type of Suite Number Available Square Feet Per Suite
-------------- ---------------- ---------------------

Master Suite 96 700
Homewood Suite 24 600
Two-Bedroom Suite 4 1,000

S-28

The hotel offers a 40-seat breakfast/lounge area, a meeting room that
accommodates 15 to 20 people, and a business center that offers guests the use
of a personal computer, a photocopier and an electric typewriter. Recreational
facilities include an outdoor pool, a whirlpool and an exercise room. The hotel
also contains a guest convenience store and laundry. The hotel has its own
parking lot with 150 spaces. The hotel provides complimentary shuttle service
within a five mile radius.

We believe that the hotel has been generally well maintained and is
generally in very good condition. Over the next 12 months, we plan to spend
approximately $285,000 on renovations or improvements. We expect that the
principal renovations and improvements will include carpet replacement and
furniture acquisitions (sofas, recliners and televisions). We expect to pay for
the costs of these renovations and improvements with proceeds obtained from our
ongoing offering of common shares.

During 1999, the average stay at the hotel was approximately 4.7 nights,
and approximately 72% of the guests have stayed for five nights or more. In
general, occupancy at the hotel is not seasonal. The following table shows
average daily occupancy rates, expressed as a percentage, for the last five
years:

Average Daily Occupancy Rate (calendar year)

1995 1996 1997 1998 1999
---- ---- ---- ---- ----

76.7% 71.7% 77.2% 77.4 % 79.2%

During 1999, the average daily rate per suite was $86.62, and the average
daily revenue per available suite was $68.64. As explained above, revenue from
the hotel's operations will be used to pay interest due under the promissory
note we executed in connection with our purchase of the hotel. There can be no
assurance, however, the proceeds of the offering will be sufficient to permit
such payments of principal. Assuming that no principal payments are made until
the maturity of the promissory note, and that the hotel continues to have the
level of revenue specified above, approximately 20.1% of the hotel's revenue
would be needed to cover its portion of the interest payments.

The hotel's current rate structure is based on length of stay and type of
suite, as summarized below:

Length of Stay
(number of nights) Homewood Master Two Bedroom
- ------------------ -------- ------ ----------

1 to 4 $119 $119 $159
5 to 11 109 109 149
12 to 29 92 92 132
30 or more 79 79 119

S-29

The hotel offers a weekend discount, which varies by type of suite and may
equal up to 33% off the basic rate. The discount is not available to guests who
stay for five nights or more. The hotel also offers discounts to guests who stay
under certain corporate accounts. These discounts are often negotiated with the
corporate customer and vary from account to account. During 1999, we estimate
that approximately 39% of the hotel's guests received a corporate discount.

The chief corporate accounts (as designated in the hotel's records) include
Boeing, J.D. Edwards & Company, SITA, Worldspan, Sprint, IBM, Lockheed Martin
Corporation, Southcorp, Atlantic Envelope Corp. and Concert. During 1999, the 10
largest corporate accounts were responsible for approximately 12.8% of the
hotel's occupancy. There can be no assurance, however, that the hotel will
continue to receive significant occupancy, or any occupancy, from the corporate
accounts identified above.

The table below shows the average effective annual rental per square foot
for the last five years:

1995 1996 1997 1998 1999
---- ---- ---- ---- ----

$34.44 $34.16 $36.45 $36.57 $36.29

The depreciable real property component of the hotel has a currently
estimated Federal tax basis of $7,445,773 and will be depreciated over a life of
39 years (or less, as permitted by the Internal Revenue Code) using the
straight-line method. The basis of the personal property component of the hotel
will be depreciated in accordance with the modified accelerated cost recovery
system of the Internal Revenue Code.

The following table summarizes the hotel's real estate tax information for
1999:

Tax Assessed Taxable Tax Amount
Jurisdiction Value Portion (40%) Rate of Tax
- ------------ ----- ------------- ---- ------

Cobb County $5,217,693 $2,087,077 0.03427 $71,524.14

We estimate that the annual property tax on the expected improvements will
be approximately $3,900 or less.

S-30

rates charged by these other hotels. We are aware of one proposed construction
project to build an extended-stay hotel within approximately one mile of the
hotel. We expect this hotel to be franchised with Hampton Inn Suites.

ATLANTA - PEACHTREE

The Homewood Suites(R) Atlanta - Peachtree is located on a 3.45 acre site
at 450 Technology Parkway, Norcross, Georgia 30092. The hotel is approximately
25 miles from downtown Atlanta and 35 miles from the Hartsfield Atlanta
International Airport.

The hotel opened in February 1990. It has wood frame construction, with an
exterior of brick veneer and wood siding. The hotel consists of four buildings,
each with one, two or three stories. The hotel contains 92 suites, which have a
combined rentable area of 53,920 square feet. The following types of suites are
available:

Type of Suite Number Available Square Feet Per Suite
-------------- ---------------- ---------------------

Master Suite 12 650
Homewood Suite 76 550
Two-Bedroom Suite 4 1,080

The hotel offers a 40-seat breakfast/lounge area, a meeting room that
accommodates 25 to 30 people, and a business center that offers guests the use
of a personal computer, a photocopier and an electric typewriter. Recreational
facilities include an outdoor pool, a whirlpool and an exercise room. The hotel
also contains a guest convenience store and laundry. The hotel has its own
parking lot with 117 spaces. The hotel provides complimentary shuttle service
within a five mile radius.

We believe that the hotel has been generally well maintained and is
generally in very good condition. Over the next 12 months, we plan to spend
approximately $500,000 on renovations or improvements. We expect that the
principal renovations and improvements will include carpet replacement,
furniture replacement, bathroom upgrades and parking lot resurfacing and
restriping. We expect to pay for the costs of these renovations and improvements
with proceeds obtained from our ongoing offering of common shares.

During 1999, the average stay at the hotel was approximately 5 nights, and
approximately 56% of the guests have stayed for five nights or more. In general,
occupancy at the hotel is not seasonal. The following table shows average daily
occupancy rates, expressed as a percentage, for the last five years:

Average Daily Occupancy Rate (calendar year)

1995 1996 1997 1998 1999
---- ---- ---- ---- ----

79.5% 77.4% 74.8% 72.9% 70.1%

S-31

During 1999, the average daily rate per suite was $81.17, and the average
daily revenue per available suite was $56.86. As explained above, revenue from
the hotel's operations will be used to pay interest due under the promissory
note we executed in connection with our purchase of the hotel. There can be no
assurance, however, the proceeds of the offering will be sufficient to permit
such payments of principal. Assuming that no principal payments are made until
the maturity of the promissory note, and that the hotel continues to have the
level of revenue specified above, approximately 13.5% of the hotel's revenue
would be needed to cover its portion of the interest payments.

The hotel's current rate structure is based on length of stay and type of
suite, as summarized below:

Length of Stay
(number of nights) Homewood Master Two Bedroom
- ------------------ -------- ------ -----------

1 to 4 $99 $99 $139
5 to 11 85 85 125
12 to 29 75 75 115
30 or more 59 59 99

The hotel offers a weekend discount, which varies by type of suite and may
equal up to 33% off the basic rate. The discount is not available to guests who
stay for five nights or more. The hotel also offers discounts to guests who stay
under certain corporate accounts. These discounts are often negotiated with the
corporate customer and vary from account to account. During 1999, we estimate
that approximately 42% of the hotel's guests received a corporate discount.

The chief corporate accounts (as designated in the hotel's records) include
Hitachi, Perkin Elmer Corporation, CIBA Vision, Ultimate Software, Valmet,
Federated Systems, IBM, Sunds Defibrator, Unisys and Mizuno. During 1999, the 10
largest corporate accounts were responsible for approximately 13.2% of the
hotel's occupancy. There can be no assurance, however, that the hotel will
continue to receive significant occupancy, or any occupancy, from the corporate
accounts identified above.

The table below shows the average effective annual rental per square foot
for the last five years:

1995 1996 1997 1998 1999
---- ---- ---- ---- ----

$42.53 $47.16 $45.42 $41.95 $35.41

The depreciable real property component of the hotel has a currently
estimated Federal tax basis of $2,911,697 and will be depreciated over a life of
39 years (or less, as permitted by

S-32

the Internal Revenue Code) using the straight-line method. The basis of the
personal property component of the hotel will be depreciated in accordance with
the modified accelerated cost recovery system of the Internal Revenue Code.

The following table summarizes the hotel's real estate tax information for
1999:

Tax Assessed Taxable Tax Amount
Jurisdiction Value Portion (40%) Rate of Tax
- ------------ ----- ------------- ---- ------

Gwinnett County $5,688,440 $2,275,380 0.03225 $73,381

We estimate that the annual property tax on the expected improvements will
be approximately $3,300 or less.

At least six competing hotels are located within three miles of the hotel.
(The names of the competing franchises, as listed below, may be registered as
service marks or trade names.) Three of the competing hotels are newer than the
hotel. The newer competing hotels have franchises with AmeriSuites, Hilton
Garden Inn and Residence Inn. The other competing hotels have franchises with
Courtyard by Marriott, Marriott and Holiday Inn. We believe that the rates
charged by the hotel are generally competitive with the rates charged by these
other hotels. To our knowledge, no extended-stay hotels are being constructed
within five miles of the hotel.

BALTIMORE - BWI AIRPORT

The Homewood Suites(R) Baltimore - BWI Airport is located on a 4.69 acre
site at 1181 Winterson Road, Linthicum, Maryland 21090. The hotel is
approximately 8 miles from downtown Baltimore and 2 miles from the
Baltimore-Washington International Airport.

The hotel opened in March 1998. It has concrete masonry construction, with
a stucco exterior. The hotel consists of one building with four stories. The
hotel contains 147 suites, which have a combined rentable area of 75,600 square
feet. The following types of suites are available:

Type of Suite Number Available Square Feet Per Suite
-------------- ---------------- ---------------------

Master Suite 20 500
Homewood Suite 120 500
Two-Bedroom Suite 7 800

The hotel offers a 40-seat breakfast/lounge area, and three meeting rooms
that accommodate up to 125 people, and a business center that offers guests the
use of a personal computer, a photocopier and an electric typewriter.
Recreational facilities include an outdoor pool, a whirlpool and an exercise
room. The hotel also contains a guest convenience store and laundry. The hotel
has its own parking lot with 157 spaces. The hotel provides complimentary
shuttle service within a five mile radius.

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We believe that the hotel has been generally well maintained and is
generally in very good condition. Over the next 12 months, we plan to spend
approximately $60,000 on renovations or improvements. We expect that the
principal renovations and improvements will include carpet replacement,
furniture replacement, bathroom upgrades and parking lot resurfacing and
restriping . We expect to pay for the costs of these renovations and
improvements with proceeds obtained from our ongoing offering of common shares.

During 1999, the average stay at the hotel was approximately 7.5 nights,
and approximately 67.9% of the guests have stayed for five nights or more. In
general, occupancy at the hotel is not seasonal. The following table shows
average daily occupancy rates, expressed as a percentage, since the opening of
the hotel:

Average Daily Occupancy Rate (calendar year)

1998 1999
---- ----

67.0% 83.2%

During 1999, the average daily rate per suite was $94.17, and the average
daily revenue per available suite was $78.39. As explained above, revenue from
the hotel's operations will be used to pay interest due under the promissory
note we executed in connection with our purchase of the hotel. There can be no
assurance, however, the proceeds of the offering will be sufficient to permit
such payments of principal. Assuming that no principal payments are made until
the maturity of the promissory note, and that the hotel continues to have the
level of revenue specified above, approximately 24.8% of the hotel's revenue
would be needed to cover its portion of the interest payments.

The hotel's current rate structure is based on length of stay and type of
suite, as summarized below:

Length of Stay
(number of nights) Homewood Master Two Bedroom
- ------------------ -------- ------ -----------

1 to 4 $129 $129 $169
5 to 11 119 229 159
12 to 29 109 109 149
30 or more 89 89 129

The hotel offers a weekend discount, which varies by type of suite and may
equal up to 33% off the basic rate. The discount is not available to guests who
stay for five nights or more. The hotel also offers discounts to guests who stay
under certain corporate accounts. These discounts are often negotiated with the
corporate customer and vary from account to account. During 1999, we estimate
that approximately 93% of the hotel's guests received a corporate discount.

S-34

The chief corporate accounts (as designated in the hotel's records) include
Defense Security Services, Gap, Ciera, Northcorp Grumman, National Security
Agency, Boeing, International Paper, Lockheed Martin Corporation, Dept. of
Defense and Carmax. During 1999, the 10 largest corporate accounts were
responsible for approximately 13% of the hotel's occupancy. There can be no
assurance, however, that the hotel will continue to receive significant
occupancy, or any occupancy, from the corporate accounts identified above.

The table below shows the average effective annual rental per square foot
since the opening of the hotel:

1998 1999
---- ----

$33.46 $55.64

The depreciable real property component of the hotel has a currently
estimated Federal tax basis of $14,719,686 and will be depreciated over a life
of 39 years (or less, as permitted by the Internal Revenue Code) using the
straight-line method. The basis of the personal property component of the hotel
will be depreciated in accordance with the modified accelerated cost recovery
system of the Internal Revenue Code.

The following table summarizes the hotel's real estate tax information for
1999 (and is based on a formula that uses the assessed values for the current
and prior years to determine a separate taxable amount):

Assessed Assessed Taxable Tax Rate Amount
Tax Jurisdiction Value (1999) Value (1998) Amount (per $100) of Tax
- ---------------- ------------ ------------ ------ ---------- ------

State of Maryland/ $11,085,900 $10,316,100 $4,229,080 2.57 $108,687.36
Anne Arundel County

We estimate that the annual property tax on the expected improvements will
be approximately $800 or less.

At least five competing hotels are located within two miles of the hotel.
(The names of the competing franchises, as listed below, may be registered as
service marks or trade names.) One of the competing hotels is newer than the
hotel. The newer competing hotel has a franchise with Candlewood Suites. The
other competing hotels have franchises with AmeriSuites, Comfort Suites,
DoubleTree Suites and Residence Inn. We believe that the rates charged by the
hotel are generally competitive with the rates charged by these other hotels. We
are aware of ongoing or proposed construction for two extended-stay hotels
within approximately seven miles of the hotel. We expect these new hotels to be
franchised with Hilton Garden Inn and Town Place Suites.

S-35

CLEARWATER

The Homewood Suites(R) Clearwater is located on a 5.91 acre site at 2233
Ulmerton Road, Clearwater, Florida 33762. The hotel is approximately 12 miles
from downtown Tampa/St. Petersburg and 15 miles from the Tampa International
Airport.

The hotel opened in February 1998. It has concrete masonry construction,
with a stucco exterior. The hotel consists of one buildings with two stories.
The hotel contains 112 suites, which have a combined area of 58,400 square feet.
The following types of suites are available:

Type of Suite Number Available Square Feet Per Suite
-------------- ---------------- ---------------------

Homewood King Suite 88 500
Homewood Double Suite 16 500
Two-Bedroom Suite 8 800

The hotel offers a 40-seat breakfast/lounge area, a meeting room that
accommodates up to 75 people, and a business center that offers guests the use
of a personal computer, a photocopier and an electric typewriter. Recreational
facilities include an outdoor pool, a whirlpool and an exercise room. The hotel
also contains a guest convenience store and laundry. The hotel has its own
parking lot with 118 spaces. The hotel provides complimentary shuttle service
within a five mile radius.

We believe that the hotel has been generally well maintained and is
generally in very good condition. Over the next 12 months, we plan to spend
approximately $15,000 on renovations or improvements. We expect that the
principal renovations and improvements will include carpet replacement, common
area upgrades and bathroom upgrades. We expect to pay for the costs of these
renovations and improvements with proceeds obtained from our ongoing offering of
common shares.

During 1999, the average stay at the hotel was approximately 2.9 nights,
and approximately 45% of the guests have stayed for five nights or more. In
general, occupancy at the hotel is not seasonal. The following table shows
average daily occupancy rates, expressed as a percentage, since the opening of
the hotel:

Average Daily Occupancy Rate (calendar year)

1998 1999
---- ----

63.4% 75.8%

During 1999, the average daily rate per suite was $89.68, and the average
daily revenue per available suite was $67.93. As explained above, revenue from
the hotel's operations will be used to pay interest due under the promissory
note we executed in connection with our purchase

S-36

of the hotel. There can be no assurance, however, the proceeds of the offering
will be sufficient to permit such payments of principal. Assuming that no
principal payments are made until the maturity of the promissory note, and that
the hotel continues to have the level of revenue specified above, approximately
24% of the hotel's revenue would be needed to cover its portion of the interest
payments.

The hotel's current rate structure is based on length of stay and type of
suite, as summarized below:

Length of Stay Homewood Homewood
(number of nights) King Double Two Bedroom
- ------------------ -------- -------- -----------

1 to 4 $109 $109 $149
5 to 11 99 99 139
12 to 29 99 89 129
30+ 69 69 109

The hotel offers a weekend discount, which varies by type of suite and may
equal up to 33% off the basic rate. The discount is not available to guests who
stay for five nights or more. The hotel also offers discounts to guests who stay
under certain corporate accounts. These discounts are often negotiated with the
corporate customer and vary from account to account. During 1999, we estimate
that approximately 78.7% of the hotel's guests received a corporate discount.

The chief corporate accounts (as designated in the hotel's records) include
Raymond James, Home Shopping Network, Lucent Technologies, Tech Data, Honeywell,
Unisys, Franklin Templeton Group, PSCU, Raytheon and Digital Lightwave. During
1999, the 10 largest corporate accounts were responsible for approximately 31%
of the hotel's occupancy. There can be no assurance, however, that the hotel
will continue to receive significant occupancy, or any occupancy, from the
corporate accounts identified above.

The table below shows the average effective annual rental per square foot
since the opening of the hotel:

1998 1999
---- ----

$35.31 $47.55

The depreciable real property component of the hotel has a currently
estimated Federal tax basis of $7,561,172 and will be depreciated over a life of
39 years (or less, as permitted by the Internal Revenue Code) using the
straight-line method. The basis of the personal property component of the hotel
will be depreciated in accordance with the modified accelerated cost recovery
system of the Internal Revenue Code.

The following table summarizes the hotel's real estate tax information for
1999:

S-37

Tax Assessed Tax Rate Amount
Jurisdiction Value (per $1000) of Tax
- ------------ ----- ----------- ------

Pinellas County $4,312,200 22.9033 $98,763.61

We estimate that the annual property tax on the expected improvements will
be approximately $180 or less.

At least seven competing hotels are located within three miles of the
hotel. (The names of the competing franchises, as listed below, may be
registered as service marks or trade names.) Three of the competing hotels are
newer than the hotel. The newer competing hotels have franchises with Candlewood
Suites, Fairfield Inn and Town Place Suites. The other competing hotels have
franchises with Courtyard by Marriott, Holiday Inn Select, La Quinta Inns and
Residence Inn. We believe that the rates charged by the hotel are generally
competitive with the rates charged by these other hotels. We are aware of
ongoing or proposed construction for four extended-stay hotels within
approximately three miles of the hotel. We expect these new hotels to be
franchised with Hawthorn Suites, Radisson Suites, Spring Hill Suites and
Woodbridge Suites.

DETROIT - WARREN

The Homewood Suites(R) Detroit - Warren is located on a 2.84 acre site
at 30180 N. Civic Center Drive, Warren, Michigan 48093. The hotel is
approximately 17 miles from downtown Detroit and 31 miles from the Detroit
Metropolitan Wayne County Airport.

The hotel opened in March 1990. It has wood frame construction, with a
plaster and wood trim exterior. The hotel consists of three buildings, each with
one, two or three stories. The hotel contains 76 suites, which have a combined
rentable area of 31,520 square feet. The following types of suites are
available:

Type of Suite Number Available Square Feet Per Suite
-------------- ---------------- ---------------------

Master Suite 8 540
Homewood Suite 60 360
Two-Bedroom Suite 8 700

The hotel offers a 40-seat breakfast/lounge area, a meeting room that
accommodates 25 to 30 people, and a business center that offers guests the use
of a personal computer, a photocopier and an electric typewriter. Recreational
facilities include an outdoor pool, a whirlpool and an exercise room. The hotel
also contains a guest convenience store and laundry. The hotel has its own
parking lot with 77 spaces. The hotel provides complimentary shuttle service
within a five mile radius.

We believe that the hotel has been generally well maintained and is
generally in very good condition. Over the next 12 months, we plan to spend
approximately $330,000

S-38

on renovations or improvements. We expect that the principal renovations and
improvements will include carpet repairs, sidewalk and parking area repairs,
common area upgrades and exercise equipment upgrades. We expect to pay for the
costs of these renovations and improvements with proceeds obtained from our
ongoing offering of common shares.

During 1999, the average stay at the hotel was approximately 6.2 nights,
and approximately 55.9% of the guests have stayed for five nights or more. In
general, occupancy at the hotel is not seasonal. The following table shows
average daily occupancy rates, expressed as a percentage, for the last five
years:

Average Daily Occupancy Rate (calendar year)

1995 1996 1997 1998 1999
---- ---- ---- ---- ----

71.5% 71.6% 80.3% 76.2% 74.3%

During 1999, the average daily rate per suite was $88.11, and the average
daily revenue per available suite was $65.46. As explained above, revenue from
the hotel's operations will be used to pay interest due under the promissory
note we executed in connection with our purchase of the hotel. There can be no
assurance, however, the proceeds of the offering will be sufficient to permit
such payments of principal. Assuming that no principal payments are made until
the maturity of the promissory note, and that the hotel continues to have the
level of revenue specified above, approximately 15.2% of the hotel's revenue
would be needed to cover its portion of the interest payments.

The hotel's current rate structure is based on length of stay and type of
suite, as summarized below:

Length of Stay
(number of nights) Homewood Master Two Bedroom
- ------------------ --------- ------ -----------

1 to 6 $104 $104 $144
7 to 29 95 95 135
30 to 89 89 89 129
90 or more 79 79 119

The hotel offers a weekend discount, which varies by type of suite and may
equal up to 33% off the basic rate. The discount is not available to guests who
stay for five nights or more. The hotel also offers discounts to guests who stay
under certain corporate accounts. These discounts are often negotiated with the
corporate customer and vary from account to account. During 1999, we estimate
that approximately 59% of the hotel's guests received a corporate discount.

The chief corporate accounts (as designated in the hotel's records) include
General Motors, Raytheon, Chrysler, Ernst &Young, Optima Package, Electronic
Systems, Boeing,

S-39

Chrysler First, IBM, PBS and J. Liebherr Machine Tool. During 1999, the 10
largest corporate accounts were responsible for approximately 19.6% of the
hotel's occupancy. There can be no assurance, however, that the hotel will
continue to receive significant occupancy, or any occupancy, from the corporate
accounts identified above.

The table below shows the average effective annual rental per square foot
since for the last five years:

1995 1996 1997 1998 1999
---- ---- ---- ---- ----

$45.37 $49.68 $57.14 $58.75 $57.61

The depreciable real property component of the hotel has a currently
estimated Federal tax basis of $3,755,879 and will be depreciated over a life of
39 years (or less, as permitted by the Internal Revenue Code) using the
straight-line method. The basis of the personal property component of the hotel
will be depreciated in accordance with the modified accelerated cost recovery
system of the Internal Revenue Code.

The following table summarizes the hotel's real estate tax information for
1999:

Tax Assessed Tax Rate Amount
Jurisdiction Value (per $100) of Tax
- ------------ ----- ---------- ------

County of Macomb $1,131,410 5.0171 $ 5,676.40
City of Warren $1,131,410 16.0468 $18,155.51
School District $1,131,410 28.6050 $32,363.98
---------

TOTAL $56,195.89
=========

We estimate that the annual property tax on the expected improvements will
be approximately $8,200 or less.

At least five competing hotels are located within three miles of the hotel.
(The names of the competing franchises, as listed below, may be registered as
service marks or trade names.) Three of the competing hotels are newer than the
hotel. The newer competing hotels have franchises with Extended Stay America,
Residence Inn and Studio Plus. The other competing hotels have franchises with
Best Western and Courtyard by Marriott. We believe that the rates charged by the
hotel are generally competitive with the rates charged by these other hotels. We
are aware of ongoing or proposed construction for two extended-stay hotels
within approximately five miles of the hotel. We expect these new hotels to be
franchised with Red Roof Inn and Sleep Inn.

S-40

SALT LAKE CITY - MIDVALE

The Homewood Suites(R) Salt Lake City - Midvale is located on a 3.44 acre
site at 844 E. North Union Avenue, Midvale, Utah 84047. The hotel is
approximately 11 miles from downtown Salt Lake City and 15 miles from the Salt
Lake City International Airport.

The hotel opened in November 1996. It has concrete masonry construction,
with an aluminum siding exterior. The hotel consists of one buildings with three
stories. The hotel contains 98 suites, which have a combined rentable area of
60,070 square feet. The following types of suites are available:

Type of Suite Number Available Square Feet Per Suite
-------------- ---------------- ---------------------

Master Suite 21 590
Homewood Suite 71 590
Two-Bedroom Suite 6 965

The hotel offers a 40-seat breakfast/lounge area, a meeting room that
accommodates 25 to 30 people, and a business center that offers guests the use
of a personal computer, a photocopier and an electric typewriter. Recreational
facilities include an outdoor pool, a whirlpool and an exercise room. The hotel
also contains a guest convenience store and laundry. The hotel has its own
parking lot with 110 spaces. The hotel provides complimentary shuttle service
within a five mile radius.

We believe that the hotel has been generally well maintained and is
generally in very good condition. Over the next 12 months, we plan to spend
approximately $72,000 on renovations or improvements. We expect that the
principal renovations and improvements will include carpet replacement,
landscaping, parking lot restriping and common area upgrades. We expect to pay
for the costs of these renovations and improvements with proceeds obtained from
our ongoing offering of common shares.

During 1999, the average stay at the hotel was approximately 3.5 nights,
and approximately 47.7% of the guests have stayed for five nights or more. In
general, occupancy at the hotel is not seasonal. The following table shows
average daily occupancy rates, expressed as a percentage, since the opening of
the hotel:

Average Daily Occupancy Rate (calendar year)

1997 1998 1999
---- ---- ----

51.1% 63.8% 63.5%

During 1999, the average daily rate per suite was $89.03, and the average
daily revenue per available suite was $56.55. As explained above, revenue from
the hotel's operations will be used to pay interest due under the promissory
note we executed in connection with our purchase

S-41

of the hotel. There can be no assurance, however, the proceeds of the offering
will be sufficient to permit such payments of principal. Assuming that no
principal payments are made until the maturity of the promissory note, and that
the hotel continues to have the level of revenue specified above, approximately
16.2% of the hotel's revenue would be needed to cover its portion of the
interest payments.

The hotel's current rate structure is based on length of stay and type of
suite, as summarized below:

Length of Stay Homewood Homewood
(number of nights) (King) (Double) Master Two Bedroom
- ------------------ ------ -------- ------ -----------

1 to 4 $99 $99 $99 $139
5 to 12 89 89 89 129
13 to 29 79 79 99 119
30 or more 69 69 69 109

The hotel offers a weekend discount, which varies by type of suite and may
equal up to 33% off the basic rate. The discount is not available to guests who
stay for five nights or more. The hotel also offers discounts to guests who stay
under certain corporate accounts. These discounts are often negotiated with the
corporate customer and vary from account to account. During 1999, we estimate
that approximately 49% of the hotel's guests received a corporate discount.

The chief corporate accounts (as designated in the hotel's records) include
American Express, The Associates, Meridian Diagnostics, Regency Blue Cross,
Cimetrix, Baxter Healthcare, Fed-Ex, Onyx Acceptance, 3M and United Healthcare.
During 1999, the 10 largest corporate accounts were responsible for
approximately 10% of the hotel's occupancy. There can be no assurance, however,
that the hotel will continue to receive significant occupancy, or any occupancy,
from the corporate accounts identified above.

The table below shows the average effective annual rental per square foot
since the opening of the hotel:

1997 1998 1999
---- ---- ----

$27.30 $35.09 $33.67

The depreciable real property component of the hotel has a currently
estimated Federal tax basis of $4,657,834 and will be depreciated over a life of
39 years (or less, as permitted by the Internal Revenue Code) using the
straight-line method. The basis of the personal property component of the hotel
will be depreciated in accordance with the modified accelerated cost recovery
system of the Internal Revenue Code.

S-42

The following table summarizes the hotel's real estate tax information
for 1999:

Tax Assessed Tax Rate Amount
Jurisdiction Value (per $1000) of Tax
- ------------ ----- ----------- ------

County of Salt Lake $5,632,000 0.013595 $76,567.04

We estimate that the annual property tax on the expected improvements will
be approximately $500 or less.

At least five competing hotels are located within five miles of the hotel.
(The names of the competing franchises, as listed below, may be registered as
service marks or trade names.) None of the competing hotels are newer than the
hotel. The other competing hotels have franchises with Candlewood Suites,
Courtyard by Marriott, Crystal Inn and Residence Inn (in two cases). We believe
that the rates charged by the hotel are generally competitive with the rates
charged by these other hotels. We are aware of proposed construction to build
one extended-stay hotel within approximately three miles of the hotel. We expect
this hotel to be franchised with Microtel.

JACKSON - RIDGELAND

The Homewood Suites(R) Jackson - Ridgeland is located on a 3.9 acre site at
853 Centre Street, Ridgeland, Mississippi 39157. The hotel is approximately 10
miles from downtown Jackson and 15 miles from the Jackson Municipal Airport.

The hotel opened in February 1997. It has wood frame construction and
consists of a single building with three stories. The hotel contains 91 suites,
which have a combined rentable area of 41,729 square feet. The following types
of suites are available:

Type of Suite Number Available Square Feet Per Suite
-------------- ---------------- ---------------------

Master Suite 56 406 to 510
Homewood Suite 29 458 to 557
Two-Bedroom Suite 6 690

The hotel offers a 40-seat breakfast/lounge area, a meeting room that
accommodates 45 to 50 people, and a business center that offers guests the use
of a personal computer, a photocopier and an electric typewriter. Recreational
facilities include an outdoor pool, a whirlpool and an exercise room. The hotel
also contains a guest convenience store and laundry. The hotel has its own
parking lot with 108 spaces. The hotel provides complimentary shuttle service
within a five mile radius (and to the airport).

We believe that the hotel has been generally well maintained and is
generally in very good condition. Over the next 12 months, we plan to spend
approximately $58,000 on

S-43

renovations or improvements. We expect that the principal renovations and
improvements will include carpet replacement, furniture replacement, bathroom
upgrades and parking lot resurfacing and restriping. We expect to pay for the
costs of these renovations and improvements with proceeds obtained from our
ongoing offering of common shares.

During 1999, the average stay at the hotel was approximately 3.2
nights, and approximately 47.4% of the guests have stayed for five nights or
more. In general, occupancy at the hotel is not seasonal. The following table
shows average daily occupancy rates, expressed as a percentage, since the
opening of the hotel:

Average Daily Occupancy Rate (calendar year)

1997 1998 1999
---- ---- ----

63.8% 80.6% 77.6%

During 1999, the average daily rate per suite was $81.96, and the average
daily revenue per available suite was $63.63. As explained above, revenue from
the hotel's operations will be used to pay interest due under the promissory
note we executed in connection with our purchase of the hotel. There can be no
assurance, however, the proceeds of the offering will be sufficient to permit
such payments of principal. Assuming that no principal payments are made until
the maturity of the promissory note, and that the hotel continues to have the
level of revenue specified above, approximately 17.6% of the hotel's revenue
would be needed to cover its portion of the interest payments.

The hotel's current rate structure is based on length of stay and type of
suite, as summarized below:

Length of Stay
(number of nights) Homewood Master Two Bedroom
- ------------------ -------- ------ -----------

1 to 4 $92 $92 $132
5 to 11 82 82 122
12 to 28 74 74 114
29 or more 69 69 109

The hotel offers a weekend discount, which varies by type of suite and may
equal up to 33% off the basic rate. The discount is not available to guests who
stay for five nights or more. The hotel also offers discounts to guests who stay
under certain corporate accounts. These discounts are often negotiated with the
corporate customer and vary from account to account. During 1999, we estimate
that approximately 65% of the hotel's guests received a corporate discount.

The chief corporate accounts (as designated in the hotel's records) include
Fire Victims, Entergy, Baptist Healthcare, Mississippi Diversified, Copac,
Athena Computer Learning, Ergon, International Paper, Illinois Central and
Nissan. During 1999, the 10 largest corporate accounts

S-44

were responsible for approximately 16% of the hotel's occupancy. There can be no
assurance, however, that the hotel will continue to receive significant
occupancy, or any occupancy, from the corporate accounts identified above.

The table below shows the average effective annual rental per square foot
since the opening of the hotel:

1997 1998 1999
---- ---- ----

$33.32 $50.70 $50.65

The depreciable real property component of the hotel has a currently
estimated Federal tax basis of $5,287,765 and will be depreciated over a life of
39 years (or less, as permitted by the Internal Revenue Code) using the
straight-line method. The basis of the personal property component of the hotel
will be depreciated in accordance with the modified accelerated cost recovery
system of the Internal Revenue Code.

The following table summarizes the hotel's real estate tax information for
1999:

Tax Estimated Value Taxable Portion Tax Amount
Jurisdiction (tax purposes) (of Estimated Value) Rate Of Tax
- ------------ -------------- -------------------- ---- ------

Madison County $4,044,310 $606,650 0.09917 $60,161.48

We estimate that the annual property tax on the expected improvements will
be approximately $500 or less.

At least six competing hotels are located within seven miles of the hotel.
(The names of the competing franchises, as listed below, may be registered as
service marks or trade names.) One of the competing hotels is newer than the
hotel. The newer competing hotel has a franchise with Townplace Suites. The
other competing hotels have franchises with Residence Inn, Cabot Lodge,
Courtyard by Marriott, Harvey Hotel and Hilton. We believe that the rates
charged by the hotel are generally competitive with the rates charged by these
other hotels. We are aware of ongoing or proposed construction for up to six new
extended-stay hotels within 12 miles of the hotel. We expect these new hotels to
be franchised with Comfort Inn, Hawthorne Suites, Jameson Inn, King Edward
Hotel, Hilton Gardens and Springhill Suites.

S-45

MANAGEMENT'S DISCUSSION AND ANALYSIS

GENERAL

Apple Suites, Inc. (the "company") owns extended-stay hotels. During 1999,
the company acquired 11 hotels with 1,218 suites from Promus Hotels, Inc. or an
affiliate. Promus Hotels, Inc. was subsequently acquired by Hilton Hotels
Corporation ("Hilton") and is now a wholly-owned subsidiary of Hilton. The
hotels were acquired for an aggregate purchase price of $91,426,000. Since
current federal income tax laws prohibit a real estate investment trust from
actively operating hotels, all of the company's hotels are leased to Apple
Suites Management, Inc. or its subsidiary (the "lessee") pursuant to master
hotel lease agreements ("Percentage Leases"). Each Percentage Lease obligates
the lessee to pay rent equal to the sum of a base rent and a percentage rent
based on suite revenues and sundry other revenues of each hotel. The lessee's
ability to make payments to the company pursuant to the Percentage Leases is
dependent primarily upon the operations of the hotels. See Note 9 to the
consolidated financial statements for further lease information.

The lessee holds the franchise and market reservation agreement for each of
the hotels, which are operated as Homewood Suites(R) by Hilton. The lessee
engages a third-party manager, Promus Hotels, Inc. ("Promus"), to operate the
hotels. The company is externally advised and has contracted with Apple Suites
Advisors, Inc. (the "Advisor") to manage its day-to-day operations and make
investment decisions. The company has contracted with Apple Suites Realty Group,
Inc. ("ASRG") to provide brokerage and acquisition services in connection with
its hotel acquisitions. The lessee, the Advisor and ASRG are all owned by Mr.
Glade Knight, the company's Chairman and Chief Executive Officer. See Note 6 to
the consolidated financial statements for further information on related party
transactions.

RESULTS OF OPERATIONS

Apple Suites, Inc. (The Company)

REVENUES: As operations of the company commenced effective September 1,
1999 with the purchase of four hotels, a comparison to 1998 is not possible.
During the period ended December 31, 1999, the company had revenues of
$2,518,031. All of the company's lease revenue is derived from the Percentage
Leases covering the hotels in operations with the lessee.

The company's other income consists of $158,171 of interest income earned
from the investments of its cash and cash reserves and $10,915 of interest
earned from the promissory notes with the lessee for franchise and hotel
supplies.

EXPENSES: The expenses of the company consist of property taxes, insurance,
general and administrative expenses, interest on notes payable, and depreciation
on the hotels. Total expenses, exclusive of interest and depreciation, for the
period ended December 31, 1999 were $580,399 or 22% of total revenue.

Interest expense was $1,245,044 for the period ended December 31, 1999 and
represented interest on short-term notes payable to Hilton at an interest rate
of 8.5%.

S-46

Depreciation expense was $496,209 for the period ended December 31, 1999.

Taxes, insurance, and other was $426,592 for the period ended December 31,
1999 or 16% of total revenue.

General and administrative expense totaled 6% of total revenues. These
expenses represent the administrative expenses of the company. This percentage
is expected to decrease as the company's asset base grows.

Apple Suites Management, Inc. (The Lessee)

The lessee incurred an operating loss for the period ending December 31,
1999 of $141,104 primarily due to the timing of the hotel acquisitions and the
seasonality of the hotel industry. Historically, the hotel industry has seasonal
variations in occupancy that can be expected to cause quarterly fluctuations in
the company's lease revenues, particularly in the fourth quarter.

REVENUES: As operations commenced effective September 1, 1999, a comparison
to 1998 is not possible. Total revenues were $5,671,075 consisting primarily of
suite revenue, which was $5,335,925 for the period ended December 31, 1999.

For the period ended December 31, 1999 the average occupancy rate was 71%,
average daily rate ("ADR") was $83, and revenue per available room ("REVPAR")
was $59.

EXPENSES: Total expenses for the period ended December 31, 1999 were
$5,812,179. Rent expense represents $2,518,031 or 44% of total revenue. The
lessee contracts with Promus to manage the day-to-day operations of the hotels.
The lessee pays Promus fees of 4% of suite revenue for these functions. The
lessee also pays Promus a fee of 4% of suite revenue for franchise licenses to
operate as a Homewood Suites (R) by Hilton and to participate in its reservation
system. Total expense for these services was $653,010 during the period.

LIQUIDITY AND CAPITAL RESOURCES

EQUITY: The company commenced operations effective September 1, 1999 with
the acquisition of four hotels using a combination of proceeds from the
company's ongoing "best efforts" offering and notes. During 1999, the company
sold 3,429,414 shares (1,666,667 shares at $9 per share and 1,762,747 shares at
$10 per share) of its common stock to its investors. Included in the 1,762,747
shares sold is 9,294 common shares sold through the company's additional share
option. The total gross proceeds from the shares sold were $32,627,476, which
netted $28,591,260 to the company after the payment of selling commissions and
other offering costs.

During 1999, the company acquired 11 hotels with a total purchase price of
$91,426,000. In conjunction with these acquisitions, the company executed notes
in the aggregate of $68,569,500.

S-47

The lessee's obligations under the Percentage Leases are unsecured. The
lessee has limited capital resources, and, accordingly its ability to make lease
payments under the Percentage Leases is substantially dependent on the ability
of the lessee to generate sufficient cash flow from operations of the hotels.
The company has certain abilities to cancel the lease with the lessee if the
lessee does not perform under the terms of the lease.

To support the lessee's obligations, the lessee has two funding commitments
of $1 million each from Mr. Knight and ASRG, respectively (together "Payor").
The funding commitments are contractual obligations of the Payor to pay funds to
the lessee. Funds paid to the lessee under the commitments are to be used to
satisfy any capitalization or net worth requirements applicable to the lessee or
the lessee's payment obligations under the lease agreements, do not represent
indebtedness, and are not subject to interest. The funding commitments terminate
upon the expiration of the Master Hotel Lease agreements, written agreement
between the Payor and the lessee, or payment of all commitment amounts by the
Payor to the lessee. As of December 31, 1999, no contributions have been made by
the Payor to the lessee under the funding commitments.

NOTES PAYABLE: On April 20, 1999, the company obtained a line of credit in
a principal amount of $1 million with a commercial bank guaranteed by Mr.
Knight. The line required interest at LIBOR plus 1.50%. Interest was payable
monthly and the principal balance and all accrued interest were paid in full by
September 30, 1999.

In conjunction with purchase of the 11 hotels, notes were executed by the
company made payable to the order of Hilton in the amount of $68,569,500. The
notes bear an effective interest rate of 8.5% per annum. Interest payments are
due monthly. Principal payments are to be made from net proceeds from the
offering of common shares. Hilton, which controls Promus, agreed to defer
principal payments until the earlier of April 29, 1999 or such time as two
additional hotels have been purchased by the company. At December 31, 1999, the
company's borrowings were $68,569,500.

The company has $68.6 million in notes payable with Hilton have principal
payments of $34 million due on October 1, 2000, $30.2 million due on November 1,
2000 and $4.4 million due on January 1, 2001. The company plans to pay these
notes with the proceeds from its continuous "best efforts" offering of common
shares. However, based on the current rate at which equity is being raised by
the offering, the company may have to seek other measures to repay these loans.
The company is currently holding discussions with several lenders to obtain
financing for its hotels and is exploring both unsecured and secured financing
arrangements. Although no firm financing commitments have been received, the
company believes that based on discussions with lenders and other market
indicators it can obtain sufficient financing prior to maturity of the notes.
Obtaining refinancing is dependent upon a number of factors, including: (1)
continued operation of the hotels at or near current occupancy and room rate
levels as the company's leases are based on a percentage of hotel suite income,
(2) general level of interest rates including credit spreads for real estate
based lending, and (3) general economic conditions. For each of the notes
payable, all of the Company's 11 hotels serve as collateral.

CASH AND CASH EQUIVALENTS: Cash and cash equivalents totaled $581,344 at
December

S-48

31, 1999.

CAPITAL REQUIREMENTS: The company has an ongoing capital commitment to fund
its capital improvements. The company is required under the Percentage Leases to
make available to the lessee for the repair, replacement, or refurbishing of
furniture, fixtures, and equipment an amount equal to 5% of suite revenue
monthly on a cumulative basis, provided that such amount may be used for capital
expenditures made by the company with respect to the hotels. The company expects
that this amount will be adequate to fund the required repair, replacement, and
refurbishments and to maintain its hotels in a competitive condition. The
company capitalized improvements of $290,741 in 1999. At December 31, 1999,
$753,926 was held by Hilton, restricted for funding of these improvements.

The company expects to acquire additional hotels during 2000. The company
plans to have monthly equity closings in 2000, until the offering is fully
funded, or until such time as the company may opt to discontinue the offering.
During January and February 2000, the company closed the sale to investors of
335,487 shares at $10 per share representing net proceeds to the company of
$3,019,377. It is anticipated that the equity funds will be invested in
additional hotels and principal payments on the notes incurred in conjunction
with the existing acquisitions.

Capital resources are expected to grow with the future sale of its shares.
Approximately 10% of the 1999 common stock dividend distribution, or $83,646,
was reinvested in additional common shares. In general, the company's liquidity
and capital resources are believed to be more than adequate to meet its cash
requirements during 2000, given current and anticipated financing arrangements.

The company is operated as, and will annually elect to be taxed as, a real
estate investment trust under the Internal Revenue Code. As a result, the
company has no provision for taxes, and thus there is no effect on the company's
liquidity from taxes.

INFLATION: All of the company's Percentage Leases provide, on an annual
basis, for adjustments in the rent payable thereunder, and thus may enable the
company to obtain increased base rents, which generally serves to minimize the
risk to the company of adverse effects of inflation. Operators of hotels, in
general, possess the ability to adjust room rates daily to reflect the effects
of inflation. Competitive pressures may, however, limit the operator's ability
to raise room rates.

SEASONALITY: The hotel industry historically has been seasonal in nature,
reflecting higher occupancy rates primarily during the first three quarters of
the year. Seasonal variations in occupancy at the company's hotels may cause
quarterly fluctuations in the company's lease revenues, particularly during the
fourth quarter, to the extent that it receives percentage rent. To the extent
the cash flow from operations is insufficient during any quarter, due to
temporary or seasonal fluctuations in lease revenue, the company expects to
utilize cash on hand or funds from equity raised through its "best efforts"
offering to make distributions.

IMPACT OF YEAR 2000: The company and lessee completed the year 2000 project
as planned. The company and lessee have not experienced any year 2000 problems
company-wide

S-49

or from external sources and do not anticipate any. The company's total costs
incurred to meet year 2000 compliance were not significant.

MARKET RISK DISCLOSURES: In connection with the acquisition of the 11
hotels, the company incurred $68,569,500 of short-term borrowings at a fixed
interest rate of 8.5%. The company has repricing risk associated with any
refinancing of these debt obligations which have various maturity dates through
January 2001.

REIT MODERNIZATION ACT: In December 1999, the REIT Modernization Act
("RMA") was signed into law legislation. The most important feature of this
legislation to the company is the ability under certain conditions to operate
our hotels through a taxable REIT subsidiary without using a third party lessee.
This provision of the RMA is not effective until after December 31, 2000. Our
current lease agreements provide for termination of the lease agreements for
changes in tax law such as the RMA. Currently, we are evaluating the impact of
the RMA on our operating structure.

S-50

SELECTED FINANCIAL DATA

March 26, 1999 to December 31, 1999 (b)
- --------------------------------------------------------------------------------

Revenues:

Lease revenue $ 2,518,031
Interest income and other revenue 169,086
-----------
Total revenue 2,687,117

Expenses:

Taxes, insurance, and other 426,592
General and administrative 153,807
Depreciation 496,209
Interest 1,245,044
------------
Total expenses 2,321,652

Net income $ 365,465
============

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

Per Share

Earnings per share - basic and diluted $ 0.14
Distributions to common shareholders $ 0.33
Weighted-average common shares outstanding 2,648,196

Balance Sheet Data at December 31, 1999:

Cash and cash equivalents $ 581,344
Investment in hotels, net $ 93,719,632
Total assets $ 99,489,008
Notes payable - secured $ 68,569,500
Shareholders Equity $ 28,098,000

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

Other Data

Cash flow from:
Operating activities $ 548,015
Investing activities $(28,411,941)
Financing activities $ 28,445,170
Number of hotels owned at December 31, 1999 11

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

Funds From Operations Calculation

Net income $ 365,465
Depreciation of real estate owned 496,209
Start-up costs 22,002
------------
Funds from Operations (a) $ 883,676
============

(a) "Funds from operations" is defined as income before gains (losses) on
investments and extraordinary items (computed in accordance with generally
accepted accounting principles) plus real estate depreciation and after
adjustment for significant nonrecurring items, if any. This definition conforms
to the recommendations set forth in a White Paper adopted by the National
Association of Real Estate Investment Trusts (NAREIT). The company considers
funds from operations in evaluating property acquisitions and its operating
performance, and believes that funds from operations should be considered along
with, but not as an alternative to, net income and cash flows as a measure of
the company's operating performance and liquidity. Funds from operations, which
may not be comparable to other similarly titled measures of other REITs, does
not represent cash generated from operating activities in accordance with
generally accepted accounting principles and is not necessarily indicative of
cash available to fund cash needs.

(b) The company was initially capitalized on March 26, 1999; however, operations
did not commence until September 1, 1999.

S-51

UPDATE CONCERNING PRIOR PROGRAMS

The prospectus contains information on prior programs sponsored by Glade M.
Knight to invest in real estate. The information in the prospectus on the prior
programs is generally current as of June 15, 1999 except where a different date
is specified. The following information describes recent developments affecting
these prior programs and is generally current through December 31, 1999 except
where a different date is specified.

As indicated in the prospectus, the information on prior programs should
not be considered to be indicative of our operations, and purchasers of our
common shares will not have any interest in these other programs or in any of
the properties owned by them.

On July 23, 1999, Apple Residential Income Trust, Inc. was merged into a
subsidiary of Cornerstone Realty Income Trust, Inc. Thus, as a result of that
merger, Apple Residential Income Trust, Inc. ceased to exist and its properties
became properties of Cornerstone Realty Income Trust, Inc.

As of February 29, 2000, Cornerstone had approximately 18,000 holders of
its common shares and approximately 10,000 holders of its preferred shares. Its
common shares are listed and traded on the New York Stock Exchange under the
symbol "TCR," but its preferred shares are not listed. At December 31, 1999,
Cornerstone owned a total of 87 apartment communities in Georgia, North
Carolina, South Carolina and Virginia. On March 10, 2000, Cornerstone sold 16
apartment communities and now owns 71 apartment communities as of the date of
this supplement.

As indicated in the prospectus, on June 15, 1999, Mr. Knight had ceased to
hold an interest in all but one of the 40 privately-offered partnerships
sponsored by him. Mr. Knight disposed of his interest in that one remaining
partnership during 1999.

For more information, prospective investors should refer to the updated
tabular information on prior programs sponsored by Mr. Knight that appears
immediately after this paragraph. In addition, Part II of our Registration
Statement (which is not included in the prospectus or this supplement) contains
a more detailed summary of the property acquisitions by Cornerstone Realty
Income Trust, Inc. and Apple Residential Income Trust, Inc. that occurred on or
before December 31, 1999. Also included is information on the acquisition by
Cornerstone Realty Income Trust, Inc. of the properties owned by Apple
Residential Income Trust, Inc. as a result of the merger described above. We
will provide a copy of the summary of property acquisitions without charge upon
request of any investor or prospective investor.

S-52

TABLE I: EXPERIENCE IN RAISING AND INVESTING FUNDS

Table I presents a summary of the funds raised and the use of those funds
by Cornerstone and Apple, whose investment objectives are similar to those of
the Company and whose offering closed within the three years ending December 31,
1999.

Cornerstone Apple
---------------------------- -----------------------

Dollar amount offered $409,409,897 $300,000,000
Dollar amount raised $409,409,897 $302,867,348*

LESS OFFERING EXPENSES:

Selling commissions and discounts 6.79% 10.00%
Organizational expenses 2.82% 1.00%
Other 0.00% 0.00%
Reserves 3.00% 0.50%
Percent available from investment 87.39% 88.50%

ACQUISITION COSTS:

Prepaid items and fees to purchase property 86.27% 86.50%
Cash down payment 0.00% 0.00%
Acquisition fees 1.12% 2.00%
Other 0.00% 0.00%
Total Acquisition Costs 87.39% 88.50%
Percentage leverage (excluding unsecured debt) 11.43% 10.84%
Date offering began May 1993 January 1997
Length of offering (in months) 66 31
Months to invest amount available for investment 66 31

* Amount includes shares purchased by Cornerstone Realty Income Trust, Inc.
exclusive of the offering.

S-53

TABLE II: COMPENSATION TO SPONSOR AND ITS AFFILIATES

Table II summarizes the compensation paid to the Prior Program Sponsor
and its Affiliates (i) by programs organized by it and closed within the three
years ended December 31, 1999, and (ii) by all other programs during the three
years ended December 31, 1999

Cornerstone Apple Other Programs
-------------------- --------------------- ---------------------

Date offering commenced May 1993 January 1997 Various
Dollar Amount raised $409,409,897 $302,867,348 $9,868,220

AMOUNTS PAID TO PRIOR PROGRAM SPONSOR FROM
PROCEEDS OF OFFERING:
Acquisition fees

Real estate commission $ 4,075,337 $ 4,882,032 $ --
Advisory fees $ 515,689 $ 1,140,874 $ --
Other $ -- $ -- $ --
Cash generated from operations before deducting

AGGREGATE COMPENSATION TO PRIOR PROGRAM SPONSOR:

Management and accounting fees $ 3,088,348 $3,859,448 $2,828,330
Reimbursements $ 2,717,655 $ -- $ --
Leasing fees $ -- $ -- $ --
Other fees $ -- $ -- $ --
There have been no fees from property sales or
refinancings

S-54

TABLE III: OPERATING RESULTS OF PRIOR PROGRAMS

Table III presents a summary of the annual operating results for
Cornerstone and Apple, the offerings closed in the five years ending December
31, 1999. Table III is shown on both an income tax basis as well as in
accordance with generally accepted accounting principles, the only significant
difference being the methods of calculating depreciation.

1999 1999 1998 1998 1997 1997 1996 1995
Cornerstone Apple Cornerstone Apple Cornerstone Apple Cornerstone Cornerstone
-----------------------------------------------------------------------------------------------------

Capital contributions by year $9,168,728 $32,497,218 $38,905,636 $142,800,094 $63,485,868 $109,090,359 $144,798,035 $71,771,027
Gross revenue 125,041,524 26,243,431 93,637,948 30,764,904 71,970,624 12,005,968 40,261,674 16,266,610
Operating expenses 46,940,388 15,307,051 33,797,439 14,958,699 27,339,955 5,993,492 17,198,882 7,457,574
Interest income (expense) (14,953,613) (302,919)(12,175,940) 900,669 (7,230,205) (235,708) (1,140,667) (68,061)
Depreciation 29,310,325 5,893,349 20,741,130 5,788,476 15,163,593 1,898,003 8,068,063 2,788,818
Net income (loss) GAAP basis 30,037,102 (16,328,050) 23,210,642 10,079,908 19,225,553 3,499,194 (4,169,849) 5,229,715
Taxable income -- -- -- -- -- -- -- --
Cash generated from operations 62,310,895 10,680,641 45,027,655 17,122,276 34,973,533 7,075,025 20,162,776 9,618,956

Less cash distributions to 42,050,415 19,346,455 38,317,602 13,040,936 31,324,870 3,249,098 15,934,901 6,316,185
Cash generated after cash 20,260,480 (8,665,814) 6,710,053 4,081,340 3,648,663 3,825,927 4,227,875 3,302,771
Special items

Capital contributions, net 9,168,728 32,497,218 38,905,636 142,800,094 63,485,868 109,090,359 144,798,035 71,771,027
Fixed asset additions 332,558,553 44,755,816 97,863,162 125,017,627 157,859,343 88,753,814 194,519,406 75,589,089
Line of credit (44,392,999) -- 50,323,852 -- 96,166,147 -- 41,603,000 3,300,000
Cash generated 13,677,972 (21,366,155) (1,923,622) 15,910,626 1,331,335 24,162,472 (3,890,496) 2,784,709
End of period cash $16,268,336 $18,707,044 $2,590,364 $40,073,198 $4,513,986 $24,162,572 $3,182,651 $7,073,147
Tax and distribution data
Cash distributions to investors
Investment income 95 46 82 -- 77 -- 85 80
Return of capital 12 21 21 82 23 60 14 16
Source (on Cash basis)
Sales -- -- -- -- -- -- --
Refinancings -- -- -- -- -- -- --
Operations 107 67 103 82 100 60 99 96
Other -- -- -- -- -- -- --

S-55

TABLE IV: RESULTS OF COMPLETED PROGRAMS

Table IV shows the results of programs sponsored by affiliates of ASA which
completed operations in the five years ending December 31, 1999. All of these
programs had investment objectives dissimilar to those of the Company.

Mountain Teal
Program Name View Westfield Sunstone Point Apple
------------------------------------------------------------------------

Dollar amount raised $2,605,800 $1,825,600 $1,890,000 $3,310,620 $302,867,348
Number of properties 1 1 1 1 29
Date of closing of offering Oct 1984 Nov 1984 July 1984 Dec 1989 Jan 1997
Date of first sale of property Aug 1995 Apr 1996 Nov 1995 Dec 1997 July 1999
Date of final sale of property Aug 1995 Apr 1996 Nov 1995 Dec 1997 July 1999

Tax and Distribution data per $1,000
investment through-
Federal income tax results:
Ordinary income
From Operations $68 $80 $122 $(4) $46
From recapture $1,200 $1,302 $526 $-- $21
Capital gain $-- $-- $-- $2,126 $--
Deferred gain
Capital $-- $-- $-- $-- $--
Ordinary $-- $-- $-- $-- $--

Cash distributions to investors
Source(On GAAP basis)
Investment income $68 $80 $122 $(4) $46
Return of capital $38 $233 $-- $-- $21
Source (On cash basis)
Sales $38 $233 $122 $2,126 $--
Refinancing $-- $-- $-- $-- $--
Operations $68 $80 $-- $(4) $67
Other $-- $-- $-- $-- $--

Receivable on net purchase money
financing $-- $-- $-- $-- $--

S-56

TABLE V: SALES OR DISPOSALS OF PROPERTIES

On July 23, 1999, Apple Residential Income Trust, Inc. merged with a
wholly-owned subsidiary of Cornerstone Realty Income Trust, Inc. Prior to the
merger, Apple owned 29 apartment communities containing 7,503 apartment homes.
The aggregate acquisition price in the merger was $311 million. In addition,
Apple's debt of approximately $32 million was assumed by Cornerstone.

EXPERTS

The following financial statements for our hotels are set forth below:
(a) combined financial statements pertaining to the Atlanta -
Galleria/Cumberland; Dallas - Addison; Dallas - Irving/Las Colinas; North Dallas
- - Plano; and Richmond - West End hotels; (b) combined financial statements
pertaining to the Atlanta - Peachtree, Baltimore - BWI Airport, Clearwater,
Detroit - Warren, and Salt Lake City - Midvale hotels; and (c) the financial
statements for the Jackson - Ridgeland hotel. These financial statements have
been included herein in reliance on the report of L. P. Martin & Company, P.C.,
independent certified public accountants, which is also included herein, and
upon the authority of that firm as an expert in accounting and auditing.

Ernst & Young LLP, independent auditors, have audited Apple Suites,
Inc.'s consolidated financial statements and schedule at December 31, 1999 and
March 26, 1999, and for the period March 26, 1999 through December 31, 1999, as
set forth in their report. We've included our financial statements and schedule
in the prospectus supplement and elsewhere in the registration statement in
reliance on Ernst & Young LLP's report, given on their authority as experts in
accounting and auditing.

Ernst & Young LLP, independent auditors, have audited Apple Suites
Management, Inc.'s consolidated financial statements at December 31, 1999 and
for the period March 11, 1999 through December 31, 1999, as set forth in their
report. We've included those financial statements in the prospectus supplement
and elsewhere in the registration statement in reliance on Ernst & Young LLP's
report, given on their authority as experts in accounting and auditing.

S-57

APPLE SUITES, INC.

INDEX TO FINANCIAL STATEMENTS

Page
----

PROPERTY FINANCIAL STATEMENTS

Atlanta - Galleria/Cumberland; Dallas - Addison; Dallas - Irving/Las Colinas;
North Dallas - Plano; Richmond - West End

Independent Auditors' Report.....................................................................F-4

Combined Balance Sheets - December 31, 1998 and December 31, 1997................................F-5

Combined Statements of Shareholders' Equity - Years ended
December 31, 1997 and December 31, 1998..........................................................F-6

Combined Income Statements - Years ended
December 31, 1998 and December 31, 1997..........................................................F-7

Combined Statements of Cash Flows - Years ended
December 31, 1998 and December 31, 1997..........................................................F-8

Notes to the Combined Financial Statements - December 31, 1998
and December 31, 1997............................................................................F-9

Combined Balance Sheet - June 30, 1999 (unaudited)...............................................F-12

Combined Statement of Shareholders' Equity - For the Period
January 1, 1999 through June 30, 1999 (unaudited)................................................F-13

Combined Income Statement - For the Period
January 1, 1999 through June 30, 1999 (unaudited)................................................F-14

Combined Statement of Cash Flows - For the Period
January 1, 1999 through June 30, 1999 (unaudited)................................................F-15

Notes to the Combined Financial Statements - For the Period
January 1, 1999 through June 30, 1999 (unaudited)................................................F-16

Atlanta - Peachtree, Baltimore - BWI Airport,
Clearwater, Detroit - Warren, and Salt Lake City - Midvale

Independent Auditors' Report.....................................................................F-18

Combined Balance Sheets - December 31, 1998 and December 31, 1997................................F-19

Combined Statements of Shareholders' Equity - Years ended
December 31, 1997 and December 31, 1998..........................................................F-20

Combined Income Statements - Years ended
December 31, 1998 and December 31, 1997..........................................................F-21

F-1

Combined Statements of Cash Flows - Years ended
December 31, 1998 and December 31, 1997..........................................................F-22

Notes to the Combined Financial Statements - December 31, 1998
and December 31, 1997............................................................................F-23

Combined Balance Sheet - August 31, 1999 (unaudited).............................................F-25

Combined Statement of Shareholders' Equity - For the Period
January 1, 1999 through August 31, 1999 (unaudited)..............................................F-26

Combined Income Statement - For the Period
January 1, 1999 through August 31, 1999 (unaudited)..............................................F-27

Combined Statement of Cash Flows - For the Period
January 1, 1999 through August 31, 1999 (unaudited)..............................................F-28

Notes to the Combined Financial Statements - For the Period
January 1, 1999 through August 31, 1999 (unaudited)..............................................F-29

Jackson - Ridgeland

Independent Auditors' Report.....................................................................F-31

Balance Sheets - December 31, 1998 and December 31, 1997.........................................F-32

Statements of Shareholders' Equity - Years ended
December 31, 1997 and December 31, 1998..........................................................F-33

Income Statements - Years ended
December 31, 1998 and December 31, 1997..........................................................F-33

Statements of Cash Flows - Years ended
December 31, 1998 and December 31, 1997..........................................................F-34

Notes to the Financial Statements - December 31, 1998
and December 31, 1997............................................................................F-35

Balance Sheet - August 31, 1999 (unaudited)......................................................F-37

Statement of Shareholders' Equity - For the Period
January 1, 1999 through August 31, 1999 (unaudited)..............................................F-38

Income Statement - For the Period
January 1, 1999 through August 31, 1999 (unaudited)..............................................F-38

Statement of Cash Flows - For the Period
January 1, 1999 through August 31, 1999 (unaudited)..............................................F-39

F-2

Notes to the Financial Statements - For the Period
January 1, 1999 through August 31, 1999 (unaudited)..............................................F-40

APPLE SUITES, INC.

Report of Independent Auditors...................................................................F-42

Consolidated Balance Sheets as of December 31, 1999 and March 26, 1999...........................F-43

Consolidated Statement of Operations for the Period March 26, 1999
through December 31, 1999........................................................................F-44

Consolidated Statement of Shareholders Equity for the Period March 26, 1999
through December 31, 1999........................................................................F-45

Consolidated Statement of Cash Flows for the Period March 26, 1999
through December 31, 1999........................................................................F-46

Notes to the Consolidated Financial Statements...................................................F-47

Schedule III -- Real Estate and Accumulated Depreciation (as of December 31, 1999)........................F-59

APPLE SUITES MANAGEMENT, INC.

Report of Independent Auditors...................................................................F-60

Consolidated Balance Sheet as of December 31, 1999...............................................F-61

Consolidated Statement of Operations and Retained Deficit for the Period
March 11, 1999 through December 31, 1999.........................................................F-62

Consolidated Statement of Cash Flows for the Period March 11, 1999
through December 31, 1999........................................................................F-63

Notes to Consolidated Financial Statements.......................................................F-64

PRO FORMA FINANCIAL STATEMENTS (UNAUDITED)

Apple Suites, Inc. Pro Forma Condensed Consolidated Statement of Operations
for the Years Ended December 31, 1999............................................................F-68

Apple Suites Management, Inc. Pro Forma Condensed Consolidated Statement
of Operations for the Years Ended December 31, 1999..............................................F-71

F-3

L.P. MARTIN & COMPANY
A PROFESSIONAL CORPORATION
MEMBERS CERTIFIED PUBLIC ACCOUNTANTS MEMBERS
VIRGINIA SOCIETY OF 4132 INNSLAKE DRIVE AMERICAN INSTITUTE OF
CERTIFIED PUBLIC ACCOUNTANTS GLEN ALLEN, VIRGINIA 23060 CERTIFIED PUBLIC ACCOUNTANTS
LEE P. MARTIN, JR., C.P.A. PHONE: (804) 346-2626 ROBERT C. JOHNSON, C.P.A.
WILLIAM L. GRAHAM, C.P.A. LEE P. MARTIN, C.P.A. (1948-78)
BERNARD G. KINZIE, C.P.A. FAX (804) 346-9311
W. BARCLAY BRADSHAW, C.P.A.

INDEPENDENT AUDITORS' REPORT

Apple Suites, Inc.
Richmond, Virginia

We have audited the accompanying combined balance sheets of the Homewood
Suites Acquisition Hotels (described in Note 1) as of December 31, 1998 and
1997, and the related combined statements of income, shareholders' equity and
cash flows for the years then ended. These financial statements are the
responsibility of the management of the hotels. Our responsibility is to express
an opinion on these financial statements based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion. The
accompanying financial statements were prepared for the purpose of complying
with the rules and regulations of the Securities and Exchange Commission as
described in Note 1 to the financial statements and are not intended to be a
complete presentation of the Homewood Suites Acquisition Hotels.

In our opinion, the financial statements referred to above present fairly,
in all material respects, the combined financial position of the Homewood Suites
Acquisition Hotels as of December 31, 1998 and 1997, and the combined results of
their operations and their cash flows for the years then ended in conformity
with generally accepted accounting principles.

/s/ L.P. Martin & Co., P.C.

August 23, 1999

F-4

HOMEWOOD SUITES ACQUISITION HOTELS

COMBINED BALANCE SHEETS

DECEMBER 31,
----------------------------------
1998 1997
---------------- ---------------

ASSETS
CURRENT ASSETS
Cash .................................................. $ 374,092 $ 393,079
Accounts Receivable, Net .............................. 714,718 330,540
Prepaids and Other .................................... 8,355 15,904
------------- ------------
Total Current Assets ............................... 1,097,165 739,523
------------- ------------
INVESTMENT IN HOTEL PROPERTIES
Land and Improvements ................................. 8,031,122 7,454,360
Buildings and Improvements ............................ 29,091,731 22,188,107
Furniture, Fixtures and Equipment ..................... 10,822,281 8,417,814
------------- ------------
Total .............................................. 47,945,134 38,060,281
============= ============
Less: Accumulated Depreciation ........................ (11,098,460) (8,704,166)
------------- ------------
Net Investment in Hotel Properties ................. 36,846,674 29,356,115
------------- ------------
OTHER ASSETS
Construction in Progress .............................. -- 5,994,799
------------- ------------
Total Assets ....................................... $ 37,943,839 $ 36,090,437
============= ============
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts Payable ...................................... $ 440,076 $ 845,173
Accrued Taxes ......................................... 997,897 787,680
Accrued Expenses -- Other ............................. 252,761 158,670
------------- ------------
Total Current Liabilities .......................... 1,690,734 1,791,523
------------- ------------
SHAREHOLDERS' EQUITY
Contributed Capital ................................... 11,000,030 12,499,235
Retained Earnings ..................................... 25,253,075 21,799,679
------------- ------------
Total Shareholders' Equity ......................... 36,253,105 34,298,914
------------- ------------
Total Liabilities and Shareholders' Equity ......... $ 37,943,839 $ 36,090,437
============= ============

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

F-5

HOMEWOOD SUITES ACQUISITION HOTELS

COMBINED STATEMENTS OF SHAREHOLDERS' EQUITY

TOTAL
CONTRIBUTED RETAINED SHAREHOLDERS'
CAPITAL EARNINGS EQUITY
--------------- -------------- --------------

Balances, January 1, 1997 ........... $ 5,966,169 $17,961,115 $ 23,927,284
Net Income .......................... -- 3,838,564 3,838,564
Capital Contributions, Net .......... 6,533,066 -- 6,533,066
------------ ----------- ------------
Balances, December 31, 1997 ......... 12,499,235 21,799,679 34,298,914
Net Income .......................... -- 3,453,396 3,453,396
Capital Distributions, Net .......... (1,499,205) -- (1,499,205)
------------ ----------- ------------
Balances, December 31, 1998 ......... $ 11,000,030 $25,253,075 $ 36,253,105
============ =========== ============

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

F-6

HOMEWOOD SUITES ACQUISITION HOTELS

COMBINED INCOME STATEMENTS

YEARS ENDED DECEMBER 31,
-------------------------------
1998 1997
-------------- --------------

GROSS OPERATING REVENUE
Suite Revenue ........................................................... $14,075,852 $10,683,420
Other Customer Revenue .................................................. 811,817 555,232
----------- -----------
Total Revenue ........................................................ 14,887,669 11,238,652
----------- -----------
EXPENSES
Property and Operating .................................................. 5,586,712 3,843,073
General and Administrative .............................................. 348,088 208,174
Advertising and Promotion ............................................... 648,273 476,762
Utilities ............................................................... 626,269 473,887
Real Estate and Personal Property Taxes, and Property Insurance ......... 1,040,638 789,462
Depreciation Expense .................................................... 2,394,294 1,487,077
Franchise Fees .......................................................... 563,035 --
Pre-Opening Expenses .................................................... 226,964 121,653
----------- -----------
Total Expenses ....................................................... 11,434,273 7,400,088
----------- -----------
Net Income ........................................................... $ 3,453,396 $ 3,838,564
=========== ===========

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

F-7

HOMEWOOD SUITES ACQUISITION HOTELS

COMBINED STATEMENTS OF CASH FLOWS

YEARS ENDED DECEMBER 31,
---------------------------------
1998 1997
--------------- ---------------

CASH FLOWS FROM (TO) OPERATING ACTIVITIES
Net Income ................................................ $ 3,453,396 $ 3,838,564
------------ ------------
Adjustments to Reconcile Net Income to Net Cash Provided by
Operating Activities:
Depreciation ............................................ 2,394,294 1,487,077
Change In:
Accounts Receivable ..................................... (384,178) (138,055)
Prepaids and Other Current Assets ....................... 7,549 (7,691)
Accounts Payable ........................................ (405,097) 38,368
Accrued Taxes ........................................... 210,217 195,246
Accrued Expenses -- Other ............................... 94,091 (1,058)
------------ ------------
Net Adjustments ......................................... 1,916,876 1,573,887
------------ ------------
Net Cash Flows from Operating Activities ............... 5,370,272 5,412,451

CASH FLOWS TO FINANCING ACTIVITIES
Capital Distributions, Net ................................ (5,389,259) (5,266,712)
------------ ------------
Net Increase (Decrease) in Cash ........................ (18,987) 145,739
Cash, Beginning of Year ................................ 393,079 247,340
------------ ------------
Cash, End of Year ...................................... $ 374,092 $ 393,079
============ ============
SUPPLEMENTAL DISCLOSURES:
Noncash Financing and Investing Activities ................

December 31, 1997 construction in progress totaling $5,994,799 was
reclassified to investment in hotel properties during 1998.

Investment in hotel properties totaling $3,890,054 in 1998 and $11,799,781
in 1997 was financed with capital contributions.

During 1997, the hotels disposed of fully depreciated furniture, fixtures
and equipment in the amount of $503,106.

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

F-8

HOMEWOOD SUITES ACQUISITION HOTELS
NOTES TO THE COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997

NOTE 1 -- ORGANIZATION AND BASIS OF PRESENTATION

The Homewood Suites Acquisition Hotels (the Hotels) consist of the
following:

PROPERTY HOTEL LOCATION DATE OPENED # OF SUITES
- -------------------------------- ---------------------- ------------- ------------

Atlanta - Galleria/ Cumberland Atlanta, Georgia 1990 124
Dallas - Addison Addison, Texas 1990 120
Dallas - Los Colinas Irving, Texas 1990 136
North Dallas - Plano Plano, Texas April, 1997 99
Richmond - West End Glen Allen, Virginia May, 1998 123

The Owner purchased the North Dallas-Plano hotel October 1, 1997. The
financial statements include the results of the operations from this date
forward.

The Hotels specialize in providing extended stay lodging to business or
leisure travelers. While customers may rent rooms for a night, terms of up to a
month or longer are available. Services offered, which are particularly
attractive to the extended stay traveler, include laundry services, 24 hour on
site convenience stores and grocery shopping services.

The Hotels have been owned and managed by various affiliates of Promus
Hotels, Inc. (the Owner) throughout the financial statement periods. The
accompanying combined financial statements of the Hotels have been presented on
a combined basis because the Owner has a contract pending to sell the five
hotels to Apple Suites, Inc., a real estate investment trust established to
acquire equity interests in hotel properties. The statements have been prepared
pursuant to the rules and regulations of the Securities and Exchange Commission
for inclusion in a filing by Apple Suites, Inc.

The corporate owner pays income taxes on taxable income of the company as a
whole and does not allocate income taxes to individual properties. Accordingly,
the combined financial statements have been presented on a pretax basis.

NOTE 2 -- SIGNIFICANT ACCOUNTING POLICIES

Property -- The Hotel properties are recorded at cost. Depreciation has
been recorded straight-line using the following lives:

LIFE
------------
Land Improvements .......................... 12-15 Years
Buildings and Improvements ................. 30-35 Years
Furniture, Fixtures and Equipment .......... 3-10 Years

Major renewals, betterments and improvements are capitalized while ongoing
maintenance and repairs are expensed as incurred. Building costs include
interest capitalized during the construction period. Construction in progress
represents Hotel properties under construction. At the point construction is
completed and the Hotels are ready to be placed in service, the costs are
reclassified to investment in Hotel properties for financial statement
presentation.

Estimates -- The preparation of financial statements in accordance with
generally accepted accounting principals requires management to make estimates
and assumptions that affect the reported amounts of assets, liabilities,
revenues and expenses and disclosures related thereto. Actual results could
differ from those estimates.

Annually, management of the hotels reviews the carrying value and remaining
depreciable lives of the Hotel properties and related assets. Management does
not believe there are any current indications of impairment. However, it is
possible that estimates of the remaining useful lives will change in the near
term.

F-9

HOMEWOOD SUITES ACQUISITION HOTELS

NOTES TO THE COMBINED FINANCIAL STATEMENTS DECEMBER 31, 1998
AND 1997 - (CONTINUED)

NOTE 2 -- SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)

Accounts receivable are recorded net of an allowance for doubtful accounts
based on management's historical experience in estimating credit losses. Actual
uncollectible balances written off may be more or less than the allowance
recorded.

Cash -- Cash includes all highly liquid investments with a maturity date of
three months or less when purchased.

Advertising -- Advertising costs are expensed in the period incurred.

Pre-Opening Costs -- Pre-opening costs represent operating expenses
incurred prior to initial opening of the hotels. In 1998, pre-opening expenses
of $226,964 for the Richmond-West End hotel were expensed as incurred. In 1997,
pre-opening expenses of $66,045 for the North Dallas - Plano hotel and
pre-opening expenses of $55,608 for the Richmond - West End hotel were expensed
as incurred.

Inventories -- The Hotels maintain supplies of room linens and food and
beverages. However, due to the ongoing routine replacement of these items and
the difficulty in establishing market values, management has chosen to expense
these items at point of purchase.

NOTE 3 -- RELATED PARTY TRANSACTIONS

The Owner allocates a monthly accounting fee of $1,000 to each hotel. These
fees totaled $56,000 in 1998 and $39,000 in 1997. The Owner also charges each
Hotel a fee for corporate advertising, training and reservations equal to four
percent of net suite revenue. These fees totaled $566,569 in 1998 and $427,337
in 1997. In 1998, the Owner charged a franchise fee of $563,035 to these hotels,
also computed at four percent of suite revenue. No franchise fee was charged in
1997. Effective in 1999, the Owner will be charging a "base management fee" of
three percent of suite revenue to each hotel.

The acquisition costs of the properties and related furnishings and
equipment was financed by the owner. For all properties, excluding North Dallas
- - Plano which was a purchased project, the owner allocated interest to each
property on monies advanced to fund the construction costs. The interest costs
have been capitalized and depreciated in accordance with the Hotels' normal
depreciation policy. During 1998, interest capitalized and included in the cost
basis of the Richmond-West End hotel totaled $445,782.

Each Hotel maintains a depository bank account into which customer revenues
have been deposited. The bulk of each Hotel's operating expenditures are paid
through the Owner's corporate accounts. Funds are transferred from the Hotel's
depository bank accounts to the owner periodically. The transfers to the owner
and expenditures made on behalf of the Hotels by the Owner are accounted for
through various intercompany accounts. No interest has been charged on these
intercompany advances from ongoing operations. There is no intention to repay
any advances to or from the owner. Accordingly, the net amounts have been
included in shareholders' equity with 1998 and 1997 intercompany/intracompany
transfers being reflected as net capital contributions or distributions.

NOTE 4 -- CONCENTRATIONS AND CONTINGENCIES

Approximately sixty percent of the Richmond-West End hotel's revenues are
from Capital One Financial Corporation, a non affiliated entity.

The Hotels' depository bank accounts are maintained with two financial
institutions; Bank of America and First Union. A concentration of credit risk
exists to the extent that cash deposits exceed amounts insured by FDIC; $100,000
per financial institution. At December 31, 1998, cash deposits exceeded FDIC
insurable amounts by $150,132 and $170,079, respectively.

F-10

HOMEWOOD SUITES ACQUISITION HOTELS

NOTES TO THE COMBINED FINANCIAL STATEMENTS DECEMBER 31, 1998
AND 1997 - (CONTINUED)

NOTE 4 -- CONCENTRATIONS AND CONTINGENCIES -- (CONTINUED)

The general contractor who constructed the Richmond-West End hotel has
filed a $3,800,000 lien against the property. Management believes that the
general contractor's case is grossly exaggerated and that the matter will be
satisfactorily resolved in a prompt manner. Management also believes that in the
event they are unable to prevail entirely, any aspect of the claim should not
have a material adverse affect on the Hotels' financial position or results of
operations.

F-11

HOMEWOOD SUITES ACQUISITION HOTELS

COMBINED BALANCE SHEET (UNAUDITED)
JUNE 30, 1999

ASSETS
Current Assets
Cash .................................................. $ 326,301
Accounts Receivable, Net .............................. 727,247
Prepaids and Other .................................... 6,050
-------------
Total Current Assets ................................ 1,059,598
-------------
Investment in Hotel Properties .........................
Land and Improvements ................................. 8,044,305
Buildings and Improvements ............................ 29,188,026
Furniture, Fixtures and Equipment ..................... 11,401,756
-------------
Total ............................................... 48,634,087
Less: Accumulated Depreciation ........................ (12,435,726)
-------------
Net Investment in Hotel Properties .................. 36,198,361
-------------
Total Assets ........................................ $ 37,257,959
=============

LIABILITIES AND SHAREHOLDERS' EQUITY

Current Liabilities
Accounts Payable ..................................... $ 283,849
Accrued Taxes ........................................ 673,966
Accrued Expenses - Other ............................. 298,719
-------------
Total Current Liabilities .......................... 1,256,534
-------------
Shareholders' Equity ..................................
Contributed Capital .................................. 9,074,634
Retained Earnings .................................... 26,926,791
-------------
Total Shareholders' Equity ......................... 36,001,425
-------------
Total Liabilities and Shareholders' Equity ......... $ 37,257,959
=============

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

F-12

HOMEWOOD SUITES ACQUISITION HOTELS

COMBINED STATEMENT OF SHAREHOLDERS' EQUITY (UNAUDITED)
FOR THE PERIOD JANUARY 1, 1999 THROUGH JUNE 30, 1999

TOTAL
CONTRIBUTED RETAINED SHAREHOLDERS'
CAPITAL EARNINGS EQUITY
--------------- -------------- --------------

Balances, January 1, 1999 .......... $ 11,000,030 $25,253,075 $ 36,253,105
Net Income ......................... -- 1,673,716 1,673,716
Capital Distributions, Net ......... (1,925,396) -- (1,925,396)
------------ ----------- ------------
Balances, June 30, 1999 ............ $ 9,074,634 $26,926,791 $ 36,001,425
============ =========== ============

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

F-13

HOMEWOOD SUITES ACQUISITION HOTELS

COMBINED INCOME STATEMENT (UNAUDITED)
FOR THE PERIOD JANUARY 1, 1999 THROUGH JUNE 30, 1999

GROSS OPERATING REVENUE
Suit Revenue ............................................................ $ 7,364,098
Other Customer Revenue .................................................. 420,072
-----------
Total Revenue ......................................................... 7,784,170
-----------
EXPENSES
Property and Operating .................................................. 2,845,653
General and Administrative .............................................. 187,738
Advertising and Promotion ............................................... 329,239
Utilities ............................................................... 265,585
Real Estate and Personal Property Taxes, and Property Insurance ......... 616,949
Depreciation Expense .................................................... 1,337,266
Franchise and Management Fees ........................................... 528,024
-----------
Total Expenses ........................................................ 6,110,454
-----------
Net Income ............................................................ $ 1,673,716
===========

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

F-14

HOMEWOOD SUITES ACQUISITION HOTELS

COMBINED STATEMENT OF CASH FLOWS (UNAUDITED)
FOR THE PERIOD JANUARY 1, 1999 THROUGH JUNE 30, 1999

CASH FLOWS FROM (TO) OPERATING ACTIVITIES
Net Income .......................................................... $ 1,673,716
------------
Adjustments to Reconcile Net Income to Net Cash Provided by Operating
Activities:
Depreciation ...................................................... 1,337,266
Change in:
Accounts Receivable ............................................... (12,529)
Prepaids and Other Current Assets ................................. 2,305
Accounts Payable .................................................. (156,227)
Accrued Taxes ..................................................... (323,931)
Accrued Expenses - Other .......................................... 45,958
------------
Net Adjustments ..................................................... 892,842
------------
Net Cash Flows from Operating
Activities ....................................................... 2,566,558
CASH FLOWS FROM (TO) FINANCING ACTIVITIES
Net Equity Distributions ............................................ (2,614,349)
------------
Net Decrease in Cash .............................................. (47,791)
Cash, January 1, 1999 ............................................. 374,092
------------
Cash, June 30, 1999 ............................................... $ 326,301
============
SUPPLEMENTAL DISCLOSURES:
Noncash Financing and Investing Activities

During the period January 1, 1999 through June 30, 1999, additions to
Investment in Hotel Properties totaling $688,953 were financed with capital
contributions.

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

F-15

HOMEWOOD SUITES ACQUISITION HOTELS
NOTES TO THE COMBINED FINANCIAL STATEMENTS (UNAUDITED)
FOR THE PERIOD JANUARY 1, 1999 THROUGH JUNE 30, 1999

NOTE 1 -- ORGANIZATION AND BASIS OF PRESENTATION

The Homewood Suites Acquisition Hotels (the Hotels) consist of the
following:

PROPERTY HOTEL LOCATION DATE OPENED # OF SUITES
- ------------------------- ---------------------- ------------- ------------

Atlanta - Galleria/
Cumberland Atlanta, Georgia 1990 124
Dallas - Addison Addison, Texas 1990 120
Dallas - Los Colinas Irving, Texas 1990 136
North Dallas - Plano Plano, Texas April, 1997 99
Richmond - West End Glen Allen, Virginia May, 1998 123

The Hotels have been owned and managed by various affiliates of Promus
Hotels, Inc. (the Owner) throughout the financial statement period. The
accompanying combined financial statements of the Hotels have been presented on
a combined basis because the Owner has a contract pending to sell the five
hotels to Apple Suites, Inc., a real estate investment trust established to
acquire equity interests in hotel properties. The statements have been prepared
pursuant to the rules and regulations of the Securities and Exchange Commission
for inclusion in a filing by Apple Suites, Inc.

NOTE 2 -- SIGNIFICANT ACCOUNTING POLICIES

Property -- The Hotel properties are recorded at cost. Depreciation has
been recorded straight-line using the following lives:

LIFE
------------
Land Improvements .......................... 12-15 Years
Buildings and Improvements ................. 30-35 Years
Furniture, Fixtures and Equipment .......... 3-10 Years

F-16

HOMEWOOD SUITES ACQUISITION HOTELS

NOTES TO THE COMBINED FINANCIAL STATEMENTS (UNAUDITED) FOR THE
PERIOD JANUARY 1, 1999 THROUGH JUNE 30, 1999 - (CONTINUED)

NOTE 2 -- SIGNIFICANT ACCOUNTING POLICIES -- CONTINUED

Cash -- Cash includes all highly liquid investments with a maturity date of
three months or less when purchased.

Advertising -- Advertising costs are expensed in the period incurred.

NOTE 3 -- RELATED PARTY TRANSACTIONS

During the period January 1, 1999 through June 30, 1999, the following fees
were expensed to the owner.

FEE TYPE BASIS FOR DETERMINATION TOTAL EXPENSE
- ----------------------------------- ---------------------------- --------------

Accounting Fees $1,000 per hotel per month $ 30,000
Corporate Advertising, Training
and Reservations 4% of net suite revenue 294,568
Franchise Fees 4% of net suite revenue 294,568
Management Fees 3% of net suite revenue 233,456

Each Hotel maintains a depository bank account into which customer revenues
have been deposited. The bulk of each Hotel's operating expenditures are paid
through the Owner's corporate accounts. Funds are transferred from the Hotel's
depository bank accounts to the owner periodically. The transfers to the owner
and expenditures made on behalf of the Hotels by the Owner are accounted for
through various intercompany accounts. No interest has been charged on these
intercompany advances from ongoing operations. There is no intention to repay
any advances to or from the owner. Accordingly, the net amounts have been
included in shareholders' equity with current period intercompany/intracompany
transfers being reflected as net contributions or distributions.

NOTE 4 -- CONCENTRATIONS AND CONTINGENCIES

Approximately sixty percent of the Richmond-West End hotel's revenues are
from Capital One Financial Corporation, a non affiliated entity.

The Hotels' depository bank accounts are maintained with two financial
institutions; Bank of America and First Union. A concentration of credit risk
exists to the extent that cash deposits exceed amounts insured by FDIC; $100,000
per financial institution. At June 30, 1999, cash deposits exceeded FDIC
insurable amounts by $108,909.

F-17

INDEPENDENT AUDITORS' REPORT

Apple Suites, Inc.
Richmond, Virginia

/s/ L.P. Martin & Co, P.C.

November 7, 1999

F-18

HOMEWOOD SUITES ACQUISITION HOTELS

COMBINED BALANCE SHEETS

DECEMBER 31,
---------------------------------
1998 1997
--------------- ---------------

ASSETS
CURRENT ASSETS
Cash ................................................. $ 298,981 $ 218,853
Accounts Receivable, Net ............................. 388,352 316,723
Prepaids and Other ................................... 66,670 --
------------ ------------
Total Current Assets ............................... 754,003 535,576
------------ ------------
INVESTMENT IN HOTEL PROPERTIES
Land and Improvements ................................ 5,363,981 3,035,089
Buildings and Improvements ........................... 29,417,804 13,842,622
Furniture, Fixtures and Equipment .................... 7,882,778 4,243,800
------------ ------------
Total .............................................. 42,664,563 21,121,511
Less: Accumulated Depreciation ....................... (6,272,356) (4,057,854)
------------ ------------
Net Investment in Hotel Properties ................. 36,392,207 17,063,657
------------ ------------
OTHER ASSETS
Construction in Progress ............................. -- 8,080,834
------------ ------------
Total Assets ....................................... $ 37,146,210 $ 25,680,067
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts Payable ..................................... $ 368,287 $ 695,044
Accrued Taxes ........................................ 107,272 96,401
Accrued Expenses - Other ............................. 247,767 117,154
------------ ------------
Total Current Liabilities .......................... 723,326 908,599
------------ ------------
SHAREHOLDERS' EQUITY
Contributed Capital .................................. 30,113,336 20,467,543
Retained Earnings .................................... 6,309,548 4,303,925
------------ ------------
Total Shareholders' Equity ......................... 36,422,884 24,771,468
------------ ------------
Total Liabilities and Shareholders' Equity ......... $ 37,146,210 $ 25,680,067
============ ============

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

F-19

HOMEWOOD SUITES ACQUISITION HOTELS

COMBINED STATEMENTS OF SHAREHOLDERS' EQUITY

TOTAL
CONTRIBUTED RETAINED SHAREHOLDERS'
CAPITAL EARNINGS EQUITY
------------- ------------- --------------

Balances, January 1, 1997 ........... $ 9,295,112 $3,139,210 $12,434,322
Net Income .......................... -- 1,164,715 1,164,715
Capital Contributions, Net .......... 11,172,431 -- 11,172,431
-----------
Balances, December 31, 1997 ......... 20,467,543 4,303,925 24,771,468
Net Income .......................... -- 2,005,623 2,005,623
Capital Contributions, Net .......... 9,645,793 -- 9,645,793
----------- ---------- -----------
Balances, December 31, 1998 ......... $30,113,336 $6,309,548 $36,422,884
=========== ========== ===========

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

F-20

HOMEWOOD SUITES ACQUISITION HOTELS

COMBINED INCOME STATEMENTS

YEARS ENDED DECEMBER 31,
------------------------------
1998 1997
-------------- -------------

GROSS OPERATING REVENUE
Suite Revenue .......................... $10,812,372 $4,659,633
Other Customer Revenue ................. 733,318 275,311
----------- ----------
Total Revenue ....................... 11,545,690 4,934,944
----------- ----------
EXPENSES
Property and Operating ................. 4,748,240 1,910,407
General and Administrative ............. 315,165 165,060
Advertising and Promotion .............. 502,899 209,918
Utilities .............................. 543,828 267,938
Real Estate and Personal Property Taxes,
and Property Insurance ............... 432,979 200,113
Depreciation Expense ................... 2,214,501 803,385
Franchise Fees ......................... 432,494 --
Pre-Opening Expenses ................... 349,961 213,408
----------- ----------
Total Expenses ...................... 9,540,067 3,770,229
----------- ----------
Net Income .......................... $ 2,005,623 $1,164,715
=========== ==========

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

F-21

HOMEWOOD SUITES ACQUISITION HOTELS

COMBINED STATEMENTS OF CASH FLOWS

YEARS ENDED DECEMBER 31,
-------------------------------
1998 1997
--------------- ---------------

CASH FLOWS FROM (TO) OPERATING ACTIVITIES
Net Income .............................................................................. $ 2,005,623 $ 1,164,715
------------ ------------
Adjustments to Reconcile Net Income to Net Cash
Provided by Operating Activities:
Depreciation .......................................................................... 2,214,501 803,385
Change In:
Accounts Receivable ................................................................... (71,629) (274,291)
Prepaids and Other Current Assets ..................................................... (66,670) --
Accounts Payable ...................................................................... (326,757) 222,328
Accrued Taxes ......................................................................... 10,871 (3,724)
Accrued Expenses - Other .............................................................. 130,613 89,823
------------ ------------
Net Adjustments ....................................................................... 1,890,929 837,521
------------ ------------
Net Cash Flows From Operating Activities 3,896,552 2,002,236

CASH FLOWS TO FINANCING ACTIVITIES
Capital Distributions, Net .............................................................. (3,816,424) (2,077,731)
------------ ------------
Net Increase (Decrease) in Cash ....................................................... 80,128 (75,495)
Cash, Beginning of Year ............................................................... 218,853 294,348
------------ ------------
Cash, End of Year ..................................................................... $ 298,981 $ 218,853
============ ============
SUPPLEMENTAL DISCLOSURES:
Noncash Financing and Investing Activities ..............................................

YEAR ENDED DECEMBER 31, 1998

Investments in hotel properties in the amount of $13,462,218 were financed with capital
contributions.

Construction in progress in the amount of $8,080,834 was reclassified to investment in hotel
properties.

YEAR ENDED DECEMBER 31, 1997

Investments in hotel properties and construction in progress in the amounts of $8,048,540 and
$5,201,622, respectively, were financed with capital contributions.

Fully depreciated investments in hotel properties at a cost of $654,112 were disposed of during the
year.

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

F-22

HOMEWOOD SUITES ACQUISITION HOTELS

NOTES TO THE COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997

NOTE 1 -- ORGANIZATION AND BASIS OF PRESENTATION

The Homewood Suites Acquisition Hotels (the Hotels) consist of the
following:

PROPERTY HOTEL LOCATION DATE OPENED # OF SUITES
- --------------------------- --------------------- ---------------- ------------

Detroit/Warren Warren, Michigan March, 1990 76
Atlanta/Peachtree Corners Norcross, Georgia February, 1990 92
Clearwater Clearwater, Florida February, 1998 112
Salt Lake Midvale, Utah November, 1996 98
Baltimore/BWI Linthicum, Maryland March, 1998 147

The Owner purchased the Salt Lake Hotel October 1, 1997. The financial
statements include the results of the Salt Lake hotel operations from this date
forward.

Economic conditions in the localities in which the individual Hotels are
located impact revenues and the ability to collect accounts receivable.

The Hotels specialize in providing extended stay lodging to business or
leisure travelers. While customers may rent rooms for a night, terms of up to a
month or longer are available. Services offered, which are particularly
attractive to the extended stay traveler, include laundry services, 24 hour
on-site convenience stores and grocery shopping services.

The Hotels have been owned and managed by various affiliates of Promus
Hotels, Inc. (the Owner) throughout the financial statement periods. The
accompanying combined financial statements of the Hotels have been presented on
a combined basis because the Owner has a contract pending to sell the five
Hotels to an affiliate of Apple Suites, Inc., a real estate investment trust
established to acquire equity interests in hotel properties. The statements
have been prepared pursuant to the rules and regulations of the Securities and
Exchange Commission for inclusion in a filing by Apple Suites, Inc.

The corporate owner pays income taxes on taxable income of the company as
a whole and does not allocate income taxes to individual properties.
Accordingly, the combined financial statements have been presented on a pretax
basis.

NOTE 2 -- SIGNIFICANT ACCOUNTING POLICIES

Property -- The Hotel properties are recorded at cost. Depreciation has
been recorded straight-line using the following lives:

LIFE
------------

Land Improvements .......................... 10-15 Years
Buildings and Improvements ................. 15-35 Years
Furniture, Fixtures and Equipment .......... 3-10 Years

Major renewals, betterments and improvements are capitalized, while
ongoing maintenance and repairs are expensed as incurred. Building costs
include interest capitalized during the construction period. Construction in
progress represents Hotel properties under construction. At the point
construction is completed and the Hotels are ready to be placed in service, the
costs are reclassified to investment in Hotel properties for financial
statement presentation.

Estimates -- The preparation of financial statements in accordance with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets, liabilities,
revenues and expenses and disclosures related thereto. Actual results could
differ from those estimates.

F-23

HOMEWOOD SUITES ACQUISITION HOTELS

NOTES TO THE COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997 - (CONTINUED)

NOTE 2 -- SIGNIFICANT ACCOUNTING POLICIES - (CONTINUED)

Annually, management of the Hotels reviews the carrying value and
remaining depreciable lives of the Hotel properties and related assets.
Management does not believe there are any current indications of impairment.
However, it is possible that estimates of the remaining useful lives will
change in the near term.

Cash -- Cash includes all highly liquid investments with a maturity date
of three months or less when purchased.

Advertising -- Advertising costs are expensed in the period incurred.

Pre-opening Expenses -- Pre-opening expenses represent operating expenses
incurred prior to initial opening of the Hotels. In 1998, pre-opening expenses
of $148,131 and $201,830 were expensed as incurred for the Clearwater and
Baltimore/BWI Hotels, respectively. In 1997, pre-opening expenses of $64,588,
$111,225 and $37,595 were expensed as incurred for the Clearwater, Salt Lake
and Baltimore/BWI Hotels, respectively.

NOTE 3 -- RELATED PARTY TRANSACTIONS

The Owner allocates a monthly accounting fee of $1,000 to each hotel.
These fees totaled $56,000 in 1998 and $27,000 in 1997. The Owner also charges
each Hotel a fee for corporate advertising, training and reservations equal to
four percent of net suite revenue. These fees totaled $432,749 in 1998 and
$186,386 in 1997. In 1998, the Owner charged a franchise fee of $432,494 to
these Hotels, also computed at four percent of suite revenue. No franchise fee
was charged in 1997. Effective in 1999, the Owner will be charging a "base
management fee" of three percent of suite revenue to each Hotel.

The acquisition costs of the properties and related furnishings and
equipment was financed by the Owner. For all properties, excluding Salt Lake,
which was a purchased project, the Owner allocated interest to each property on
monies advanced to fund the construction costs. The interest costs have been
capitalized and depreciated in accordance with the Hotels' normal depreciation
policy. During 1998, interest capitalized and included in the cost basis of the
hotels totaled $484,495.

On most property and equipment purchases, excluding base Hotel
construction contracts, the following fees have been paid to Promus Hotels,
Inc.:

Purchase Fee -- 4% of Asset Cost

Project Management Fee -- 4.5% and 5.5.% of labor portion of capitalized
asset costs in 1998 and 1997, respectively.

Each Hotel maintains a depository bank account into which customer
revenues have been deposited. The bulk of each Hotel's operating expenditures
are paid through the Owner's corporate accounts. Funds are transferred from the
Hotel's depository bank accounts to the Owner periodically. The transfers to
the Owner and expenditures made on behalf of the Hotels by the Owner are
accounted for through various intercompany accounts. No interest has been
charged on these intercompany advances from ongoing operations. There is no
intention to repay any advances to or from the Owner. Accordingly, the net
amounts have been included in shareholders' equity, with 1998 and 1997
intercompany/intracompany transfers being reflected as net capital
contributions or distributions.

F-24

HOMEWOOD SUITES ACQUISITION HOTELS

COMBINED BALANCE SHEET
AUGUST 31, 1999 (UNAUDITED)

ASSETS
CURRENT ASSETS
Cash .................................................... $ 247,392
Accounts Receivable, Net ................................ 472,340
Prepaids and Other ...................................... 25,892
------------
Total Current Assets ............................... 745,624
------------
INVESTMENT IN HOTEL PROPERTIES
Land and Improvements ................................... 5,378,751
Buildings and Improvements .............................. 29,280,084
Furniture, Fixtures and Equipment ....................... 8,352,742
------------
Total .............................................. 43,011,577
Less: Accumulated Depreciation ........................... (7,884,812)
------------
Net Investment in Hotel Properties ................. 35,126,765
------------
Total Assets ....................................... $ 35,872,389
============
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts Payable ........................................ $ 314,045
Accrued Taxes ........................................... 433,300
Accrued Expenses -- Other ............................... 233,596
------------
Total Current Liabilities .......................... 980,941
------------
SHAREHOLDERS' EQUITY
Contributed Capital ..................................... 26,576,118
Retained Earnings ....................................... 8,315,330
------------
Total Shareholders' Equity ......................... 34,891,448
------------
Total Liabilities and Shareholders' Equity ......... $ 35,872,389
============

The accompanying notes are an integral part of this financial statement.

F-25

HOMEWOOD SUITES ACQUISITION HOTELS

COMBINED STATEMENT OF SHAREHOLDERS' EQUITY
FOR THE PERIOD JANUARY 1, 1999 THROUGH AUGUST 31, 1999 (UNAUDITED)

TOTAL
CONTRIBUTED RETAINED SHAREHOLDERS'
CAPITAL EARNINGS EQUITY
--------------- ------------- --------------

Balances, January 1, 1999 .......... $ 30,113,336 $6,309,548 $ 36,422,884
Net Income ......................... -- 2,005,782 2,005,782
Capital Distributions, Net ......... (3,537,218) -- (3,537,218)
------------ ---------- ------------
Balances, August 31, 1999 .......... $ 26,576,118 $8,315,330 $ 34,891,448
============ ========== ============

The accompanying notes are an integral part of this financial statement.

F-26

HOMEWOOD SUITES ACQUISITION HOTELS

COMBINED INCOME STATEMENT
FOR THE PERIOD JANUARY 1, 1999 THROUGH AUGUST 31, 1999 (UNAUDITED)

GROSS OPERATING REVENUE
Suite Revenue ........................................................... $8,787,181
Other Customer Revenue .................................................. 515,811
----------
Total Revenue ...................................................... 9,302,992
----------
EXPENSES
Property and Operating .................................................. 3,541,888
General and Administrative .............................................. 218,472
Advertising and Promotion ............................................... 422,228
Utilities ............................................................... 400,988
Real Estate and Personal Property Taxes, and Property Insurance ......... 470,709
Depreciation Expense .................................................... 1,612,457
Franchise and Management Fees ........................................... 630,468
----------
Total Expenses ..................................................... 7,297,210
----------
Net Income ......................................................... $2,005,782
==========

The accompanying notes are an integral part of this financial statement.

F-27

HOMEWOOD SUITES ACQUISITION HOTELS

COMBINED STATEMENT OF CASH FLOWS
FOR THE PERIOD JANUARY 1, 1999 THROUGH AUGUST 31, 1999 (UNAUDITED)

CASH FLOWS FROM (TO) OPERATING ACTIVITIES
Net Income .......................................................... $ 2,005,782
------------
Adjustments to Reconcile Net Income to Net Cash Provided by Operating
Activities:
Depreciation ...................................................... 1,612,457
Change in:
Accounts Receivable ............................................... (83,988)
Prepaids and Other Current Assets ................................. 40,778
Accounts Payable .................................................. (54,242)
Accrued Taxes ..................................................... 326,028
Accrued Expenses - Other .......................................... (14,171)
------------
Net Adjustments ..................................................... 1,826,862
------------
Net Cash flows from Operating Activities .......................... 3,832,644
CASH FLOWS (TO) FINANCING ACTIVITIES
Net Equity Distributions ............................................ (3,884,233)
------------
Net Decrease in Cash .............................................. (51,589)
Cash, January 1, 1999 ............................................. 298,981
------------
Cash, August 31, 1999 ............................................. $ 247,392
============

SUPPLEMENTAL DISCLOSURES: ............................................
Noncash Financing and Investing Activities

During the period January 1, 1999 through August 31, 1999, additions to
Investment in Hotel Properties totaling $347,015 were financed with capital
contributions.

The accompanying notes are an integral part of this financial statement.

F-28

HOMEWOOD SUITES ACQUISITION HOTELS

NOTES TO THE COMBINED FINANCIAL STATEMENTS (UNAUDITED)
FOR THE PERIOD JANUARY 1, 1999 THROUGH AUGUST 31, 1999

NOTE 1 -- ORGANIZATION AND BASIS OF PRESENTATION

The Homewood Suites Acquisition Hotels (the Hotels) consist of the
following:

PROPERTY HOTEL LOCATION DATE OPENED # OF SUITES
- --------------------------- --------------------- ---------------- ------------

The Owner purchased the Salt Lake hotel October 1, 1997. The financial
statements include the results of the Salt Lake Hotel operations from this date
forward.

Economic conditions in the localities in which the individual Hotels are
located impact revenues and the ability to collect accounts receivable.

The Hotels specialize in providing extended stay lodging to business or
leisure travelers. While customers may rent rooms for a night, terms of up to a
month or longer are available. Services offered, which are particularly
attractive to the extended stay traveler, include laundry services, 24 hour
on-site convenience stores and grocery shopping services.

The Hotels have been owned and managed by various affiliates of Promus
Hotels, Inc. (the Owner) throughout the financial statement period. The
accompanying combined financial statements of the Hotels have been presented on
a combined basis because the Owner has a contract pending to sell the five
Hotels to an affiliate of Apple Suites, Inc., a real estate investment trust
established to acquire equity interests in hotel properties. The statements
have been prepared pursuant to the rules and regulations of the Securities and
Exchange Commission for inclusion in a filing by Apple Suites, Inc.

The corporate owner pays income taxes on taxable income of the company as
a whole and does not allocate income taxes to individual properties.
Accordingly, the combined financial statements have been presented on a pretax
basis.

NOTE 2 -- SIGNIFICANT ACCOUNTING POLICIES

Property -- The Hotel properties are recorded at cost. Depreciation has
been recorded straight-line using the following lives:

LIFE
------------
Land Improvements .......................... 10-15 Years
Buildings and Improvements ................. 15-35 Years
Furniture, Fixtures and Equipment .......... 3-10 Years

F-29

HOMEWOOD SUITES ACQUISITION HOTELS

NOTES TO THE COMBINED FINANCIAL STATEMENTS (UNAUDITED)
FOR THE PERIOD JANUARY 1, 1999 THROUGH AUGUST 31, 1999 - (CONTINUED)

NOTE 2 -- SIGNIFICANT ACCOUNTING POLICIES - (CONTINUED)

Cash -- Cash includes all highly liquid investments with a maturity date
of three months or less when purchased.

Advertising -- Advertising costs are expensed in the period incurred.

NOTE 3 -- RELATED PARTY TRANSACTIONS

During the period January 1, 1999 through August 31, 1999, the following
Owner related fees were expensed.

FEE TYPE BASIS FOR DETERMINATION TOTAL EXPENSE
- --------------------------------------- ---------------------------- --------------

Accounting Fees $1,000 per hotel per month $ 40,000
Corporate Advertising, Training
and Reservations 4% of net suite revenue 351,487
Franchise Fees 4% of net suite revenue 351,487
Management Fees 3% of net suite revenue 278,981

On most property and equipment purchases, excluding base Hotel
construction contracts, the following fees have been paid to Promus Hotels,
Inc.:

Purchase Fee-4% of Asset Cost

Project Management Fee-4.5% of labor portion of capitalized asset costs

Each Hotel maintains a depository bank account into which customer
revenues have been deposited. The bulk of each Hotel's operating expenditures
are paid through the Owner's corporate accounts. Funds are transferred from the
Hotel's depository bank accounts to the Owner periodically. The transfers to
the Owner and expenditures made on behalf of the Hotels by the Owner are
accounted for through various intercompany accounts. No interest has been
charged on these intercompany advances from ongoing operations. There is no
intention to repay any advances to or from the Owner. Accordingly, the net
amounts have been included in shareholders' equity, with
intercompany/intracompany transfers being reflected as net capital
distributions.

F-30

INDEPENDENT AUDITORS' REPORT

Apple Suites, Inc.
Richmond, Virginia

We have audited the accompanying balance sheets of the Homewood Suites
Hotel - Jackson as of December 31, 1998 and 1997, and the related statements of
income, shareholders' equity and cash flows for the years then ended. These
financial statements are the responsibility of the management of the hotel. Our
responsibility is to express an opinion on these financial statements based on
our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion. The accompanying financial statements were prepared for the
purpose of complying with the rules and regulations of the Securities and
Exchange Commission as described in Note 1 to the financial statements and are
not intended to be a complete presentation of the Homewood Suites Hotel -
Jackson.

In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of the Homewood Suites Hotel -
Jackson as of December 31, 1998 and 1997, and the results of its operations and
its cash flows for the years then ended in conformity with generally accepted
accounting principles.

/s/ L.P. Martin & Co.,P.C.

November 7, 1999

F-31

HOMEWOOD SUITES HOTEL -- JACKSON

BALANCE SHEETS

DECEMBER 31,
-------------------------------
1998 1997
-------------- --------------

ASSETS
CURRENT ASSETS
Cash .................................................. $ 34,756 $ 13,970
Accounts Receivable, Net .............................. 148,205 104,456
Prepaids and Other .................................... 25,350 25,350
---------- ----------
Total Current Assets ............................... 208,311 143,776
---------- ----------
INVESTMENT IN HOTEL PROPERTY ...........................
Land and Improvements ................................. 749,969 749,969
Buildings and Improvements ............................ 5,284,823 5,161,652
Furniture, Fixtures and Equipment ..................... 1,197,181 1,182,151
---------- ----------
Total .............................................. 7,231,973 7,093,772
Less: Accumulated Depreciation ........................ (797,849) (380,298)
---------- ----------
Net Investment in Hotel Property ................... 6,434,124 6,713,474
---------- ----------
Total Assets ....................................... $6,642,435 $6,857,250
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts Payable ...................................... $ 98,225 $ 144,491
Accrued Taxes ......................................... 87,475 43,165
Accrued Expenses - Other .............................. 41,034 39,523
---------- ----------
Total Current Liabilities .......................... 226,734 227,179
---------- ----------
SHAREHOLDERS' EQUITY
Contributed Capital ................................... 6,046,570 6,734,271
Retained Earnings (Accumulated Deficit) ............... 369,131 (104,200)
---------- ----------
Total Shareholders' Equity ......................... 6,415,701 6,630,071
---------- ----------
Total Liabilities and Shareholders' Equity ......... $6,642,435 $6,857,250
========== ==========

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

F-32

HOMEWOOD SUITES HOTEL -- JACKSON

STATEMENTS OF SHAREHOLDERS' EQUITY

RETAINED
EARNINGS TOTAL
CONTRIBUTED (ACCUMULATED SHAREHOLDERS'
CAPITAL DEFICIT) EQUITY
------------- -------------- --------------

Balances, January 1, 1997 ........... $4,638,129 $ (70,003) $4,568,126
Net Loss ............................ -- (34,197) (34,197)
Capital Contributions, Net .......... 2,096,142 -- 2,096,142
---------- ---------- ----------
Balances, December 31, 1997 ......... 6,734,271 (104,200) 6,630,071
Net Income .......................... -- 473,331 473,331
Capital Distributions, Net .......... (687,701) -- (687,701)
---------- ---------- ----------
Balances, December 31, 1998 ......... $6,046,570 $ 369,131 $6,415,701
========== ========== ==========

INCOME STATEMENTS

YEARS ENDED DECEMBER 31,
-----------------------------
1998 1997
------------- -------------

GROSS OPERATING REVENUE
Suite Revenue ........................................................... $2,115,861 $1,390,347
Other Customer Revenue .................................................. 161,811 130,494
---------- ----------
Total Revenue ........................................................ 2,277,672 1,520,841
---------- ----------
EXPENSES
Property and Operating .................................................. 927,878 700,874
General and Administrative .............................................. 69,009 56,870
Advertising and Promotion ............................................... 128,067 87,703
Utilities ............................................................... 87,815 73,585
Real Estate and Personal Property Taxes, and Property Insurance ......... 89,387 43,959
Depreciation Expense .................................................... 417,551 380,298
Franchise Fees .......................................................... 84,634 --
Pre-Opening Expenses .................................................... -- 211,749
---------- ----------
Total Expenses ....................................................... 1,804,341 1,555,038
---------- ----------
Net Income (Loss) .................................................... $ 473,331 $ (34,197)
========== ==========

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

F-33

HOMEWOOD SUITES HOTEL -- JACKSON
STATEMENTS OF CASH FLOWS

YEARS ENDED DECEMBER 31,
-----------------------------
1998 1997

CASH FLOWS FROM (TO) OPERATING ACTIVITIES
Net Income (Loss) ............................................. $ 473,331 $ (34,197)
---------- ----------
Adjustments to Reconcile Net Income (Loss) to Net Cash Provided
by Operating Activities:
Depreciation ................................................ 417,551 380,298
Change In:
Accounts Receivable ......................................... (43,749) (104,456)
Prepaids and Other Current Assets ........................... -- (25,350)
Accounts Payable ............................................ (46,266) 7,278
Accrued Taxes ............................................... 44,310 42,292
Accrued Expenses - Other .................................... 1,511 36,532
---------- ----------
Net Adjustments ............................................. 373,357 336,594
---------- ----------
Net Cash Flows from Operating Activities ................... 846,688 302,397
CASH FLOWS TO FINANCING ACTIVITIES
Capital Distributions, Net .................................... (825,902) (290,927)
---------- ----------
Net Increase in Cash ....................................... 20,786 11,470
Cash, Beginning of Year .................................... 13,970 2,500
---------- ----------
Cash, End of Year .......................................... $ 34,756 $ 13,970
========== ==========
SUPPLEMENTAL DISCLOSURES:
NONCASH FINANCING AND INVESTING ACTIVITIES

YEAR ENDED DECEMBER 31, 1998

Investments in hotel properties in the amount of $138,201 were financed
with capital contributions.

YEAR ENDED DECEMBER 31, 1997

Investments in hotel properties in the amount of $7,093,772, were financed
with capital contributions.

Construction in progress in the amount of $5,186,984 was reclassified to
investment in hotel properties.

Accounts payable for construction costs totaling $480,281 was curtailed
with capital contributions.

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

F-34

HOMEWOOD SUITES HOTEL -- JACKSON

NOTES TO THE FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997

NOTE 1 -- ORGANIZATION AND BASIS OF PRESENTATION

The Homewood Suites Hotel - Jackson is a 91 suite hotel, located in
Ridgeland, Mississippi, which opened for business on February 20, 1997. The
Hotel specializes in providing extended stay lodging to business or leisure
travelers. While customers may rent rooms for a night, terms of up to a month
or longer are available. Services offered, which are particularly attractive to
the extended stay traveler, include laundry services, 24 hour on-site
convenience stores and grocery shopping services.

Economic conditions in the area in which the Hotel is located impact
revenues and the ability to collect accounts receivable.

The Hotel has been owned and managed by an affiliate of Promus Hotels,
Inc. (the Owner) throughout the financial statement periods. The Owner has a
contract pending to sell the Hotel to an affiliate of Apple Suites, Inc., a
real estate investment trust established to acquire equity interests in hotel
properties. The statements have been prepared pursuant to the rules and
regulations of the Securities and Exchange Commission for inclusion in a filing
by Apple Suites, Inc.

The corporate owner pays income taxes on taxable income of the company as
a whole and does not allocate income taxes to individual properties.
Accordingly, the financial statements have been presented on a pretax basis.

NOTE 2 -- SIGNIFICANT ACCOUNTING POLCIIES

Property -- The hotel property is recorded at cost. Depreciation has been
recorded straight-line using the following lives:

LIFE
------------

Land Improvements .......................... 10-15 Years
Buildings and Improvements ................. 15-35 Years
Furniture, Fixtures and Equipment .......... 3-10 Years

Major renewals, betterments and improvements are capitalized, while
ongoing maintenance and repairs are expensed as incurred. Building costs
include interest capitalized during the construction period. Construction in
progress represents Hotel assets under construction. At the point construction
is completed and the Hotel is ready to be placed in service, the costs are
reclassified to investment in Hotel property for financial statement
presentation. Construction in progress totaling $5,186,984 was reclassified to
investment in hotel property during 1997.

Annually, management of the hotel reviews the carrying value and remaining
depreciable lives of the Hotel property and related assets. Management does not
believe there are any current indications of impairment. However, it is
possible that estimates of the remaining useful lives will change in the near
term.

Cash -- Cash includes all highly liquid investments with a maturity date
of three months or less when purchased.

F-35

HOMEWOOD SUITES HOTEL -- JACKSON

NOTES TO THE FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997 -- (CONTINUED)
NOTE 2 -- SIGNIFICANT ACCOUNTING POLCIIES -- (CONTINUED)

Advertising -- Advertising costs are expensed in the period incurred.

Pre-Opening Expenses -- Pre-opening expenses represent operating expenses
incurred prior to initial opening of the Hotel. In 1997, pre-opening expenses
of $211,749, were expensed as incurred.

Inventories -- The Hotel maintains supplies of room linens and food and
beverages. However, due to the ongoing routine replacement of these items and
the difficulty in establishing market values, management has chosen to expense
these items at point of purchase.

NOTE 3 -- RELATED PARTY TRANSACTIONS

The Owner allocates a monthly accounting fee of $1,000 to the Hotel. These
fees totaled $12,000 in 1998 and $10,338 in 1997. The Owner also charges the
Hotel a fee for corporate advertising, training and reservations equal to four
percent of net suite revenue. These fees totaled $84,634 in 1998 and $53,614 in
1997. In 1998, the Owner charged a franchise fee of $84,634 to the Hotel, also
computed at four percent of suite revenue. No franchise fee was charged in
1997. Effective in 1999, the Owner will be charging a "base management fee" of
three percent of suite revenue to the hotel.

The acquisition cost of the property and related furnishings and equipment
was financed by the Owner. The Owner allocated interest to the property on
monies advanced to fund the construction costs. The interest costs have been
capitalized and depreciated in accordance with the Hotel's normal depreciation
policy. Interest capitalized and included in the cost basis of the Hotel
totaled $235,723 in 1997.

On most property and equipment purchases, excluding base hotel
construction contracts, the following fees paid to Promus Hotels, Inc. have
been capitalized:

Purchase Fee - 4% of Asset Cost
Project Management Fee - 4.5% and 5.5.% of labor portion of capitalized
asset costs in 1998 and 1997, respectively.

The Hotel maintains a depository bank account into which customer revenues
have been deposited. The bulk of the Hotel's operating expenditures are paid
through the Owner's corporate accounts. Funds are transferred from the Hotel's
depository bank accounts to the Owner periodically. The transfers to the Owner
and expenditures made on behalf of the Hotel by the Owner are accounted for
through various intercompany accounts. No interest has been charged on these
intercompany advances from ongoing operations. There is no intention to repay
any advances to or from the Owner. Accordingly, the net amounts have been
included in shareholders' equity with 1998 and 1997 intercompany/intracompany
transfers being reflected as net capital contributions or distributions.

F-36

HOMEWOOD SUITES HOTEL -- JACKSON

BALANCE SHEET (UNAUDITED)
AUGUST 31, 1999

ASSETS
CURRENT ASSETS
Cash ................................................. $ 43,476
Accounts Receivable, Net ............................. 227,188
Prepaids and Other ................................... 25,350
------------
Total Current Assets ............................... 296,014
------------
INVESTMENT IN HOTEL PROPERTY
Land and Improvements ................................ 754,803
Buildings and Improvements ........................... 5,278,927
Furniture, Fixtures and Equipment .................... 1,197,295
------------
Total .............................................. 7,231,025
Less: Accumulated Depreciation ....................... (1,082,506)
------------
Net Investment in Hotel Property ................... 6,148,519
------------
Total Assets ....................................... $ 6,444,533
============
LIABILITIES AND SHAREHOLDERS' EQUITY

CURRENT LIABILITIES
Accounts Payable ..................................... $ 1,626
Accrued Taxes ........................................ 69,100
Accrued Expenses - Other ............................. 47,842
------------
Total Current Liabilities .......................... 118,568
------------
SHAREHOLDERS' EQUITY
Contributed Capital .................................. 5,625,316
Retained Earnings .................................... 700,649
------------
Total Shareholders' Equity ......................... 6,325,965
------------
Total Liabilities and Shareholders' Equity ......... $ 6,444,533
============

The acompanying notes are an integral part of these financial statements.

F-37

HOMEWOOD SUITES HOTEL -- JACKSON

STATEMENT OF SHAREHOLDERS' EQUITY (UNAUDITED)
FOR THE PERIOD JANUARY 1, 1999 THROUGH AUGUST 31, 1999

TOTAL
CONTRIBUTED RETAINED SHAREHOLDERS'
CAPITAL EARNINGS EQUITY
------------- ---------- --------------

Balances, January 1, 1999 .......... $6,046,570 $369,131 $6,415,701
Net Income ......................... -- 331,518 331,518
Capital Distributions, Net ......... (421,254) -- (421,254)
---------- -------- ----------
Balances, August 31, 1999 .......... $5,625,316 $700,649 $6,325,965
========== ======== ==========

INCOME STATEMENT (UNAUDITED)
FOR THE PERIOD JANUARY 1, 1999 THROUGH AUGUST 31, 1999

GROSS OPERATING REVENUE
Suite Revenue ........................................................... $1,487,301
Other Customer Revenue .................................................. 112,292
----------
Total Revenue ......................................................... 1,599,593
----------
EXPENSES
Property and Operating .................................................. 636,068
General and Administrative .............................................. 51,587
Advertising and Promotion ............................................... 75,268
Utilities ............................................................... 50,426
Real Estate and Personal Property Taxes, and Property Insurance ......... 62,589
Depreciation Expense .................................................... 284,657
Franchise and Management Fees ........................................... 107,480
----------
Total Expenses ........................................................ 1,268,075
----------
Net Income ............................................................ $ 331,518
==========

The accompanying notes are an integral part of this financial statement.

F-38

HOMEWOOD SUITES HOTEL -- JACKSON

STATEMENT OF CASH FLOWS (UNAUDITED)
FOR THE PERIOD JANUARY 1, 1999 THROUGH AUGUST 31, 1999

CASH FLOWS FROM (TO) OPERATING ACTIVITIES
Net Income ...................................................................... $ 331,518
----------
Adjustments to Reconcile Net Income to Net Cash Provided by Operating Activities:
Depreciation .................................................................. 284,657
Change in:
Accounts Receivable ........................................................... (78,983)
Accounts Payable .............................................................. (96,599)
Accrued Taxes ................................................................. (18,375)
Accrued Expenses - Other ...................................................... 6,808
----------
Net Adjustments ................................................................. 97,508
----------
Net Cash Flows from Operating Activities ...................................... 429,026
CASH FLOWS FROM INVESTING ACTIVITIES
Net Disposal of Investment in Hotel Property .................................... 948
CASH FLOWS TO FINANCING ACTIVITIES
Net Equity Distributions ........................................................ (421,254)
----------
Net Increase in Cash .......................................................... 8,720
Cash, January 1, 1999 ......................................................... 34,756
----------
Cash, August 31, 1999 ......................................................... $ 43,476
==========

The accompanying notes are an integral part of this financial statement.

F-39

HOMEWOOD SUITES HOTEL -- JACKSON

NOTES TO THE FINANCIAL STATEMENTS (UNAUDITED)
FOR THE PERIOD JANUARY 1, 1999 THROUGH AUGUST 31, 1999

NOTE 1 -- ORGANIZATION AND BASIS OF PRESENTATION

The Homewood Suites Hotel - Jackson is a 91 suite hotel, located in
Ridgeland, Mississippi, which opened in February, 1997. The Hotel specializes
in providing extended stay lodging to business or leisure travelers. While
customers may rent rooms for a night, terms of up to a month or longer are
available. Services offered, which are particularly attractive to the extended
stay traveler, include laundry services, 24 hour on-site convenience stores and
grocery shopping services.

Economic conditions in the area in which the Hotel is located impact
revenues and the ability to collect accounts receivable.

The Hotel has been owned and managed by an affiliate of Promus Hotels,
Inc. (the Owner) throughout the financial statement period. The Owner has a
contract pending to sell the Hotel to an affiliate of Apple Suites, Inc., a
real estate investment trust established to acquire equity interests in hotel
properties. The statements have been prepared pursuant to the rules and
regulations of the Securities and Exchange Commission for inclusion in a filing
by Apple Suites, Inc.

NOTE 2 -- SIGNIFICANT ACCOUNTING POLICIES

Property -- The Hotel property is recorded at cost. Depreciation has been
recorded straight-line using the following lives:

LIFE
------------

Land Improvements .......................... 10-15 Years
Buildings and Improvements ................. 15-35 Years
Furniture, Fixtures and Equipment .......... 3-10 Years

Annually, management of the Hotel reviews the carrying value and remaining
depreciable lives of the Hotel property and related assets. Management does not
believe there are any current indications of impairment. However, it is
possible that estimates of the remaining useful lives will change in the near
term.

Cash -- Cash includes all highly liquid investments with a maturity date
of three months or less when purchased.

Advertising -- Advertising costs are expensed in the period incurred.

F-40

HOMEWOOD SUITES HOTEL -- JACKSON

NOTES TO THE FINANCIAL STATEMENTS (UNAUDITED)
FOR THE PERIOD JANUARY 1, 1999 THROUGH AUGUST 31, 1999 -- (CONTINUED)

NOTE 2 -- SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)

NOTE 3 -- RELATED PARTY TRANSACTIONS

During the period January 1, 1999 through August 31, 1999, the following
Owner related fees were expensed.

FEE TYPE BASIS FOR DETERMINATION TOTAL EXPENSE
- ----------------------------------------------------------- -------------------------- --------------

Accounting Fees ........................................... $1,000 per month $ 8,000
Corporate Advertising, Training and Reservations .......... 4% of net suite revenue 59,492
Franchise Fees ............................................ 4% of net suite revenue 59,492
Management Fees ........................................... 3% of net suite revenue 47,988

On most property and equipment purchases, excluding base hotel
construction contracts, the following fees paid to Promus Hotels, Inc. have
been capitalized:

Purchase Fee -- 4% of Asset Cost
Project Management Fee -- 4.5% of labor portion of capitalized asset costs

The Hotel maintains a depository bank account into which customer revenues
have been deposited. The bulk of the Hotel's operating expenditures are paid
through the Owner's corporate accounts. Funds are transferred from the Hotel's
depository bank accounts to the Owner periodically. The transfers to the Owner
and expenditures made on behalf of the Hotel by the Owner are accounted for
through various intercompany accounts. No interest has been charged on these
intercompany advances from ongoing operations. There is no intention to repay
any advances to or from the Owner. Accordingly, the net amounts have been
included in shareholders' equity with intercompany/intracompany transfers being
reflected as net capital distributions.

F-41

Independent Auditors' Report

The Board of Directors and Shareholders
Apple Suites, Inc.

We have audited the accompanying consolidated balance sheets of Apple Suites,
Inc. (the "Company") as of December 31, 1999 and March 26, 1999, and the related
consolidated statements of operations, shareholders' equity, and cash flows for
the period from March 26, 1999 through December 31, 1999. Our audits also
included the financial statement schedule listed in the Index at Item 36. These
financial statements and schedule are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements and schedule based on our audits.

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

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of Apple
Suites, Inc. at December 31, 1999 and March 26, 1999, and the consolidated
results of its operations and its cash flows for the period from March 26, 1999
through December 31, 1999, in conformity with accounting principles generally
accepted in the United States. Also, in our opinion, the related financial
statement schedule, when considered in relation to the basic financial
statements taken as a whole, presents fairly in all material respects the
information set forth therein.

/s/ Ernst & Young LLP

Richmond, Virginia
February 28, 2000

F-42

CONSOLIDATED BALANCE SHEETS

December 31, 1999 March 26, 1999
----------------- --------------

ASSETS

Investment in hotels
(net of $496,209 accumulated depreciation) $ 93,719,632 --
Cash and cash equivalents 581,344 $ 100
Restricted cash 1,023,721 --
Rent receivable from Apple Suites Management, Inc. 2,123,136 --
Notes and other receivables from Apple Suites Management, Inc. 717,019 --
Capital improvements reserve 753,927 --
Prepaid expenses 270,229 --
Other assets 300,000 --
-------------- ------------
Total Assets $ 99,489,008 $ 100
============== ============

LIABILITIES and SHAREHOLDERS' EQUITY

Liabilities

Notes payable--secured $ 68,569,500 --
Interest payable 466,140 --
Accounts payable 65,214 --
Accrued expenses 868,668 --
Accounts payable--affiliates 708,751 --
Distributions payable 712,735 --
-------------- ------------
Total Liabilities $ 71,391,008 --
============== ============

Shareholders' Equity

Common Stock, no par value, authorized 200,000,000
shares; issued and outstanding 3,429,414 shares and 10
shares, respectively 28,591,260 $ 100
Class B Convertible Stock, no par value, authorized
240,000 shares; issued and outstanding 240,000 shares 24,000 --
Distributions greater than net income (517,260) --
-------------- ------------
Total Shareholders' Equity $ 28,098,000 100
-------------- ------------
Total Liabilities and Shareholders' Equity $ 99,489,008 $ 100
============== ============

See accompanying notes to consolidated financial statements.

F-43

CONSOLIDATED STATEMENT OF OPERATIONS
For the Period March 26, 1999 through December 31, 1999(a)

Revenues
Lease revenue $ 2,518,031
Interest income and other revenue 169,086

Expenses
Taxes, insurance, and other 426,592
General and administrative 153,807
Depreciation of real estate owned 496,209
Interest 1,245,044
-----------------------
Total expenses 2,321,652
-----------------------
Net income $ 365,465
=======================
Basic and diluted earnings per common share $ 0.14
=======================

(a) The company was initially capitalized on March 26, 1999; however, operations
did not commence until September 1, 1999.

See accompanying notes to consolidated financial statements.

F-44

CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
For the Period March 26, 1999 through December 31, 1999(a)

Class B
Common Stock Convertible Stock
-------------------------------- ----------------------------
Distributions Total
Number of Number of Greater than Shareholders'
Shares Amount Shares Amount Net Income Equity
- --------------------- --------------- ---------------- -------------- ------------- ---------------- ------------------

Balance at
March 26, 1999 10 $ 100 -- -- -- $ 100
Issuance of Class B
Convertible Stock -- -- 240,000 $24,000 -- 24,000
Net proceeds from
the sale of common
shares 3,420,110 28,507,514 -- -- -- 28,507,514
Net income -- -- -- -- $ 365,465 365,465
Cash distributions
declared to shareholders
($.33 per share) -- -- -- -- (882,725) (882,725)
Common stock issued
through reinvestment of
distributions 9,294 83,646 -- -- -- 83,646
- --------------------- --------------- ---------------- -------------- ------------- ---------------- ------------------
Balance at December
31, 1999 3,429,414 $28,591,260 240,000 $24,000 $(517,260) $28,098,000
- --------------------- --------------- ---------------- -------------- ------------- ---------------- ------------------

(a) The Company was initially capitalized on March 26, 1999; however, operations
did not commence until September 1, 1999.

See accompanying notes to consolidated financial statements.

F-45

CONSOLIDATED STATEMENT OF CASH FLOWS
For the period March 26, 1999 through December 31, 1999 (a)

CASH FLOW FROM OPERATING ACTIVITIES:

Net income $ 365,465
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation of real estate owned 496,209
Changes in operating assets and liabilities:
Prepaid expenses (270,229)
Due from Apple Suites Management, Inc. (2,152,203)
Accounts payable 65,214
Accounts payable--affiliates 708,751
Accrued expenses 868,668
Interest payable 466,140
-------------------

Net cash provided by operating activities 548,015

CASH FLOW FROM INVESTING ACTIVITIES:

Payments received on notes receivable 1,748
Cash paid for acquisitions of hotels (26,045,300)
Capital improvements (290,741)
Restricted cash for property improvement plan (1,023,721)
Capital improvements reserve held by third-party manager (753,927)
Earnest deposit money for pending acquisitions (300,000)
-------------------

Net cash used in investing activities (28,411,941)

CASH FLOW FROM FINANCING ACTIVITIES:

Payment from officer-shareholder for Class B Convertible Stock 24,000
Net proceeds from issuance of common stock 28,591,160
Cash distributions paid to shareholders (169,990)
-------------------
Net cash provided by financing activities 28,445,170
Increase in cash and cash equivalents 581,244

Cash and cash equivalents, beginning of period 100
-------------------

Cash and cash equivalents, end of period $ 581,344
====================

SUPPLEMENTAL CASH FLOW INFORMATION:

Interest paid $ 550,147
Non-cash transaction:
Notes payable--secured issued by seller
in connection with hotel acquisitions $ 68,569,500

(a) The company was initially capitalized on March 26, 1999; however, operations
did not commence until September 1, 1999.

See accompanying notes to consolidated financial statements.

F-46

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1

GENERAL INFORMATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

ORGANIZATION
Apple Suites, Inc., together with its subsidiaries (the "company"), is a
Virginia corporation formed in March of 1999, which commenced operations as a
hotel real estate investment trust on September 1, 1999, the effective date of
its first four hotel acquisitions. The accompanying consolidated financial
statements include the accounts of the company along with its subsidiaries. All
significant intercompany transactions and balances have been eliminated.

The company operates in one defined business segment consisting of extended-stay
hotels. The hotels are located throughout the United States and operate as
Homewood Suites(R) by Hilton. The company leased to Apple Suites Management,
Inc. or its subsidiary (the "lessee") all of its hotels acquired during 1999.

The lessee is wholly owned by Glade M. Knight, Chairman and Chief Executive
Officer of the company.

The lessee hired Promus Hotels, Inc. ("Promus"), a wholly owned subsidiary of
Hilton Hotels Corporation ("Hilton") to manage the company's hotels under the
terms of a management agreement between Promus and the lessee.

F-47

RELATIONSHIP WITH LESSEE
The company must rely on the lessee to generate sufficient cash flow from the
operation of the hotels to enable the lessee to meet its rent obligation to the
company under the master hotel lease agreements ("Percentage Leases"). At
December 31, 1999, the lessee's rent payable to the company amounted to
$2,123,136. The original terms under the Percentage Leases allow monthly base
rent to be paid in arrears and quarterly percentage rent to be paid 15 days
following the quarter-end.

REFINANCING
The company has $68.6 million in notes payable with Hilton with principal
payments of $34 million due on October 1, 2000, $30.2 million due on November 1,
2000 and $4.4 million due on January 1, 2001. The company plans to pay these
notes with the proceeds from its continuous "best efforts" offering of common
shares. However, based on the current rate at which equity is being raised by
the offering, the company may have to seek other measures to repay these loans.
The company is currently holding discussions with several lenders to obtain
financing for its hotels and is exploring both unsecured and secured financing
arrangements. Although no firm financing commitments have been received, the
company believes that based on discussions with lenders and other market
indicators it can obtain sufficient financing prior to maturity of the notes.
Obtaining refinancing is dependent upon a number of factors, including: (1)
continued operation of the hotels at or near current occupancy and room rate
levels as the company's leases are based on a percentage of hotel suite income,
(2) general level of interest rates including credit spreads for real estate
based lending, and (3) general economic conditions. For each of the notes
payable, all of the Company's 11 hotels serve as collateral.

CASH AND CASH EQUIVALENTS
Cash equivalents include highly liquid investments with original maturities of
three months or less. The fair market value of cash and cash equivalents
approximate their carrying value.

RESTRICTED CASH
Restricted cash consists of cash restricted for property improvements.

INVESTMENT IN HOTELS
The hotels are stated at cost, net of depreciation, and including real estate
brokerage commissions paid to Apple Suites Realty Group, Inc., a related party
(see Note 6). Repair and maintenance costs are expensed as incurred while
significant improvements, renovations, and replacements are capitalized.
Depreciation is computed using the straight-line method over estimated useful
lives of the assets, which are 39 years for buildings and major improvements and
5 to 7 years for furniture and equipment.

The carrying values of each hotel are evaluated periodically to determine if
circumstances exist indicating an impairment in the carrying value of the
investment in the hotel. Adjustments are made based on fair value of the
underlying property if impairment is indicated. No impairment losses have been
recorded to date.

F-48

REVENUE RECOGNITION
Lease revenue is reported as income over the lease term as it becomes due from
the lessee according to the provisions of the Percentage Lease agreements. At
December 31, 1999, the lessee is in compliance with its rental obligations under
the Percentage Leases.

STOCK INCENTIVE PLANS
The company elected to follow Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees" (APB 25) and related Interpretations
in accounting for its employee stock options. As discussed in Note 5, the
alternative fair value accounting provided for under FASB Statement No. 123,
"Accounting for Stock-Based Compensation," (FASB 123) requires use of option
valuation models that were not developed for use in valuing employee stock
options. Under APB 25, because the exercise price of the company's employee
stock options equals the market price of the underlying stock on the date of
grant, no compensation expense is recognized.

EARNINGS PER COMMON SHARE
Basic earnings per common share is computed based upon the weighted average
number of shares outstanding during the year. Diluted earnings per share is
calculated after giving effect to all potential common shares that were dilutive
and outstanding for the year. Class B Convertible Shares are not included in
earnings per common share calculations until such time it becomes probable that
such shares can be converted to common shares (see Note 4).

FEDERAL INCOME TAXES
The company is operated as, and will annually elect to be taxed as, a real
estate investment trust under the Internal Revenue Code of 1986, as amended (the
"Code"). Generally, a real estate investment trust which complies with the
provisions of the Code and distributes at least 95% of its taxable income to its
shareholders does not pay federal income taxes on its distributed income.
Accordingly, no provision has been made for federal income taxes.

For federal income tax purposes, distributions paid to shareholders consist of
ordinary income and return of capital or a combination thereof. Distributions
declared per share were $.33 for the period ended December 31, 1999. In 1999, of
the total distribution, 68% was taxable as ordinary income, and 32% was a
non-taxable return of capital.

USE OF ESTIMATES
The preparation of financial statements in accordance with accounting principles
generally accepted in the United States requires management to make certain
estimates and assumptions that affect amounts reported in the financial
statements and accompanying notes. Actual results may differ from those
estimates.

COMPREHENSIVE INCOME
The company does not currently have any items of comprehensive income requiring
separate reporting and disclosure.

F-49

NOTE 2
INVESTMENT IN HOTELS

At December 31, 1999, the company owned the following Homewood Suites(R) by
Hilton:

Acquisition Carrying Accumulated First Mortgage Date
Location Cost Value* Depreciation Encumbrances Acquired
- ---------------------------------- --------------- ----------------- ----------------- --------------------- -------------------

Dallas/Addison, Texas $ 9,500,000 $ 9,780,937 $ 70,349 $ 7,141,500 September 1999
Dallas/Las Colinas, Texas 11,200,000 11,555,748 80,052 8,383,500 September 1999
Dallas/Plano, Texas 5,400,000 5,558,623 46,204 4,050,000 September 1999
Richmond, Virginia 9,400,000 9,667,166 80,046 7,050,000 September 1999
Atlanta/Cumberland, Georgia 9,800,000 10,199,600 55,013 7,350,000 October 1999
Baltimore, Maryland 16,348,000 16,857,511 65,349 12,261,000 November 1999
Clearwater, Florida 10,416,000 10,712,279 34,082 7,812,000 November 1999
Detroit, Michigan 4,330,000 4,466,485 17,209 3,247,500 November 1999
Atlanta/Peachtree, Georgia 4,033,000 4,137,785 13,728 3,024,750 November 1999
Salt Lake City, Utah 5,153,000 5,314,389 21,546 3,864,750 November 1999
Jackson, Mississippi 5,846,000 5,965,318 12,631 4,384,500 December 1999
--------------- ----------------- ----------------- --------------------- -------------------
$91,426,000 $94,215,841 $496,209 $68,569,500
--------------- ----------------- ----------------- --------------------- -------------------

* Includes real estate commissions (see Note 6), closing costs, and improvements
capitalized since the date of acquisition for hotels acquired to date.

Investment in hotels at December 31, 1999 consist of the following:

Land $15,683,084
Building and improvements 77,165,860
Furniture and equipment 1,366,897
- ------------------------------------------------------- -----------
$94,215,841
Less accumulated depreciation (496,209)
- ------------------------------------------------------- -----------
Investments in hotels, net $93,719,632
- ------------------------------------------------------- -----------

F-50

NOTE 3
NOTES PAYABLE

On April 20, 1999, the company obtained a line of credit in a principal amount
of $1 million with a commercial bank. The line of credit was guaranteed by Mr.
Knight, Chairman and Chief Executive Officer. The line required interest at
LIBOR plus 1.50%. The principal balance and all accrued interest were paid in
full by September 30, 1999.

In conjunction with the purchase of 11 hotels, notes were executed by the
company made payable to the order of Hilton in the amount of $68,569,500. The
notes bear a fixed interest rate of 8.5% per annum and are cross-collateralized
by the 11 hotels owned by the company. Interest payments are due monthly. Notes
amounting to $64,185,000 mature during the fourth quarter of 2000, and the
remaining $4,384,500 note matures in January 2001. Principal payments are to be
made to the extent of net equity proceeds from the offering of common shares.
Hilton has agreed to defer principal payments until the earlier of April 29,
2000 or such time as two additional hotels have been purchased by the company.
The company paid $550,147 in interest for the period ended December 31, 1999.
The company's borrowings were $68,569,500 at December 31, 1999. The carrying
value of the notes at December 31, 1999 approximates fair value.

NOTE 4
SHAREHOLDERS' EQUITY

The company is raising equity capital through a "best-efforts" offering of
shares by David Lerner Associates, Inc. (the "Managing Dealer"), which will
receive selling commissions of 7.5% and a marketing expense allowance of 2.5%
based on proceeds of the shares sold. The company received gross proceeds of
$32,627,476 from the sale of 1,666,667 shares at $9 per share and 1,762,747
shares at $10 per share during 1999. The net proceeds of the offering, after
deducting selling commissions and other offering costs were $28,591,260.

The company provides a plan which allows shareholders to reinvest distributions
in the purchase of additional shares of the company ("Additional Share Option").
Of the total proceeds raised from common shares during the year ended December
31, 1999, $92,940 (net $83,646) was provided through the reinvestment of
distributions.

The company issued 240,000 Class B Convertible Shares, consisting of 202,500
shares to Mr. Knight, and a combined 37,500 Class B Convertible Shares to two
other individuals. The Class B Convertible Shares were issued by the company
before the initial closing of the minimum offering of $15,000,000, in exchange
for payment of $.10 per Class B Convertible Share, or an aggregate of $24,000.
There will be no dividend payable on the Class B Convertible Shares. On
liquidation of the company, the holders of the Class B Convertible Shares will
be entitled to a liquidation payment of $.10 per share before any distributions
of liquidation proceeds to holders of the common shares. Holders of more than
two-thirds of the Class B Convertible Shares must approve any proposed amendment
to the Articles of Incorporation that would adversely affect the Class B
Convertible Shares or create a new class of stock senior to, or on a parity
with, the Class B Convertible Shares. The Class B Convertible Shares may not be
redeemed by the company.

Each holder of outstanding Class B Convertible Shares shall have the right to
convert any of such shares into common shares of the company upon and for 180
days following the occurrence

F-51

of either of the following conversion events: (1) the sale or transfer of
substantially all of the company's assets, stock or business, whether through
sale, exchange, merger, consolidation, lease, share exchange or otherwise, or
(2) the termination or expiration without renewal of the Advisory Agreement with
Apple Suites Advisors, Inc., and if the company ceases to use Apple Suites
Realty Group, Inc. to provide substantially all of its property acquisition and
disposition services.

Upon the occurrence of either conversion event, each of the Class B Convertible
Shares may be converted into a number of common shares based upon the gross
proceeds raised through the date of conversion in the public offering or
offerings of the company's common shares made by the company's prospectus
according to the following formula:

Number of Common Shares through Conversion of Each
Gross Proceeds Raised from Sales of Common Shares Class B Convertible Share (the initial "Conversion
through Date of Conversion Ratio")
- ------------------------------------------------------- -----------------------------------------------------

$ 50 million 1.0
$100 million 2.0
$150 million 3.5
$200 million 5.3
$250 million 6.7
$300 million 8.0

No additional consideration is due upon the conversion of the Class B
Convertible Shares. Upon the probable occurrence of a conversion event, the
company will record expense for the difference between the market value of the
company's common stock and issue price of the Class B Convertible Shares.

The Company has authorized 15 million shares of preferred stock. There were no
shares issued and outstanding at December 31, 1999.

NOTE 5
STOCK INCENTIVE PLANS

In July 1999, the Board of Directors approved a Non-Employee Directors Stock
Option Plan (the "Directors Plan") whereby Directors, who are not employees of
the company or affiliates (see Note 6), automatically receive options to
purchase stock for 10 years from the adoption of the plan. Under the Directors
Plan, the number of shares to be issued is equal to 45,000 plus 1.8% of the
number of shares sold in excess of 1,666,667. This plan currently relates to the
initial public offering of 30,166,667 shares; therefore the maximum number of
shares to be issued under the Directors Plan currently is 558,000. The options
expire ten years from the date of grant. As of December 31, 1999, 76,729 had
been reserved for issuance.

In July 1999, the Board of Directors approved an Incentive Stock Option Plan
(the "Incentive Plan") whereby incentive awards may be granted to certain
employees of the company or affiliates. Under the Incentive Plan, the number of
shares to be issued is equal to 35,000 plus 4.625% of the number of shares sold
in excess of 1,666,667. This plan also currently relates to the initial public
offering of 30,166,667 shares; therefore, the maximum number of shares that can
be issued under the Incentive Plan currently is 1,353,125. As of December 31,
1999, 116,527 shares had been reserved for issuance.

F-52

Both plans generally provide, among other things, that options be granted at
exercise prices not lower than the market value of the shares on the date of
grant. Under the Incentive Plan, at the earliest, options become exercisable at
the date of grant. The optionee has up to 10 years from the date on which the
options first become exercisable during which to exercise the options. In 1999,
the company granted 22,000 options to purchase shares under the Directors Plan
and no options under the Incentive Plan. Activity in the company's share option
plan during 1999 is summarized in the following table:

1999
--------------------------- -----------------------------------
Options Weighted-Average Exercise Price
- --------------------------------------------- --------------------------- -----------------------------------

Outstanding, beginning of period -- --
Granted 22,000 $9.00
Exercised -- --
Forfeited -- --
- --------------------------------------------- --------------------------- -----------------------------------
Outstanding, end of year 22,000 $9.00
Exercisable at end of year 22,000 $9.00
- --------------------------------------------- --------------------------- -----------------------------------
Weighted-average fair value of options
granted during the year $ .31
- --------------------------------------------- --------------------------- -----------------------------------

Pro forma information regarding net income and earnings per share is required by
FASB 123, under the fair value method described in that statement. The fair
value for these options was estimated at the date of grant using a Black-Scholes
option pricing model with the following weighted-average assumptions for 1999:
risk-free interest rates of 5.6%; a dividend yield of 10.0%; and volatility
factor of the expected market price of the company's common stock of .208; and a
weighted average expected life of the options of 10 years.

The Black-Scholes option valuation model was developed for use in estimating the
fair value of traded options which have no vesting restrictions and are fully
transferable. In addition, option valuation models require the input of highly
subjective assumptions including the expected stock price volatility.

For purposes of FASB 123 pro forma disclosures, the estimated fair value of the
options is amortized to expense over the options' vesting period. As the options
are exercisable within six months of the date of grant, the full impact of the
pro forma adjustment to net income is disclosed below.

F-53

1999
--------

Net income available
to common shareholders

Pro forma $358,645

As reported $365,465

Earnings per common share-diluted
Pro forma $.14
As reported $.14

NOTE 6
COMMITMENTS AND RELATED PARTIES

The company receives rental income from the lessee under the Percentage Leases
which expire in 2009 subject to earlier termination by the company with 30 days
notice. The Leases contain two optional five-year extensions. The rent due under
the Percentage Lease is the sum of base rent and percentage rent. Percentage
rent is calculated by multiplying fixed percentages by the total amounts of
suite revenues with reference to specified threshold amounts. Both the base rent
and the revenue thresholds used in computing percentage rents are subject to
annual adjustments based on increases in the Consumer Price Index ("CPI"). The
company earned rents of $2,518,031 for the period ended December 31, 1999.

Minimum future rental income (i.e. base rents) payable to the company under the
Percentage Leases in effect at December 31, 1999 are as follows:

2000 $ 6,583,400
2001 6,583,400
2002 6,583,400
2003 6,583,400
2004 6,583,400
Thereafter 31,564,507
-----------
$64,481,507
-----------

Under the Percentage Leases, the company is obligated to pay the costs of real
estate and personal property taxes, property insurance, maintenance of
underground utilities and structural elements of the hotels. The company is
committed under certain agreements to fund 5% of suite revenues per month for
capital expenditures to include periodic replacement or refurbishment of
furniture, fixtures, and equipment. At December 31, 1999, $753,927 was held by
Promus for capital improvement reserves. In addition in accordance with the
franchise agreements, $1,023,721 was held for the property improvement plan with
a financial institution and treated as restricted cash.

F-54

The company loaned the lessee $567,900 for franchise fees and $121,800 for hotel
supplies for the 11 hotels. The debt agreements are evidenced by promissory
notes bearing interest at a rate of 9% per annum. Principal and interest
payments are due monthly. The promissory notes have various maturity dates
through January 2010.

The company has contracted with Apple Suites Realty Group, Inc. ("ASRG") to
acquire and dispose of real estate assets for the company. In accordance with
the contract ASRG is to be paid a fee of 2% of the purchase price of any
acquisitions or sale price of any dispositions of real estate investments,
subject to certain conditions. During 1999, ASRG earned $1,828,520 under the
agreement of which $849,628 was payable at December 31, 1999.

The company has contracted with Apple Suites Advisors, Inc. ("ASA") to advise
and provide day to day management services to the company. In accordance with
the contract, the company will pay ASA a fee equal to .1% to .25% of total
equity contributions received by the company in addition to certain reimbursable
expenses. During 1999, ASA earned $23,574 under this agreement of which $18,513
was payable at December 31, 1999.

The lessee, ASRG and ASA are 100% owned by Mr. Knight. ASRG and ASA may purchase
in the "best efforts" offering up to 2.5% of the total number of shares of the
company sold in the "best efforts" offering.

Mr. Knight also serves as the Chairman and Chief Executive Officer of
Cornerstone Realty Income Trust, Inc., an apartment REIT. During 1999,
Cornerstone Realty Income Trust, Inc. provided the company with services and
rental space and was paid approximately $55,000.

NOTE 7
WARRANTS

The company has agreed to sell to the Managing Dealer for an aggregate of $100,
warrants (the "warrants") to purchase 10% of the shares sold in this offering,
up to 3,000,000 common shares, at an exercise price of $16.50 per common share
(165% of the public offering price per common share). The Warrants may not be
sold, transferred, assigned or hypothecated for one year from the date of
issuance, except to the officers and employees of the Managing Dealer and are
exercisable at any time and from time to time, in whole or in part, during the
five-year period commencing on the date of the final closing after the
termination of the offering (the "Warrant Exercise Term"). At the company's
expense, the company may be required to register the Warrants under the
Securities Act during the Warrant Exercise Term.

F-55

NOTE 8
EARNINGS PER SHARE

The following table sets forth the computation of basic and diluted earnings per
share:

Year Ended December 31, 1999
NUMERATOR:

Net income and numerator for
basic and diluted earnings $ 365,465
DENOMINATOR:

Denominator for basic earnings per
share-weighted-average shares 2,648,196
EFFECT OF DILUTIVE SECURITIES:
Stock options 2,200
- ---------------------------------------------------------------
Denominator for diluted earnings
per share-adjusted weighted-
average shares and assumed conversions 2,650,396
- ---------------------------------------------------------------
Basic and diluted earnings per
common share $ .14
- ---------------------------------------------------------------

NOTE 9
LESSEE

All of the company's lease revenue is derived from the Percentage Leases with
the lessee. Certain information, related to the lessee's financial statements,
is as follows:

As of December 31,1999
- -------------------------------------------------------------------
BALANCE SHEET INFORMATION:
Cash and cash equivalents $2,395,000
Total assets 3,826,155
Due to Apple Suites, Inc. 2,123,136
Shareholders' Deficit (141,004)

For the period September 1 through December 31,1999
- -------------------------------------------------------------------
STATEMENT OF OPERATIONS INFORMATION:
Total revenue $5,671,075
Rent expense-Apple Suites, Inc. 2,518,031
Total expenses 5,812,179
Net loss (141,104)

At December 31, 1999, the company owned 11 hotels operating as Homewood
Suites(R) by Hilton. The hotels operate pursuant to franchise license agreements
which require the payment of fees based on a percentage of suite revenue and
sundry revenue. These fees are paid by the lessee.

F-56

The lessee engages Promus as a third-party manager to operate the hotels leased
by it and pays the manager a 4% management fee based on a percentage of adjusted
gross revenue. During the first two years of the management agreement, a portion
of the management fee equal to 1% of adjusted gross revenues is subordinated to
the lessee's receipt of a return equal to 11% of the purchase price of each
hotel. The lessee pays the manager a franchise fee and a marketing fee, equal to
4% of gross revenues, respectively.

NOTE 10
QUARTERLY AND FINANCIAL DATA (UNAUDITED)

The following is a summary of quarterly results of operations for the year ended
December 31, 1999:

1999 Third Quarter* Fourth Quarter
- ------------------------------------- ----------------------------------- -----------------------------------

Revenues $481,676 $2,205,441
Net income 38,708 326,757
Basic and diluted .02 .12
Distributions declared per share -- .33

* Operations commenced on September 1, 1999.

NOTE 11
PRO FORMA INFORMATION (UNAUDITED)

The following unaudited pro forma information for the period ended December 31,
1999 is presented as if the acquisition of the 11 hotels occurred on January 1,
1999. The pro forma information does not purport to represent what the company's
results of operations would actually have been if such transaction, in fact, had
occurred on January 1, 1999, nor does it purport to represent the results of
operations for future periods.

Twelve months ended 12/31/99
- -------------------------------------------------------------------------------------------------------------

Lease revenue $14,102,040
Net income $ 3,828,096
Net income per share-basic and diluted $ 1.31

The pro forma information reflects adjustments for actual lease revenue and
expenses of the 11 hotels acquired in 1999 for the respective period in 1999
prior to acquisition by the company. Net income has been adjusted as follows:
(1) depreciation has been adjusted based on the company's basis in the hotels;
(2) advisory expenses have been adjusted based on the company's contractual
arrangements; (3) interest expense has been adjusted to reflect the acquisition
as of January 1, 1999; and (4) common stock raised during 1999 to purchase these
hotels has been adjusted to reflect issuance as of January 1, 1999.

F-57

NOTE 12

SUBSEQUENT EVENTS

During January and February of 2000, the company closed the sale to investors of
335,487 shares at $10 per share representing net proceeds to the company of
$3,019,377.

The company has entered into contracts to purchase two additional hotels from
Hilton on or before April 28, 2000 for a total purchase price of $30.4 million.
The purchase is subject to a number of customary closing conditions. In
addition, the ability of the company to purchase the hotels is contingent upon
its obtaining sufficient funds, either through the sale of sufficient common
shares under the company's "best efforts" offering or through alternate
financing sources. Therefore, there can be no assurance that the proposed
purchase will occur as scheduled, or at all. There is a required deposit with
Hilton of $400,000 against the aggregate purchase price. If the company does not
complete the purchase, it could lose the monies deposited.

F-58

SCHEDULE III REAL ESTATE AND ACCUMULATED DEPRECIATION (AS OF DECEMBER 31,
1999)-APPLE SUITES, INC.

-------------------------------------------------------------------------------------
Initial Cost Subsequently Capitalized Gross Amnt. Carried
Encum- -------------------------------------------------------------------------------------
Description rances Land Bldg. & Imp. Imp. Land Bldg. & Imp. Total
- --------------------------------------------------------------------------------------------------------------------

1. Addison, $7,141,500 $2,090,000 $7,410,000 $280,937 $2,117,035 $7,663,902 $9,780,937
Texas

2. Las Colinas, 8,383,500 2,800,000 8,400,000 355,748 2,835,140 8,720,608 11,555,748
Texas

3. Plano, 4,050,000 594,000 4,806,000 158,623 600,481 4,958,142 5,558,623
Texas

4. Richmond, 7,050,000 846,000 8,554,000 267,166 858,975 8,808,191 9,667,166
Virginia

5. Atlanta, 7,350,000 2,254,000 7,546,000 399,600 2,282,915 7,916,685 10,199,600
Georgia
(Galleria)

6. Baltimore, 12,261,000 1,634,800 14,713,200 509,511 1,671,050 15,186,461 16,857,511
Maryland

7. Clearwater, 7,812,000 2,395,680 8,020,320 296,279 2,853,277 7,859,002 10,712,279
Florida

8. Detroit, 3,247,500 412,240 3,917,760 136,485 526,858 3,939,627 4,466,485
Michigan

9. Atlanta, 3,024,750 519,600 3,513,400 104,785 1,051,850 3,085,935 4,137,785
Georgia
(Peachtree)

10. Salt Lake 3,864,750 1,048,580 4,104,420 161,389 415,557 4,898,832 5,314,389
City, Utah

11. Jackson, 4,384,500 467,680 5,378,320 119,318 469,946 5,495,372 5,965,318
Mississippi

TOTALS $68,569,500 $15,062,580 $76,363,420 $2,789,840 $15,683,084 $78,532,757 $94,215,841 (1)
====================================================================================================================

Date Date
Description Acc. Depr. Constructed Acquired Dep. Life
- --------------------------------------------------------------------

1. Addison, $70,349 1990 Sept 1999 39 yrs.
Texas

2. Las Colinas, 80,052 1990 Sept 1999 39 yrs.
Texas

3. Plano, 46,204 1997 Sept 1999 39 yrs.
Texas

4. Richmond, 80,046 1998 Sept 1999 39 yrs.
Virginia

5. Atlanta, 55,013 1990 Oct 1999 39 yrs.
Georgia
(Galleria)

6. Baltimore, 65,349 1998 Nov 1999 39 yrs.
Maryland

7. Clearwater, 34,082 1998 Nov 1999 39 yrs.
Florida

8. Detroit, 17,209 1990 Nov 1999 39 yrs.
Michigan

9. Atlanta, 13,728 1990 Nov 1999 39 yrs.
Georgia
(Peachtree)

10. Salt Lake 21,546 1996 Nov 1999 39 yrs.
City, Utah

11. Jackson, 12,631 1997 Dec 1999 39 yrs.
Mississippi

TOTALS $496,209
===============================

(1) Represents the aggregate cost for federal income tax purposes.

(2) The reconciliation of the carrying amount of real estate owned is as
follows:

CARRYING VALUE:
Beginning balance $ --
Acquisition of hotel properties 91,426,000
Subsequent costs capitalized 2,789,841
----------
Balance at December 31, 1999 $94,215,841
===========

F-59

Independent Auditor's Report

The Management
Apple Suites Management, Inc.

We have audited the accompanying consolidated balance sheet of Apple Suites
Management, Inc. (the "Company") as of December 31, 1999, and the related
consolidated statements of operations and retained deficit and cash flows for
the period from March 11, 1999 (date of inception) through December 31, 1999.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audit.

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

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of Apple
Suites Management, Inc. at December 31, 1999, and the consolidated results of
its operations and its cash flows for the period from March 11, 1999 (date of
inception) through December 31, 1999, in conformity with accounting principles
generally accepted in the United States.

/s/ Ernst & Young LLP

Richmond, Virginia
February 28, 2000

F-60

APPLE SUITES MANAGEMENT, INC.
CONSOLIDATED BALANCE SHEET

AS OF DECEMBER 31, 1999
- ----------------------------------------------------------------------------------------------------

Current assets

Cash and cash equivalents $2,395,000
Net receivables 738,361
Inventories 121,801
Other assets 8,142
-------------------

Total current assets 3,263,304

Deferred franchise fees 562,851
-------------------

Total assets $3,826,155
===================

Liabilities and Shareholders' Deficit

Current liabilities

Accounts payable $48,586
Rent payable to Apple Suites, Inc. 2,123,136
Due to third party manager 454,147
Due to Apple Suites, Inc. 28,991
Accrued expenses 624,346
Current portion of long-term notes payable to Apple Suites, Inc. 56,939
-------------------

Total current liabilities 3,336,145

Long-term notes payable to Apple Suites, Inc. 631,014
-------------------

Total liabilities 3,967,159

Shareholders' deficit

Common stock, no par value, 5,000 authorized;
10 shares issued and outstanding 100
Retained deficit (141,104)
-------------------

Total shareholders' deficit (141,004)
-------------------

Total Liabilities and Shareholders' Deficit $3,826,155
===================

See accompanying notes to consolidated financial statements.

F-61

APPLE SUITES MANAGEMENT, INC.
CONSOLIDATED STATEMENT OF OPERATIONS AND RETAINED DEFICIT

FOR THE PERIOD
MARCH 11, 1999
THROUGH
DECEMBER 31, 1999(a)
----------------------------

REVENUE

Suite revenue $5,335,925
Other revenue and interest income 335,150
-----------------------------

Total revenue 5,671,075

EXPENSES

Rent expense-Apple Suites, Inc. 2,518,031
Operating expense 1,656,540
General and administrative 494,377
Advertising and promotion 472,787
Utilities 199,907
Franchise fees 213,437
Management fees 226,136
Other 30,964
-----------------------------

Total expenses 5,812,179

Loss before income taxes (141,104)

Income tax benefit --
-----------------------------

Net loss $(141,104)

Retained deficit, beginning of period --
-----------------------------

Retained deficit, end of period $(141,104)
=============================

(a) The Lessee commenced operations on September 1, 1999.

See accompanying notes to consolidated financial statements.

F-62

APPLE SUITES MANAGEMENT, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS

FOR THE PERIOD
MARCH 11, 1999
THROUGH
DECEMBER 31, 1999(a)
--------------------------

Cash flow from operating activities:

Net loss $(141,104)

Adjustment to reconcile net loss to net cash
provided by operating activities

Amortization of deferred franchise fees 5,049

Changes in operating assets and liabilities:

Receivables (738,361)
Other assets (8,142)
Due to Apple Suites, Inc. 28,991
Rent payable to Apple Suites, Inc. 2,123,136
Accounts payable 48,586
Due to third party manager 454,147
Accrued expenses 624,346
---------------------------

Net cash provided by operating activities 2,396,648

Cash flow from financing activities:

Repayments of notes payable (1,748)
Proceeds from sale of common stock 100
---------------------------

Net cash used in financing activities (1,648)

Increase in cash and cash equivalents 2,395,000

Cash and cash equivalents, beginning of period --
---------------------------

Cash and cash equivalents, end of period $2,395,000
===========================

Supplemental Cash Flow Information:

Non-cash transactions:
Notes payables-issued by Apple Suites, Inc. $ 689,701
Payment of deferred franchise fees $ 567,900
Acquisition of inventory $ 121,801

(a) The Lessee commenced operations on September 1, 1999.

See accompanying notes to consolidated financial statements.

F-63

APPLE SUITES MANAGEMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1
GENERAL INFORMATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

ORGANIZATION
Apple Suites Management, Inc. (together with its subsidiaries, the "Lessee") was
formed on March 11, 1999 and is owned 100% by Glade M. Knight. Mr. Knight also
serves as the Chairman and CEO of Apple Suites, Inc. (the "Company"). The Lessee
commenced operations effective September 1, 1999 with the acquisition of 4
extended-stay hotels by the Company.

The Lessee operates in one business segment. Each hotel is leased by the Company
to the Lessee under a master hotel lease agreement ("Percentage Lease") having
an initial term of ten years, subject to earlier termination at the option of
the Company upon 30 day notice. The lease agreement provides for two optional
five year extensions. The Percentage Leases require base rent payments to be
made to the Company on a monthly basis and additional quarterly payments to be
made based upon percentages of suite and sundry revenue. Promus Hotels, Inc. or
an affiliate ("Promus") manages the hotels under a management agreement with the
Lessee. Promus Hotels, Inc. is a wholly-owned subsidiary of Hilton Hotel
Corporation ("Hilton"). The hotels are located throughout the United States and
are licensed with Homewood Suites(R) by Hilton.

The accompanying financial statements include the accounts of the Lessee and its
subsidiaries. All significant intercompany transactions have been eliminated in
consolidation.

INVENTORIES
Inventories, consisting primarily of food and beverages and hotel supplies are
stated at the lower of cost or market, with cost determined on a method that
approximates the first-in, first-out basis.

REVENUE RECOGNITION
Revenue is recognized as earned, which is generally defined as the date upon
which a guest occupies a room or utilizes the hotel's services.

OTHER REVENUE
Other revenue consists of revenues derived from hotel services such as
telephone, TV, valet and vending machines. These sundry revenues are recognized
in the period the related services are provided.

ADVERTISING AND PROMOTION COSTS
Advertising and promotion costs are expensed when incurred. Advertising and
promotion costs represent the expense for franchise advertising and reservation
systems under the terms of the hotel franchise agreements and general and
administrative expenses that are directly attributable to advertising and
promotion.

F-64

DEFERRED FRANCHISE FEES
Deferred franchise fees represent the costs incurred in connection with entering
into hotel license agreements, which have a term of 20 years. Deferred franchise
fees are being amortized over the term of the hotel license agreements.

RENT EXPENSE
Rent expense is recognized as incurred by the Company under the Percentage
Leases commencing on the date the lease is executed. Percentage rent is accrued
prior to the Lessee achieving the baseline revenue that triggers the percentage
rental expense when achievement of the baseline revenue is considered probable.
Baseline revenue amounts are determined on a quarterly basis for each hotel.

INCOME TAXES
The Lessee provides for income taxes under the provisions of Statement of
Financial Accounting Standards ("SFAS") No. 109 "Accounting for Income Taxes".
SFAS No. 109 requires an asset and liability based approach in accounting for
income taxes.

COMPREHENSIVE INCOME
The Company does not currently have any items of comprehensive income requiring
separate reporting and disclosure.

SEASONALITY
The hotel industry is seasonal in nature. Seasonal variations in revenues at the
hotels under lease may cause quarterly fluctuations in the Company's revenues.
Revenues for 1999 primarily consist of fourth quarter revenues which may not be
indicative of a full year.

NOTE 2
PERCENTAGE LEASES
The Percentage Leases expire in 2009, subject to earlier termination by the
Company upon 30 day notice. The Percentage Leases provide for two optional
five-year extensions. The rent due for each hotel is the sum of a base rent and
a percentage rent. Percentage rent is calculated on a quarterly basis by
multiplying fixed percentages by the total amounts of year-to-date suite
revenues with reference to specified threshold amounts, known as breakpoints.
Both the base rent and the breakpoints used in computing percentage rents are
subject to annual adjustments based on increases in the Consumer Price Index
("CPI").

The Lessee's future commitments to the Company for base rent in effect at
December 31, 1999 are as follows:

F-65

Year Amount
---- ------

2000 $ 6,583,400
2001 6,583,400
2002 6,583,400
2003 6,583 400
2004 6,583,400
Thereafter 31,564,507
----------
$64,481,507
===========

Base rent is payable to the Company in arrears and percentage rent is payable 15
days following a quarter-end. The Lessee incurred rent expense of $2,518,031 for
the year ended December 31, 1999 and had rent payable of $2,123,136 at December
31, 1999.

NOTE 3
COMMITMENTS AND RELATED PARTY TRANSACTIONS
On September 17, 1999, the Lessee entered into various debt agreements with the
Company. The Lessee borrowed from the Company $567,900 for franchise fees and
$121,800 for hotel supplies. The promissory notes relating to these debt
agreements bear interest at a rate of 9% per annum. Principal and interest
payments are due monthly. The Lessee incurred interest expense of $10,915
related to the promissory notes and $7,557 was payable at December 31, 1999.

The aggregate maturities of principal for promissory notes subsequent to
December 31, 1999 are as follows:

Year Amount
---- ------

2000 $ 56,939
2001 62,612
2002 68,485
2003 74,909
2004 79,687
Thereafter 345,321
-------
$687,953
========

The Lessee has entered into license agreements with Promus to operate the hotels
as Homewood Suites(R) by Hilton properties. These agreements have terms of 20
years and expire in 2019. These agreements require the Lessee to, among other
things, pay monthly franchise fees equal to 4% of suite revenue. License and
franchise agreements contain specific standards for, and restrictions and
limitations on, the operation and maintenance of the hotels which are
established by Promus to maintain uniformity in the system for Homewood
Suites(R) by Hilton. Such standards generally regulate the appearance of the
hotel, quality and type of goods and services offered, signage, and protection
of marks. Compliance with such standards may from time to time require
significant expenditures for capital improvements which will be borne by the
Company. In addition, the agreements provide that Promus will manage the daily
operations of the hotels and provide advertising and promotion to include access
to the reservation system for Homewood Suites(R) by Hilton. The Lessee pays
Promus 4% of monthly suite revenue for each

F-66

of these functions, respectively. Total expenses incurred by the Lessee for
franchise fees, advertising and promotion fees, and management fees totaled
$653,010.

NOTE 4
SHAREHOLDER'S EQUITY
The Lessee requires or may require funds to capitalize its business to satisfy
its obligations under Percentage Leases with the Company, dated September 17,
1999. To meet these objectives, the Lessee has two funding commitment agreements
(together "Payor") of $1 million each from Mr. Knight and Apple Suites Realty
Group, Inc., ("ASRG"), respectively. ASRG is owned by Mr. Knight. The funding
commitments are contractual obligations of the Payor to provide funds to the
Lessee. Funds paid to the Lessee under the commitments are to be used to satisfy
any capitalization or net worth requirements applicable to the Lessee or the
Lessee's payment obligations under the lease agreements and does not represent
any indebtedness. The funding commitments terminate upon the expiration of the
Percentage Leases, written agreement between the Payor and the Lessee, or
repayment of all amounts to the Payor. As of December 31, 1999, no contributions
have been made by the Payor to the Lessee.

NOTE 5
INCOME TAXES
The Lessee is subject to federal and state income taxes. The Lessee incurred a
loss during the period and as such has no income tax liability at December 31,
1999. No deferred income tax asset has been recorded in the consolidated balance
sheet since realization is uncertain. At December 31, 1999, the Lessee has
$110,000 of net operating loss carryforwards which expire in 2020.

NOTE 6
CREDIT RISK
The Lessee maintains cash on deposit with Promus in a pooled investment account
that potentially subjects the Lessee to a concentration of credit risk. At
December 31, 1999 the Lessee has $1,107,399 on deposit with Promus.

F-67

APPLE SUITES, INC.
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1999 (UNAUDITED)

The following unaudited Pro Forma Condensed Consolidated Statement of
Operations of Apple Suites, Inc. (the "Company") are presented as if the
acquisition and leasing of the eleven extended-stay hotels by the Company had
occurred at the beginning of the period presented. The seller was Promus Hotels,
Inc., or an affiliate. Promus Hotels, Inc. is a wholly-owned subsidiary of
Hilton Hotel Corporation ("Hilton"). The hotels have been leased to Apple Suites
Management, Inc. or its subsidiary (the "Lessee") pursuant to master hotel lease
agreements. Such pro forma information is based in part upon the Consolidated
Statement of Operations of the Company, the Pro Forma Statement of Operations of
the Lessee and the historical Statements of Operations of the acquired hotels.
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 for the period presented are not necessarily indicative of what
actual results of operations of the Company would have been assuming such
transactions had been completed as of the beginning of the period presented, nor
does it purport to represent the results of operations for future periods. The
master hotel lease agreements between the Company and the Lessee were based on
economic conditions existing at the time of acquisition. Application of these
agreements to periods prior to the acquisition may not be meaningful. The most
significant assumption which may not be indicative of future operations is the
amount of financial leverage employed. This Pro Forma Statement assume 75% of
the purchase price was funded with debt for the entire period presented. The
Company intends to repay this debt with the proceeds from its "best efforts"
offering. This repayment of debt would result in lower interest expense, higher
net income, but lower earnings per share.

F-68

FOR THE YEAR ENDED DECEMBER 31, 1999 (UNAUDITED)

Pro Forma Adjustments
---------------------------------------------------------------------------------
Homewood Homewood Homewood
Historical Suites Suites Suites
Statement of Acquisition Acquisition Acquisition Total
Operations (A I) (A II) (A III) Pro Forma
---------------------------------------------------------------------------------

Revenue:
Percentage lease revenue $2,518,031 $4,510,834 (B) $5,932,615 (B) $1,140,560 (B) $14,102,040
Interest income and other income 169,086 -- -- -- 169,086

Expenses:
Taxes and insurance 426,592 822,599 (C) 647,225 (C) 93,884 (C) 1,990,300
General and administrative 153,807 82,649 (D) 86,636 (D) 65,659 (D) 388,751
Depreciation 496,209 656,623 (E) 821,580 (E) 140,664 (E) 2,115,076
Interest expense 1,245,044 1,977,313 (F) 2,353,863 (F) 372,683 (F) 5,948,903
---------------------------------------------------------------------------------

Total expenses 2,321,652 3,539,184 3,909,304 672,890 10,443,030
---------------------------------------------------------------------------------

Net income $ 365,465 $ 971,650 $2,023,311 $467,670 $ 3,828,096
=================================================================================

Earnings per common share:
Basic and diluted $0.14 $1.31
============== ==============

Basic and diluted weighted average
common shares outstanding 2,648,196 -- (G) 99,283 (G) 176,360 (G) 2,923,839
============== ==============

Notes to Pro Forma Condensed Consolidated Statements of Operations

(A) Represents results of operations for the eleven hotels acquired on a pro
forma basis as if the eleven hotels were owned by the Company at the beginning
of the period presented.

Date Commenced Date
Property Operations Acquired
- -------------------------------------------------------------------------------------------------------------------

I Homewood Suites - Dallas, TX 1990 September 1, 1999
I Homewood Suites - Las Colinas, TX 1990 September 1, 1999
I Homewood Suites - Plano, TX 1997 September 1, 1999
I Homewood Suites - Richmond. VA May 1998 September 1, 1999
I Homewood Suites - Atlanta, GA 1990 October 1, 1999
- -------------------------------------------------------------------------------------------------------------------
II Homewood Suites - Clearwater, FL February 1998 November 24, 1999
II Homewood Suites - Salt Lake, UT 1996 November 24, 1999
II Homewood Suites - Atlanta, GA 1990 November 24, 1999
II Homewood Suites - Detroit, MI 1990 November 24, 1999
II Homewood Suites - Baltimore, MD March 1998 November 24, 1999
- -------------------------------------------------------------------------------------------------------------------
III Homewood Suites - Jackson, MS February 1997 December 22, 1999

(B) Represents lease payment from the Lessee to the Company calculated on a pro
foma basis by applying the rent provisions in the master hotel lease agreements
to the historical room revenue of the hotels as if the beginning of the period
was the beginning of the lease year. The

F-69

base rent and the percentage rent will be calculated and paid based on the terms
of the lease agreement. Refer to the discussion of the master hotel lease
agreement for details.

(C) Represents historical real estate and personal property taxes and insurance
which will be paid by the Company pursuant to the master hotel lease agreements.
Such amounts are the historical amounts paid by the respective hotels.

(D) Represents the advisory fee of .25% of accumulated capital contributions
under the "best efforts" offering for the period of time not owned by the
Company and anticipated legal and accounting fees, employee costs, salaries and
other costs of operating as a public company.

(E) Represents the depreciation on the eleven hotels acquired based on the
purchase price, excluding amounts allocated to land, of $37,450,320 for the
first acquisition, $41,085,600 for the second acquisition, and $5,485,886 for
the third acquisition, for the period of time not owned by the Company. The
average life of the depreciable assets was 39 years. The estimated useful lives
are based on management's knowledge of the properties and the hotel industry in
general.

(F) Represents the interest expense for the eleven hotel acquisitions for the
period in which the hotels were not owned, interest was computed using the
interest rates of 8.5% on mortgage debt of $33,975,000 for the first
acquisition, $30,210,000 for the second acquisition and $4,384,500 for the third
acquisition that was incurred at acquisition.

(G) Represents additional common shares assuming the properties were acquired at
the beginning of the period presented with the net proceeds from the "best
efforts" offering of $9 per share (net $8.06 per share) for the first
$15,000,000 and $10 per share (net $8.95 per share) for the remainder.

F-70

APPLE SUITES MANAGEMENT, INC.
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1999 (UNAUDITED)

The following unaudited Pro Forma Condensed Consolidated Statement of
Operations of Apple Suites Management, Inc. (the "Lessee") are presented as if
the leasing of the eleven extended-stay hotels from Apple Suites, Inc. (the
"Company") to the Lessee or its subsidiary had occurred at the beginning of the
period presented. The Company purchased the hotels from Promus Hotels, Inc., or
an affiliate. Promus Hotels, Inc. is a wholly-owned subsidiary of Hilton Hotel
Corporation ("Hilton"). The hotels have been leased to the Lessee or its
subsidiary pursuant to master hotel lease agreements. Further, the results of
operations reflect the hotel management agreements and hotel license agreements
between Promus and the Lessee or its subsidiary. The master hotel lease
agreements were based on economic conditions existing at the time of
acquisition. Application of these agreements to periods prior to the acquisition
may not be meaningful. Such pro forma information is based in part upon the
Consolidated Statement of Operations of the Lessee and the hotels and should be
read in conjunction with the financials statement contained herein. 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 for the period are not necessarily indicative of what the actual
results of operations of the Lessee would have been assuming such transactions
had been completed as of the beginning of the period presented, nor does it
purport to represent the results of operations for the future periods.

F-71

FOR THE YEAR ENDED DECEMBER 31, 1999 (UNAUDITED)

Homewood Homewood Homewood
Historical Suites Suites Suites
Statement of Acquisitions Acquisitions Acquisition Pro Forma Total
Operations (A I) (A II) (A III) Adjustments Pro Forma
-------------------------------------------------------------------------------------------

REVENUES:
Suite revenue $5,335,925 $9,818,797 $12,082,374 $2,230,952 -- $29,468,048
Other income 335,150 560,096 709,240 168,438 -- 1,772,924

EXPENSES:
Operating expenses 1,656,540 3,794,204 4,870,096 954,102 -- 11,274,942
General and administrative 494,377 250,317 300,399 77,381 $(107,000) (B)
19,036 (C) 1,034,510
Advertising and promotion 472,787 438,985 580,564 112,902 (965,290) (D)
965,285 (E) 1,605,233
Utilities 199,907 354,113 551,359 75,639 -- 1,181,018
Taxes and insurance -- 822,599 647,225 93,884 (1,563,708) (F) --
Depreciation expense -- 1,783,021 2,217,128 426,986 (4,427,135) (G) --
Franchise fees 213,437 392,757 483,295 89,238 (965,290) (H)
965,285 (I) 1,178,722
Management fees 226,136 311,275 383,599 71,982 (766,856) (J)
1,130,796 (K) 1,356,932
Rent expense-Apple Suites, Inc. 2,518,031 -- -- -- 11,584,009 (L) 14,102,040
Other 30,964 -- -- -- -- 30,964
---------------------------------------------------------------------- --------------

Total expenses 5,812,179 8,147,271 10,033,665 1,902,114 5,869,132 31,764,361

Income before income tax (141,104) 2,231,622 2,757,949 497,276 (5,869,132) (523,389)

Income tax expense -- -- -- -- -- --
---------------------------------------------------------------------- --------------

Net income $(141,104) $2,231,622 $2,757,949 $497,276 $(5,869,132) $(523,389)
====================================================================== ==============

Notes to Pro Forma Condensed Consolidated Statements of Operations

(A) Represents results of operations for the eleven Homewood Suites hotel
acquisitions on a pro forma basis as if the hotels acquired were leased and
operated by the Lessee at the beginning of the period presented, see below. The
hotels acquired are as follows:

F-72

Date Commenced Date
Property Operations Acquired
- -------------------------------------------------------------------------------------------------------------------

(B) Represents the elimination of the historical accounting fee allocated to the
hotels by the prior owner.

(C) Represents the addition of the anticipated legal and accounting and other
expenses to operate as a stand alone company.

(D) Represents the elimination of the historical advertising, training and
reservation fee allocated to the hotels by the prior owner.

(E) Represents the addition of the marketing fee to be incurred under the new
license agreements. The marketing fee is calculated based on the terms of the
license agreements which is 4% of suite revenue.

(F) Represents the elimination of the taxes and insurance. Under the terms of
the lease these expenses will be incurred by the Company and, accordingly, are
reflected in the Company's Pro Forma Condensed Consolidated Statement of
Operations.

(G) Represents the elimination of the depreciation expense. This expense will be
reflected in the Company's Pro Forma Condensed Consolidated Statement of
Operations.

(H) Represents the elimination of the historical franchise fee allocated to the
hotels by the prior owner.

(I) Represents the addition of franchise fees to be incurred under the new
license agreements. The franchise fees are calculated based on the terms of the
agreement , which is 4% of suite revenue.

(J) Represents the elimination of the historical management fees for the year
ended December 31, 1999.

(K) Represents the addition of the management fees of 4% of gross revenue and
the accounting fee $1,000 per hotel per month to be incurred under the new
management agreements for the period presented.

(L) Represents lease payments from the Lessee to the Company calculated on a pro
forma basis by applying the rent provisions in the master hotel lease agreements
to the historical room revenue of the hotels as if the beginning of the period
was the beginning of the lease year. The base rent and the percentage rent will
be calculated and paid based on the terms of the lease agreement. Refer to the
discussion of the master hotel lease agreements for details.

F-73

SUPPLEMENT NO. 6 DATED MAY 31, 2000
TO PROSPECTUS DATED AUGUST 3, 1999

APPLE SUITES, INC.

The following information supplements the prospectus of Apple Suites, Inc.
dated August 3, 1999 and is part of the prospectus. THIS SUPPLEMENT NO. 6
RELATES TO MATTERS THAT HAVE CHANGED OR OCCURRED SINCE MARCH 21, 2000. OTHER
IMPORTANT MATTERS WERE DISCUSSED IN SUPPLEMENT NO. 5, WHICH INCORPORATED AND
REPLACED ALL PRIOR SUPPLEMENTS. THIS SUPPLEMENT DOES NOT INCORPORATE OR REPLACE
ANY PRIOR SUPPLEMENT.

PROSPECTIVE INVESTORS SHOULD CAREFULLY REVIEW THE PROSPECTUS, SUPPLEMENT
NO. 5 AND THIS SUPPLEMENT.

TABLE OF CONTENTS FOR SUPPLEMENT NO. 6

Status of the Offering .................................................... S-2
Recent Developments ....................................................... S-2
Our Properties ............................................................ S-3
Property Acquisition ...................................................... S-4
Overview ................................................................. S-4
Hotel Supplies and Franchise Fees ........................................ S-4
Description of Financing ................................................. S-5
Summary of Material Contracts ............................................. S-7
Description of Property ................................................... S-10
Index to Management's Discussion and Analysis and to Financial Statements.. F-1

The prospectus and the supplements contain forward-looking statements
within the meaning of the federal securities laws which are intended to be
covered by the safe harbors created by those laws. These statements include our
plans and objectives for future operations, including plans and objectives
relating to future growth and availability of funds. These forward-looking
statements are based on current expectations that involve numerous risks and
uncertainties. Assumptions relating to these statements involve judgments with
respect to, among other things, the continuation of our offering of common
shares, our ability to repay or refinance our significant short-term debt,
future economic, competitive and market conditions and future business
decisions. All of these matters are difficult or impossible to predict
accurately and many of them are beyond our control. Although we believe the
assumptions underlying the forward-looking statements, and the forward-looking
statements themselves, are reasonable, any of the assumptions could be
inaccurate and, therefore, there can be no assurance that these forward-looking
statements will prove to be accurate. In light of the significant uncertainties
inherent in these forward-looking statements, the inclusion of this information
should not be regarded as a representation by us or any other person that our
objectives and plans, which we consider to be reasonable, will be achieved.

S-1

STATUS OF THE OFFERING

We completed the minimum offering of common shares at $9 per share on
August 23, 1999. We are continuing the offering at $10 per common share in
accordance with the prospectus.

As of May 19, 2000, we had closed on the following sales of our common
shares:

PROCEEDS NET OF SELLING
PRICE PER NUMBER OF GROSS COMMISSIONS AND MARKETING
COMMON SHARE COMMON SHARES SOLD PROCEEDS EXPENSE ALLOWANCE
-------------- -------------------- -------------- --------------------------

$ 9 1,666,666.67 $15,000,000 $13,500,000
$ 10 2,862,737.00 28,627,370 25,764,633
------------ ----------- -----------
TOTAL 4,529,403.67 $43,627,370 $39,264,633
============ =========== ===========

We have used the net proceeds of our offering to acquire, by deed or
lease, a total of 12 extended-stay hotels. We hold these hotels directly or
through wholly-owned subsidiaries. For simplicity, we will refer to these
hotels as "our hotels." All of our hotels have franchises with Homewood
Suites(Reg. TM) by Hilton, which is a registered service mark of Hilton Hotels
Corporation.

RECENT DEVELOPMENTS

As discussed in detail below, we have approximately $80 million in notes
payable in connection with our hotels. Our goal is to pay these notes with the
proceeds from our offering of common shares. Based on the current rate at which
equity is being raised by the offering, we may need to seek other measures to
repay these loans. We are holding discussions with several lenders to obtain
financing for the hotels and are exploring both unsecured and secured financing
arrangements.

Although no firm financing commitments have been received, we believe,
based on discussions with lenders and other market indicators, that we can
obtain sufficient financing prior to the maturity of the notes, if necessary.
Obtaining refinancing is dependent upon a number of factors, including: (a)
continued operation of the hotels at or near current occupancy and room rate
levels, as the hotel leases are based in part on a percentage of hotel suite
income; (b) the general level of interest rates, including credit spreads for
real estate based lending; and (c) general economic conditions.

There is no assurance that we will obtain financing to repay our current
outstanding debt. If we are unable to obtain such financing and if our offering
proceeds are insufficient, we would be subject to a number of default remedies,
including possible loss of the hotels through foreclosure. Depending on the
terms of any financing we obtain and the progress of our offering, we may need
to modify our borrowing policy, as described in the prospectus, of holding our
properties on an all-cash basis over the long-term.

S-2

OUR PROPERTIES

(Map of United States shows general location of hotels)

[GRAPHIC OMITTED]

MONTH OF NAME TOTAL MONTH OF NAME TOTAL
PURCHASE OF HOTEL SUITES PURCHASE OF HOTEL SUITES
---------------- ------------------------------- -------- --------------- --------------------------- -------

September 1999 Dallas - Addison 120 November 1999 Baltimore - BWI Airport 147
September 1999 Dallas - Irving/Las Colinas 136 November 1999 Clearwater 112
September 1999 North Dallas - Plano 99 November 1999 Detroit - Warren 76
September 1999 Richmond - West End 123 November 1999 Salt Lake City - Midvale 98
October 1999 Atlanta - Galleria/Cumberland 124 December 1999 Jackson - Ridgeland 91
November 1999 Atlanta - Peachtree 92 May 2000 Philadelphia/Great Valley 123
---
TOTAL FOR ALL HOTELS 1,341
=====

S-3

PROPERTY ACQUISITION

OVERVIEW

We acquired the Philadelphia/Great Valley hotel, an existing Homewood
Suites(Reg. TM) by Hilton hotel, when we purchased a long-term leasehold
interest in the hotel, which is substantially equivalent to acquiring
ownership. This leasehold interest was purchased through an assignment and
assumption of lease, dated as of May 8, 2000 with respect to a ground lease,
dated as of July 1, 1996. The total purchase price was $15,489,000. We used the
net proceeds from our offering of common shares to pay 25% of this total, or
$3,872,250, at closing in cash. The balance of 75%, or $11,616,750, is being
financed by the seller, Promus Hotels, Inc., as short-term or "bridge
financing." The financing and the ground lease are described in further detail
in other sections below.

We made this purchase through a newly organized subsidiary, Apple Suites
Pennsylvania Business Trust (a business trust organized under Pennsylvania
law), based on business and tax planning considerations. We are the sole
trustee and sole beneficiary of Apple Suites Pennsylvania Business Trust. The
Philadelphia/Great Valley hotel has been leased to Apple Suites Management,
Inc. under a master hotel lease agreement dated as of May 8, 2000.

We paid a real estate commission on this purchase to Apple Suites Realty
Group, Inc., as our real estate broker. This corporation is owned by Glade M.
Knight, who is our president and chief executive officer. The total amount of
the real estate commission was $309,780, which equals 2% of the total purchase
price.

HOTEL SUPPLIES AND FRANCHISE FEES

We have provided Apple Suites Management, Inc. with funds for the purchase
of certain hotel supplies (such as sheets, towels and so forth) for the
Philadelphia/Great Valley hotel. Apple Suites Management, Inc. is obligated to
repay us under a promissory note made in the principal amount of $12,300. This
promissory note provides for an annual interest rate of nine percent (9%),
which would increase to twelve percent (12%) if a default occurs, and repayment
in monthly installments. The first installment consists of interest only and
has a due date of June 1, 2000. The remaining installments consist of principal
and interest on an amortized basis. The maturity date is June 1, 2005.

We have also provided Apple Suites Management, Inc. with funds for the
payment of hotel franchise fees to Promus Hotels, Inc. Apple Suites Management,
Inc. is obligated to repay us under a promissory note made in the principal
amount of $55,350. This promissory note is substantially similar to the one
described above, but has a maturity date of June 1, 2010.

S-4

DESCRIPTION OF FINANCING

As indicated above, Promus Hotels, Inc. is financing 75% of the purchase
price with respect to the Philadelphia/Great Valley hotel. This financing is
substantially similar to the financing provided by Promus Hotels, Inc. when we
purchased our other hotels. The amounts we owe to Promus Hotels, Inc. are
evidenced by the following promissory notes:

ORIGINAL
MONTH OF PRINCIPAL ANNUAL RATE DATE OF
PROMISSORY NOTE AMOUNT OF INTEREST MATURITY
- ----------------------------- -------------- ------------- -----------------

September 1999 ......... $26,625,000 8.5% October 1, 2000
October 1999 ........... $ 7,350,000 8.5% October 1, 2000
November 1999 .......... $30,210,000 8.5% December 1, 2000
December 1999 .......... $ 4,384,500 8.5% January 1, 2001
May 2000 ............... $11,616,750 8.5% April 28, 2001
-----------
TOTAL ............... $80,186,250
===========

We consider the financing from Promus Hotels, Inc. to be "bridge
financing" because of its short-term nature (that is, each promissory note
reaches maturity within approximately one year of its date of execution). The
promissory notes have several provisions in common, which include the
following:

o monthly interest payments, based on the actual number of days per
month

o our delivery of monthly notices to specify the net equity proceeds
from our offering, which will be the intended source of principal
payments, as explained below

o our right to prepay the notes, in whole or in part, without premium or
penalty

o a late payment premium of four percent for any payment not made within
10 days of its due date

Revenue from the hotels will be used to pay interest under the promissory
notes we have made to Promus Hotels, Inc. This revenue will include lease
payments made to us by Apple Suites Management, Inc. (or a subsidiary) under
the master hotel lease agreements.

The promissory notes contemplate that the "net equity proceeds" from our
offering of common shares will be the source of our principal payments. As
discussed above, however, we may need to seek alternate financing if the net
equity proceeds are not sufficient for this purpose. The phrase "net equity
proceeds" means the total proceeds from our offering of common shares, as
reduced by selling commissions, a marketing expense allowance, closing costs,
various fees and charges (legal, accounting, and so forth), a working capital
reserve and a reserve for renovations, repairs and replacements of capital
improvements.

Under a letter agreement dated May 8, 2000, we are permitted to use such
net equity proceeds to pay 25% of the purchase price for the leasehold interest
in the Philadelphia/Great Valley hotel. Otherwise, to the extent that we have
such net equity proceeds, we generally are obligated to make monthly principal
payments under the promissory notes listed above.

S-5

We have made all scheduled interest payments under the promissory notes.
The aggregate amount of our interest payments through May 2000 is $2,948,444.

To date, we have not made any principal payments under any of the
promissory notes. There can be no assurance that the net equity proceeds from
our offering of common shares will be sufficient to enable us to make all
principal payments under the promissory notes when due. The following amounts
would be due on the maturity dates of the promissory notes, assuming that
interest payments continue to be made on schedule and that no payments of
principal are made before those maturity dates:

MONTH OF DATE OF TOTAL DUE
PROMISSORY NOTE MATURITY AT MATURITY
----------------------------- ------------------ --------------

September 1999 ......... October 1, 2000 $26,811,010
October 1999 ........... October 1, 2000 $ 7,401,349
November 1999 .......... December 1, 2000 $30,421,056
December 1999 .......... January 1, 2001 $ 4,415,131
May 2000 ............... April 28, 2001 $11,697,908
-----------
TOTAL $80,746,454
===========

In the event of a default under the promissory notes, various remedies are
available to Promus Hotels, Inc. under certain deeds of trust, which are
described below.

[Remainder of Page Intentionally Left Blank]

S-6

SUMMARY OF MATERIAL CONTRACTS

DEEDS OF TRUST AND RELATED DOCUMENTS

Each of our hotels, including the Philadelphia/Great Valley hotel, is
encumbered. In general, the encumbrances consist of a mortgage on the hotel
building and its underlying real property, a security interest in any personal
property and an assignment of hotel rents and revenues, all in favor of Promus
Hotels, Inc. (As described above, Promus Hotels, Inc. provided financing for
our hotel purchases).

These encumbrances are created by substantially similar documents having a
variety of names, many of which depend on state law. For simplicity, we will
refer to each of these documents as a "deed of trust." At each closing on a
purchase with respect to a hotel or group of hotels, we further encumbered our
other hotels with additional deeds of trust or with negative pledges. These
additional encumbrances are designed to provide additional security for the
earlier promissory notes.

Each deed of trust corresponds to one of the promissory notes we made to
Promus Hotels, Inc., and secures the payment of principal and interest under
that promissory note. The encumbrance created by a particular deed of trust
will terminate when its corresponding promissory note is paid in full. Other
encumbrances created by additional deeds of trust or by negative pledges will
remain in effect until the promissory notes to which they correspond are also
paid in full.

We are subject to various requirements under the deeds of trust. For
instance, we must maintain adequate insurance on the hotels and we must not
grant any further encumbrances, or make any further assignments of rents or
leases, with respect to the hotels.

Each deed of trust contains a substantially similar definition of events
of default. In each case, the events of default include (without limitation)
any default that occurs under any of the promissory notes or under another deed
of trust, and any sale of the secured property without the prior consent of
Promus Hotels, Inc. Upon any event of default, various remedies are available
to Promus Hotels, Inc. Those remedies include, for example (a) declaring the
entire principal balance under the promissory notes, and all accrued and unpaid
interest, to be due and payable immediately; (b) taking possession of the
secured property, including the hotels; and (c) collecting hotel rents and
revenues, or foreclosing on the hotels, to satisfy unpaid amounts under the
promissory notes. Each deed of trust requires us to pay any costs that may be
incurred in exercising such remedies.

Negative pledges apply to the three hotels in Florida, Maryland and
Virginia. The negative pledges prohibit any transfer or further encumbrance of
the hotels, in whole or in part, without the prior written consent of Promus
Hotels, Inc. The negative pledges will terminate when our promissory notes to
Promus Hotels, Inc. are paid in full.

GROUND LEASE

The Philadelphia/Great Valley hotel is subject to a ground lease dated as
of July 1, 1996. We caused Apple Suites Pennsylvania Business Trust, in our
capacity as its sole trustee and sole beneficiary, to become the tenant under
the ground lease. This result

S-7

was achieved through an assignment and assumption of lease dated as of May 8,
2000. For purposes of applicable state law, the long-term leasehold interest is
substantially equivalent to ownership and we expect to be treated as the owner
of the hotel building. We intend to take depreciation deductions with respect
to the hotel building for federal income tax purposes.

The ground lease applies to the hotel building, as well as the underlying
real property. The ground lease has an initial term of 30 years. The tenant has
the option to extend the ground lease for three additional periods of 10 years
each. When the ground lease expires, or is terminated in accordance with its
terms, the tenancy for the land terminates and the building and other
improvements become the property of the landlord. Therefore, unless we purchase
the landlord's interest, we will not own the hotel past the term of the ground
lease.

The ground lease provides for annual rent, payable by the tenant in
advance in monthly installments. The annual rent is $100,000 for each of the
first five years (that is, until August 1, 2000). Every five years, the annual
rent will be adjusted in proportion to the Consumer Price Index for the
metropolitan Philadelphia area, but will not be less than $100,000 for any
year.

The tenant has certain obligations under the ground lease. For example,
the tenant must operate the premises in accordance with applicable law and must
maintain general public liability insurance on the premises. For a default that
involves the tenant's failure to provide insurance and that continues for 10
days after written notice to the tenant, the landlord may arrange for
substitute insurance at the tenant's expense. Furthermore, because a hotel has
been constructed on the premises, the permitted uses of the premises during the
first 10 years under the ground lease are limited to hotel and related uses.

Under the ground lease, the tenant has 30 days after written notice to
cure any payment default under the ground lease, and 60 days after written
notice to cure any other default. If the default cannot be cured in 60 days,
the cure period will be extended if the tenant promptly begins to cure the
default and diligently continues to do so. In general, if a default occurs and
is not cured within the appropriate time period, the landlord's remedies
include terminating the ground lease and requiring the tenant to vacate the
premises. If the landlord terminates the ground lease following any uncured
default, we will remain obligated to pay the full amount of the remaining
purchase price to Promus Hotels, Inc. under the promissory note dated as of May
8, 2000, even though we will not be receiving further revenues with respect to
the hotel.

If the landlord wishes to sell the premises and the tenant is not in
default, the landlord must notify the tenant in writing and grant it the first
option to purchase the premises. If this option is declined, the landlord may
sell the premises within six months, but the terms and conditions of the sale
cannot be materially more favorable to the buyer than those offered to the
tenant.

MASTER HOTEL LEASE AGREEMENT

We have caused the tenant under the ground lease to further lease the
Philadelphia/Great Valley hotel to Apple Suites Management, Inc. pursuant to a
master

S-8

hotel lease agreement dated as of May 8, 2000. This agreement is substantially
similar to the master hotel lease agreements, dated as of September 20, 1999,
that apply to our other hotels.

The agreement provides for an initial term of 10 years. Apple Suites
Management, Inc. has the option to extend the lease term for two additional
five-year periods, provided it is not in default at the end of the prior term
or at the time the option is exercised. The master hotel lease agreement
provides that Apple Suites Management, Inc. will pay an annual base rent, a
quarterly percentage rent and a quarterly sundry rent. Each type of rent is
explained below.

Annual base rent is payable in advance in equal monthly installments.
Beginning in 2001, the base rent will be adjusted each year in proportion to
the Consumer Price Index (based on the U.S. City Average). The annual base rent
for the Philadelphia/Great Valley hotel is currently $942,375.

Percentage rent is payable quarterly. Percentage rent depends on a formula
that compares fixed "suite revenue breakpoints" with a portion of "suite
revenue," which is equal to gross revenue from suite rentals less sales and
room taxes, credit card fees and sundry rent (as described below). Beginning in
2001, the suite revenue breakpoints will be adjusted each year in proportion to
the Consumer Price Index (based on the U.S. City Average). The suite revenue
breakpoints for the second, third and fourth quarters of 2000 are $196,669,
$529,219 and $861,769, respectively. Suite revenue breakpoints (before
adjustment) have been determined for the first quarter of the remaining years
during the initial term of the master hotel lease agreement. The suite revenue
breakpoints for subsequent quarters are determined by multiplying the first
quarter values by two, three or four, respectively. The following table shows
the other suite revenue breakpoints for the first quarter for 2001 through
2009, before any adjustment due to the Consumer Price Index:

SUITE REVENUE BREAKPOINTS FOR THE FIRST QUARTER

2001 2002 2003 2004 2005 2006 2007 2008 2009
- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------

$300,219 $309,456 $323,313 $332,550 $341,700 $351,025 $360,263 $369,500 $378,738

Specifically, the percentage rent is equal to the sum of (a) 17% of all
year-to-date suite revenue, up to the applicable suite revenue breakpoint; plus
(b) 55% of the year-to-date suite revenue in excess of the applicable suite
revenue breakpoint, as reduced by base rent and the percentage rent paid year
to date.

The sundry rent is payable quarterly and equals 55% of all sundry revenue,
which consists of revenue other than suite revenue, less the amount of sundry
rent paid year-to-date.

OTHER AGREEMENTS

The Philadelphia/Great Valley hotel is subject to a license agreement and
a management agreement with Promus Hotels, Inc. We have entered into an
environmental indemnity agreement with Promus Hotels, Inc., as well as a
comfort letter agreement regarding the lease with Apple Suites Management, Inc.
and certain other issues. These agreements are substantially similar to
agreements that exist with respect to our other hotels.

S-9

DESCRIPTION OF PROPERTY

OVERVIEW

Each of our hotels is an extended-stay hotel, and is licensed to operate
under a franchise with Homewood Suites(Reg. TM) by Hilton. We believe that the
majority of the guests at our hotels during the past 12 months have been
business travelers. We expect this pattern to continue.

The suites have many features and amenities in common. Most suites have
ceiling fans and two color televisions (one in the bedroom and one in the
living room). Some suites have fireplaces. Typical living room furniture
includes a sofa (often a fold-out sleeper sofa), coffee table and work/dining
table with chairs. Some living rooms contain a recliner and a videocassette
player. The kitchens vary, but generally have a microwave, refrigerator,
dishwasher, coffee maker and stove, together with basic cookware and utensils.

The hotel are marketed, in part, through the web site for Homewood
Suites(Reg. TM) by Hilton (http://www.homewood-suites.com), which is generally
available 24 hours a day, seven days a week, around the world. Reservations may
be made directly through the web site. The reservation system and the web site
are linked to, and cross-marketed with, the reservation systems and web sites
for other hotel franchises that are owned and operated by Hilton Hotels
Corporation. Such cross-marketing may affect occupancy at our hotels by
directing travelers toward, or away from, Homewood Suites(Reg. TM) by Hilton.

Our hotels were actively conducting business at the time of purchase. We
believe that the purchases were conducted without materially disrupting any
daily hotel operations. During the past 12 months, the hotels have been covered
with property and liability insurance, and we have arranged to continue such
coverage. We believe our hotels are adequately covered by insurance.

PHILADELPHIA/GREAT VALLEY

The Philadelphia/Great Valley hotel has a franchise with Homewood
Suites(Reg. TM) by Hilton and is located on a 4.1 acre site at 12 East
Swedesford Road, Malvern, Pennsylvania 19355. The hotel is approximately 22
miles from downtown Philadelphia and 25 miles from the Philadelphia
International Airport.

S-10

The hotel opened in January 1998. It was constructed with a masonry frame
and has a sand stucco exterior finish. The hotel consists of a single
four-story building. The hotel contains 123 suites, which have a combined
rentable area of 63,600 square feet. The following types of suites are
available:

TYPE OF SUITE NUMBER AVAILABLE SQUARE FEET/PER SUITE
------------------------------------- ------------------ ----------------------

Master Suite ...................... 95 500
Homewood Suite .................... 21 500
Two-Bedroom Suite ................. 7 800

We believe that the hotel has been well maintained and is generally in
very good condition. Over the next 12 months, we plan to spend approximately
$100,000 on renovations or improvements. We expect that the principal
renovations and improvements will include the addition of exterior lighting and
the replacement or repair of sofas, interior doors and kitchen flooring. We
expect to pay for the costs of these renovations and improvements with proceeds
from our ongoing offering of common shares.

During 2000 (through April 30), the average stay at the hotel has been
approximately five nights, and approximately 59% of the guests have stayed for
five nights or more. In general, occupancy at the hotel is not significantly
affected by seasonal variations. The following table shows average daily
occupancy rates, expressed as a percentage, since the opening of the hotel:

AVERAGE DAILY OCCUPANCY RATE

2000
1998 1999 (THROUGH APRIL 30)
------------ ---------- -------------------

66.7% 76.4% 74.4%

During 2000 (through April 30), the average daily rate per suite has been
$122.01, and the average daily net revenue per suite has been $90.79. As
explained above, revenues from the hotel, including lease revenue that is paid
to us under the master hotel lease agreement, will be used to pay interest due
under the promissory note dated as of May 8, 2000. Our goal is to use the
proceeds of our offering of common shares to make principal payments. There can
be no assurance, however, the proceeds of the offering will be sufficient for
this purpose. Assuming that no principal payments are made until the maturity
of the promissory note, and that the hotel continues to have the level of net
revenue specified above, approximately 24.2% of the hotel's revenue would be
needed to cover its portion of the interest payments.

S-11

The hotel's current rate structure is based on length of stay and type of
suite, as summarized below:

LENGTH OF STAY
(NUMBER OF NIGHTS) HOMEWOOD MASTER TWO BEDROOM
----------------------------- ---------- -------- ------------

1 to 4 ................... $145 $145 $194
5 to 11 .................. 129 129 185
12 to 29 .................. 124 124 179
30 or more ................ 99 99 159

The hotel offers a weekend discount. This discount varies by type of suite
and generally reduces the basic rate by 38%. The weekend discount is not
available to guests who stay for five nights or more. The hotel also offers
discounts to guests who stay under certain corporate accounts. These discounts
are often negotiated with the corporate customer and vary from account to
account. We estimate that approximately 43% of the hotel's guests during 2000
(through April 30) received a corporate discount.

The chief corporate accounts (as designated in the hotel's records)
include: SAP, Astra Zeneca, Vanguard, Shared Medical Systems, Centocor, Unisys,
Wyeth, Supplyforce.com, Decision One, and SCT (Systems/Computer Training).
During 2000 (through April 30), the 10 largest corporate accounts were
responsible for approximately 43% of the hotel's occupancy. There can be no
assurance, however, that the hotel will continue to receive significant
occupancy, or any occupancy, from the corporate accounts identified above.

The table below shows the average effective annual rental per square foot
since the opening of the hotel:

2000
1998 1999 (ANNUALIZED)
------------- ----------- -------------

$ 52.85 $ 59.58 $ 63.72

The depreciable real property component of the hotel, based upon our
long-term leasehold interest, has a currently estimated Federal tax basis of
$14,898,789 and will be depreciated using the straight-line method over a life
of 39 years (or less, as permitted by the Internal Revenue Code). The basis of
the personal property component of the hotel will be depreciated in accordance
with the modified accelerated cost recovery system of the Internal Revenue
Code.

The following table summarizes the hotel's real estate tax information for
2000:

TAX ASSESSED TAX RATE AMOUNT
JURISDICTION VALUE (PER $1000) OF TAX
------------------------------------------ -------------- ------------- -----------

School District ................. $14,248,760 11.670 $166,283
County of Chester ............... 14,248,760 3.014 42,946
East Whiteland Township ......... 14,248,760 0.445 6,341
--------
TOTAL $215,570
========

We estimate that the annual property tax on the expected improvements will
be approximately $1,600 or less.

At least seven competing hotels are located within eight miles of the
hotel. (The names of the competing franchises, as listed below, may be
registered as service marks

S-12

or trade names.) Of these competing hotels, two are newer than the hotel. The
newer competing hotels have franchises with Choice Hotels and Hampton Inn. The
other competing hotels have franchises with Marriott (in two cases), Sheraton,
Summerfield Suites and Wyndham. We believe that the rates charged by our hotel
are generally competitive with the rates charged by these other hotels. We are
aware of ongoing or proposed construction for two other extended-stay hotels
within approximately six miles of the hotel. We expect these new hotels to be
franchised with Residence Inn and Springhill Suites.

S-13

APPLE SUITES, INC.

INDEX TO FINANCIAL STATEMENTS (UNAUDITED)

PAGE
-----

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS ................................................................... F-2
APPLE SUITES, INC.
Consolidated Balance Sheets as of March 31, 2000 and December 31, 1999 .................... F-5
Consolidated Statement of Operations for the three months ended March 31, 2000 ............ F-6
Consolidated Statement of Shareholders' Equity for the three months ended March 31, 2000... F-6
Consolidated Statement of Cash Flows for the three months ended March 31, 2000 ............ F-7
Notes to Consolidated Financial Statements ................................................ F-8
APPLE SUITES MANAGEMENT, INC.
Consolidated Balance Sheets as of March 31, 2000 and December 31, 1999 .................... F-13
Consolidated Statement of Operations for the three months ended March 31, 2000 ............ F-14
Consolidated Statement of Cash Flows for the three months ended March 31, 2000 ............ F-14
Notes to Consolidated Financial Statements ................................................ F-15

F-1

MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(By Apple Suites, Inc. for the Dates or Periods, as Applicable,
Addressed by the Following Financial Statements)

GENERAL

During 1999, we acquired 11 hotels with 1,218 suites from Promus Hotels,
Inc. (or its affiliates), which is now a wholly-owned subsidiary of Hilton
Hotels Corporation. All of our hotels are leased to Apple Suites Management,
Inc. or its subsidiary (the "Lessee") pursuant to two master hotel lease
agreements. Each master hotel lease agreement obligates the Lessee to pay rent
equal to the sum of an annual base rent, a quarterly percentage rent and a
quarterly sundry rent. The Lessee's ability to make these rent payments to us
is dependent primarily upon the operations of the hotels. See Note 5 to our
consolidated financial statements for further lease information.

The hotels are licensed to operate under the Homewood Suites(Reg. TM) by
Hilton franchise pursuant to separate license agreements. The Lessee engages
Promus Hotels, Inc. to manage and operate the hotels under separate hotel
management agreements. We are externally advised and have contracted with Apple
Suites Advisors, Inc. (the "Advisor") to manage our day-to-day operations and
to make investment decisions. We have contracted with Apple Suites Realty
Group, Inc. ("ASRG") to provide brokerage and acquisition services in
connection with our hotel acquisitions. The Lessee, the Advisor, and ASRG are
all owned by Mr. Glade Knight, our Chairman. See Note 5 to our consolidated
financial statements for further information on related-party transactions.

RESULTS OF OPERATIONS APPLE SUITES, INC.

Revenues: Because we commenced operations effective September 1, 1999, a
comparison to the first quarter of 1999 is not possible. During the three
months ended March 31, 2000, we had revenues of $3,454,685. All of our lease
revenue is derived from the master hotel lease agreements.

Our other income consists of $32,732 of interest income earned from the
investments of cash and cash reserves and $15,275 of interest on the promissory
notes payable by the Lessee to us for our funding of franchise fees and hotel
supplies.

Expenses: Our expenses consist of property taxes, insurance, general and
administrative expenses, interest on notes payable and depreciation on the
hotels. Total expenses, exclusive of interest and depreciation, for the three
months ended March 31, 2000 were $946,311 or 27% of total revenue. The interest
expense was $1,453,110 for the three months ended March 31, 2000 and
represented interest on short-term notes payable to Promus Hotels, Inc. at an
interest rate of 8.5%.

The depreciation expense was $549,201 for the three months ended March 31,
2000. Taxes, insurance, and other was $691,575 for the three months ended March
31, 2000 or 20% of total revenue. The general and administrative expense
totaled 7% of total revenues. These expenses represent our administrative
expenses. We expect these percentages to decrease as our asset base grows.

F-2

APPLE SUITES MANAGEMENT, INC.

Revenues: As operations commenced effective September 1, 1999, a
comparison to the first quarter of 1999 is not possible. Total revenues were
$8,103,171. Total revenues consist primarily of suite revenue, which was
$7,682,355 for the three months ended March 31, 2000

For the three months ended March 31, 2000 the average occupancy rate was
78%, the average daily rate was $89, and the revenue per available room was
$69.

Expenses: Total expenses for the three months ended March 31, 2000 were
$8,060,470. Rent expense represents $3,406,678 or 42% of total revenue. The
Lessee has agreed to pay Promus Hotels, Inc. a fee of 4% of suite revenue for
management of the hotels. The Lessee also has agreed to pay Promus Hotels, Inc.
a fee of 4% of suite revenue to cover fees for the Homewood Suites(Reg. TM) by
Hilton franchise and to participate in its reservation system. Total expenses
for these services were $937,354 during the period.

LIQUIDITY AND CAPITAL RESOURCES

During the first quarter of 2000, we sold 493,509 of our common shares, at
$10 per share, to investors. The total gross sale proceeds were $4,935,083,
which netted $4,393,756 to us after the payment of selling commissions and
other offering costs. The Lessee's obligations under the master hotel lease
agreements are unsecured. The Lessee has limited capital resources, and,
accordingly its ability to make rent payments is substantially dependent on the
ability of the Lessee to generate sufficient cash flow from operations of the
hotels. We have certain rights to cancel a master hotel lease agreement if the
Lessee does not perform under the applicable terms. To support the Lessee's
obligations, the Lessee has received two funding commitments of $1 million each
from Mr. Knight and ASRG, respectively (together "Payor"). The funding
commitments are contractual obligations of the Payor to pay funds to the
Lessee. Funds paid to the Lessee under the commitments are to be used to
satisfy any capitalization or net worth requirements applicable to the Lessee
or the Lessee's payment obligations under the master hotel lease agreements, do
not represent indebtedness, and are not subject to interest. The funding
commitments terminate upon the expiration of the master hotel lease agreements,
a written agreement between the Payor and the Lessee, or the payment of all
commitment amounts by the Payor to the Lessee. As of March 31, 2000, no
contributions had been made by the Payor to the Lessee under the funding
commitments.

Notes payable: In conjunction our purchase of the 11 hotels, we made
promissory notes payable to the order of Promus Hotels, Inc. in the aggregate
amount of $68,569,500. The notes provide for an effective interest rate of 8.5%
per annum. Interest payments are due monthly. Principal payments are to be made
from net proceeds of our offering of common shares. The holder of the notes has
agreed to defer principal payments until the earlier of June 30, 2000 or such
time as we purchase two additional hotels. At March 31, 2000, we had not made
any principal payments under these promissory notes.

The promissory notes have various maturity dates. The approximate
principal amounts and their due dates are as follows: $34 million due on
October 1, 2000, $30.2

F-3

million due on November 1, 2000, and $4.4 million due on January 1, 2001. Our
goal is to pay these notes with the proceeds from our continuous "best efforts"
offering of common shares. Based on the current rate at which equity is being
raised by the offering, we may need to seek other measures to repay these
loans. We are holding discussions with several lenders to obtain financing for
the hotels and are exploring both unsecured and secured financing arrangements.

Although no firm financing commitments have been received, we believe,
based on discussions with lenders and other market indicators, that we can
obtain sufficient financing prior to the maturity of the notes. Obtaining
refinancing is dependent upon a number of factors, including: (1) continued
operation of the hotels at or near current occupancy and room rate levels, as
the master hotel lease agreements are based in part on a percentage of hotel
suite income; (2) the general level of interest rates, including credit spreads
for real estate based lending; and (3) general economic conditions. In general,
for each of the notes payable, all of our 11 hotels serve as collateral.

Cash and cash equivalents: Cash and cash equivalents totaled $3,781,922 at
March 31, 2000.

Capital requirements: We have an ongoing capital commitment to fund our
capital improvements. We are required under the master hotel lease agreements
to make an amount equal to 5% of suite revenue available monthly to the Lessee
for the repair, replacement, or refurbishing of furniture, fixtures, and
equipment on a cumulative basis, provided that such amount may be used for
capital expenditures made by us with respect to the hotels. We expect that this
amount will be adequate to fund the required repair, replacement, and
refurbishments and to maintain our hotels in a competitive condition. We
capitalized improvements of $280,532 in 2000. At March 31, 2000, a total of
$696,869 was held for funding of these improvements.

We expect to acquire additional hotels during 2000. We plan to have
monthly equity closings in 2000, until the offering is fully funded, or until
such time as we may opt to discontinue the offering. We anticipate that the
equity funds will be invested in additional hotels and will be used to make
principal payments on the notes incurred in conjunction with the our current
hotels.

Capital resources are expected to grow with the future sale of our common
shares. Approximately 46% of the 2000 common share dividend distribution, or
$329,215, was reinvested in additional common shares. In general, our liquidity
and capital resources are believed to be more than adequate to meet our cash
requirements during 2000, given current and anticipated financing arrangements.

Seasonality: The hotel industry historically has been seasonal in nature,
reflecting higher occupancy rates primarily during the first three quarters of
the year. Seasonal variations in occupancy at our hotels may cause quarterly
fluctuations in the our lease revenues, particularly during the fourth quarter,
to the extent that we receive percentage rent. To the extent that cash flow
from operations is insufficient during any quarter, due to temporary or
seasonal fluctuations in lease revenue, we expect to utilize cash on hand or
funds from equity raised through our "best efforts" offering to make
distributions.

F-4

APPLE SUITES, INC.

CONSOLIDATED BALANCE SHEETS (UNAUDITED)

MARCH 31, 2000 DECEMBER 31, 1999
---------------- ------------------

ASSETS
Investment in hotel-net of accumulated depreciation of $1,045,410 and
$496,209, respectively.................................................. $ 93,450,963 $93,719,632
Cash and cash equivalents ............................................... 3,781,922 581,344
Restricted cash ......................................................... 696,869 1,023,721
Rent receivable from Apple Suites Management, Inc. ...................... 2,641,141 2,123,136
Notes and other receivables from Apple Suites Management, Inc. .......... 694,766 717,019
Capital improvement reserve ............................................. 753,927 753,927
Prepaid expenses ........................................................ 263,781 270,229
Other assets ............................................................ 531,470 300,000
------------ -----------
Total Assets ......................................................... $102,814,839 $99,489,008
============ ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES
Notes payable -- secured ................................................ $ 68,569,500 $68,569,500
Interest payable ........................................................ -- 466,140
Accounts payable ........................................................ 161,258 65,214
Accrued expenses ........................................................ 554,977 868,668
Account payable -- affiliate ............................................ 531,285 708,751
Distributions payable ................................................... -- 712,735
------------ -----------
Total Liabilities .................................................... $ 69,817,020 $71,391,008
============ ===========
SHAREHOLDERS' EQUITY
Common stock, no par value, authorized 200,000,000 shares; issued and
outstanding 3,922,923 shares and 3,429,414, respectively ............... $ 32,985,016 $28,591,260
Class B convertible stock, no par value, authorized 240,000 shares;
issued and outstanding 240,000 shares .................................. 24,000 24,000
Distributions greater than net income ................................... (11,197) (517,260)
------------ -----------
Total Shareholders' Equity ............................................. 32,997,819 28,098,000
------------ -----------
Total Liabilities and Shareholders' Equity ............................. $102,814,839 $99,489,008
============ ===========

See accompanying notes to consolidated financial statements.

F-5

APPLE SUITES INC.

CONSOLIDATED STATEMENT OF OPERATIONS (UNAUDITED)

MARCH 31, 2000
---------------

REVENUES:
Lease revenue ...................................... $ 3,406,678
Interest income and other revenue .................. 48,007
EXPENSES:
Taxes, insurance and other ......................... 691,575
General and administrative ......................... 254,736
Depreciation of real estate owned .................. 549,201
Interest ........................................... 1,453,110
-----------
Total expenses ................................... 2,948,622
-----------
Net income .......................................... $ 506,063
===========
Basic and diluted earnings per common share ......... $ 0.14
===========

CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY (UNAUDITED)

CLASS B
CONVERTIBLE STOCK
COMMON STOCK ----------------------
------------------------- DISTRIBUTIONS TOTAL
NUMBER OF NUMBER OF GREATER THAN SHAREHOLDERS'
SHARES AMOUNT SHARES AMOUNT NET INCOME EQUITY

- -------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1999 3,429,414 $28,591,260 240,000 $24,000 $ (517,260) $28,098,000
Net proceeds from the sale of
common shares ......................... 456,873 4,064,541 -- -- -- 4,064,541
Net income ............................. -- -- -- -- 506,063 506,063
Common stock issued through
reinvestment of distribution 36,636 329,215 -- -- -- 329,215
--------- ----------- ------- ------- ---------- -----------
Balance at March 31, 2000 .............. 3,922,923 $32,985,016 240,000 $24,000 $ (11,197) $32,997,819
========= =========== ======= ======= ========== ===========

See accompanying notes to consolidated financial statements.

F-6

APPLE SUITES, INC.

CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED)

THREE MONTHS ENDED
MARCH 31, 2000
-------------------

CASH FLOW FROM OPERATING ACTIVITIES:
Net income ....................................................................... $ 506,063
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation of real estate owned ................................................ 549,201
Changes in operating assets and liabilities:
Prepaid expenses ................................................................. 6,448
Rent and notes receivable from Apple Suites Management, Inc. ..................... (509,566)
Other assets ..................................................................... (31,395)
Accounts payable ................................................................. 96,044
Accounts payable -- affiliates ................................................... (177,466)
Accrued expenses ................................................................. (313,691)
Interest payable ................................................................. (466,140)
----------
Net cash used in operating activities .......................................... (340,502)

CASH FLOW FROM INVESTING ACTIVITIES:
Payments received on notes receivable ............................................ 13,739
Capital improvements ............................................................. (280,532)
Restricted cash for property improvement plan .................................... 326,852
Earnest deposit money for pending acquisitions ................................... (200,000)
----------
Net cash used in investing activities .......................................... (139,941)

CASH FLOW FROM FINANCING ACTIVITIES:
Net proceeds from issuance of common shares ...................................... 4,394,265
Cash distributions paid to shareholders .......................................... (713,244)
----------
Net cash provided by financing activities ...................................... 3,681,021
Increase in cash and cash equivalents .......................................... 3,200,578

Cash and cash equivalents, beginning of period ................................... 581,344
----------
Cash and cash equivalents, end of period ......................................... $3,781,922
==========

See accompanying notes to consolidated financial statements.

F-7

APPLE SUITES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
MARCH 31, 2000

(1) GENERAL INFORMATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation -- The accompanying unaudited consolidated financial
statements have been prepared in accordance with the instructions for Form 10-Q
and Article 10 of Regulation S-X. Accordingly, they do not include all of the
information required by generally accepted accounting principles. In the
opinion of management, all adjustments (consisting of normal recurring
accruals) considered necessary for a fair presentation have been included.
Operating results for the three months ended March 31, 2000 are not necessarily
indicative of the results that may be expected for the period ended December
31, 2000. These consolidated financial statements should be read in conjunction
with the Company's December 31, 1999 Annual Report on Form 10-K.

The Company commenced operations in September 1999, therefore,
consolidated statements of operations and cash flows for the three month period
ended March 31, 1999 are not presented.

Apple Suites, Inc., (the "Company") leased to Apple Suites Management,
Inc. or its subsidiary (the "Lessee") all of its hotels acquired during 1999.

The Lessee hired Promus Hotels, Inc. ("Promus"), a wholly owned subsidiary
of Hilton Hotels Corporation ("Hilton") to manage the Company's hotels under
the terms of a management agreement between Promus and the Lessee.

Relationship with Lessee -- The Company must rely on the Lessee to
generate sufficient cash flow from the operation of the hotels to enable the
Lessee to meet its rent obligation to the Company under the master hotel lease
agreement ("Percentage Leases"). At March 31, 2000, the Lessee's rent payable
to the Company amounted to $2,641,141. The original terms under the Percentage
Leases allow monthly base rent to be paid in arrears and quarterly percentage
rent to be paid 15 days following the quarter-end.

The Company did not have any items of comprehensive income requiring
separate reporting and disclosure for the periods presented.

(2) INVESTMENT IN HOTELS

At March 31, 2000, the Company owned 11 hotels. Investment in hotels at
March 31, 2000 consist of the following:

Land ................................... $ 15,687,640
Building ............................... 77,336,538
Furniture and equipment ................ 1,472,195
------------
$ 94,496,373
Less accumulated depreciation .......... (1,045,410)
------------
$ 93,450,963
------------

F-8

APPLE SUITES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) -- (CONTINUED)

(3) NOTES PAYABLE

In conjunction with the purchase of 11 hotels, notes were executed by the
Company made payable to the order of Hilton in the amount of $68,569,500. The
notes bear a fixed interest rate of 8.5% per annum and are cross-collateralized
by the 11 hotels owned by the Company. Interest payments are due monthly. Notes
amounting to $64,185,000 mature during the fourth quarter of 2000, and the
remaining $4,384,500 note matures in January 2001. Principal payments are to be
made to the extent of net equity proceeds from the offering of common shares.
Hilton has agreed to defer principal payments until the earlier of June 30,
2000 or such time as two additional hotels have been purchased by the Company.
The Company paid $1,453,110 in interest for the period ended March 31, 2000.

(4) SHAREHOLDERS' EQUITY

The Company is raising equity capital through a "best-efforts" offering of
shares by David Lerner Associates, Inc. (the "Managing Dealer"), which will
receive selling commissions and a marketing expense allowance based on proceeds
of the shares sold. The Company received gross proceeds of $4,568,723 from the
sale of 456,873 shares at $10 per share during the three month period ended
March 31, 2000. The net proceeds of the offering, after deducting selling
commissions and other offering costs were $4,064,541 for the period.

The Company provides a plan which allows shareholders to reinvest
distributions in the purchase of additional shares of the Company ("Additional
Share Option"). Of the total proceeds raised from common shares during the
period ended March 31, 2000, $366,360 (net $329,215) was provided through the
reinvestment of distributions.

(5) COMMITMENTS AND RELATED PARTIES

The Company receives rental income from the Lessee under the Percentage
Leases which expire in 2009, subject to earlier termination by the Company with
30 days notice. The Leases contain two optional five-year extensions. The rent
due under the Percentage Leases is the sum of base rent and percentage rent.
Percentage rent is calculated by multiplying fixed percentages by the total
amounts of suite revenues with reference to specified threshold amounts. Both
the base rent and the revenue thresholds used in computing percentage rents are
subject to annual adjustments based on increases in the Consumer Price Index
("CPI"). The Company earned rents of $3,406,678 for the three month period
ended March 31, 2000.

Under the Percentage Leases, the Company is obligated to pay the costs of
real estate and personal property taxes, property insurance, maintenance of
underground utilities and structural elements of the hotels. The Company is
committed under certain agreements to fund 5% of suite revenues per month for
capital expenditures to include periodic replacement or refurbishment of
furniture, fixtures, and equipment. At

F-9

APPLE SUITES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) -- (CONTINUED)
(5) COMMITMENTS AND RELATED PARTIES -- (CONTINUED)

March 31, 2000, $753,927 was held by Promus for these capital improvement
reserves. In addition, in accordance with the franchise agreements, $696,869
was held for the property improvement plan with a financial institution and
treated as restricted cash.

The Lessee engages Promus as a third-party manager to operate the hotels
leased by it and pays the manager based on a percentage fee of 4% of adjusted
gross revenues. During the first two years of the management agreement, a
portion of the management fee equal to 1% of adjusted gross revenues is
subordinated to the Lessee's receipt of a return equal to 11% of the purchase
price of each hotel. The Lessee pays the manager a franchise fee and a
marketing fee, equal to 4% of gross revenues, respectively.

The Company loaned the Lessee $567,900 for franchise fees and $121,800 for
hotel supplies for the 11 hotels. The debt agreements are evidenced by
promissory notes bearing interest at a rate of 9% per annum. Principal and
interest payments are due monthly. The promissory notes have various maturity
dates through January 2010.

The Company has contracted with Apple Suites Realty Group, Inc. ("ASRG")
to acquire and dispose of real estate assets for the Company. In accordance
with the contract ASRG is to be paid a fee of 2% of the purchase price of any
acquisitions or sale price of any dispositions of real estate investments,
subject to certain conditions. At March 31, 2000, the Company owed ASRG
$490,238.

The Company has contracted with Apple Suites Advisors, Inc. ("ASA") to
advise and provide day to day management services to the Company. In accordance
with the contract, the Company will pay ASA a fee equal to .1% to .25% of total
equity contributions received by the Company in addition to certain
reimbursable expenses. For the three months ended March 31, 2000, ASA earned
$22,533 under this agreement and $41,046 was payable at March 31, 2000.

The Lessee, ASRG and ASA are 100% owned by Glade M. Knight, Chairman and
President of the Company. ASRG and ASA may purchase in the "best efforts"
offering up to 2.5% of the total number of shares of the Company sold in the
offering.

F-10

APPLE SUITES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) -- (CONTINUED)

(6) EARNINGS PER SHARE

The following table sets forth the computation of basic and diluted
earnings per share in accordance with FAS 128:

THREE MONTHS
ENDED
3/31/00
-------------

Numerator:
Net Income
Numerator for basic and diluted earnings ........................... $ 506,063
Denominator:
Denominator for basic earnings per share-weighted-average shares ... 3,607,458
Effect of dilutive securities:
Stock options ...................................................... 2,200
-----------
Denominator for diluted earnings per share-adjusted weighted-average
shares and assumed conversions ................................... 3,609,658
-----------
Basic and diluted earnings per common share ........................ $ 0.14
-----------

(7) ACQUISITIONS

The following unaudited pro forma information for the three months ended
March 31, 1999 is presented as if the acquisition of the 11 hotels occurred on
January 1, 1999. The pro forma information does not purport to represent what
the Company's results of operations would actually have been if such
transactions, in fact, had occurred on January 1, 1999, nor does it purport to
represent the results of operations for future periods.

THREE MONTHS
ENDED
3/31/99
---------------

Lease revenue .................................. $ 3,398,637
Net income ..................................... 748,633
Net income per share-basic and diluted ......... $ .22

The pro forma information applies the Company's Percentage Lease
Agreements to actual suite revenue and expenses of the 11 hotels acquired in
1999 for the respective period in 1999 prior to acquisition by the Company. Net
income has been adjusted as follows: (1) depreciation has been adjusted based
on the Company's basis in the hotels; (2) advisory expenses have been adjusted
based on the Company's contractual arrangements; (3) interest expense has been
adjusted to reflect the acquisition as of the beginning of the periods; and (4)
common stock raised during 1999 to purchase these hotels has been adjusted to
reflect issuances as of January 1, 1999.

(8) SUBSEQUENT EVENTS

In April, 2000 the Company distributed to its shareholders approximately
$904,918 ($.25 per share) of which approximately $448,641 was reinvested in the
purchase of additional shares. On April 18, 2000, the Company closed the sale
to investors of 301,514 shares at $10 per share representing net proceeds to
the Company of $2,350,227.

F-11

APPLE SUITES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) -- (CONTINUED)
(8) SUBSEQUENT EVENTS -- (CONTINUED)

On May 8, 2000, the Company acquired a Homewood Suites(Reg. TM) hotel in
Malvern, Pennsylvania for $15,489,000. The hotel was purchased through a
combination of equity proceeds from the equity offering and a note in the
amount of $11,616,750 made payable to the order of Promus. The note has a fixed
interest rate of 8.5% per annum. Interest payments are due monthly and the
maturity date is May, 2001. This hotel will be leased by the Lessee and managed
by Promus in substantially the same manner as the other 11 Homewood Suites(Reg.
TM) hotels owned at March 31, 2000.

F-12

APPLE SUITES MANAGEMENT, INC.

CONSOLIDATED BALANCE SHEET (UNAUDITED)

MARCH 31, DECEMBER 31,
2000 1999
------------- -------------

CURRENT ASSETS
Cash and cash equivalents ........................................ $2,329,310 $2,395,000
Accounts receivables, net ........................................ 1,514,431 738,361
Inventories ...................................................... 125,970 121,801
Other assets ..................................................... 2,188 8,142
---------- ----------
Total Current Assets ........................................... 3,971,899 3,263,304

NON-CURRENT ASSETS
Deferred franchise fees ........................................... 555,753 562,851
---------- ----------
Total Assets ................................................... $4,527,652 $3,826,155
========== ==========
LIABILITIES AND SHAREHOLDERS' DEFICIT
CURRENT LIABILITIES
Account payable .................................................. $ 105,247 $ 48,586
Rent payable to Apple Suites, Inc. ............................... 2,641,141 2,123,136
Due to third party manager ....................................... 482,084 454,147
Due to Apple Suites, Inc. ........................................ 20,552 28,991
Accrued expenses ................................................. 704,153 624,346
Current portion of note payable to Apple Suites, Inc. ............ 58,350 56,939
---------- ----------
Total Current liabilities ...................................... 4,011,527 3,336,145

NON-CURRENT LIABILITIES
Note payable to Apple Suites, Inc. ................................ 615,864 631,014
---------- ----------
Total Liabilities .............................................. 4,627,391 3,967,159

SHAREHOLDERS' DEFICIT
Common Stock, no par value, 5,000 authorized; 10 shares issued and
outstanding .................................................... 100 100
Retained deficit ................................................. (99,839) (141,104)
---------- ----------
Total Shareholders' deficit .................................... (99,739) (141,004)
---------- ----------
Total Liabilities and Shareholders' Deficit .................... $4,527,652 $3,826,155
========== ==========

See accompanying notes to financial statements.

F-13

APPLE SUITES MANAGEMENT, INC.

CONSOLIDATED STATEMENT OF OPERATIONS (UNAUDITED)

THREE MONTHS
ENDED
MARCH 31, 2000
---------------

REVENUE
Suite revenue .............................. $7,682,355
Other revenue .............................. 420,816
----------
Total revenue ............................ 8,103,171
EXPENSES
Operating expense .......................... 2,295,392
General and administrative ................. 670,943
Advertising and promotion .................. 662,647
Utilities .................................. 283,263
Franchise fees ............................. 307,294
Management fees ............................ 322,766
Rent expense -- Apple Suites, Inc. ......... 3,406,678
Interest expense ........................... 15,275
Other ...................................... 96,212
----------
Total expenses ........................... 8,060,470
Income before income taxes ................. 42,701
Income tax expense ......................... --
----------
Net income ............................... $ 42,701
==========

CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED)

THREE MONTHS ENDED
MARCH 31, 2000
-------------------

CASH FLOW FROM OPERATING ACTIVITIES:
Net income ................................................................. $ 42,701
Adjustments to reconcile net income to net cash used in operating activities
Amortization of deferred franchise fees ................................... 7,098
Changes in operating assets and liabilities:
Receivables ............................................................... (776,070)
Other assets .............................................................. 349
Due to Apple Suites, Inc. ................................................. (8,439)
Rent payable to Apple Suites, Inc. ........................................ 518,005
Accounts payable .......................................................... 56,661
Due to third party manager ................................................ 27,937
Accrued expenses .......................................................... 79,807
----------
Net cash used in operating activities ................................... (51,951)

CASH FLOW FROM FINANCING ACTIVITIES:
Repayments of notes payable ............................................... (13,739)
----------
Net cash used in financing activities ................................... (13,739)
Decrease in cash and cash equivalents ................................... (65,690)

Cash and cash equivalents, beginning of period ............................ 2,395,000
----------
Cash and cash equivalents, end of period .................................. $2,329,310
==========

See accompanying notes to consolidated financial statements.

F-14

APPLE SUITES MANAGEMENT, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

MARCH 31, 2000

(1) GENERAL INFORMATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

ORGANIZATION

Apple Suites Management, Inc. (the "Lessee") operates in one business
segment. Each hotel is leased by the Company to the Lessee under a master hotel
lease agreement ("Percentage Lease") having an initial term of ten years,
subject to earlier termination at the option of the Company upon 30 days
notice. The lease agreement provides for two optional five-year extensions. The
Percentage Leases require base rent payments to be made to the Company on a
monthly basis and additional quarterly payments to be made based upon
percentages of suite and sundry revenue. Promus Hotels, Inc. or an affiliate
("Promus") manages the hotels under a management agreement with the Lessee.
Promus Hotels, Inc. is a wholly-owned subsidiary of Hilton Hotel Corporation
("Hilton"). The hotels are located throughout the United States and are
licensed with Homewood Suites(Reg. TM) by Hilton.

The Lessee commenced operations in September 1999, therefore, consolidated
statements of operations and cash flows for the three month period ended March
31, 1999 are not presented.

(2) PERCENTAGE LEASES

The Percentage Leases expire in 2009, subject to earlier termination by
the Company upon 30 days notice. The Percentage Leases provide for two optional
five-year extensions. The rent due for each hotel is the sum of a base rent and
a percentage rent. Percentage rent is calculated on a quarterly basis by
multiplying fixed percentages by the total amounts of year-to-date suite
revenues with reference to specified threshold amounts known as breakpoints.
Both the base rent and the breakpoints used in computing percentage rents are
subject to annual adjustments based on increases in the Consumer Price Index
("CPI").

The Lessee has entered into license agreements with Promus to operate the
hotels as Homewood Suites(Reg. TM) by Hilton properties. These agreements have
terms of 20 years and expire in 2019. These agreements require the Lessee to,
among other things, pay monthly franchise fees equal to 4% of suite revenue.
License and franchise agreements contain specific standards for, and
restrictions and limitations on, the operation and maintenance of the hotels
which are established by Promus to maintain uniformity in the system for
Homewood Suites(Reg. TM) by Hilton. Such standards generally regulate the
appearance of the hotel, quality and type of goods and services offered,
signage, and protection of marks. Compliance with such standards may from time
to time require significant expenditures for capital improvements which will be
borne by the Company. In addition, the agreements provide that Promus will
manage the daily operations of the hotels and provide advertising and promotion
to include access to the reservation

F-15

APPLE SUITES MANAGEMENT, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) -- (CONTINUED)
(2) PERCENTAGE LEASES -- (CONTINUED)

system for Homewood Suites(Reg. TM) by Hilton. The Lessee pays Promus 4% of
monthly suite revenue for each of these functions, respectively. Total expenses
incurred by the Lessee for franchise fees, advertising and promotion fees, and
management fees for the three months ended March 31, 2000 totaled $937,354.

(3) SHAREHOLDER'S EQUITY

The Lessee requires or may require funds to capitalize its business to
satisfy its obligations under Percentage Leases with the Company. To meet these
objectives, the Lessee has two funding commitment agreements of $1 million each
from Mr. Knight and Apple Suites Realty Group, Inc., ("ASRG"), respectively,
(together "Payor"). ASRG is owned by Mr. Knight. The funding commitments are
contractual obligations of the Payor to provide funds to the Lessee. Funds paid
to the Lessee under the commitments are to be used to satisfy any
capitalization or net worth requirements applicable to the Lessee or the
Lessee's payment obligations under the lease agreements and does not represent
any indebtedness. The funding commitments terminate upon the expiration of the
Percentage Leases, written agreement between the Payor and the Lessee, or
payment of all commitments amounts by the Payor to the Lessee. As of March 31,
2000, no contributions have been made by the Payor to the Lessee.

(4) SUBSEQUENT EVENTS

Effective May 8, 2000, the Company acquired a hotel property in Malvern,
Pennsylvania. This hotel will be leased by the Lessee and managed by Promus in
substantially the same manner as the other 11 Homewood Suites(Reg. TM) hotels.

F-16

SUPPLEMENT NO. 7 DATED JUNE 20, 2000
TO PROSPECTUS DATED AUGUST 3, 1999

APPLE SUITES, INC.

The following information supplements the prospectus of Apple Suites, Inc.
dated August 3, 1999 and is part of the prospectus. THIS SUPPLEMENT NO. 7
RELATES TO MATTERS THAT HAVE CHANGED OR OCCURRED SINCE MAY 31, 2000. OTHER
IMPORTANT MATTERS WERE DISCUSSED IN SUPPLEMENT NO. 6 AND IN SUPPLEMENT NO. 5,
WHICH INCORPORATED AND REPLACED ALL PRIOR SUPPLEMENTS. THIS SUPPLEMENT DOES NOT
INCORPORATE OR REPLACE ANY PRIOR SUPPLEMENT.

PROSPECTIVE INVESTORS SHOULD CAREFULLY REVIEW THE PROSPECTUS, SUPPLEMENT
NO. 5, SUPPLEMENT NO. 6 AND THIS SUPPLEMENT NO. 7.

TABLE OF CONTENTS FOR SUPPLEMENT NO. 7

Status of the Offering .................. S-2
Recent Developments ..................... S-2
Potential Refinancing .................. S-2
Status of Payments ..................... S-3
Probable Hotel Acquisition .............. S-4
Overview ............................... S-4
Description of Hotel ................... S-4
Property Description Updates ............ S-7
Selected Financial Information .......... S-13
Experts ................................. S-14
Index to Financial Statements ........... F-1

S-1

STATUS OF THE OFFERING

We completed the minimum offering of common shares at $9 per share on
August 23, 1999. We are continuing the offering at $10 per common share in
accordance with the prospectus.

As of June 19, 2000, we had closed on the following sales of our common
shares:

PROCEEDS NET OF SELLING
PRICE PER NUMBER OF GROSS COMMISSIONS AND MARKETING
COMMON SHARE COMMON SHARES SOLD PROCEEDS EXPENSE ALLOWANCE
- -------------- -------------------- --------------- --------------------------

$ 9 1,666,666.67 $ 15,000,000 $ 13,500,000
$ 10 3,278,875.00 32,788,750 29,509,875
------------ ------------ -------------
TOTAL 4,945,541.67 $ 47,788,750 $ 43,009,875
============ ============ =============

We have used the net proceeds of our offering to acquire, by deed or
lease, a total of 12 extended-stay hotels, which collectively have 1,341
suites. We hold these hotels directly or through wholly-owned subsidiaries. For
simplicity, we will refer to these hotels as "our hotels." All of our hotels
have franchises with Homewood Suites(Reg. TM) by Hilton, which is a registered
service mark of Hilton Hotels Corporation.

RECENT DEVELOPMENTS

POTENTIAL REFINANCING

We have five notes payable in connection with our hotel purchases in the
total amount of approximately $80 million. These notes are payable to Promus
Hotels, Inc., which is a wholly-owned subsidiary of Hilton Hotels Corporation.
The maturity dates for these notes occur on different dates ranging from
October 1, 2000 to April 28, 2001. Our goal is to use the net proceeds from our
offering of common shares to make full or partial payments of principal on the
various maturity dates. Our ability to achieve this goal depends on the rate at
which our common shares are sold.

We are negotiating to refinance these notes on commercially reasonable
terms and conditions. We have applied for a commercial loan from a national
bank in the amount of $58 million to be secured by the 11 hotels we purchased
in 1999. There can be no assurance that the loan will occur in accordance with
the terms of the loan application or at all. If the loan occurs in accordance
with the application, repayment would be made in monthly installments over 10
years, on an amortized basis, at a fixed annual interest rate of 9.17%.

If the loan closes, we expect the lender to impose additional conditions
or requirements that are customary for loans of this type. The loan would
represent a change to our borrowing policy, as originally described in the
prospectus, because we would no longer hold our properties over the long-term
on an all-cash basis.

S-2

also have entered into an agreement, dated as of June 5, 2000, with the
prospective lender, which guarantees the interest rate and provides for our
payment of certain fees if we terminate our loan application.

We have entered into a letter agreement, dated May 8, 2000, with Promus
Hotels, Inc. in regard to potential refinancing. This letter agreement pertains
to the latest promissory note regarding the Philadelphia/Great Valley hotel and
any new promissory note regarding a hotel in Boulder, which we are negotiating
to purchase. (The probable acquisition of the Boulder hotel is described in
detail in another section below). Under this letter agreement, if we obtain
refinancing, repay our initial four promissory notes in full, and are not in
default under the other promissory notes, the first 11 hotels we purchased
would be released as collateral. Furthermore, if our refinancing has both
senior and junior levels of priority, and if the junior level does not exceed
$13 million, we would be permitted to apply the net equity proceeds from our
"best efforts" to the principal amount of such junior debt, rather than to our
promissory notes with respect to the Philadelphia/Great Valley hotel and the
Boulder hotel (if acquired).

STATUS OF PAYMENTS

We have made all scheduled interest payments under the promissory notes
payable to Promus Hotels, Inc. The aggregate amount of our interest payments
from acquisition through June 19, 2000 is $3,499,851.

To date, we have not made any principal payments under any of these
promissory notes. The following amounts would be due on the maturity dates of
the promissory notes, assuming that we do not obtain refinancing, that interest
payments continue to be made on schedule and that no payments of principal are
made before those maturity dates:

MONTH OF PROMISSORY NOTE DATE OF MATURITY TOTAL DUE AT MATURITY
- -------------------------- ------------------ ----------------------

September 1999 October 1, 2000 $26,811,010
October 1999 October 1, 2000 7,401,349
November 1999 December 1, 2000 30,421,056
December 1999 January 1, 2001 4,415,131
May 2000 April 28, 2001 11,697,908
-----------
TOTAL $80,746,454
===========

In the event of a default under the promissory notes, various remedies are
available to Promus Hotels, Inc. under certain deeds of trust, which are
described in Supplement No. 6.

We have advanced a total of $960,000 to the lessees of the hotels under
the master hotel lease agreements (Apple Suites Management, Inc. or its
subsidiary). We made this advance to assist the lessees in satisfying working
capital account requirements that have been established by Promus Hotels, Inc.,
as licensor with respect to our 12 hotels. At one time, the lessees
contemplated funding the working capital requirements with rental income from
the hotels. It was determined, however, that an advance from us would be more
administratively convenient.

The total advance was based on an allocation of $80,000 per hotel. To
evidence the repayment obligation of the lessees, we have received 12
substantially identical

S-3

promissory notes, each of which relates to a particular hotel and is made in
the principal amount of $80,000. Each note provides for an annual interest rate
of 9% and for repayment in monthly installments of principal and interest, on
an amortized basis, over a 10-year period.

PROBABLE HOTEL ACQUISITION

OVERVIEW

We are negotiating to purchase an extended-stay hotel in Boulder,
Colorado. This hotel is currently in operation and is owned by Promus Hotels,
Inc., which is a wholly-owned subsidiary of Hilton Hotels Corporation. We
purchased all of our other hotels from Promus Hotels, Inc. (or an affiliate).
Like our other hotels, the Boulder hotel operates under a franchise with
Homewood Suites(Reg. TM) by Hilton.

Under a letter agreement dated May 8, 2000 with Promus Hotels, Inc. (and
affiiliates), we are permitted to use the net equity proceeds from our "best
efforts" offering to pay 25% of the purchase price for the Boulder hotel. This
permission will expire if we do not purchase the Boulder hotel on or before
June 30, 2000. If we purchase the Boulder hotel, we would expect Promus Hotels,
Inc. to finance 75% of any purchase price, as it did with our other hotels. We
currently expect that the total purchase price for the Boulder hotel would be
approximately $14,885,000.

There can be no assurance, however, that we will purchase the Boulder
hotel at this price or at all, or that any financing will be similar to our
existing financing. If we decline to purchase the Boulder hotel, we will
forfeit a deposit in the amount of $200,000. The Boulder hotel is described in
more detail below.

DESCRIPTION OF HOTEL

The Boulder hotel has a franchise with Homewood Suites(Reg. TM) by Hilton
and is located on a 3.0 acre site at 4950 Baseline Road, Boulder, Colorado
80303. The hotel is approximately 3 miles from downtown Boulder and 52 miles
from the Denver International Airport.

The hotel opened in January 1991. It has wood frame construction, with an
exterior of brick veneer and stucco . The hotel consists of four buildings,
each with three stories. The hotel contains 112 suites, which have a combined
rentable area of 57,040 square feet. The following types of suites are
available:

TYPE OF SUITE NUMBER AVAILABLE SQUARE FEET PER SUITE
- -------------------------- ------------------ ----------------------

Master Suite 28 560
Homewood Suite 76 440
Two-Bedroom Suite 8 990

The hotel offers a 40-seat breakfast/lounge area, a meeting room that
accommodates 25 to 30 people, and a business center that offers guests the use
of a personal computer, a photocopier and an electric typewriter. Recreational
facilities include an outdoor pool, a whirlpool and an exercise room. The hotel
also contains a guest convenience store and laundry. The hotel has a parking
lot with 114 spaces. The hotel provides complimentary shuttle service within a
five mile radius.

S-4

We believe that the hotel has been well maintained and is generally in
very good condition. If we purchase the hotel, we plan to spend approximately
$287,450 on renovations or improvements over the subsequent 12 months. We
expect that the principal renovations and improvements will include interior
painting and the replacement of exterior lights, carpet and kitchen flooring.
If we purchase the hotel, we would expect to pay for the costs of these
renovations and improvements with the proceeds from our offering of common
shares.

During 2000 (through May), the average stay at the hotel has been
approximately 3.2 nights, and approximately 49.6% of the guests have stayed for
five nights or more. In general, occupancy at the hotel is not significantly
affected by seasonal variations. The following table shows average daily
occupancy rates, expressed as a percentage, since 1995:

AVERAGE DAILY OCCUPANCY RATE (CALENDAR YEAR)

2000
1995 1996 1997 1998 1999 THROUGH MAY
- ------------ ---------- ---------- ---------- ---------- ------------

79.7% 80.3% 80.4% 79.8% 77.5% 74.9%

During 2000 (through May), the average daily rate per suite has been
$115.32, and the average daily net revenue per suite has been $86.38. As with
our other properties, revenue from the hotel, including lease revenue that is
paid to us under any master hotel lease agreement for the hotel, would be used
to pay interest due under any promissory note we execute in connection with a
purchase of the hotel. Our goal would be to use the proceeds of our offering of
common shares to make principal payments. There can be no assurance, however,
the proceeds of the offering would be sufficient for this purpose.

The hotel's current rate structure is based on length of stay and type of
suite, as summarized below:

LENGTH OF STAY
(NUMBER OF NIGHTS) HOMEWOOD MASTER TWO BEDROOM
- -------------------- ---------- -------- ------------

1 to 4 $159 $169 $235
5 to 11 144 154 225
12 to 29 144 154 225
30 or more 124 134 225

The hotel offers a weekend discount. This discount varies by type of suite
and generally reduces the basic rate by approximately 30%. The weekend discount
is not available to guests who stay for five nights or more. The hotel also
offers discounts to guests who stay under certain corporate accounts. These
discounts are often negotiated with the corporate customer and vary from
account to account. We estimate that, through May 2000, approximately 70% of
the hotel's guests received a corporate discount.

The chief corporate accounts (as designated in the hotel's records)
include: IBM, Micro Motion, Dieterich Standard, Printrak, SCC, Valleylab,
NCAR/UCAR, Ball Aerospace, Sybase, Sun Microsystems, US West, Xilinx, and
Storagetek. During 2000 (through May), the 10 largest corporate accounts were
responsible for approximately 37% of the hotel's occupancy. There can be no
assurance, however, that the hotel will continue to receive significant
occupancy, or any occupancy, from the corporate accounts identified above.

S-5

The table below shows the average effective annual rental per square foot
since 1995:

2000
1995 1996 1997 1998 1999 (ANNUALIZED)
- ------------- ----------- ----------- ----------- ----------- -------------

$ 55.80 $ 62.25 $ 65.26 $ 66.84 $ 63.64 $ 68.94

The depreciable real property component of the hotel has a currently
estimated Federal tax basis of $11,461,450 and would be depreciated by us, if
we purchase the hotel, using the straight-line method over a life of 39 years
(or less, as permitted by the Internal Revenue Code). The basis of the personal
property component of the hotel would be depreciated in accordance with the
modified accelerated cost recovery system of the Internal Revenue Code.

The following table summarizes the hotel's real estate tax information for
2000:

ASSESSED TAX RATE AMOUNT
TAX JURISDICTION VALUE (PER $1000) OF TAX
- ------------------------ ------------- ------------- -----------

County of Boulder $2,500,590 75.767 $189,462

We estimate that the annual tax for 2000 on the expected improvements will
be approximately $11,000 or less.

At least five competing hotels are located within three miles of the
hotel. (The names of the competing franchises, as listed below, may be
registered as service marks or trade names.) Of these competing hotels, one is
newer than the hotel. The newer competing hotel has a franchise with Marriott.
The other competing hotels have franchises with Courtyard by Marriott,
Residence Inn by Marriott and Regal (the fourth hotel is a local, unfranchised
property). We believe that the rates charged by the Boulder hotel are generally
competitive with the rates charged by these other hotels. We are not aware of
any ongoing or proposed construction for other extended-stay hotels.

[REMAINDER OF PAGE IS INTENTIONALLY BLANK]

S-6

PROPERTY DESCRIPTION UPDATES

The following sections provide updated information about our hotels. The
selected hotel information relates to the period from January 1, 2000 through
May 31, 2000 (unless indicated to the contrary). Please refer to Supplement No.
5 and Supplement No. 6 for additional information about the hotels.

1. DALLAS -- ADDISON

SELECTED HOTEL INFORMATION

Total Expected Cost of Improvements or Renovation ......... $ 424,000
Improvement Funds Committed Since Hotel Acquisition ....... $ 283,376
Occupancy Rate ............................................ 81.78%
Average Effective Rental per Square Foot (annualized) ..... $ 51.42
Average Daily Rate per Suite .............................. $ 88.24
Average Daily Revenue per Available Suite ................. $ 72.16

RATE STRUCTURE

LENGTH OF STAY
(NUMBER OF NIGHTS) HOMEWOOD MASTER (KING) MASTER (DOUBLE) TWO BEDROOM
- -------------------- ---------- --------------- ----------------- ------------

1 to 4 $139 $149 $149 $181
5 to 11 119 129 129 169
12 to 29 99 109 109 149
30 or more 89 99 99 139

Real estate tax information for 2000 is not currently available from the
local taxing authorities.

2. DALLAS -- IRVING/LAS COLINAS

SELECTED HOTEL INFORMATION

Total Expected Cost of Improvements or Renovation ......... $507,000
Improvement Funds Committed Since Hotel Acquisition ....... $344,180
Occupancy Rate ............................................ 75.22 %
Average Effective Rental per Square Foot (annualized) ..... $ 44.41
Average Daily Rate per Suite .............................. $ 95.37
Average Daily Revenue per Available Suite ................. $ 71.73

RATE STRUCTURE

LENGTH OF STAY
(NUMBER OF NIGHTS) HOMEWOOD MASTER TWO BEDROOM
- -------------------- ---------- -------- ------------

1 to 4 $139 $139 $199
5 to 12 119 119 159
13 to 29 109 109 149
30 or more 89 89 129

Real estate tax information for 2000 is not currently available from the
local taxing authorities.

S-7

3. NORTH DALLAS -- PLANO

SELECTED HOTEL INFORMATION

Total Expected Cost of Improvements or Renovation .............. $27,500
Improvement Funds Committed Since Hotel Acquisition ............ $14,979
Occupancy Rate ................................................. 86.14 %
Average Effective Rental per Square Foot (annualized) .......... $ 44.89
Average Daily Rate per Suite ................................... $ 72.33
Average Daily Revenue per Available Suite ...................... $ 62.30

RATE STRUCTURE

LENGTH OF STAY
(NUMBER OF NIGHTS) HOMEWOOD EXTENDED DOUBLE TWO BEDROOM
- -------------------- ---------- ----------------- ------------

1 to 4 $129 $129 $159
5 to 12 109 109 139
13 to 29 99 99 129
30 or more 79 79 119

Real estate tax information for 2000 is not currently available from the
local taxing authorities.

4. RICHMOND -- WEST END

SELECTED HOTEL INFORMATION

Total Expected Cost of Improvements or Renovation ......... $ 106,500
Improvement Funds Committed Since Hotel Acquisition ....... none
Occupancy Rate ............................................ 76.12%
Average Effective Rental per Square Foot (annualized) ..... $ 44.14
Average Daily Rate per Suite .............................. $ 82.19
Average Daily Revenue per Available Suite ................. $ 62.56

RATE STRUCTURE

LENGTH OF STAY HOMEWOOD HOMEWOOD
(NUMBER OF NIGHTS) (KING BED) (DOUBLE BED) TWO BEDROOM
- -------------------- ------------ -------------- ------------

1 to 4 $124 $129 $179
5 to 29 114 119 149
30 or more 89 99 129

REAL ESTATE TAXES FOR 2000

ASSESSED TAX RATE AMOUNT
TAX JURISDICTION VALUE (PER $100) OF TAX
- ------------------------ ------------- ------------ ----------

County of Henrico $5,806,300 0.94 $54,579

We estimate that the annual tax for 2000 on the expected improvements will
be approximately $500 or less.

S-8

5. ATLANTA -- GALLERIA/CUMBERLAND

SELECTED HOTEL INFORMATION

Total Expected Cost of Improvements or Renovation ......... $435,500
Improvement Funds Committed Since Hotel Acquisition ....... $265,666
Occupancy Rate ............................................ 66.92 %
Average Effective Rental per Square Foot (annualized) ..... $ 33.48
Average Daily Rate per Suite .............................. $ 94.67
Average Daily Revenue per Available Suite ................. $ 63.35

RATE STRUCTURE

LENGTH OF STAY
(NUMBER OF NIGHTS) HOMEWOOD MASTER TWO BEDROOM
- -------------------- ---------- -------- ------------

1 to 4 $119 $129 $179
5 to 11 99 109 169
12 to 29 85 95 159
30 or more 79 89 149

Real estate tax information for 2000 is not currently available from the
local taxing authorities.

6. ATLANTA -- PEACHTREE

SELECTED HOTEL INFORMATION

Total Expected Cost of Improvements or Renovation ......... $ 505,500
Improvement Funds Committed Since Hotel Acquisition ....... $ 121,400
Occupancy Rate ............................................ 85.35%
Average Effective Rental per Square Foot (annualized) ..... $ 40.59
Average Daily Rate per Suite .............................. $ 76.45
Average Daily Revenue per Available Suite ................. $ 65.25

RATE STRUCTURE

LENGTH OF STAY
(NUMBER OF NIGHTS) HOMEWOOD MASTER TWO BEDROOM
- -------------------- ---------- -------- ------------

1 to 4 $109 $119 $159
5 to 11 89 109 149
12 to 29 84 99 139
30 or more 79 89 129

REAL ESTATE TAXES FOR 2000

ASSESSED TAXABLE TAX AMOUNT
TAX JURISDICTION VALUE PORTION (40%) RATE OF TAX
- ---------------------- ------------- --------------- ------------ ----------

Gwinnett County $5,688,440 $2,275,376 0.03225 $73,381

We estimate that the annual tax for 2000 on the expected improvements will
be approximately $3,300 or less.

S-9

7. BALTIMORE -- BWI AIRPORT

SELECTED HOTEL INFORMATION

Total Expected Cost of Improvements or Renovation .............. $59,500
Improvement Funds Committed Since Hotel Acquisition ............ $52,941
Occupancy Rate ................................................. 86.59 %
Average Effective Rental per Square Foot (annualized) .......... $ 59.96
Average Daily Rate per Suite ................................... $ 97.62
Average Daily Revenue per Available Suite ...................... $ 84.52

RATE STRUCTURE

LENGTH OF STAY
(NUMBER OF NIGHTS) HOMEWOOD MASTER TWO BEDROOM
- -------------------- ---------- -------- ------------

1 to 4 $139 $139 $179
5 to 11 119 119 179
12 to 29 109 109 179
30 or more 95 95 179

REAL ESTATE TAXES FOR 2000
(based on a formula that uses the assessed values for multiple years
to determine a separate taxable amount)

TAXABLE TAX RATE AMOUNT
TAX JURISDICTION AMOUNT (PER $100) OF TAX
- ---------------------------- ------------- ------------ -----------

State of Maryland/
Anne Arundel County $4,331,720 2.57 $111,325

We estimate that the annual tax for 2000 on the expected improvements will
be approximately $800 or less.

8. CLEARWATER

SELECTED HOTEL INFORMATION

Total Expected Cost of Improvements or Renovation .............. $16,000
Improvement Funds Committed Since Hotel Acquisition ............ $5,678
Occupancy Rate ................................................. 84.03 %
Average Effective Rental per Square Foot (annualized) .......... $ 58.52
Average Daily Rate per Suite ................................... $ 99.53
Average Daily Revenue per Available Suite ...................... $ 83.64

RATE STRUCTURE

LENGTH OF STAY HOMEWOOD HOMEWOOD
(NUMBER OF NIGHTS) KING DOUBLE TWO BEDROOM
- -------------------- ---------- --------- ------------

1 to 4 $119 $129 $159
5 to 29 99 109 139
30 or more 69 79 125

Real estate tax information for 2000 is not currently available from the
local taxing authorities.

S-10

9. DETROIT -- WARREN

SELECTED HOTEL INFORMATION

Total Expected Cost of Improvements or Renovation ......... $ 331,000
Improvement Funds Committed Since Hotel Acquisition ....... $ 23,831
Occupancy Rate ............................................ 70.57%
Average Effective Rental per Square Foot (annualized) ..... $ 60.71
Average Daily Rate per Suite .............................. $ 97.81
Average Daily Revenue per Available Suite ................. $ 69.02

RATE STRUCTURE

LENGTH OF STAY
(NUMBER OF NIGHTS) HOMEWOOD MASTER TWO BEDROOM
- -------------------- ---------- -------- ------------

1 to 4 $114 $139 $169
5 to 12 104 129 149
13 to 29 99 119 149
30 or more 89 109 149

REAL ESTATE TAXES FOR 2000

ASSESSED TAX RATE AMOUNT
TAX JURISDICTION VALUE (PER $100) OF TAX
- ----------------------- ------------- ------------------ ----------

City of Warren $1,152,900 1.605 $18,504
County of Macomb $1,152,900 2.86 $32,973
School District $1,152,900 0.497 $ 5,730
-------
TOTAL $57,207
=======

We estimate that the annual tax for 2000 on the expected improvements will
be approximately $8,200 or less.

10. SALT LAKE CITY -- MIDVALE

SELECTED HOTEL INFORMATION

Total Expected Cost of Improvements or Renovation .............. $ 72,000
Improvement Funds Committed Since Hotel Acquisition ............ $ 9,592
Occupancy Rate ................................................. 65.03%
Average Effective Rental per Square Foot (annualized) .......... $ 35.02
Average Daily Rate per Suite ................................... $ 90.49
Average Daily Revenue per Available Suite ...................... $ 58.85

RATE STRUCTURE

LENGTH OF STAY HOMEWOOD HOMEWOOD
(NUMBER OF NIGHTS) (KING) (DOUBLE) MASTER TWO BEDROOM
- -------------------- ---------- ---------- -------- ------------

1 to 4 $99 $99 $109 $179
5 to 12 89 89 99 169
13 to 29 79 79 89 159
30 or more 69 69 79 149

Real estate tax information for 2000 is not currently available from the
local taxing authorities.

S-11

11. JACKSON -- RIDGELAND

SELECTED HOTEL INFORMATION

Total Expected Cost of Improvements or Renovation .............. $58,500
Improvement Funds Committed Since Hotel Acquisition ............ $2,805
Occupancy Rate ................................................. 74.07 %
Average Effective Rental per Square Foot (annualized) .......... $ 49.98
Average Daily Rate per Suite ................................... $ 84.82
Average Daily Revenue per Available Suite ...................... $ 62.83

RATE STRUCTURE

LENGTH OF STAY
(NUMBER OF NIGHTS) HOMEWOOD MASTER TWO BEDROOM
- -------------------- ---------- -------- ------------

1 to 4 $99 $99 $159
5 to 11 89 89 129
12 to 28 74 74 119
29 or more 69 69 109

Real estate tax information for 2000 is not currently available from the
local taxing authorities.

12. PHILADELPHIA/GREAT VALLEY

The depreciable real property component of the hotel, based on our
leasehold interest, has a currently estimated Federal tax basis of $15,519,572
and will be depreciated using the straight-line method over a life of 39 years
(or less, as permitted by the Internal Revenue Code).

For additional 2000 information, see Supplement No. 6.

[REMAINDER OF PAGE IS INTENTIONALLY BLANK]

S-12

SELECTED FINANCIAL INFORMATION

FOR THE THREE MONTHS ENDED MARCH 31, 2000 (EXCEPT AS NOTED)

REVENUES:
Lease revenue .................................................. $ 3,406,678
Interest income and other revenue .............................. 48,007
-------------
Total revenue .................................................. 3,454,685
EXPENSES:
Taxes, insurance, and other .................................... 691,575
General and administrative ..................................... 254,736
Depreciation ................................................... 549,201
Interest ....................................................... 1,453,110
Total expenses ................................................. 2,948,622
-------------
Net income ..................................................... $ 506,063
=============
PER SHARE
Earnings per share -- basic and diluted ........................ $ 0.14
Distributions to common shareholders ........................... $ --
Weighted-average common shares outstanding ..................... 3,607,458
Balance Sheet Data at March 31, 2000:
Cash and cash equivalents ..................................... $ 3,781,922
Investment in hotels, net ..................................... $ 93,450,963
Total assets .................................................. $ 102,814,839
Notes payable -- secured ...................................... $ 68,569,500
Shareholders Equity ........................................... $ 32,997,819
OTHER DATA
Cash flow from:
Operating activities .......................................... $ (340,502)
Investing activities .......................................... $ (139,941)
Financing activities .......................................... $ 3,681,021
Number of hotels owned at March 31, 2000 ....................... 11
Number of hotel rooms (suites) owned at March 31, 2000 ......... 1,218
FUNDS FROM OPERATIONS CALCULATION
Net income ..................................................... $ 506,063
Depreciation of real estate owned ............................. 549,201
Funds from Operations (a) ...................................... $ 1,055,264
=============

(a) "Funds from operations" is defined as income before gains (losses) on
investments and extraordinary items (computed in accordance with generally
accepted accounting principles) plus real estate depreciation and after
adjustment for significant nonrecurring items, if any. We consider funds from
operations in evaluating property acquisitions and operating performance, and
believe that funds from operations should be considered along with, but not as
an alternative to, net income and cash flows as a measure of our operating
performance and liquidity. Funds from operations, which may not be comparable
to other similarly titled measures of other REITs, does not represent cash
generated from operating activities in accordance with generally accepted
accounting principles and is not necessarily indicative of cash available to
fund cash needs.

S-13

EXPERTS

The combined financial statements for the Philadelphia/Great Valley and
Boulder hotels are set forth below. These financial statements have been
included herein in reliance on the report of L.P. Martin & Company, P.C.,
independent certified public accountants, which is also included herein, and
upon the authority of that firm as an expert in accounting and auditing.

[REMAINDER OF PAGE IS INTENTIONALLY BLANK]

S-14

APPLE SUITES, INC.

INDEX TO FINANCIAL STATEMENTS

Page
PROPERTY FINANCIAL STATEMENTS -----

Philadelphia/Great Valley and Boulder Hotels
Independent Auditors' Report ................................................... F-3
Combined Balance Sheets -- December 31, 1999 and December 31, 1998 ............. F-4
Combined Statements of Shareholders' Equity -- Years ended December 31, 1999 and
December 31, 1998 ............................................................. F-5
Combined Income Statements -- Years ended December 31, 1999 and December 31,
1998 .......................................................................... F-5
Combined Statements of Cash Flows -- Years ended December 31, 1999 and
December 31, 1998 ............................................................. F-6
Notes to the Combined Financial Statements -- December 31, 1999 and December 31,
1998 .......................................................................... F-7
* * *
Combined Balance Sheet -- March 31, 2000 (unaudited) ........................... F-11
Combined Statement of Shareholders' Equity -- For the Period January 1, 2000
through March 31, 2000 (unaudited) ............................................ F-12
Combined Income Statement -- For the Period January 1, 2000 through March 31,
2000 (unaudited) .............................................................. F-12
Combined Statement of Cash Flows -- For the Period January 1, 2000 through
March 31, 2000 (unaudited) .................................................... F-13
Notes to the Combined Financial Statements -- For the Period January 1, 2000
through March 31, 2000 (unaudited) ............................................ F-14

F-1

PAGE
PRO FORMA FINANCIAL STATEMENTS (UNAUDITED) ------

Apple Suites, Inc.
Pro Forma Condensed Consolidated Balance Sheet as of March 31, 2000 ........... F-18
Notes to Pro Forma Condensed Consolidated Balance Sheet ....................... F-19
Pro Forma Condensed Consolidated Statements of Operations for the Year Ended
December 31, 1999 and the Three Months Ended March 31, 2000 .................. F-20
Notes to Pro Forma Condensed Consolidated Statements of Operations ............ F-22
Apple Suites Management, Inc.
Pro Forma Condensed Consolidated Statements of Operations for the Year Ended
December 31, 1999 and the Three Months Ended March 31, 2000 .................. F-23
Notes to Pro Forma Condensed Consolidated Statements of Operations ............ F-25

F-2

LEE P. MARTIN, JR., C.P.A. PHONE: (804) 345-2626 ROBERT C. JOHNSON, C.P.A.
WILLIAM L. GRAHAM, C.P.A. FAX: (804) 346-9311 LEE P. MARTIN, C.P.A. (1948-76)
BERNARD G. KINZIE, C.P.A.
W. BARCLAY BRADSHAW, C.P.A.

INDEPENDENT AUDITORS' REPORT

Apple Suites, Inc.
Richmond, Virginia

We have audited the accompanying combined balance sheets of the Homewood
Suites Acquisition Hotels (described in Note 1) as of December 31, 1999 and
1998, and the related combined statements of income, shareholders' equity and
cash flows for the years then ended. These financial statements are the
responsibility of the management of the hotels. Our responsibility is to
express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion. The accompanying financial statements were prepared for the
purpose of complying with the rules and regulations of the Securities and
Exchange Commission as described in Note 1 to the financial statements and are
not intended to be a complete presentation of the Homewood Suites Acquisition
Hotels.

In our opinion, the financial statements referred to above present fairly,
in all material respects, the combined financial position of the Homewood
Suites Acquisition Hotels as of December 31, 1999 and 1998, and the combined
results of their operations and their cash flows for the years then ended in
conformity with generally accepted accounting principles.

/s/ L.P. Martin & Co, P.C.

Richmond, Virginia
May 31, 2000

F-3

HOMEWOOD SUITES ACQUISITION HOTELS

COMBINED BALANCE SHEETS

DECEMBER 31, 1999 DECEMBER 31, 1998
------------------- ------------------

ASSETS
CURRENT ASSETS
Cash ................................................. $ 231,297 $ 142,363
Accounts Receivable, Net ............................. 207,653 157,754
Prepaids and Other ................................... 85,403 15,751
------------ ------------
Total Current Assets ............................... 524,353 315,868
------------ ------------
INVESTMENT IN HOTEL PROPERTIES
Land and Improvements ................................ 1,911,918 1,911,918
Buildings and Improvements ........................... 13,078,590 13,078,407
Furniture, Fixtures and Equipment .................... 4,362,527 4,091,364
------------ ------------
Total .............................................. 19,353,035 19,081,689
Less: Accumulated Depreciation ....................... (4,170,565) (3,473,189)
------------ ------------
Net Investment in Hotel Properties ................. 15,182,470 15,608,500
------------ ------------
Total Assets ....................................... $ 15,706,823 $ 15,924,368
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts Payable ..................................... $ 17,104 $ 44,353
Accrued Taxes ........................................ 277,595 358,676
Accrued Expenses - Other ............................. 105,781 109,590
------------ ------------
Total Current Liabilities .......................... 400,480 512,619
------------ ------------
SHAREHOLDERS' EQUITY
Contributed Capital .................................. 2,364,469 5,303,463
Retained Earnings .................................... 12,941,874 10,108,286
------------ ------------
Total Shareholders' Equity ......................... 15,306,343 15,411,749
------------ ------------
Total Liabilities and Shareholders' Equity ......... $ 15,706,823 $ 15,924,368
============ ============

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

F-4

HOMEWOOD SUITES ACQUISITION HOTELS

COMBINED STATEMENTS OF SHAREHOLDERS' EQUITY

TOTAL
CONTRIBUTED RETAINED SHAREHOLDERS'
CAPITAL EARNINGS EQUITY
--------------- ------------- --------------

Balances, January 1, 1998 ........... $ 6,640,591 $ 7,475,355 $ 14,115,946
Net Income .......................... -- 2,632,931 2,632,931
Capital Distributions, Net .......... (1,337,128) -- (1,337,128)
------------ ----------- ------------
Balances, December 31, 1998 ......... 5,303,463 10,108,286 15,411,749
Net Income .......................... -- 2,833,588 2,833,588
Capital Distributions, Net .......... (2,938,994) -- (2,938,994)
------------ ----------- ------------
Balances, December 31, 1999 ......... $ 2,364,469 $12,941,874 $ 15,306,343
============ =========== ============

COMBINED INCOME STATEMENTS

YEARS ENDED DECEMBER 31,
---------------------------
1999 1998
------------- -------------

GROSS OPERATING REVENUE
Suite Revenue ........................................................... $7,419,101 $7,173,338
Other Customer Revenue .................................................. 398,812 437,197
---------- ----------
Total Revenue ......................................................... 7,817,913 7,610,535
---------- ----------
EXPENSES
Property and Operating .................................................. 2,491,119 2,400,823
General and Administrative .............................................. 105,719 95,694
Advertising and Promotion ............................................... 328,070 325,398
Utilities ............................................................... 270,080 291,153
Real Estate and Personal Property Taxes, and Property Insurance ......... 444,162 338,054
Land Rent ............................................................... 100,000 100,000
Depreciation Expense .................................................... 714,411 1,003,928
Franchise and Management Fees ........................................... 530,764 286,933
Pre-Opening Expenses .................................................... -- 135,621
---------- ----------
Total Expenses ........................................................ 4,984,325 4,977,604
---------- ----------
Net Income ............................................................ $2,833,588 $2,632,931
========== ==========

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

F-5

HOMEWOOD SUITES ACQUISITION HOTELS

COMBINED STATEMENTS OF CASH FLOWS

YEARS ENDED DECEMBER 31,
-------------------------------
1999 1998
--------------- ---------------

CASH FLOWS FROM (TO) OPERATING ACTIVITIES
Net Income .......................................... $ 2,833,588 $ 2,632,931
------------ ------------
Adjustments to reconcile net income to net cash
Provided by operating activities:
Depreciation ...................................... 714,411 1,003,928
Change In:
Accounts receivable .............................. (49,899) (96,807)
Prepaids and other current assets ................ (69,652) (15,751)
Accounts payable ................................. (27,249) (491,258)
Accrued taxes .................................... (81,081) 158,299
Accrued expenses - other ......................... (3,809) 46,124
------------ ------------
Net adjustments ...................................... 482,721 604,535
------------ ------------
Net cash flows from operating activities ....... 3,316,309 3,237,466
------------ ------------
CASH FLOWS TO FINANCING ACTIVITIES
Capital distributions, net .......................... (3,227,375) (3,139,575)
------------ ------------
Net increase in cash .............................. 88,934 97,891
Cash, beginning of year ........................... 142,363 44,472
------------ ------------
Cash, end of year ................................. $ 231,297 $ 142,363
============ ============

SUPPLEMENTAL DISCLOSURES:

NONCASH FINANCING AND INVESTING ACTIVITIES

Year Ended December 31, 1999

Investments in hotel properties in the amount of $288,381 were financed
with capital contributions.

Year Ended December 31, 1998

Investments in hotel properties in the amount of $1,802,447 were financed
with capital contributions.

Construction in progress in the amount of $7,510,072 was reclassified to
investment in hotel properties.

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

F-6

HOMEWOOD SUITES ACQUISITION HOTELS

NOTES TO THE COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998

NOTE 1 -- ORGANIZATION AND BASIS OF PRESENTATION

The Homewood Suites Acquisition Hotels (the Hotels) consist of the
following:

PROPERTY HOTEL LOCATION DATE OPENED # OF SUITES
- ----------------------------- ----------------------- --------------- ------------

Boulder Boulder, Colorado January, 1991 112
Philadelphia/Great Valley Malvern, Pennsylvania January, 1998 123

Economic conditions in the localities in which the individual hotels are
located impact revenues and the ability to collect accounts receivable.

The Hotels specialize in providing extended stay lodging to business or
leisure travelers. While customers may rent rooms for a night, terms of up to a
month or longer are available. Services offered, which are particularly
attractive to the extended stay traveler, include laundry services, 24 hour
on-site convenience stores and grocery shopping services.

The Hotels were owned and managed by affiliates of Promus Hotels, Inc.
(the Owner) through November 30, 1999. Promus Hotels, Inc. and the affiliated
entities owning the Hotels were acquired by Hilton Hotels Corporation effective
November 30, 1999. Hilton Hotels Corporation has managed the Hotels since that
date. The accompanying combined financial statements of the Hotels have been
presented on a combined basis because the Owner sold the Philadelphia/Great
Valley Hotel to an affiliate of Apple Suites, Inc. on May 8, 2000 and has a
contract pending to sell the Boulder Hotel property to an affiliate of Apple
Suites, Inc. Apple Suites, Inc., is a real estate investment trust established
to acquire equity interests in hotel properties. The statements have been
prepared pursuant to the rules and regulations of the Securities and Exchange
Commission for inclusion in a filing by Apple Suites, Inc.

The corporate owner pays income taxes on taxable income of the company as
a whole and does not allocate income taxes to individual properties.
Accordingly, the combined financial statements have been presented on a pretax
basis.

NOTE 2 -- SIGNIFICANT ACCOUNTING POLICIES

Property -- The Hotel properties are recorded at cost. Depreciation
through August 1999 has been recorded straight-line using the following lives:

LIFE
------------

Land Improvements .......................... 5-12 Years
Buildings and Improvements ................. 15-35 Years
Furniture, Fixtures and Equipment .......... 3-10 Years

F-7

HOMEWOOD SUITES ACQUISITION HOTELS

NOTES TO THE COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998 - (CONTINUED)
NOTE 2 -- SIGNIFICANT ACCOUNTING POLICIES - (CONTINUED)

properties under construction. At the point construction is completed and the
Hotels are ready to be placed in service, the costs are reclassified to
investment in Hotel properties for financial statement presentation.

Annually, management of the hotels reviews the carrying value and
remaining depreciable lives of the Hotel properties and related assets. During
1999, the Owner identified the Philadelphia/Great Valley and Boulder Hotel
properties as held for disposal. In accordance with Statement of Financial
Accounting Standards number 121, management discontinued depreciating the
assets at this time. Accordingly, the 1999 income statement includes only eight
months depreciation. Sales proceeds received from the sale of the
Philadelphia/Great Valley property on May 8, 2000 and anticipated sales
proceeds for the pending sale of the Boulder Hotel property both exceed the net
carrying values of the properties reflected in these financial statements.

Cash -- Cash includes all highly liquid investments with a maturity date
of three months or less when purchased.

Advertising -- Advertising costs are expensed in the period incurred.

Pre-Opening Expenses -- Pre-opening expenses represent operating expenses
incurred prior to initial opening of the hotels. In 1998, pre-opening expenses
of $135,621 were expensed as incurred for the Philadelphia/Great Valley hotel.

NOTE 3 -- RELATED PARTY TRANSACTIONS

During the years ended December 31, 1999 and 1998, the following owner
related fees were expensed.

F-8

HOMEWOOD SUITES ACQUISITION HOTELS

NOTES TO THE COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998 - (CONTINUED)
NOTE 3 -- RELATED PARTY TRANSACTIONS - (CONTINUED)

TOTAL EXPENSE
-----------------------
FEE TYPE BASIS FOR DETERMINATION 1999 1998
- ------------------------------------ ---------------------------- ---------- ----------

Accounting Fees .................... $1,000 per hotel per month $ 24,000 $ 24,000
Corporate Advertising,
Training and Reservations ......... 4% of Net Suite Revenue $296,764 $286,934
Franchise Fees ..................... 4% of Net Suite Revenue $296,764 $286,933
Management Fees .................... 3% of Total Revenue $234,000 $ --

The acquisition cost of the properties and related furnishings and
equipment was financed by the Owner. The Owner allocated interest to each
property on monies advanced to fund the construction costs. The interest costs
have been capitalized and depreciated in accordance with the Hotels' normal
depreciation policy. Interest capitalized and included in the cost basis of the
hotels totaled $242,065 in 1998.

On most property and equipment purchases, excluding base hotel
construction contracts, the following fees paid to the Owner have been
capitalized:

Purchase Fee -- 3.0% to 4.0% of Asset Cost
Project Management Fee -- 4.0% to 4.5% of labor portion of capitalized
asset costs

Each Hotel maintains a depository bank account into which customer
revenues have been deposited. The bulk of each Hotel's operating expenditures
are paid through the Owner's corporate accounts. Funds are transferred from the
Hotel's depository bank accounts to the Owner periodically. The transfers to
the Owner and expenditures made on behalf of the Hotels by the Owner are
accounted for through various intercompany accounts. No interest has been
charged on these intercompany advances from ongoing operations. There is no
intention to repay any advances to or from the Owner. Accordingly, the net
amounts have been included in shareholders' equity with 1999 and 1998
intercompany/intracompany transfers being reflected as net capital
distributions.

NOTE 4 -- LAND LEASE

The land on which the Philadelphia/ Great Valley hotel is located is
leased. The lease is for a 30 year term beginning May 1, 1997 and includes
three 10 year renewal options. Scheduled rent is $100,000 annually, payable in
monthly installments. Rent can be increased but not decreased, every 5 years by
the CPI change, not to exceed 15%.

Below are scheduled minimum lease payments for each of the next 5 years.

2000 ................. $100,000
2001 ................. 100,000
2002 ................. 100,000
2003 ................. 100,000
2004 ................. 100,000
--------
$500,000
========

F-9

HOMEWOOD SUITES ACQUISITION HOTELS

NOTES TO THE COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998 - (CONTINUED)
NOTE 4 -- LAND LEASE - (CONTINUED)

Rent expense for each of the years ended December 31, totaled $100,000.

NOTE 5 -- CONCENTRATIONS OF CREDIT RISK

At December 31, 1999, financial instruments that subject the Company to
concentrations of credit risk consist of cash deposits in a single financial
institution which exceed maximum amounts insurable by FDIC by $52,977.

F-10

HOMEWOOD SUITES ACQUISITION HOTELS

COMBINED BALANCE SHEET (UNAUDITED)

MARCH 31, 2000
---------------

ASSETS
CURRENT ASSETS
Cash ................................................. $ 154,617
Accounts receivable, net ............................. 334,193
Prepaids and other ................................... 37,509
------------
Total current assets ............................... 526,319
------------
INVESTMENT IN HOTEL PROPERTIES
Land and improvements ................................ 1,911,918
Buildings and Improvements ........................... 13,078,590
Furniture, fixtures and equipment .................... 4,362,527
------------
Total .............................................. 19,353,035
Less: Accumulated depreciation ....................... (4,170,565)
------------
Net investment in hotel properties ................. 15,182,470
------------
Total assets ....................................... $ 15,708,789
============
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable ..................................... $ 1,679
Accrued taxes ........................................ 223,311
Accrued expenses -- Other ............................ 101,583
------------
Total current liabilities .......................... 326,573
------------
SHAREHOLDERS' EQUITY
Contributed capital ................................... 1,595,274
Retained earnings .................................... 13,786,942
------------
Total Shareholders' Equity ......................... 15,382,216
------------
Total Liabilities and Shareholders' Equity ......... $ 15,708,789
============

The accompanying notes are an integral part of this financial statement.

F-11

HOMEWOOD SUITES ACQUISITION HOTELS

COMBINED STATEMENT OF SHAREHOLDERS' EQUITY
FOR THE PERIOD JANUARY 1, 2000 THROUGH MARCH 31, 2000 (UNAUDITED)

TOTAL
CONTRIBUTED RETAINED SHAREHOLDERS'
CAPITAL EARNINGS EQUITY
------------- -------------- --------------

Balances, January 1, 2000 .......... $2,364,469 $12,941,874 $15,306,343
Net Income ......................... -- 845,068 845,068
Capital Distributions, Net ......... (769,195) -- (769,195)
---------- ----------- -----------
Balances, March 31, 2000 ........... $1,595,274 $13,786,942 $15,382,216
========== =========== ===========

COMBINED INCOME STATEMENT

FOR THE PERIOD JANUARY 1, 2000 THROUGH MARCH 31, 2000 (UNAUDITED)

GROSS OPERATING REVENUE
Suite Revenue ........................................................... $1,841,936
Other Customer Revenue .................................................. 93,150
----------
Total Revenue ......................................................... 1,935,086
----------
EXPENSES
Property and Operating .................................................. 633,274
General and Administrative .............................................. 33,287
Advertising and Promotion ............................................... 82,781
Utilities ............................................................... 65,361
Real Estate and Personal Property Taxes, and Property Insurance ......... 118,585
Land Rent ............................................................... 25,000
Franchise and Management Fees ........................................... 131,730
----------
Total Expenses ........................................................ 1,090,018
----------
Net Income ............................................................ $ 845,068
==========

The accompanying notes are an integral part of this financial statement.

F-12

HOMEWOOD SUITES ACQUISITION HOTELS

COMBINED STATEMENT OF CASH FLOWS
FOR THE PERIOD JANUARY 1, 2000 THROUGH MARCH 31, 2000 (UNAUDITED)

CASH FLOWS FROM (TO) OPERATING ACTIVITIES
Net Income ...................................................................... $ 845,068
----------
Adjustments to reconcile net income to net cash provided by operating activities:
Change in:
Accounts receivable .......................................................... (126,540)
Prepaids and other current assets ............................................ 47,894
Accounts payable ............................................................. (15,425)
Accrued taxes ................................................................ (54,284)
Accrued expenses - other ..................................................... (4,198)
----------
Net Adjustments .................................................................. (152,553)
----------
Net cash flows from operating activities ..................................... 692,515
CASH FLOWS TO FINANCING ACTIVITIES:
Net equity distributions ........................................................ (769,195)
----------
Net decrease in cash ......................................................... (76,680)
Cash, January 1, 2000 ........................................................ 231,297
----------
Cash, March 31, 2000 ......................................................... $ 154,617
==========

The accompanying notes are an integral part of this financial statement.

F-13

HOMEWOOD SUITES ACQUISITION HOTELS

NOTES TO THE COMBINED FINANCIAL STATEMENTS
FOR THE PERIOD JANUARY 1, 2000 THROUGH MARCH 31, 2000 (UNAUDITED)

NOTE 1 -- ORGANIZATION AND BASIS OF PRESENTATION

The Homewood Suites Acquisition Hotels (the Hotels) consist of the
following:

PROPERTY HOTEL LOCATION DATE OPENED # OF SUITES
- -------------------------------- ----------------------- --------------- ------------

Boulder Boulder, Colorado January, 1991 112
Philadelphia/Great Valley Malvern, Pennsylvania January, 1998 123

Economic conditions in the localities in which the individual hotels are
located impact revenues and the ability to collect accounts receivable.

The Hotels specialize in providing extended stay lodging to business or
leisure travelers. While customers may rent rooms for a night, terms of up to a
month or longer are available. Services offered, which are particularly
attractive to the extended stay traveler, include laundry services, 24 hour
on-site convenience stores and grocery shopping services.

The Hotels have been owned and managed by Hilton Hotels Corporation (the
Owner) throughout the financial statement period. The accompanying combined
financial statements of the Hotels have been presented on a combined basis
because the Owner sold the Philadelphia/Great Valley Hotel to an affiliate of
Apple Suites, Inc. on May 8, 2000 and has a contract pending to sell the
Boulder Hotel property to an affiliate of Apple Suites, Inc. Apple Suites, Inc.
is a real estate investment trust established to acquire equity interests in
hotel properties. The statements have been prepared pursuant to the rules and
regulations of the Securities and Exchange Commission for inclusion in a filing
by Apple Suites, Inc.

The corporate owner pays income taxes on taxable income of the company as
a whole and does not allocate income taxes to individual properties.
Accordingly, the combined financial statements have been presented on a pretax
basis.

NOTE 2 -- SIGNIFICANT ACCOUNTING POLICIES

Property -- The Hotel properties are recorded at cost. Depreciation
through August, 1999 has been recorded straight-line using the following lives:

LIFE
------------

Land Improvements .......................... 5-12 Years
Buildings and Improvements ................. 15-35 Years
Furniture, Fixtures and Equipment .......... 3-10 Years

F-14

HOMEWOOD SUITES ACQUISITION HOTELS

NOTES TO THE COMBINED FINANCIAL STATEMENTS
FOR THE PERIOD JANUARY 1, 2000 THROUGH MARCH 31, 2000 (UNAUDITED) - (CONTINUED)

NOTE 2 -- SIGNIFICANT ACCOUNTING POLICIES - (CONTINUED)

Annually, management of the hotels reviews the carrying value and
remaining depreciable lives of the Hotel properties and related assets. During
1999, the Owner identified the Philadelphia/Great Valley and Boulder Hotel
properties as held for disposal. In accordance with Statement of Financial
Accounting Standards number 121, management discontinued depreciating the
assets at this time. Accordingly, the January 1, 2000 through March 31, 2000
income statement does not include depreciation expense. Sales proceeds received
from the sale of the Philadelphia/Great Valley property on May 8, 2000 and
anticipated sales proceeds for the pending sale of the Boulder Hotel property
both exceed the net carrying values of the properties reflected in these
financial statements.

Cash -- Cash includes all highly liquid investments with a maturity date
of three months or less when purchased.

Advertising -- Advertising costs are expensed in the period incurred.

F-15

HOMEWOOD SUITES ACQUISITION HOTELS

NOTES TO THE COMBINED FINANCIAL STATEMENTS
FOR THE PERIOD JANUARY 1, 2000 THROUGH MARCH 31, 2000 (UNAUDITED) - (CONTINUED
)

NOTE 3 -- RELATED PARTY TRANSACTIONS

During the period January 1, 2000 through March 31, 2000, the following
Owner related fees were expensed.

FEE TYPE BASIS FOR DETERMINATION TOTAL EXPENSE
- ------------------------------- ---------------------------- --------------

Accounting Fees ............... $1,000 per hotel per month $ 6,000
Corporate Advertising, Training
and Reservations ............. 4% of net suite revenue 73,677
Franchise Fees ................ 4% of net suite revenue 73,677
Management Fees ............... 3% of net suite revenue 58,053

On most property and equipment purchases, excluding base hotel
construction contracts, the following fees paid to Hilton Hotels Corporation
have been capitalized:

Purchase Fee -- 4% of Asset Cost
Project Management Fee -- 4.0 % to 4.5% of labor portion of capitalized
asset costs

Each Hotel maintains a depository bank account into which customer
revenues have been deposited. The bulk of each Hotel's operating expenditures
are paid through the Owner's corporate accounts. Funds are transferred from the
Hotel's depository bank accounts to the Owner periodically. The transfers to
the Owner and expenditures made on behalf of the Hotels by the Owner are
accounted for through various intercompany accounts. No interest has been
charged on these intercompany advances from ongoing operations. There is no
intention to repay any advances to or from the Owner. Accordingly, the net
amounts have been included in shareholders' equity with
intercompany/intracompany transfers being reflected as net capital
distributions.

F-16

HOMEWOOD SUITES ACQUISITION HOTELS

NOTES TO THE COMBINED FINANCIAL STATEMENTS
FOR THE PERIOD JANUARY 1, 2000 THROUGH MARCH 31, 2000 (UNAUDITED) - (CONTINUED
)

NOTE 4 -- LAND LEASE

The land on which the Philadelphia/Great Valley hotel is located is
leased. The lease is for a 30 year term beginning May 1, 1997 and includes
three 10 year renewal options. Scheduled rent is $100,000 annually, payable in
monthly installments. Rent can be increased but not decreased, every 5 years by
the CPI change, not be exceed 15%.

Below are scheduled minimum lease payments for each of the next 5 years.

2000 ................. $100,000
2001 ................. 100,000
2002 ................. 100,000
2003 ................. 100,000
2004 ................. 100,000
--------
$500,000
========

Rent expense for the period January 1, 2000 through March 31, 2000 totaled
$25,000.

F-17

APPLE SUITES, INC.

PRO FORMA CONDENSED CONSOLIDATED
BALANCE SHEET AS OF MARCH 31, 2000 (UNAUDITED)

The following unaudited Pro Forma Condensed Consolidated Balance Sheet of
Apple Suites, Inc. (the "Company") is presented as if the acquisition of the
Homewood Suites -- Malvern, PA hotel on May 8, 2000 and the probable
acquisition of the Homewood Suites -- Boulder, CO hotel from Promus Hotels,
Inc. or its affiliates ("Promus"), which is now a wholly-owned subsidiary of
Hilton Hotels Corporation, had occurred on March 31, 2000. See Note A for
individual hotel details. Such information is based in part upon the historical
Consolidated Balance Sheet of the Company as of March 31, 2000. In management's
opinion, all adjustments necessary to reflect the effects of these transactions
have been made.

The following unaudited Pro Forma Condensed Consolidated Balance Sheet is
not necessarily indicative of what the actual financial position would have
been assuming such transactions had been completed as of March 31, 2000, nor
does it purport to represent the future financial position of the Company.

HOMEWOOD
SUITES
HISTORICAL ACQUISITION
BALANCE (A IV) TOTAL
SHEET ADJUSTMENTS PRO FORMA
---------------- ---------------------- ---------------

ASSETS
Investment in hotel properties ......................... $ 93,450,963 $ 30,981,480 (A) $124,432,443
Cash and cash equivalents .............................. 3,781,922 (2,772,886)(D) 1,009,036
Restricted cash ........................................ 696,869 -- 696,869
Rent receivable from Apple Suites Management, Inc. ..... 2,641,141 -- 2,641,141
Notes and other receivable from Apple Suites
Management, Inc. ..................................... 694,766 -- 694,766
Capital improvement reserve ............................ 753,927 -- 753,927
Prepaid expenses ....................................... 263,781 -- 263,781
Other assets ........................................... 531,470 -- 531,470
------------ ------------- ------------
Total Assets ......................................... $102,814,839 $ 28,208,594 $131,023,433
============ ============= ============
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES
Notes payable-secured .................................. $ 68,569,500 $ 22,780,500 (B) $ 91,350,000
Accounts payable ....................................... 161,258 -- 161,258
Accounts payable-affiliate ............................. 531,285 -- 531,285
Distributions payable .................................. -- -- --
Accrued expenses ....................................... 554,977 -- 554,977
------------ ------------- ------------
Total Liabilities .................................... 69,817,020 22,780,500 92,597,520
SHAREHOLDERS' EQUITY
Common stock, no par value, authorized 200,000,000
shares; issued and outstanding 3,922,923 shares ...... 32,985,016 5,428,094 (C) 38,413,110
Class B convertible stock, no par value, authorized
240,000 shares; issued and outstanding 240,000 shares. 24,000 -- 24,000
Distributions greater than net income .................. (11,197) -- (11,197)
------------ ------------- ------------
Total Shareholders' Equity ........................... 32,997,819 5,428,094 38,425,913
------------ ------------- ------------
Total Liabilities and Shareholders' Equity ........... $102,814,839 $ 28,208,594 $131,023,433
============ ============= ============

F-18

NOTES TO PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET (UNAUDITED)
(A) Increase represents the purchase of 2 hotels, including the 2% acquisition
fee payable to Apple Suites Realty Group, Inc. The hotels acquired are as
follows:

DATE
COMMENCED
PROPERTY OPERATIONS
----------------------------------------- --------------

IV Homewood Suites -- Malvern, PA .......... January 1998
IV Homewood Suites -- Boulder, CO .......... January 1991
- --------------------------------------------------------------

2%
DATE PURCHASE ACQUISITION DEBT
ACQUIRED PRICE FEE TOTAL INCURRED
------------- -------------- ------------- -------------- --------------

IV May 8, 2000 15,489,000 309,780 15,798,780 11,616,750
IV PENDING 14,885,000 297,700 15,182,700 11,163,750
- ------------------------------------------------------------------------------

Total $30,374,000 $607,480 $30,981,480 $22,780,500

(B) Represents the debt incurred at acquisition. The notes bear interest of
8.5% per annum. The maturity date for the one note in the amount of
$11,616,750 is May, 2001, the maturity date for the second note in the
amount of $11,163,750 will be one year from the date of purchase.

(C) Increase to common stock to reflect the net proceeds from the sale of
606,491 common shares from the Company's continuous offering, issued
subsequent to March 31, 2000.

(D) Reflects the use of cash on hand to purchase the hotels.

F-19

APPLE SUITES, INC.

PRO FORMA CONDENSED CONSOLIDATED
STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1999 AND
THE THREE MONTHS ENDED MARCH 31, 2000 (UNAUDITED)

The following unaudited Pro Forma Condensed Consolidated Statements of
Operations of the Company are presented as if the acquisition and pending
acquisition of the Homewood Suites hotels from Promus Hotels, Inc. or its
affiliates ("Promus"), which is now a wholly-owned subsidiary of Hilton Hotels
Corporation, had occurred at the beginning of the periods presented for the
respective periods prior to acquisition by the Company, and all of the hotels
had been leased to Apple Suites Management, Inc. or its subsidiary (the
"Lessee") pursuant to the master hotel lease agreements. Such pro forma
information is based in part upon the Consolidated Statements of Operations of
the Company, the Pro Forma Statements of Operations of the Lessee and the
historical Statements of Operations of the acquired hotels. In management's
opinion, all adjustments necessary to reflect the effects of these transactions
have been made.

The following unaudited Pro Forma Condensed Consolidated Statements of
Operations for the periods presented are not necessarily indicative of what
actual results of operations of the Company would have been assuming such
transactions had been completed as of the beginning of the periods presented,
nor does it purport to represent the results of operations for future periods.
The lease agreements between the Company and the Lessee were based on economic
conditions existing at the time of acquisition. Application of these agreements
to periods prior to the acquisition may not be meaningful.

The Company's historical Statement of Operations for the year ended
December 31, 1999 reflect only four months of operations, as the first four
hotels were purchased on September 1, 1999.

FOR THE YEAR ENDED DECEMBER 31, 1999 (UNAUDITED)

HISTORICAL
STATEMENT OF
OPERATIONS
--------------

Revenue:
Lease revenue ...................... $ 2,518,031
Interest income and other
revenue ........................... 169,086
Expenses:
Taxes, insurance and other ......... 426,592
General and administrative ......... 153,807
Depreciation of real estate
owned ............................. 496,209
Interest ........................... 1,245,044
Rent expense ....................... --
-----------
Total expenses ...................... 2,321,652
-----------
Net income .......................... $ 365,465
===========
Earnings per common share:
Basic and Diluted ................... $ 0.14
===========
Basic and diluted weighted average
common shares outstanding .......... 2,648,196
===========

PRO FORMA ADJUSTMENTS
-------------------------------------------------------------------------------
HOMEWOOD HOMEWOOD HOMEWOOD HOMEWOOD
SUITES SUITES SUITES SUITES
ACQUISITION ACQUISITION ACQUISITION ACQUISITION
(A I) (A II) (A III) (A IV)
------------------- ------------------- ------------------- -------------------

Revenue:
Lease revenue ...................... $ 4,162,371(B) $ 5,480,272(B) $ 1,035,841(B) $ 3,487,608(B)
Interest income and other
revenue ........................... -- -- -- --
Expenses:
Taxes, insurance and other ......... 822,599(C) 647,225(C) 93,884(C) 444,162(C)
General and administrative ......... 247,028(D) 251,015(D) 230,037(D) 246,594(D)
Depreciation of real estate
owned ............................. 656,623(E) 821,580(E) 140,664(E) 688,654(E)
Interest ........................... 1,977,313(F) 2,353,863(F) 372,683(F) 1,936,343(F)
Rent expense ....................... -- -- -- 100,000(H)
------------ ------------ ------------ ------------
Total expenses ...................... 3,703,563 4,073,683 837,268 3,415,753
------------ ------------ ------------ ------------
Net income .......................... 458,808 1,406,589 198,573 71,855
============ ============ ============ ============
Earnings per common share:
Basic and Diluted ...................
Basic and diluted weighted average
common shares outstanding .......... --(G) 604,857(G) 176,360(G) 916,311(G)

TOTAL
PRO FORMA
----------------

Revenue:
Lease revenue ...................... $ 16,684,123
Interest income and other
revenue ........................... 169,086
Expenses:
Taxes, insurance and other ......... 2,434,462
General and administrative ......... 1,128,481
Depreciation of real estate
owned ............................. 2,803,730
Interest ........................... 7,885,246
Rent expense ....................... 100,000
------------
Total expenses ...................... 14,351,919
------------
Net income .......................... 2,501,290
============
Earnings per common share:
Basic and Diluted ................... $ 0.58
============
Basic and diluted weighted average
common shares outstanding .......... 4,345,724
============

F-20

APPLE SUITES, INC.

PRO FORMA CONDENSED CONSOLIDATED
STATEMENTS OF OPERATIONS -- (CONTINUED)

FOR THE THREE MONTHS ENDED MARCH 31, 2000 (UNAUDITED)

PRO FORMA ADJUSTMENTS
----------------------
HOMEWOOD
HISTORICAL SUITES
STATEMENT OF ACQUISITION TOTAL
OPERATIONS (A IV) PRO FORMA
-------------- ---------------------- ---------------

Revenue:
Lease revenue ............................. $ 3,406,678 $ 861,236 (B) $ 4,267,914
Interest income and other revenue ......... 48,007 (19,919) (I) 28,088
Expenses:
Taxes, insurance and other ................ 691,575 118,585 (C) 810,160
General and administrative ................ 254,736 5,126 (D) 259,862
Depreciation of real estate owned ......... 549,201 244,159 (E) 793,360
Interest .................................. 1,453,110 484,086 (F) 1,937,196
Rent expense .............................. -- 25,000 (H) 25,000
----------- ----------- -----------
Total expenses ............................. 2,948,622 876,956 3,825,578
Net income ................................. $ 506,063 (35,639) $ 470,424
=========== =========== ===========
Earnings per common share:
Basic and Diluted .......................... $ 0.14 $ 0.11
=========== ===========
Basic and diluted weighted average common
shares outstanding ........................ 3,607,458 738,266 (G) 4,345,724
=========== =========== ===========

F-21

APPLE SUITES, INC.

NOTES TO PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)

(A) Represents results of operations for the hotels acquired on a pro forma
basis as if the hotels were owned by the Company at the beginning of the
periods presented for the respective periods prior to acquisition by the
Company. See below.

DATE COMMENCED DATE
PROPERTY OPERATIONS ACQUIRED
--------------------------------------------- ---------------- ------------------

I Homewood Suites -- Dallas, TX ............... 1990 September 1, 1999
I Homewood Suites -- Las Colinas, TX .......... 1990 September 1, 1999
I Homewood Suites -- Plano, TX ................ 1997 September 1, 1999
I Homewood Suites -- Richmond, VA ............. May 1998 September 1, 1999
I Homewood Suites -- Atlanta, GA .............. 1990 October 1, 1999
- --------------------------------------------------------------------------------

II Homewood Suites -- Clearwater, FL ........... February 1998 November 24, 1999
II Homewood Suites -- Salt Lake, UT ............ 1996 November 24, 1999
II Homewood Suites -- Atlanta, GA .............. 1990 November 24, 1999
II Homewood Suites -- Detroit, MI .............. 1990 November 24, 1999
II Homewood Suites -- Baltimore, MD ............ March 1998 November 24, 1999
- --------------------------------------------------------------------------------

III Homewood Suites -- Jackson, MS .............. February 1997 December 22, 1999
- --------------------------------------------------------------------------------

IV Homewood Suites -- Malvern, PA .............. January 1998 May 8, 2000
IV Homewood Suites -- Boulder, CO .............. January 1991 PENDING

(B) Represents lease payment from the Lessee to the Company calculated on a pro
forma basis by applying the rent provisions in the master hotel lease
agreement to the historical room revenue of the hotels as if the beginning
of the period was the beginning of the lease year. The base rent and the
percentage rent will be calculated and paid based on the terms of the
lease agreement.

(C) Represents historical real estate and personal property taxes and insurance
which will be paid by the Company pursuant to the master hotel lease
agreement. Such amounts are the historical amounts paid by the respective
hotels.

(D) Represents the advisory fee of .25% of accumulated capital contributions
under the "best efforts" offering for the period of time not owned by the
Company (for the year ended December 31, 1999 and the three months ended
March 31, 2000) plus and anticipated legal and accounting fees, employee
costs, salaries and other costs of operating as a public company (for the
year ended December 31, 1999).

(E) Represents the depreciation on the hotels acquired based on the purchase
price, excluding amounts allocated to land, of $37,450,320 for the first
acquisition group, $34,954,481 for the second acquisition group,
$5,485,886 for the third acquisition group, and $30,500,611 for the fourth
acquisition group for the period of time not owned by the Company. The
weighted average life of the depreciable assets was 39 years. The
estimated useful lives are based on management's knowledge of the
properties and the hotel industry in general.

(F) 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 8.5% on mortgage debt that was incurred at acquisition
of $33,975,000 for the first acquisition group, $30,210,000 for the second
acquisition group, $4,384,500 for the third acquisition group, and
$22,780,500 for the fourth acquisition group.

(G) 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 $9 per share (net $8.06 per share) for the
first $15,000,000 and $10 per share (net $8.95 per share) for the
remainder.

(H) Represents rent expense on the land lease at the Malvern, PA hotel. The
Company accounts for the land lease as a operating lease.

(I) Represents reduction in interest income associated with the $1.6 million
of cash used to purchase hotels at an interest rate of 5%.

F-22

APPLE SUITES MANAGEMENT, INC.

PRO FORMA CONDENSED CONSOLIDATED
STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1999
AND THE THREE MONTHS ENDED MARCH 31, 2000 (UNAUDITED)

The following unaudited Pro Forma Condensed Consolidated Statements of
Operations of Apple Suites Management, Inc. (the "Lessee") are presented as if
the hotels purchased or to be purchased from Promus Hotels, Inc. or its
affiliates ("Promus"), which is now a wholly-owned subsidiary of Hilton Hotels
Corporation, had been leased from Apple Suites, Inc. (the "Company") pursuant
to the master hotel lease agreements from the beginning of periods presented
for the respective periods prior to acquisition by the Company. Further, the
results of operations reflect the Management Agreement and License Agreement
entered into between Promus and the Lessee or an affiliate to operate the
acquired hotels. The lease agreements between the Company and the Lessee were
based on economic conditions existing at the time of acquisition. Application
of these agreements to periods prior to the acquisition may not be meaningful.
Such pro forma information is based in part upon the historical Consolidated
Statements of Operations of the Lessee and the Homewood Suites Hotels and
should be read in conjunction with such financials statement. In management's
opinion, all adjustments necessary to reflect the effects of these transactions
have been made.

The following unaudited Pro Forma Condensed Consolidated Statements of
Operations are not necessarily indicative of what the actual results of
operations of the Lessee would have been assuming such transactions had been
completed as of the beginning of the periods presented, nor do they purport to
represent the results of operations for future periods.

FOR THE YEAR ENDED DECEMBER 31, 1999 (UNAUDITED)

HOMEWOOD HOMEWOOD
HISTORICAL SUITES SUITES
STATEMENT OF ACQUISITIONS ACQUISITIONS
OPERATIONS (A I) (A II)
-------------- -------------- --------------

Revenues:
Suite revenue ...................... $5,335,925 $9,818,797 $12,082,374
Other income ....................... 335,150 560,096 709,240
Expenses:
Operating expenses ................. 1,656,540 3,794,204 4,870,096
General and administrative ......... 494,377 250,317 300,399

Advertising and promotion .......... 472,787 438,985 580,564

Utilities .......................... 199,907 354,113 551,359
Taxes and insurance ................ -- 822,599 647,225
Depreciation expense ............... -- 1,783,021 2,217,128
Franchise fees ..................... 213,437 392,757 483,295

Management fees .................... 226,136 311,275 383,599

Rent expense-Apple Suites, Inc. 2,518,031 -- --
Other .............................. 30,964 -- --
---------- ---------- -----------
Total expenses ...................... 5,812,179 8,147,271 10,033,665
Income before income tax ............ (141,104) 2,231,622 2,757,949
Income tax expense .................. -- -- --
---------- ---------- -----------
Net income .......................... $ (141,104) $2,231,622 $ 2,757,949
========== ========== ===========

HOMEWOOD HOMEWOOD
SUITES SUITES
ACQUISITION ACQUISITION PRO FORMA TOTAL
(A III) (A IV) ADJUSTMENTS PRO FORMA
------------- ------------- ----------------------- --------------

Revenues:
Suite revenue ...................... $2,230,952 $7,419,101 -- $36,887,149
Other income ....................... 168,438 398,812 -- 2,171,736
Expenses:
Operating expenses ................. 954,102 2,491,119 -- 13,766,061
General and administrative ......... 77,381 105,719 $ (131,000)(B)
50,000 (C) 1,147,193
Advertising and promotion .......... 112,902 328,070 (1,262,049)(D)
1,262,049 (E) 1,933,308
Utilities .......................... 75,639 270,079 -- 1,451,097
Taxes and insurance ................ 93,884 444,161 (2,007,869) (F) --
Depreciation expense ............... 426,986 714,411 (5,141,546)(G) --
Franchise fees ..................... 89,238 296,764 (1,262,049)(H)
1,262,049 (I) 1,475,491
Management fees .................... 71,982 234,000 (1,000,856)(J)
1,467,512 (K) 1,693,648
Rent expense-Apple Suites, Inc. -- -- 14,166,092 (L) 16,684,123
Other .............................. -- 100,000 (100,000)(M) 30,964
---------- ---------- --------------- -----------
Total expenses ...................... 1,902,114 4,984,323 7,302,333 38,181,885
Income before income tax ............ 497,276 2,833,590 (7,302,333) 877,000
Income tax expense .................. -- -- 350,800 (N) 350,800
---------- ---------- --------------- -----------
Net income .......................... $ 497,276 $2,833,590 $ (7,653,133) $ 526,200
========== ========== =============== ===========

F-23

APPLE SUITES MANAGEMENT, INC.

PRO FORMA CONDENSED CONSOLIDATED
STATEMENTS OF OPERATIONS -- (CONTINUED)

FOR THE THREE MONTHS ENDED MARCH 31, 2000 (UNAUDITED)

HOMEWOOD
HISTORICAL SUITES
STATEMENT OF ACQUISITION PRO FORMA TOTAL
OPERATIONS (A IV) ADJUSTMENTS PRO FORMA
-------------- ------------- ------------------ -------------

Revenues:
Suite revenue ........................... $7,682,355 $1,841,936 -- $9,524,291
Other income ............................ 420,816 93,150 -- 513,966
Expenses:
Operating expenses ...................... 2,295,392 633,274 -- 2,928,666
General and administrative .............. 670,943 33,287 $ (6,000)(B)
12,500 (C) 710,730
Advertising and promotion ............... 662,647 82,781 (73,677)(D)
73,677 (E) 745,428
Utilities ............................... 283,263 65,361 -- 348,624
Taxes and insurance ..................... -- 118,585 (118,585)(F) --
Franchise fees .......................... 307,294 73,677 (73,677)(H)
73,677 (I) 380,971
Management fees ......................... 322,766 58,053 (58,053)(J)
83,403 (K) 406,169
Rent expense-Apple Suites, Inc. ......... 3,406,678 -- 861,236 (L) 4,267,914
Interest expense ........................ 15,275 -- -- 15,275
Other ................................... 96,212 25,000 (25,000)(M) 96,212
---------- ---------- ----------- ----------
Total expenses ........................... 8,060,470 1,090,018 749,501 9,899,989
Income before income tax ................. 42,701 845,068 (749,501) 138,268
Income tax expense ....................... -- -- 55,307 (N) 55,307
---------- ---------- ----------- ----------
Net income ............................... $ 42,701 $ 845,068 $ (804,808) $ 82,961
========== ========== =========== ==========

F-24

APPLE SUITES MANAGEMENT, INC.

NOTES TO PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)

(A) Represents results of operations for the hotels acquired on a pro forma
basis as if the hotels were leased and operated by the Lessee at the
beginning of the periods presented for the respective periods prior to
acquisition by the Company. See below.

DATE COMMENCED DATE
PROPERTY OPERATIONS ACQUIRED
--------------------------------------------- ---------------- ------------------

I Homewood Suites -- Dallas, TX ............... 1990 September 1, 1999
I Homewood Suites -- Las Colinas, TX .......... 1990 September 1, 1999
I Homewood Suites -- Plano, TX ................ 1997 September 1, 1999
I Homewood Suites -- Richmond. VA ............. May 1998 September 1, 1999
I Homewood Suites -- Atlanta, GA .............. 1990 October 1, 1999
- --------------------------------------------------------------------------------

III Homewood Suites -- Jackson, MS .............. February 1997 December 22, 1999
- --------------------------------------------------------------------------------

IV Homewood Suites -- Malvern, PA .............. January 1998 May 8, 2000
IV Homewood Suites -- Boulder, CO .............. January 1991 PENDING

(B) Represents the elimination of the historical accounting fee allocated to the hotels by the prior owner.
(C) Represents the addition of the anticipated legal and accounting and other expenses to operate as a stand alone
company.
(D) Represents the elimination of the historical advertising, training and reservation fee allocated to the hotels by the
prior owner.
(E) Represents the addition of the marketing fee to be incurred under the new license agreements. The marketing fee is
calculated
based on the terms of the license agreements which is 4% of suite revenue.
(F) Represents the elimination of the taxes and insurance. Under the terms of the lease these expenses will be incurred
by the
Company and, accordingly, are reflected in the Company's Pro Forma Condensed Consolidated Statement of Operations.
(G) Represents the elimination of the depreciation expense. This expense will be reflected in the Company's Pro Forma
Condensed Consolidated Statement of Operations.
(H) Represents the elimination of the historical franchise fee allocated to the hotels by the prior owner.
(I) Represents the addition of franchise fees to be incurred under the new license agreements. The franchise fees are
calculated
based on the terms of the agreement , which is 4% of suite revenue.
(J) Represents the elimination of the historical management fees allocated to the hotels by the prior owner.
(K) Represents the addition of the management fees of 4% of suite and other revenue and the accounting fee $1,000 per
hotel per
month to be incurred under the new management agreements for the period presented.
(L) Represents lease payments from the Lessee to the Company calculated on a pro forma basis by applying the rent
provisions
in the Percentage Leases to the historical room revenue of the hotels as if the beginning of the period was the
beginning of
the lease year. The base rent and the percentage rent will be calculated and paid based on the terms of the lease
agreement.
(M) Represents the elimination of rent expense for the land lease. The rent expense related to the land lease will be
reflected on
the Company's Pro Forma Condensed Consolidated Statement of Operations.
(N) Represents the combined state and federal income tax expense estimated on a combined rate of 40%.

F-25

SUPPLEMENT NO. 8 DATED SEPTEMBER 20, 2000
TO PROSPECTUS DATED AUGUST 3, 1999
APPLE SUITES, INC.

The following information supplements the prospectus of Apple Suites, Inc.
dated August 3, 1999 and is part of the prospectus. This Supplement No. 8
relates to matters that have changed or occurred since June 20, 2000. Other
important matters were discussed in Supplement No. 5 (which incorporated and
replaced all prior Supplements), Supplement No. 6 and Supplement No. 7.

PROSPECTIVE INVESTORS SHOULD CAREFULLY REVIEW THE PROSPECTUS, SUPPLEMENT
NO. 5, SUPPLEMENT NO. 6, SUPPLEMENT NO. 7 AND THIS SUPPLEMENT NO. 8.

TABLE OF CONTENTS FOR SUPPLEMENT NO. 8

Status of the Offering ........................................................ S - 2
Recent Developments ........................................................... S - 2
Our Properties ................................................................ S - 4
Refinancing ................................................................... S - 5
Effect on Subsidiaries ....................................................... S - 5
Overview of Loan Amounts ..................................................... S - 8
Long-Term Refinancing Notes .................................................. S - 8
Short-Term Refinancing Note .................................................. S - 9
Existing Financing for Hotels ................................................. S - 11
Advances for Working Capital .................................................. S - 11
Summary of Material Contracts ................................................. S - 12
Selected Financial Information ................................................ S - 13
Index to Financial Statements and Related Management's Discussion and Analysis F - 1

The prospectus and the supplements contain forward-looking statements
within the meaning of the federal securities laws which are intended to be
covered by the safe harbors created by those laws. These statements include our
plans and objectives for future operations, including plans and objectives
relating to future growth and availability of funds. These forward-looking
statements are based on current expectations that involve numerous risks and
uncertainties. Assumptions relating to these statements involve judgments with
respect to, among other things, the continuation of our offering of common
shares, future economic, competitive and market conditions and future business
decisions. All of these matters are difficult or impossible to predict
accurately and many of them are beyond our control. Although we believe the
assumptions underlying the forward-looking statements, and the forward-looking
statements themselves, are reasonable, any of the assumptions could be
inaccurate and, therefore, there can be no assurance that these forward-looking
statements will prove to be accurate. In light of the significant uncertainties
inherent in these forward-looking statements, the inclusion of this information
should not be regarded as a representation by us or any other person that our
objectives and plans, which we consider to be reasonable, will be achieved.

S-1

STATUS OF THE OFFERING

We completed the minimum offering of common shares at $9 per share on
August 23, 1999. We are continuing the offering at $10 per common share in
accordance with the prospectus.

As of September 8, 2000, we had closed on the following sales of our
common shares:

PROCEEDS NET OF SELLING
PRICE PER NUMBER OF GROSS COMMISSIONS AND MARKETING
COMMON SHARE COMMON SHARES SOLD PROCEEDS EXPENSE ALLOWANCE
- -------------- -------------------- -------------- --------------------------

$ 9 1,666,666.67 $15,000,000 $13,500,000
$ 10 4,328,994.33 43,289,943 38,960,949
------------ ----------- -----------
TOTAL 5,995,661.00 $58,289,943 $52,460,949
============ =========== ===========

We have used the net proceeds of our offering to acquire, by deed or
lease, a total of 13 extended-stay hotels, which collectively have 1,453
suites. We hold these hotels directly or through our wholly-owned subsidiaries.
For simplicity, we will refer to these hotels as "our hotels." All of our
hotels have franchises with Homewood Suites(Reg. TM) by Hilton, which is a
registered service mark of Hilton Hotels Corporation.

RECENT DEVELOPMENTS

As of June 30, 2000, we purchased a hotel in Boulder, Colorado, which is
described in Supplement No. 7. The total purchase price for the hotel was
$14,885,000. Of this total, $3,721,250 (representing 25%) was paid in cash at
closing and the balance of $11,163,750 (or 75%) is payable by us to Promus
Hotels, Inc., as the seller, under a secured promissory note having a maturity
date of April 28, 2001. The terms of the promissory note are described below in
another section.

On September 8, 2000, we refinanced much of our short-term debt with loans
from First Union National Bank in the aggregate amount of $60 million. These
loans are described below in other sections. We used these loans to repay the
four promissory notes we executed in 1999 when acquiring 11 hotels.

On September 8, 2000, in connection with these loans, we formed two new
wholly-owned subsidiaries, and transferred a total of eight of our hotels to
the new subsidiaries. Those eight hotels, together with our three hotels in
Texas, serve as collateral for the lender. In addition, three of our existing
subsidiaries have amended their organizational documents to achieve conformity
with the organizational documents for our new subsidiaries. These matters are
discussed in another section below.

Of the $60 million total, $50 million is repayable over 10 years. Thus,
the refinancing constitutes a change to our borrowing policy, as originally
described in the prospectus, because we will not hold our properties on an "all
cash" basis over the long-term.

When we acquired our first 13 hotels, we elected to finance a portion of
the purchase price of each hotel by delivering short-term notes to the seller.
The use of this short-term debt was consistent with our original borrowing
policy, which was to purchase our properties either on an all-cash basis or
using interim borrowings. The short-term seller financing was available on
attractive terms and allowed us to purchase a greater number of hotels at what
we believed to be more attractive prices than we could have purchased without
the use of interim financing. The intent, as expressed in previous Supplements
to the prospectus, was to repay the short-term seller financing with proceeds
from the offering of common shares.

As indicated in previous Supplements to the prospectus, when proceeds from
our offering of common shares were raised more slowly than was sufficient for
repayment of the short-term seller financing, we needed to refinance the
short-term seller debt. Our loans through First Union National Bank in the
aggregate amount of $60 million are designed to refinance the short-term seller
debt that we perceived as difficult to repay when due with proceeds from the
sale of our common shares. Since $50 million of the new debt, as described in
this Supplement No. 8, has a term of 10 years, it is not

S-2

interim financing, but is longer-term financing which may stay in place for the
full 10-year period. This financing is permitted by our organizational
documents and on terms and conditions deemed by management to be favorable and
in our best interests and those of our shareholders.

While our receipt of the loans from First Union National Bank, as
described in this Supplement No. 8, represents a departure from the objective
of purchasing all our properties on an all-cash basis or using interim
borrowings, we intend to pursue, on a going-forward basis, our objective of
purchasing properties either on an all-cash basis or using interim borrowings,
but only to the extent we can do so in accordance with the perceived best
interests of our company and its shareholders, the rate at which attractive
acquisitions become available, the rate at which we receive funds from the
offering of our common shares and other relevant factors. As stated in the
original prospectus, for the purpose of flexibility in operations, we may
borrow on such terms as we deem prudent, subject to the approval of the Board
of Directors and certain limitations imposed by our bylaws.

Debts secured by mortgages and other security interests involve certain
risks (described in the prospectus), including the possible loss of equity in
properties or assets through foreclosure following default on a loan.
Management believes both (1) that the rent we are receiving as a result of the
operations of the hotels is sufficient to make regularly-scheduled payments on
our existing debt, and (2) that our remaining short-term debt (including the
$10 million portion of the refinancing from First Union National Bank and the
remaining $23 million in the short-term seller financing) will either be repaid
from proceeds of our on-going offering of common shares or refinanced on terms
acceptable to us. However, there can be no complete assurance that either
expectation will prove true. If either proves untrue, we could lose some or all
of our properties or assets through foreclosure.

It is our objective ultimately to own assets with a cost basis of at least
$200 million and with permanent debt not exceeding approximately $50 million.
Management would characterize this debt level as "conservative," based upon
industry standards. There is no assurance that we will be able to acquire
assets at the indicated level or will be able to, or elect to, maintain
permanent debt at the indicated level. Thus, this should be viewed merely as an
investment objective and not a prediction or assurance as to the future course
of events concerning our operations.

[Remainder of Page is Intentionally Blank]

S-3

OUR PROPERTIES

(Map of United States shows general location of hotels)

[GRAPHIC OMITTED]

MONTH OF NAME TOTAL
PURCHASE OF HOTEL SUITES
- ------------ ------------------------------- -----------------

Sept. 1999 Dallas - Addison 120
Sept. 1999 Dallas - Irving/Las Colinas 136
Sept. 1999 North Dallas - Plano 99
Sept. 1999 Richmond - West End 123
Oct. 1999 Atlanta - Galleria/Cumberland 124
Nov. 1999 Atlanta - Peachtree 92
Nov. 1999 Baltimore - BWI Airport 147

MONTH OF NAME TOTAL
PURCHASE OF HOTEL SUITES
- ------------ ------------------------------- -----------------

Nov. 1999 Clearwater 112
Nov. 1999 Detroit - Warren 76
Nov. 1999 Salt Lake City - Midvale 98
Dec. 1999 Jackson-Ridgeland 91
May 2000 Philadelphia/Great Valley 123
June 2000 Boulder 112
---
TOTAL FOR ALL HOTELS 1,453
=====

S-4

REFINANCING

EFFECT ON SUBSIDIARIES

In connection with the refinancing provided by First Union National Bank,
and at its request, we formed two new wholly-owned subsidiaries that will
operate as "special purpose entities." These new subsidiaries were formed as
Virginia corporations under the following names: Apple Suites SPE I, Inc. and
Apple Suites SPE II, Inc.

The new subsidiaries were formed to receive loans from First Union
National Bank and to hold certain hotels, which will serve as collateral for
the lender. To qualify as special purpose entities, the new subsidiaries have
organizational documents that impose certain requirements on the subsidiaries
while the loans are outstanding. The organizational documents for three of our
existing subsidiaries were amended to include the same requirements. Those
subsidiaries are Apple Suites REIT Limited Partnership (which holds three
hotels in Texas), Apple Suites General, Inc. (the sole general partner) and
Apple Suites LP, Inc. (the sole limited partner).

In connection with these requirements, we are conducting an active search
for independent directors with respect to our four corporate subsidiaries.
Because these requirements only apply to our subsidiaries, no changes were made
to our organizational documents as a result of the refinancing.

We transferred a total of eight of our hotels to our newly formed
subsidiaries in connection with the refinancing. Those transfers are summarized
below:

NAME OF NEW SUBSIDIARY NAME OF HOTEL TRANSFERRED TO SUBSIDIARY

Apple Suites SPE I, Inc. Atlanta - Galleria/Cumberland
Jackson - Ridgeland
Salt Lake City - Midvale
Apple Suites SPE II, Inc. Atlanta - Peachtree
Baltimore - BWI Airport
Clearwater
Detroit - Warren
Richmond - West End

S-5

In connection with these transfers and at the request of the lender, a
separate hotel lease agreement for each hotel was executed by the appropriate
subsidiary, as lessor, and Apple Suites Management, Inc., as lessee. Our chief
executive officer, Glade M. Knight, is the sole shareholder of Apple Suites
Management, Inc., as well as its president and sole director. Each hotel lease
agreement is substantially similar to the master hotel lease agreement that
applied to all eight hotels prior to their transfer. The master hotel lease
agreement was described in detail in Supplement No. 5.

The following chart summarizes the ownership of our hotels as the result
of our refinancing and the related hotel transfers:

[Remainder of Page is Intentionally Blank]

S-6

APPLE SUITES, INC.
| 100% Ownership

_________________________________________________________________________________________________________
Apple Suites Apple Suites Apple Suites Apple Suites | Apple Suites
General, Inc. LP, Inc. SPE I, Inc. SPE II, Inc. | Pennsylvania
| | | | | Business Trust
| | | | | |
1% interest as 99% interest as | | | |
general partner limited partner | | | |
| | | | | |
| | | | | |
Apple Suites REIT | | | |
Limited Partnership | | | |
| | | | |
| | | | |
| | | | |
Holds 3 Hotels Holds 3 Hotels | Holds 1 Hotel |
Dallas-Addison (Texas) Atlanta-Galleria (Georgia) | Boulder |
Dallas-Irving/Las Corinas (Texas) Jackson-Ridgeland (Mississippi) | (Colorado) |
North Dallas-Plano (Texas) Salt Lake City-Midvale (Utah) | |
| |
Holds 5 Hotels Holds 1 Hotel
Atlanta-Peachtree (Georgia) Philadelphia/Great Valley
Baltimore-BWI Airport (Maryland) (Pennsylvania)
Clearwater (Florida)
Detroit-Warren (Michigan)
Richmaond-West End (Virginia)

S-7

OVERVIEW OF LOAN AMOUNTS

The refinancing provided by First Union National Bank consists of
long-term loans made to three of our subsidiaries and a short-term loan made
directly to us. The long-terms loans are evidenced by 11 promissory notes in
the aggregate principal amount of $50 million. These notes are secured by our
hotels, as described in another section below. The short-term loan is evidenced
by a single promissory note in the principal amount of $10 million, which is
secured by our ownership interests in all of our direct subsidiaries.

The following table provides an overview of the promissory notes for the
$60 million refinancing:

AGGREGATE PRINCIPAL ANNUAL
NAME OF LOANS TO AMOUNT RATE OF SUMMARY OF DATE OF
BORROWER BORROWER OF NOTES INTEREST SECURITY/COLLATERAL* MATURITY
- --------------------------- -------------- ------------- ---------------- ------------------------------- ----------------

Apple Suites SPE I, Inc. $10,500,000 $ 5,000,000 9.00% Atlanta - Galleria/Cumberland October 1, 2010
3,000,000 9.00% Jackson-Ridgeland October 1, 2010
2,500,000 9.00% Salt Lake City - Midvale October 1, 2010
Apple Suites SPE II, Inc. 25,800,000 2,800,000 9.00% Atlanta - Peachtree October 1, 2010
9,000,000 9.00% Baltimore - BWI Airport October 1, 2010
6,000,000 9.00% Clearwater October 1, 2010
2,500,000 9.00% Detroit - Warren October 1, 2010
5,500,000 9.00% Richmond - West End October 1, 2010
Apple Suites REIT 13,700,000 5,500,000 9.00% Dallas - Addison October 1, 2010
Limited Partnership
5,700,000 9.00% Dallas - Irving/Las Colinas October 1, 2010
2,500,000 9.00% North Dallas - Plano October 1, 2010

Apple Suites, Inc. 10,000,000 10,000,000 Adjusted Prime Ownership Interests March 8, 2001
----------- or LIBOR in All Direct Subsidiaries

TOTAL $60,000,000
===========

* The face amounts of the promissory notes were based on a single hotel, but
the notes are subject to cross-collateral and cross-default provisions, as
explained in another section below.

LONG-TERM REFINANCING NOTES

The 11 long-term promissory notes for the $50 million portion of the
refinancing are substantially similar. Each of these promissory notes provides
for the following:

o payment of principal and interest on an amortized basis (calculated over
a 25-year period) in equal monthly installments, with a balloon payment
at maturity

o acceleration, at the option of the lender, of all amounts due under the
note if any payment of principal or interest is not made within seven
days of its due date or if there is any other event of default

o a late charge of five percent on any payment that is not made within
seven days of its due date

o an increase of four percent in the applicable interest rate upon any
default

o a restriction on voluntary prepayment, which is not permitted without
penalty until the final three months of the note

o after two years we may cause hotels to be released as collateral by
following certain procedures described below

The sum of the fixed monthly installments for the 11 long-term promissory
notes equals $419,598. At maturity on October 1, 2010, the balloon payments for
the notes will equal a total of $42,898,643.

S-8

Revenue from the hotels will be used to make payments due under the
long-term promissory notes. This revenue will include lease payments made to us
by Apple Suites Management, Inc. (or a subsidiary) under hotel lease
agreements. There can be no assurance that hotel revenue will be sufficient for
this purpose.

Additional payments will apply if a long-term promissory note is
accelerated upon an event of default. The sum of these payments will be higher
if the acceleration occurs in the first two years and will equal at least 5% of
the outstanding principal balance if acceleration occurs in the first year.

Each long-term promissory note contains substantial limitations on release
and substitution of collateral. The hotel that serves as collateral under a
long-term promissory note cannot be released during the first two years of the
note. After that date a release of the collateral can be obtained by
substituting as collateral direct, non-callable obligations of the United States
that are structured to pay a series of amounts which match, as closely as
possible, the remainder of the installments required under the promissory note.

This mechanism provides us a limited opportunity to cause properties to be
released from the liens of the mortgages. This could be helpful, for example, if
we receive an attractive offer from a prospective purchaser of our hotels. This
requirement as to the purchase of substitute collateral may make this mechanism
economically less attractive when compared with an unrestricted right to prepay
the obligation, and its usefulness to us will depend upon future economic
factors and opportunities.

The 11 hotels that serve as collateral for the long-term promissory notes
are subject to cross-default and cross-collateral provisions under various
deeds of trust and security instruments, which are among the material contracts
described in another section below. These hotels have been divided into two
groups for purposes of the cross-collateral and cross-default provisions.

In general, any default under one promissory note will constitute a
default under all other promissory notes in the same group and will enable the
lender to exercise its rights against all of the hotels that serve as
collateral for that group. The two groups themselves, however, are not
connected by cross-default or cross-collateral provisions. One group consists
of the six hotels owned by two of our subsidiaries, and the other group
consists of five hotels owned by a single subsidiary, as indicated below:

GROUP I GROUP II
-------------------------------------- --------------------------

SUBSIDIARIES INVOLVED Apple Suites SPE I, Inc. Apple Suites SPE II, Inc.
Apple Suites REIT Limited Partnership

HOTELS IN GROUP Atlanta - Galleria/Cumberland Atlanta - Peachtree
Jackson-Ridgeland Baltimore - BWI Airport
Salt Lake City - Midvale Clearwater
Dallas - Addison Detroit - Warren
Dallas - Irving/Las Colinas Richmond - West End
North Dallas - Plano

We are required, as the parent company of these subsidiaries, to indemnify
the lender against defaults under the long-term promissory notes and to
guaranty the collection of all amounts due thereunder. These requirements
appear in an Indemnity and Guaranty Agreement, which is among the material
contracts described in another section below.

SHORT-TERM REFINANCING NOTE

The $10 million portion of the refinancing is evidenced by a short-term
promissory note made payable by us to First Union National Bank. The maturity
date for this promissory note is March 8, 2001.

Interest will be based on the lender's "prime rate" unless we make an
election to convert to a LIBOR rate (which is determined by banks in the London
interbank market). Any such election would remain in effect for the period we
specify in a written conversion notice, but

S-9

cannot exceed three months. We may continue a LIBOR election, if made, by
delivering a written continuation notice to the lender at least three business
days before the election expires. The following table summarizes the available
interest terms:

NO LIBOR CONVERSION WITH LIBOR CONVERSION
----------------------------------- -------------------------------

INTEREST RATE Lender's prime rate, increased by LIBOR rate, increased by
0.25% during the first 90 days 2% during the first 90 days
and 1% thereafter and 3.5% thereafter

INTEREST PAYMENTS Monthly At the end of interest period
specified in the conversion or
continuation notice
DATE FOR DELIVERY OF On or before the fifth business On the last day of the
BILLING NOTICE BY LENDER day of each month applicable interest period

DUE DATE FOR INTEREST Two business days after receipt On the last day of the
PAYMENTS of the lender's billing notice applicable interest period

INTEREST RATE ON 4% above the applicable interest 4% above the applicable
OVERDUE AMOUNTS rate (see above) interest rate (see above)

As of the date of this Supplement, we have not elected a LIBOR conversion,
but we may consider doing so in the future, based on our review of economic and
market conditions.

We are required to make principal payments consisting of 75% of any equity
proceeds we receive from our ongoing "best efforts" offering. Such principal
payments are considered mandatory prepayments and are due within one business
day after we receive the equity proceeds. Any prepayment of principal must be
accompanied by payment of accrued interest. Revenue from the hotels will be
used to pay interest under the promissory notes. This revenue will include
lease payments made to us by Apple Suites Management, Inc. (or a subsidiary)
under hotel lease agreements. There can be no assurance that the equity
proceeds or the hotel revenues will be sufficient for these purposes. Our
obligation to use 75% of our equity proceeds from the ongoing offering for
repayment of the $10 million loan takes precedence over our obligation to apply
our "net equity proceeds" to repayment of the remaining obligations to Promus
Hotels, Inc., which are described in another section below.

We may make voluntary prepayments of the short-term refinancing note in
whole or in part at any time. If a LIBOR conversion is in effect, we will incur
a prepayment fee, regardless of whether the prepayment is voluntary or
mandatory. The prepayment fee is based on a formula that measures the
difference between the interest that would have accrued in the absence of the
prepayment and certain bids in the London interbank market.

We pledged 100% of our ownership interests in our direct subsidiaries as
security for the short-term promissory note. These pledges consist of common
shares in our four corporate subsidiaries and our sole beneficial interest in
Apple Suites Pennsylvania Business Trust.

S-10

EXISTING FINANCING FOR HOTELS

Our existing financing remains in place for two hotels, which are located
in Pennsylvania and Colorado and which were purchased from Promus Hotels, Inc.
in 2000. This financing is being provided by Promus Hotels, Inc., based on 75%
of the purchase price for the hotels, and is evidenced by the following
promissory notes:

ORIGINAL
MONTH OF PRINCIPAL ANNUAL RATE DATE OF
PROMISSORY NOTE AMOUNT OF INTEREST MATURITY
- ----------------- -------------- ------------- ---------------

May 2000 $11,616,750 8.5% April 28, 2001
June 2000 $11,163,750 8.5% April 28, 2001
-----------
TOTAL $22,780,500
===========

These promissory notes are substantially similar, and each provides for
the following:

o monthly interest payments, based on the actual number of days per month

o our delivery of monthly notices to specify the net equity proceeds from
our offering, which will be the intended source of principal payments, as
explained below

o our right to prepay the notes, in whole or in part, without premium or
penalty

o a late payment premium of four percent for any payment not made within 10
days of its due date

Revenue from the hotels will be used to pay interest under the promissory
notes. This revenue will include lease payments made to us by Apple Suites
Management, Inc. (or a subsidiary) under the separate hotel lease agreements
for the two hotels.

The promissory notes contemplate that the "net equity proceeds" from our
offering of common shares will be the source of our principal payments, subject
to our obligation to First Union National Bank under the short-term refinancing
note, as discussed above. There can be no assurance that the net equity
proceeds will be sufficient for this purpose. The phrase "net equity proceeds"
means the total proceeds from our offering of common shares, as reduced by
selling commissions, a marketing expense allowance, closing costs, various fees
and charges (legal, accounting, and so forth), a working capital reserve and a
reserve for renovations, repairs and replacements of capital improvements.

We have made all scheduled interest payments to Promus Hotels, Inc. under
the two remaining promissory notes. To date, we have not made any principal
payments under these two notes.

ADVANCES FOR WORKING CAPITAL

Prior to the refinancing described above, we advanced a total of
$1,040,000 to the lessees of the hotels under the master hotel lease agreements
(Apple Suites Management, Inc. or its subsidiary). This action was taken to
assist the lessees in satisfying working capital account requirements that were
established by Promus Hotels, Inc., as licensor with respect to our 13 hotels.
At one time, the lessees contemplated funding the working capital requirements
with rental income from the hotels. It was determined, however, that an advance
from us would be more administratively convenient.

The total advance was based on an allocation of $80,000 per hotel. To
evidence the repayment obligation of the lessees, we have received 13
substantially identical promissory notes, each of which relates to a particular
hotel and is made in the principal amount of $80,000. Each note provides for an
annual interest rate of 9% and for repayment in monthly installments of
principal and interest, on an amortized basis, over a 10-year period.

S-11

SUMMARY OF MATERIAL CONTRACTS

SECURITY DOCUMENTS

In connection with the $50 million long-term refinancing provided by First
Union National Bank, the lender placed a mortgage and other encumbrances on 11
of our hotels. The other encumbrances include a security interest in the
personal property at the hotels and assignments of hotel rents, revenues,
contracts and permits, all in favor of the lender. These encumbrances are
created by multiple agreements and instruments, dated as of September 8, 2000,
which will be referred to as "security documents" for simplicity. The security
documents are related to the long-term promissory notes, which are discussed
above.

The security documents impose a number of requirements on three of our
subsidiaries, as the owners of the hotels, including obligations to maintain
adequate insurance and the hotel franchises. The security documents prohibit
any further encumbrances or any further assignments of rents or leases with
respect to the hotels.

Upon any default that occurs under a long-term promissory note or related
security document, various remedies are available to the lender with respect to
the hotels in the same cross-default and cross-collateral group, as discussed
above. Those remedies include, for example (a) declaring the entire principal
balance under the promissory notes in the group, together with all accrued and
unpaid interest, to be due and payable immediately; (b) taking possession of
the secured property, including the hotels in the group; and (c) collecting
rents and revenues, or foreclosing on the hotels in the group, to satisfy
unpaid amounts under the promissory notes. Our subsidiaries, as the makers of
the long-term promissory notes, would be required to pay any costs that may be
incurred in exercising such remedies.

Furthermore, upon a payment default by one of our subsidiaries under a
long-term promissory note, the lender would be entitled to seek payment
directly from us as the indemnitor under corresponding Indemnity and Guaranty
Agreements dated as of September 8, 2000.

CREDIT AND PLEDGE AGREEMENTS

In connection with the $10 million short-term refinancing provided by
First Union National Bank, we executed a credit agreement and a pledge
agreement, both dated as of September 8, 2000. The primary terms of these
documents are discussed above with respect to the short-term financing note.

OTHER AGREEMENTS

With respect to each hotel that serves as collateral for the $50 million
refinancing provided by First Union National Bank, the lender received separate
and substantially similar environmental indemnity agreements, dated as of
September 8, from us and the subsidiary that owns the hotel, as the
indemnitors. In general, these agreements provide that the hotels will be
operated in compliance with all environmental laws, and that the lender must
receive immediate notice of any non-compliance. These environmental indemnity
agreements will survive full payment of the long-term promissory notes.

In addition to the new hotel lease agreements for the eight hotels
transferred to our new subsidiaries, as discussed in another section above, the
lender received subordination and attornment agreements dated as of September
8, 2000. These agreements provide that the lessee of the hotels, Apple Suites
Management, Inc. or a subsidiary, will recognize the lender as the lessor under
the hotel lease agreements in the event that the lender exercises its default
rights under the security documents to foreclose on the hotels.

S-12

SELECTED FINANCIAL INFORMATION

FOR THE SIX MONTHS ENDED JUNE 30, 2000 (EXCEPT AS NOTED)

INCOME STATEMENT DATA .........................................
Revenues:
Lease revenue ................................................. $ 7,242,731
Interest income and other revenue ............................. 146,689
-------------
Total revenue ................................................. 7,389,420
Expenses:
Taxes, insurance, and other ................................... 1,404,441
General and administrative .................................... 510,236
Depreciation .................................................. 1,219,246
Interest ...................................................... 3,059,738
-------------
Total expenses ................................................ 6,193,661
-------------
Net income .................................................... $ 1,195,759
=============
Earnings per share -- basic and diluted ....................... $ 0.31
Distributions to common shareholders .......................... $ 904,918
Weighted-average common shares outstanding .................... 3,916,520
BALANCE SHEET DATA AT JUNE 30, 2000:
Cash and cash equivalents ..................................... $ 3,445,125
Investment in hotels, net ..................................... $ 125,100,974
Total assets .................................................. $ 135,262,274
Notes payable -- secured ...................................... $ 91,350,000
Shareholders equity ........................................... $ 41,682,876
OTHER DATA
Cash flow from:
Operating activities .......................................... $ 1,768,975
Investing activities .......................................... $ (9,336,576)
Financing activities .......................................... $ 10,431,382
Number of hotels owned at June 30, 2000 ....................... 13
Number of hotel rooms (suites) owned at June 30, 2000 ......... 1,453
FUNDS FROM OPERATIONS CALCULATION
Net income .................................................... $ 1,195,759
Depreciation of real estate owned ............................. 1,219,246
-------------
Funds from operations (a) ..................................... $ 2,415,005
=============

- ----------
(a) Funds from operation is defined as income before gains (losses) on
investments and extraordinary items (computed in accordance with generally
accepted accounting principles) plus real estate depreciation and after
adjustment for significant nonrecurring items, if any. We consider funds
from operations in evaluating property acquisitions and operating
performance, and believe that funds from operations should be considered
along with, but not as an alternative to, net income and cash flows as a
measure of our operating performance and liquidity. Funds from operations,
which may not be comparable to other similarly titled measures of other
REITs, does not represent cash generated from operating activities in
accordance with generally accepted accounting principles and is not
necessarily indicative of cash available to fund cash needs.

S-13

APPLE SUITES, INC.
INDEX TO FINANCIAL STATEMENTS
AND
RELATED MANAGEMENT'S DISCUSSION AND ANALYSIS

PAGE
-----

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS .... F-2
CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Apple Suites, Inc.
Consolidated Balance Sheets as of December 31, 1999 and June 30, 2000 ................... F-5
Consolidated Statements of Operations for the three months ended June 30, 2000 and the
six months ended June 30, 2000 ........................................................ F-6
Consolidated Statement of Shareholders' Equity for the six months ended June 30, 2000 ... F-6
Consolidated Statement of Cash Flows for the six months ended June 30, 2000 ............. F-7
Notes to Consolidated Financial Statements .............................................. F-8
Apple Suites Management, Inc.
Consolidated Balance Sheets as of December 31, 1999 and June 30, 2000 ................... F-12
Consolidated Statements of Operations and Retained Deficit for the three months ended
June 30, 2000 and the six months ended June 30, 2000 .................................. F-13
Consolidated Statement of Cash Flows for the six months ended June 30, 2000 ............. F-14
Notes to Consolidated Financial Statements .............................................. F-15
PRO FORMA FINANCIAL STATEMENTS (UNAUDITED)
Apple Suites, Inc.
Pro Forma Condensed Consolidated Balance Sheet as of June 30, 2000 ...................... F-16
Notes to Pro Forma Condensed Consolidated Balance Sheet ................................. F-17
Pro Forma Condensed Consolidated Statements of Operations for the year ended
December 31, 1999 and the six months ended June 30, 2000 .............................. F-18
Notes to Pro Forma Condensed Consolidated Statements of Operations ...................... F-20
Apple Suites Management, Inc.
Pro Forma Condensed Consolidated Statements of Operations for the year ended
December 31, 1999 and the six months ended June 30, 2000 .............................. F-22
Notes to Pro Forma Condensed Consolidated Statements of Operations ...................... F-25

F-1

MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(By Apple Suites, Inc. for the Dates or Periods, as Applicable,
Addressed by the Accompanying Financial Statements)

GENERAL

We acquired 13 hotels with 1,453 suites from Promus Hotels, Inc. (or its
affiliates), which is now a wholly-owned subsidiary of Hilton Hotels
Corporation. All of our hotels are leased to Apple Suites Management, Inc., or
its subsidiary (the "Lessee") pursuant to two master hotel lease agreements.
Each master hotel lease agreement obligates the Lessee to pay rent equal to the
sum of an annual base rent, a quarterly percentage rent and a quarterly sundry
rent. The Lessee's ability to make these rent payments to us is dependent
primarily upon the operations of the hotels. See Note 5 to our consolidated
financial statements for further lease information.

RESULTS OF OPERATIONS

APPLE SUITES, INC.

Revenues: Because we commenced operations effective September 1, 1999, a
comparison to the same period of 1999 is not possible. During the three and six
months ended June 30, 2000, we had revenues of $3,934,735 and $7,389,420,
respectively. All of our lease revenue is derived from the master hotel lease
agreements.

Our other income for the three and six months ended June 30, 2000 consists
of $68,429 and $101,161, respectively, of interest income earned from the
investments of our cash and cash reserves. For the same period in 2000, we
earned interest of $30,253 and $45,528, respectively, on the promissory notes
payable by the Lessee for our funding of franchise fees, hotel supplies and
working capital.

Expenses: Our expenses consist of property taxes, insurance, general and
administrative expenses, interest on notes payable and depreciation on the
hotels. Total expenses, exclusive of interest and depreciation, for the three
and six months ended June 30, 2000 were $968,366 and $1,914,677, respectively,
or 25% and 26%, respectively, of total revenue.

The interest expense was $1,606,628 and $3,059,738, respectively, for the
three and six months ended June 30, 2000 and represented interest on short-term
notes payable to Promus Hotels, Inc. at an interest rate of 8.5%.

The depreciation expense was $670,045 and $1,219,246, respectively, for
the three and six months ended June 30, 2000.

Taxes, insurance, and other was $712,866 and $1,404,441, respectively, for
the three and six months ended June 30, 2000 or 18% and 19%, respectively, of
total revenue.

The general and administrative expense totaled 6.5% and 7%, respectively,
for the three and six months ended June 30, 2000 of total revenues. These
expenses represent our administrative expenses. We expect these percentages to
decrease as our asset base grows.

F-2

APPLE SUITES MANAGEMENT, INC.

Revenues: As operations commenced effective September 1, 1999, a
comparison to the same period of 1999 is not possible. Total revenues for the
three and six months ended June 30, 2000 were $8,950,566 and $17,053,737,
respectively. Total revenues consist primarily of suite revenue, which was
$8,479,831 and $16,162,186 for the three and six months ended June 30, 2000

For the three and six months ended June 30, 2000 the average occupancy
rate was 79% and 78%, respectively, average daily rate was $92 and $91,
respectively, and revenue per available room was $72 and $71, respectively.

Expenses: Total expenses for the three and six months ended June 30, 2000
were $9,009,696 and $17,070,166. Rent expense represents $3,836,053 and
$7,242,731 or 43% and 42%, respectively, respectively, for the three and six
months ended June 30, 2000 of total revenue.

The Lessee has agreed to pay Promus Hotels, Inc. a fee of 4% of suite
revenue for management of the hotels. The Lessee has also agreed to pay Promus
Hotels, Inc. fees of 4% of suite revenue to cover fees for the Homewood
Suites(Reg. TM) by Hilton franchise and to participate in its reservation
system. Total expenses for these services were $1,970,316 during the period.
For the second quarter of 2000, these expenses were $1,032,962.

LIQUIDITY AND CAPITAL RESOURCES

During 2000, we sold 1,516,138 of our common shares, at $10 per share, to
investors. The total gross sale proceeds were $15,161,377, which netted
$13,294,035 to us after the payment of selling commissions and other offering
costs.

The Lessee's obligations under the master hotel lease agreements are
unsecured. The Lessee has limited capital resources, and, accordingly its
ability to make rent payments is substantially dependent on the ability of the
Lessee to generate sufficient cash flow from operations of the hotels. We have
certain rights to cancel a master hotel lease agreement if the Lessee does not
perform under the applicable terms.

To support the Lessee's obligations, the Lessee has received two funding
commitments of $1 million each from Mr. Knight and ASRG, respectively (together
"Payor"). The funding commitments are contractual obligations of the Payor to
pay funds to the Lessee. Funds paid to the Lessee under the commitments are to
be used to satisfy any capitalization or net worth requirements applicable to
the Lessee or the Lessee's payment obligations under the master hotel lease
agreements, do not represent indebtedness, and are not subject to interest. The
funding commitments terminate upon the expiration of the master hotel lease
agreements, a written agreement between the Payor and the Lessee, or the
payment of all commitment amounts by the Payor to the Lessee. As of June 30,
2000, no contributions have been made by the Payor to the Lessee under the
funding commitments.

Notes payable: In conjunction with our purchase of the 13 hotels, we made
promissory notes payable to the order of Promus Hotels, Inc. in the aggregate
amount of $91,350,000. The notes provide for an effective interest rate of 8.5%
per annum. Interest payments are due monthly. Principal payments are to be made
from net proceeds of our offering of common shares. At June 30, 2000, our
borrowings were $91,350,000. During July 2000, we paid a principal payment of
$5 million on the promissory notes from net proceeds from the offering.

The promissory notes have various maturity dates. The approximate
principal amounts and their due dates are as follows: $34 million due on
October 1, 2000, $30.2 million due on November 1, 2000, $4.4 million due on
January 1, 2001 and $22.8 million due on April 28, 2001. Our goal is to pay
these notes with the proceeds from our continuous "best efforts" offering of
common shares. Based on the current rate at which equity is being raised by the
offering, we may need to seek other measures to repay these loans.

F-3

If the loan occurs in accordance with the application, repayment would be
made in monthly installments over 10 years, on an amortized basis, at a fixed
annual interest rate of 9.17%. If the loan closes, we expect the lender to
impose additional conditions or requirements that are customary for loans of
this type. The loan would represent a change to our borrowing policy because we
would no longer hold our properties over the long-term on an all-cash basis.

We have made an aggregate deposit of $1 million in connection with our
loan application. If the closing on the loan does not occur within 90 days
after the date of the application (June 9, 2000), we may be required to forfeit
some or all of our deposit. We also have entered into an agreement, dated as of
June 5, 2000, with the prospective lender, which guarantees the interest rate
and provides for our payment of certain fees if we terminate our loan
application.

We have entered into a letter agreement, dated May 8, 2000, with Promus
Hotels, Inc. in regard to potential refinancing. Under this letter agreement,
if we obtain refinancing, repay our initial four promissory notes in full, and
are not in default under the other promissory notes, the first 11 hotels we
purchased would be released as collateral. Furthermore, if our refinancing has
both senior and junior levels of priority, and if the junior level does not
exceed $13 million, we would be permitted to apply the net equity proceeds from
our "best efforts" to the principal amount of such junior debt, rather than to
our promissory notes with respect to the Philadelphia/Great Valley hotel and
the Boulder hotel.

Cash and cash equivalents: Cash and cash equivalents totaled $3,445,125 at
June 30, 2000.

Capital requirements: We have an ongoing capital commitment to fund our
capital improvements. We are required under the master hotel lease agreements
to make an amount equal to 5% of suite revenue available monthly to the Lessee
for the repair, replacement, or refurbishing of furniture, fixtures, and
equipment on a cumulative basis, provided that such amount may be used for
capital expenditures made by us with respect to the hotels. We expect that this
amount will be adequate to fund the required repair, replacement, and
refurbishments and to maintain our hotels in a competitive condition. We
capitalized improvements of $2,526,588 in 2000. At June 30, 2000 a total of
$653,149 was held for funding of these improvements.

We plan to have monthly equity closings in 2000, until the offering is
fully funded, or until such time as we may opt to discontinue the offering. We
anticipate that the equity funds will be invested in additional hotels and will
be used to make principal payments on the notes incurred in conjunction with
our current hotels.

Capital resources are expected to grow with the future sale of our common
shares. Approximately 45% of the 2000 common share dividend distribution, or
$732,992 was reinvested in additional common shares. In general, our liquidity
and capital resources are believed to be more than adequate to meet our cash
requirements during 2000, given current and anticipated financing arrangements.

Seasonality: The hotel industry historically has been seasonal in nature,
reflecting higher occupancy rates primarily during the first three quarters of
the year. Seasonal variations in occupancy at our hotels may cause quarterly
fluctuations in our lease revenues, particularly during the fourth quarter, to
the extent that we receive percentage rent. To the extent that cash flow from
operations is insufficient during any quarter, due to temporary or seasonal
fluctuations in lease revenue, we expect to utilize cash on hand or funds from
equity raised through our "best efforts" offering to make distributions.

F-4

APPLE SUITES, INC.
CONSOLIDATED BALANCE SHEETS (UNAUDITED)

JUNE 30, DECEMBER 31,
2000 1999
---------------- ---------------

ASSETS
Investment in hotels -net of accumulated depreciation of $1,715,455
and $496,209, respectively........................................ $ 125,100,974 $ 93,719,632
Cash and cash equivalents .......................................... 3,445,125 581,344
Restricted cash .................................................... 544,469 1,023,721
Rent receivable from Apple Suites Management, Inc. ................. 1,996,479 2,123,136
Notes and other receivables from Apple Suites Management, Inc. ..... 1,771,124 717,019
Capital improvement reserve ........................................ 653,149 753,927
Prepaid expenses ................................................... 194,185 270,229
Other assets ....................................................... 1,556,769 300,000
------------- ------------
Total Assets ..................................................... $ 135,262,274 $ 99,489,008
============= ============

LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES
Notes payable-secured .............................................. $ 91,350,000 $ 68,569,500
Interest payable ................................................... 576,173 466,140
Accounts payable ................................................... 355,750 65,214
Accrued expenses ................................................... 1,185,836 868,668
Account payable-affiliate .......................................... 111,639 708,751
Distributions payable .............................................. -- 712,735
------------- ------------
Total Liabilities ................................................ 93,579,398 71,391,008
============= ============
SHAREHOLDERS' EQUITY
Common stock, no par value, authorized 200,000,000 shares; issued
and outstanding 4,945,552 shares and 3,429,414, respectively ..... $ 41,885,295 $ 28,591,260
Class B convertible stock, no par value, authorized 240,000 shares;
issued and outstanding 240,000 shares ............................ 24,000 24,000
Distributions greater than net income .............................. (226,419) (517,260)
------------- ------------
Total Shareholders' Equity ....................................... 41,682,876 28,098,000
------------- ------------
Total Liabilities and Shareholders' Equity ....................... $ 135,262,274 $ 99,489,008
============= ============

See accompanying notes to consolidated financial statements.

F-5

APPLE SUITES INC.
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)

THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, 2000 JUNE 30, 2000
-------------------- -----------------

REVENUES:
Lease revenue ...................................... $ 3,836,053 $7,242,731
Interest income and other revenue .................. 98,682 146,689
EXPENSES:
Taxes, insurance and other ......................... 712,866 1,404,441
General and administrative ......................... 255,500 510,236
Depreciation of real estate owned .................. 670,045 1,219,246
Interest ........................................... 1,606,628 3,059,738
----------- ----------
Total expenses ................................... 3,245,039 6,193,661
Net income .......................................... $ 689,696 $1,195,759
=========== ==========
Basic and diluted earnings per common share ......... $ 0.16 $ 0.31
=========== ==========

APPLE SUITES, INC.
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY (UNAUDITED)

CLASS B
COMMON STOCK CONVERTIBLE STOCK DISTRIBUTIONS
------------------------ ---------------------- GREATER TOTAL
NUMBER NUMBER THAN SHAREHOLDERS'
OF SHARES AMOUNT OF SHARES AMOUNT NET INCOME EQUITY
----------- -------------- ----------- ---------- -------------- ----------------

Balance at December 31, 1999 .. 3,429,414 $28,591,260 240,000 $24,000 $ (517,260) $ 28,098,000
Net proceeds from the sale of
common shares ................ 1,434,638 12,561,043 -- -- -- 12,561,043
Net income .................... -- -- -- -- 1,195,759 1,195,759
Cash distributions declared and
paid to shareholders ($.25 per
share) ....................... -- -- -- -- (904,918) (904,918)
Common stock issued through
reinvestment of distribution . 81,500 732,992 -- -- -- 732,992
--------- ----------- ------- ------- ---------- ------------
Balance at June 30, 2000 ...... 4,945,552 $41,885,295 240,000 $24,000 $ (226,419) $ 41,682,876
========= =========== ======= ======= ========== ============

See accompanying notes to consolidated financial statements.

F-6

APPLE SUITES, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED)

SIX MONTHS ENDED
JUNE 30, 2000
-----------------

Cash flow from operating activities:
Net income ............................................................................ $ 1,195,759
Adjustments to reconcile net income to net cash provided by operating activities
Depreciation of real estate owned ..................................................... 1,219,246
Changes in operating assets and liabilities:
Prepaid expenses ................................................................... 76,044
Rent and notes receivable from Apple Suites Management, Inc. ....................... (830,930)
Other assets ....................................................................... (11,769)
Accounts payable ................................................................... 290,536
Accounts payable affiliates ........................................................ (597,112)
Accrued expenses ................................................................... 317,168
Interest payable ................................................................... 110,033
------------
Net cash used in operating activities ............................................ 1,768,975
Cash flow from investing activities:
Cash paid for acquisitions of hotels .................................................. (7,422,750)
Capital improvements .................................................................. (2,526,588)
Additions to capital improvements reserve held by third-party manager ................. (724,300)
Reduction of capital improvements reserve held by third-party manager ................. 1,203,552
Reduction in restricted cash for property improvement plan ............................ 100,778
Payments received on notes receivable ................................................. 32,732
------------
Net cash used in investing activities ............................................ (9,336,576)
Cash flow from financing activities:
Net proceeds from issuance of common shares ........................................... 13,294,035
Cash distributions paid to shareholders ............................................... (1,617,653)
Cash payments for deferred financing costs ............................................ (1,245,000)
------------
Net cash provided by financing activities ........................................ 10,431,382
Increase in cash and cash equivalents ............................................ 2,863,781
Cash and cash equivalents, beginning of period ......................................... 581,344
------------
Cash and cash equivalents, end of period ............................................... $ 3,445,125
============
Supplemental cash flow information:
Interest paid .......................................................................... $ 2,949,705
Non-cash transaction:
Notes payable-secured issued by seller in connection with hotel acquisitions ..... $ 22,780,500

See accompanying notes to consolidated financial statements.

F-7

APPLE SUITES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

JUNE 30, 2000

(1) GENERAL INFORMATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

The accompanying unaudited consolidated financial statements have been
prepared in accordance with the instructions for Form 10-Q and Article 10 of
Regulation S-X. Accordingly, they do not include all of the information
required by generally accepted accounting principles. In the opinion of
management, all adjustments (consisting of normal recurring accruals)
considered necessary for a fair presentation have been included. Operating
results for the three and six months ended June 30, 2000 are not necessarily
indicative of the results that may be expected for the period ended December
31, 2000. These consolidated financial statements should be read in conjunction
with the Company's December 31, 1999 Annual Report on Form 10-K.

The Company commenced operations in September 1999, therefore, consolidated
statements of operations and cash flows for the three and six months period
ended June 30, 1999 are not presented.

Apple Suites, Inc., (the "Company") leased to Apple Suites Management,
Inc. or its subsidiary (the "Lessee") all of its hotels acquired to date.

The Lessee hired Promus Hotels, Inc. ("Promus"), a wholly owned subsidiary
of Hilton Hotels Corporation ("Hilton") to manage the Company's hotels under the
terms of a management agreement between Promus and the Lessee.

Relationship with Lessee

The Company must rely on the Lessee to generate sufficient cash flow from
the operation of the hotels to enable the Lessee to meet its rent obligation to
the Company under the master hotel lease agreements ("Percentage Leases"). At
June 30, 2000, the Lessee's rent payable to the Company amounted to $1,996,479.
The original terms under the Percentage Leases allow monthly base rent to be
paid in arrears and quarterly percentage rent to be paid 15 days following the
quarter-end. Amounts were paid by the Lessee in July 2000.

The Company did not have any items of comprehensive income requiring
separate reporting and disclosure for the periods presented.

(2) INVESTMENT IN HOTELS

At June 30, 2000, the Company owned 13 hotels. Investment in hotels at
June 30, 2000 consist of the following:

Land .................................. $ 19,183,614
Building .............................. 104,571,526
Furniture and equipment ............... 3,061,289
------------
$126,816,429
Less accumulated depreciation ......... (1,715,455)
------------
$125,100,974
------------

On May 8, 2000, the Company acquired a 123-room hotel located in Malvern,
Pennsylvania for $15,489,000. On June 30, 2000, the Company acquired a 112-room
hotel located in Boulder, Colorado for $14,885,000.

F-8

APPLE SUITES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)- (CONTINUED)

(3) NOTES PAYABLE

In conjunction with the purchase of 13 hotels, notes were executed by the
Company made payable to the order of Hilton in the amount of $91,350,000
($22,780,500 in 2000 and $68,569,500 in 1999). The notes bear a fixed interest
rate of 8.5% per annum and are cross-collateralized by the 13 hotels owned by
the Company. Interest payments are due monthly. Notes amounting to $64,185,000
mature during the fourth quarter of 2000, $4,384,500 note matures in January
2001 and the remaining matures in April 2001. Principal payments are to be made
to the extent of net equity proceeds from the offering of common shares. The
Company paid $2,949,705 in interest for the period ended June 30, 2000. During
July 2000, the Company paid a principal payment of $5 million on the notes from
net proceeds from the offering.

The Company is negotiating to refinance these notes on commercially
reasonable terms and conditions. The Company has applied for a commercial loan
from a national bank in the amount of $58 million to be secured by the 11
hotels the Company purchased in 1999. There can be no assurance that the loan
will occur in accordance with the terms of the loan application or at all.

The Company has made an aggregate deposit of $1 million in connection with
its loan application. If the closing on the loan does not occur within 90 days
after the date of the application (June 9, 2000), the Company may be required
to forfeit some or all of our deposit. The Company also has entered into an
agreement, dated as of June 5, 2000, with the prospective lender, which
guarantees the interest rate and provides for the Company's payment of certain
fees if the Company terminates its loan application.

(4) SHAREHOLDERS' EQUITY

The Company is raising equity capital through a "best-efforts" offering of
shares by David Lerner Associates, Inc. (the "Managing Dealer"), which will
receive selling commissions and a marketing expense allowance based on proceeds
of the shares sold. The Company received gross proceeds of $14,346,376 from the
sale of 1,434,638 shares at $10 per share during the six month period ended
June 30, 2000. The net proceeds of the offering, after deducting selling
commissions and other offering costs were $12,561,043 for the period.

The Company provides a plan which allows shareholders to reinvest
distributions in the purchase of additional shares of the Company ("Additional
Share Option"). Of the total proceeds raised from common shares during the
period ended June 30, 2000, $815,001 (net $732,992) was provided through the
reinvestment of distributions.

(5) COMMITMENTS AND RELATED PARTIES

The Company receives rental income from the Lessee under the Percentage
Leases which expire in 2010, subject to earlier termination by the Company with
30 days notice. The Leases contain two optional five-year extensions. The rent
due under the Percentage Leases is the sum of base rent and percentage rent.
Percentage rent is calculated by multiplying fixed percentages by the total
amounts of suite revenues with reference to specified threshold amounts. Both
the base rent and the revenue thresholds used in computing percentage rents are
subject to annual adjustments based on increases in the Consumer Price Index
("CPI"). The Company earned rents of $7,242,731 for the six month period ended
June 30, 2000.

F-9

APPLE SUITES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)- (CONTINUED)

(5) COMMITMENTS AND RELATED PARTIES- (CONTINUED)

furniture, fixtures, and equipment. At June 30, 2000, $653,149 was held by
Promus for these capital improvement reserves. In addition, in accordance with
the franchise agreements, $544,469 was held for the property improvement plan
with a financial institution and treated as restricted cash.

The Company loaned the Lessee $673,650 for franchise fees, $145,300 for
hotel supplies and $960,000 for working capital for the 13 hotels. The debt
agreements are evidenced by promissory notes bearing interest at a rate of 9%
per annum. Principal and interest payments are due monthly. The promissory
notes have various maturity dates through July 2010.

The Company has contracted with Apple Suites Advisors, Inc. ("ASA") to
advise and provide day to day management services to the Company. In accordance
with the contract, the Company will pay ASA a fee equal to .1% to .25% of total
equity contributions received by the Company in addition to certain
reimbursable expenses. For the six months ended June 30, 2000, ASA earned
$50,032 under this agreement and $27,499 was payable at June 30, 2000.

(6) EARNINGS PER SHARE

The following table sets forth the computation of basic and diluted
earnings per share in accordance with FAS 128:

THREE MONTHS SIX MONTHS
ENDED ENDED
6/30/00 6/30/00
-------------- -------------

Numerator:
Net income and numerator for basic and Diluted
earnings ........................................ $ 689,696 $1,195,759
Denominator:
Denominator for basic earnings per share-weighted-
average shares .................................. 4,225,582 3,916,520
Effect of dilutive securities:
Stock options ..................................... 2,200 2,200
Class B Convertible Shares* ....................... -- --
---------- ----------
Denominator for diluted earnings per share-adjusted
weighted- average shares and assumed conversions 4,227,782 3,918,720
---------- ----------

F-10

APPLE SUITES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)- (CONTINUED)
(6) EARNINGS PER SHARE- (CONTINUED)

$0.16 $0.31
Basic and diluted earnings per common share ......... ------- ------

*Class B Convertible Shares are not included in earnings per common share
calculation until such time it becomes probable that such shares can be
converted to common shares.

(7) ACQUISITIONS

The following unaudited pro forma information for the six months ended
June 30, 2000 and 1999 is presented as if the acquisition of the 13 hotels
occurred on January 1, 1999. The pro forma information does not purport to
represent what the Company's results of operations would actually have been if
such transactions, in fact, had occurred on January 1, 1999, nor does it
purport to represent the results of operations for future periods.

SIX MONTHS SIX MONTHS
ENDED ENDED
6/30/00 6/30/99
--------------- ---------------

Lease revenue .................................. $ 8,891,505 $ 8,283,740
Net income ..................................... 1,194,774 823,959
Net income per share-basic and diluted ......... $ .25 $ .21

The pro forma information applies the Company's Percentage Lease
Agreements to actual suite revenue and expenses of the 11 hotels acquired in
1999 and 2 hotels acquired in 2000 for the respective period in 1999 prior to
acquisition by the Company. Net income also has been adjusted as follows: (1)
depreciation has been adjusted based on the Company's basis in the hotels; (2)
advisory expenses have been adjusted based on the Company's contractual
arrangements; and (3) interest expense has been adjusted to reflect the
acquisition as of the beginning of the periods; and (4) common stock raised
during 1999 and 2000 to purchase these hotels has been adjusted to reflect
issuances as of January 1, 1999.

(8) SUBSEQUENT EVENTS

In July, 2000 the Company declared and distributed to its shareholders
approximately $1,086,640 ($.25625 per share) of which approximately $520,676
was reinvested in the purchase of additional shares. On July 20, 2000, the
Company closed the sale to investors of 391,261 shares at $10 per share
representing net proceeds to the Company of $3,521,340.

During July 2000, the Company paid a principal payment of $5 million on
the notes from net proceeds from the offering.

F-11

APPLE SUITES MANAGEMENT, INC.
CONSOLIDATED BALANCE SHEET (UNAUDITED)

JUNE 30, DECEMBER 31,
2000 1999
-------------- ---------------

ASSETS
Current assets
Cash and cash equivalents ......................................... $ 2,819,898 $ 2,395,000
Accounts receivables, net ......................................... 1,622,830 738,361
Inventories ....................................................... 145,300 121,801
Other assets ...................................................... 113,313 8,142
----------- -----------
Total Current Assets ............................................. 4,701,341 3,263,304
Non-current assets
Deferred franchise fees ........................................... 653,943 562,851
----------- ------------
Total Assets ...................................................... $ 5,355,284 $ 3,826,155
=========== ============
LIABILITIES AND SHAREHOLDERS' DEFICIT
Current liabilities
Account payable ................................................... $ 319,732 $ 48,586
Rent payable to Apple Suites, Inc. ................................ 1,996,479 2,123,136
Due to third party manager ........................................ 507,542 454,147
Due to Apple Suites, Inc. ......................................... 26,653 28,991
Accrued expenses .................................................. 917,840 624,346
Current portion of note payable to Apple Suites, Inc. ............. 71,028 56,939
----------- ------------
Total Current liabilities ........................................ 3,839,274 3,336,145
Noncurrent liabilities ...........................................
Note payable to Apple Suites, Inc. ............................... 1,673,443 631,014
Total Liabilities ................................................ 5,512,717 3,967,159
Shareholders' deficit Common Stock, no par value,5,000 authorized;
10 shares issued and outstanding ............................... 100 100
Retained deficit ................................................. (157,533) (141,104)
----------- ------------
Total Shareholders' deficit ...................................... (157,433) (141,004)
----------- ------------
Total Liabilities and Shareholders' Deficit ...................... $ 5,355,284 $ 3,826,155
=========== ============

See accompanying notes to financial statements.

F-12

APPLE SUITES MANAGEMENT, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS AND RETAINED DEFICIT (UNAUDITED)

THREE MONTHS SIX MONTHS
ENDED ENDED
JUNE 30, 2000 JUNE 30, 2000
--------------- ----------------

REVENUES:
Suite revenue ................................. $ 8,479,831 $16,162,186
Other revenue ................................. 470,735 891,551
----------- ------------
Total revenue ................................ 8,950,566 17,053,737
EXPENSES:
Operating expense ............................. 2,501,943 4,797,335
General and administrative .................... 738,655 1,409,598
Advertising and promotion ..................... 773,396 1,436,043
Utilities ..................................... 318,158 601,421
Franchise fees ................................ 337,771 645,065
Management fees ............................... 356,606 679,372
Rent expenseApple Suites, Inc ................. 3,836,053 7,242,731
Interest expense .............................. 30,312 45,587
Other ......................................... 116,802 213,014
----------- ------------
Total expenses ............................... 9,009,696 17,070,166
Income before income taxes .................... (59,130) (16,429)
Income tax expense ............................ -- --
----------- ------------
Net loss ...................................... $ (59,130) $ (16,429)
=========== ============
Retained deficit, beginning of period ......... $ (98,403) $ (141,104)
----------- ------------
Retained deficit, end of period ............... $ (157,533) $ (157,533)
=========== ============

See accompanying notes to consolidated financial statements.

F-13

APPLE SUITES MANAGEMENT, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED)

SIX MONTHS ENDED
JUNE 30, 2000
-----------------

Cash flow from operating activities:
Net income ...................................................................... $ (16,429)
Adjustments to reconcile net income to net cash provided by operating activities
Amortization of deferred franchise fees ....................................... 14,658
Changes in operating assets and liabilities:
Receivables .................................................................. (884,469)
Other assets ................................................................. (105,171)
Due to Apple Suites, Inc. .................................................... (2,338)
Rent payable to Apple Suites, Inc. ........................................... 833,268
Accounts payable ............................................................. 271,146
Due to third party manager ................................................... 53,395
Accrued expenses ............................................................. 293,570
-----------
Net cash used in operating activities ...................................... 457,630
Cash flow from financing activities:
Repayments of notes payable ................................................... (32,732)
-----------
Net cash used in financing activities ...................................... (32,732)
Decrease in cash and cash equivalents ...................................... 424,898
Cash and cash equivalents, beginning of period ................................... 2,395,000
-----------
Cash and cash equivalents, end of period ......................................... $ 2,819,898
-----------
Supplemental cash flow information:
Non-cash transactions:
Notes payable-issued by Apple Suites, Inc. ....................................... $ 1,089,250
Payment of working capital by Apple Suites, Inc. ................................. 960,000
Payment of deferred franchise fees by Apple Suites, Inc. ......................... 105,750
Acquisition of inventory by Apple Suites, Inc. ................................... 23,500

See accompanying notes to consolidated financial statements.

F-14

APPLE SUITES MANAGEMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
JUNE 30, 2000

(1) GENERAL INFORMATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

ORGANIZATION

Apple Suites Management, Inc. (the "Lessee") operates in one business
segment. Each hotel is leased by the Company to the Lessee under a master hotel
lease agreement ("Percentage Lease") having an initial term of ten years,
subject to earlier termination at the option of the Company upon 30 days
notice. The lease agreement provides for two optional fiveyear extensions. The
Percentage Leases require base rent payments to be made to the Company on a
monthly basis and additional quarterly payments to be made based upon
percentages of suite and sundry revenue. Promus Hotels, Inc. or an affiliate
("Promus") manages the hotels under a management agreement with the Lessee.
Promus Hotels, Inc. is a wholly-owned subsidiary of Hilton Hotel Corporation
("Hilton"). The hotels are located throughout the United States and are
licensed with Homewood Suites(R) by Hilton.

The Lessee commenced operations in September 1999, therefore, consolidated
statements of operations and cash flows for the three and six month period
ended June 30, 1999 are not presented.

(2) PERCENTAGE LEASES

The Percentage Leases expire in 2010, subject to earlier termination by the
Company upon 30 days notice. The Percentage Leases provide for two optional
five-year extensions. The rent due for each hotel is the sum of a base rent and
a percentage rent. Percentage rent is calculated on a quarterly basis by
multiplying fixed percentages by the total amounts of year-to-date suite
revenues with reference to specified threshold amounts known as breakpoints.
Both the base rent and the breakpoints used in computing percentage rents are
subject to annual adjustments based on increases in the Consumer Price Index
("CPI").

The Lessee has entered into license agreements with Promus to operate the
hotels as Homewood Suites(R) by Hilton properties. These agreements have terms
of 20 years and expire in 2020. These agreements require the Lessee to, among
other things, pay monthly franchise fees equal to 4% of suite revenue. License
and franchise agreements contain specific standards for, and restrictions and
limitations on, the operation and maintenance of the hotels which are
established by Promus to maintain uniformity in the system for Homewood
Suites(R) by Hilton. Such standards generally regulate the appearance of the
hotel, quality and type of goods and services offered, signage, and protection
of marks. Compliance with such standards may from time to time require
significant expenditures for capital improvements which will be borne by the
Company. In addition, the agreements provide that Promus will manage the daily
operations of the hotels and provide advertising and promotion to include
access to the reservation system for Homewood Suites(R) by Hilton. The Lessee
pays Promus 4% of monthly suite revenue for each of these functions,
respectively. Total expenses incurred by the Lessee for franchise fees,
advertising and promotion fees, and management fees for the six months ended
June 30, 2000 totaled $1,970,316.

(3) SHAREHOLDER'S EQUITY

The Lessee requires or may require funds to capitalize its business to
satisfy its obligations under Percentage Leases with the Company. To meet these
objectives, the Lessee has two funding commitment agreements of $1 million each
from Mr. Knight and Apple Suites Realty Group, Inc., ("ASRG"), respectively,
(together "Payor"). ASRG is owned by Mr. Knight. The funding commitments are
contractual obligations of the Payor to provide funds to the Lessee. Funds paid
to the Lessee under the commitments are to be used to satisfy any
capitalization or net worth requirements applicable to the Lessee or the
Lessee's payment obligations under the lease agreements and does not represent
any indebtedness. The funding commitments terminate upon the expiration of the
Percentage Leases, written agreement between the Payor and the Lessee, or
payment of all commitments amounts by the Payor to the Lessee. As of June 30,
2000, no contributions have been made by the Payor to the Lessee.

F-15

APPLE SUITES, INC.
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET AS OF JUNE 30, 2000 (UNAUDITED)

The following unaudited Pro Forma Condensed Consolidated Balance Sheet of
Apple Suites, Inc. (the "Company") is presented as if proceeds from the
refinancing loans had been used as of June 30, 2000 to pay the 4 promissory
notes executed by the Company in 1999. Such information is based in part upon
the consolidated balance sheet of the Company. In management's opinion, all
adjustments necessary to reflect the effect of these transactions have been
made.

The following unaudited Pro Forma Condensed Consolidated Balance Sheet is
not necessarily indicative of what the actual financial position would have
been assuming such transactions had been completed as of June 30, 2000, nor
does it purport to represent the future financial position of the Company.

HISTORICAL
BALANCE PRO FORMA TOTAL
SHEET ADJUSTMENTS PRO FORMA
--------------- --------------------- ---------------

ASSETS
Investment in hotel properties ..................... $125,100,974 $125,100,974
Cash and cash equivalents .......................... 3,445,125 $ 3,430,500 (A)
1,245,000 (B)
(355,722)(C)
(1,327,833)(D) 6,437,070
Restricted cash .................................... 544,469 -- 544,469
Rent receivable from Apple Suites
Management, Inc. .................................. 1,996,479 -- 1,996,479
Notes and other receivable from Apple Suites
Management, Inc. .................................. 1,771,124 -- 1,771,124
Capital improvement reserve ........................ 653,149 -- 653,149
Prepaid expenses ................................... 194,185 355,722 (C) 549,907
Other assets ....................................... 1,556,769 (1,245,000)(B) 1,639,602
------------ -------------- ------------
1,327,833 (D)
Total Assets ....................................... $135,262,274 $ 3,430,500 $138,692,774
============ ============== ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities
Notes payable ...................................... $ 91,350,000 (56,569,500)(A)
50,000,000 (A)
10,000,000 (A) $ 94,780,500
Accounts payable ................................... 355,750 -- 355,750
Accounts payable-affiliate ......................... 111,639 -- 111,639
Distributions payable .............................. 576,173 -- 576,173
Accrued expenses ................................... 1,185,836 -- 1,185,836
------------ -------------- ------------
Total Liabilities .................................. 93,579,398 3,430,500 97,009,898
Shareholders' equity
Common stock, no par value, authorized
200,000,000 shares; issued and outstanding
4,945,552 shares .................................. 41,885,295 -- 41,885,295
Class B convertible stock, no par value,
authorized 240,000 shares; issued and
outstanding 240,000 shares ........................ 24,000 -- 24,000
Distributions greater than new income .............. (226,419) -- (226,419)
------------ -------------- ------------
Total Shareholders' Equity ......................... 41,682,876 -- 41,682,876
------------ -------------- ------------
Total Liabilities and Shareholders' Equity ......... $135,262,274 $ 3,430,500 $138,692,774
============ ============== ============

F-16

NOTES TO PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET

(A) Proceeds from the refinancing loans in the aggregate amount of $60 million
were used to pay 4 promissory notes executed in 1999 in the total amount
of $56,569,500. Of the total refinancing, $50 million is evidenced by 11
promissory notes executed by a total of three subsidiaries of the Company.
Each such note bears interest at the annual rate of 9%, is payable in
equal and consecutive monthly installments and has a maturity date of
October 1, 2010. This portion of the refinancing is secured by 11 hotels
of the Company. The $10 million loan is evidenced by a single promissory
note executed by the Company. This note bears interest at a rate described
elsewhere in this Supplement and has a maturity date of March 8, 2001.
This portion of the refinancing is secured by the Company's ownership
interests in all of its direct subsidiaries.

(B) Represents refund of loan deposit paid in connection with a rate lock
agreement with the lender.

(D) Represents deferred financing costs incurred in connection with the
refinancing transaction.

F-17

APPLE SUITES, INC.
PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1999 AND THE SIX MONTHS ENDED JUNE 30, 2000
(UNAUDITED)

The following unaudited Pro Forma Condensed Consolidated Statements of
Operations of Apple Suites, Inc. (the "Company") are presented as if the
acquisitions of the Homewood Suites hotels from Promus Hotels, Inc. or its
affiliates ("Promus") (now a wholly-owned subsidiary of Hilton Hotels
Corporation), and the recent refinancing in the aggregate amount of $60 million
(used to pay 4 promissory notes executed by the Company in 1999), and the
leasing of the hotels to Apple Suites Management, Inc. or a subsidiary (the
"Lessee"), had occurred at the beginning of the periods presented for the
respective periods prior to acquisition by the Company. Such pro forma
information is based in part upon the Consolidated Statements of Operations of
the Company, the Pro Forma Statements of Operations of the Lessee and the
historical Statements of Operations of the acquired hotels. In management's
opinion, all adjustments necessary to reflect the effects of these transactions
have been made.

The following unaudited Pro Forma Condensed Consolidated Statements of
Operations for the periods presented are not necessarily indicative of what
actual results of operations of the Company would have been assuming such
transactions had been completed as of the beginning of the periods presented,
nor does it purport to represent the results of operations for future periods.
The lease agreements between the Company and the Lessee were based on economic
conditions at the time of acquisition. Application of these agreements to
periods prior to the acquisition may not be meaningful. The most significant
assumption which may not be indicative of future operations is the amount of
financial leverage employed.

FOR THE YEAR ENDED DECEMBER 31, 1999 (UNAUDITED)

HISTORICAL
STATEMENT OF
OPERATIONS
--------------

Rent expense ....................... --
-----------
Total expenses ...................... 2,321,652
-----------
Net income .......................... $ 365,465
===========
Earnings per common share:
Basic and Diluted .................. $ 0.14
===========
Basic weighted average common
shares outstanding ................. 2,648,196
===========
Diluted weighted common shares
outstanding ........................ 2,650,396
===========

PRO FORMA ADJUSTMENTS
---------------------------------------------------------------------------------------
HOMEWOOD HOMEWOOD HOMEWOOD HOMEWOOD
SUITES SUITES SUITES SUITES
ACQUISITION ACQUISITION ACQUISITION ACQUISITION
(A I) (A II) (A III) (A IV)
--------------------- --------------------- --------------------- ---------------------

Rent expense ....................... -- -- -- 100,000 (H)
------------ ------------ ------------ ------------
Total expenses ...................... 1,973,207 2,016,347 330,936 3,472,139
------------ ------------ ------------ ------------
Net income .......................... 2,189,164 3,463,925 704,905 15,469
============ ============ ============ ============
Earnings per common share:
Basic and Diluted ..................
Basic weighted average common
shares outstanding ................. -- (G) 937,271 (G) 331,053 (G) 916,311 (G)
Diluted weighted common shares
outstanding ........................ -- (G) 937,271 (G) 331,053 (G) 916,311 (G)

PRO FORMA ADJUSTMENTS
---------------------
TOTAL
PRO FORMA
----------------

Revenue:
Lease revenue ...................... -- $ 16,684,123
Interest income and other
revenue ........................... -- 169,086
Expenses:
Taxes, insurance and other ......... -- 2,434,461
General and administrative ......... -- 1,594,703
Depreciation of real estate
owned ............................. -- 2,803,730
Interest ........................... (1,245,044)(I) 7,221,202
5,069,576 (J)
215,283 (K)
Rent expense ....................... -- 100,000
---------- ------------
Total expenses ...................... 4,039,815 14,154,096
---------- ------------
Net income .......................... (4,039,815) 2,699,113
========== ============
Earnings per common share:
Basic and Diluted .................. $ 0.56
============
Basic weighted average common
shares outstanding ................. 4,832,831
============
Diluted weighted common shares
outstanding ........................ -- 4,835,031
============

F-18

FOR THE SIX MONTHS ENDED JUNE 30, 2000 (UNAUDITED)

PRO FORMA ADJUSTMENTS
---------------------------------------------
HOMEWOOD
HISTORICAL SUITES
STATEMENT OF ACQUISITION TOTAL
OPERATIONS (A IV) PRO FORMA
-------------- --------------------- ---------------

Revenue:
Lease revenue ............................. $ 7,242,731 $ 1,648,774 (B) -- $ 8,891,505
Interest income and other revenue ......... 146,689 -- 146,689
Expenses:
Taxes, insurance and other ................ 1,404,441 237,170 (C) -- 1,641,611
General and administrative ................ 510,236 38,727 (D) -- 548,963
Depreciation of real estate owned ......... 1,219,246 344,327 (E) -- 1,563,573
Interest .................................. 3,059,738 968,171 (F) (3,059,738) (I) 3,651,851
2,534,788 (J)
148,892 (K)
Rent expense .............................. -- 50,000 (H) -- 50,000
----------- ------------ ---------- -----------
Total expenses ............................. 6,193,661 1,638,395 (376,058) 7,455,998
Net income ................................. $ 1,195,759 10,379 376,058 1,582,196
=========== ============ ========== ===========
Earnings per common share:
Basic and Diluted ......................... $ 0.31 $ 0.33
=========== ===========
Basic weighted average common shares
outstanding ............................... 3,916,520 916,311 (G) -- (G) 4,832,831
=========== ============ ===========
Diluted weighted average common shares
outstanding ............................... 3,918,720 916,311 (G) -- (G) 4,835,031
=========== ============ ===========

F-19

NOTES TO PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS FOR APPLE
SUITES, INC.

DATE COMMENCED DATE
PROPERTY OPERATIONS ACQUIRED
--------------------------------- ---------------- ------------------

II Homewood Suites-Clearwater, FL February 1998 November 24, 1999
II Homewood Suites-Salt Lake, UT 1996 November 24, 1999
II Homewood Suites-Atlanta, GA 1990 November 24, 1999
II Homewood Suites-Detroit, MI 1990 November 24, 1999
II Homewood Suites-Baltimore, MD March 1998 November 24, 1999
- ---------------------------------------------------------------------------

III Homewood Suites-Jackson, MS February 1997 December 22, 1999
- ---------------------------------------------------------------------------

IV Homewood Suites-Malvern, PA January 1998 May 8, 2000
IV Homewood Suites-Boulder, CO January 1991 June 30, 2000

(C) Represents historical real estate and personal property taxes and insurance
which will be paid by the Company pursuant to the master hotel lease
agreements. Such amounts are the historical amounts paid by the respective
hotels.

(D) Represents the advisory fee of 0.25% of accumulated capital contributions
under the "best efforts" offering for the period of time not owned by the
Company (for the year ended December 31, 1999 and the six months ended
June 30, 2000), plus estimated legal and accounting fees, employee costs,
salaries and other costs to operate as a public company (for the year
ended December 31, 1999).

(F) 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 8.5% on mortgage debt of $22,780,500 for the fourth
acquisition that was incurred at acquisition.

(G) Represents additional common shares, assuming the properties were acquired
at the beginning of the periods presented with the net proceeds from the
ongoing "best efforts" offering of $9 per share (net $8.06 per share) for
the first $15,000,000 and $10 per share (net $8.95 per share) for the
remainder.

(H) Represents rent expense on the ground lease at the Malvern, Pennsylvania
hotel. The Company accounts for the ground lease as an operating lease.

F-20

(I) Represents the elimination of the historical interest that was replaced
with the $60 million refinancing discussed in note J below.

(J) Represents the interest expense on the Company's $50 million long-term
refinancing at an interest rate of 9% and a portion of the $10 million
short-term refinancing ($6,569,500) at an interest rate described
elsewhere in this Supplement for the term of the financing (6 months).

(K) Represents amortization of deferred financing costs incurred in connection
with the refinancing transaction.

F-21

APPLE SUITES MANAGEMENT, INC.
PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1999 AND THE SIX MONTHS ENDED JUNE 30, 2000
(UNAUDITED)

The following unaudited Pro Forma Condensed Consolidated Statements of
Operations of Apple Suites Management, Inc. (the "Lessee") are presented as if
the hotels purchased or to be purchased from Promus Hotels, Inc. or its
affiliates ("Promus"), which is now a wholly-owned subsidiary of Hilton Hotels
Corporation, had been leased from Apple Suites, Inc. (the "Company") pursuant
to the master hotel lease agreements from the beginning of periods presented
for the respective periods prior to acquisition by the Company. Further, the
results of operations reflect the management agreement and license agreement
entered into between Promus and the Lessee or an affiliate to operate the
acquired hotels. The master hotel lease agreements between the Company and the
Lessee were based on economic conditions at the time of acquisition.
Application of these agreements to periods prior to the acquisition may not be
meaningful. Such pro forma information is based in part upon the Consolidated
Statements of Operations of the Lessee and should be read in conjunction with
such financial statements. In management's opinion, all adjustments necessary
to reflect the effects of these transactions have been made.

F-22

FOR THE YEAR ENDED DECEMBER 31, 1999 (UNAUDITED)

PRO FORMA ADJUSTMENTS
--------------------------------------------------------------------------
HOMEWOOD HOMEWOOD HOMEWOOD HOMEWOOD
HISTORICAL SUITES SUITES SUITES SUITES
STATEMENT OF ACQUISITIONS ACQUISITIONS ACQUISITION ACQUISITION
OPERATIONS (A I) (A II) (A III) (A IV)

Revenues:
Suite revenue ................... $5,335,925 $9,818,797 $12,082,374 $2,230,952 $7,419,101 --
Other income .................... 335,150 560,096 709,240 168,438 398,812 --
Expenses:
Operating expenses .............. 1,656,540 3,794,204 4,870,096 954,102 2,491,119 --
General and administrative ...... 494,377 250,317 300,399 77,381 105,719 $ (131,000)
50,000
Advertising and promotion ....... 472,787 438,985 580,564 112,902 328,070 (1,262,049)
1,262,049
Utilities ....................... 199,907 354,113 551,359 75,639 270,079 --
Taxes and insurance ............. -- 822,599 647,225 93,884 444,161 (2,007,869)
Depreciation expense ............ -- 1,783,021 2,217,128 426,986 714,411 (5,141,546)
Franchise fees .................. 213,437 392,757 483,295 89,238 296,764 (1,262,049)
1,262,049
Management fees ................. 226,136 311,275 383,599 71,982 234,000 (1,000,856)
1,467,512
Rent expense-Apple Suites,
Inc. ........................... 2,518,031 -- -- -- -- 14,166,093
Other ........................... 30,964 -- -- -- 100,000 (100,000)
---------- ---------- ----------- ---------- ---------- ------------
Total expenses .................. 5,812,179 8,147,271 10,033,665 1,902,114 4,984,323 7,302,334
Income before income tax ........ (141,104) 2,231,622 2,757,949 497,276 2,833,590 (7,302,334)
Income tax expense .............. -- -- -- -- -- 350,800
---------- ---------- ----------- ---------- ---------- ------------
Net income (loss) ............... $ (141,104) $2,231,622 $ 2,757,949 $ 497,276 $2,833,590 $ (7,653,134)
========== ========== =========== ========== ========== ============

TOTAL
PRO FORMA

Revenues:
Suite revenue ................... $36,887,149
Other income .................... 2,171,736
Expenses:
Operating expenses .............. 13,766,061
General and administrative ...... (B)
(C) 1,147,193
Advertising and promotion ....... (D)
(E) 1,933,308
Utilities ....................... 1,451,097
Taxes and insurance ............. (F) --
Depreciation expense ............ (G) --
Franchise fees .................. (H)
(I) 1,475,491
Management fees ................. (J)
(K) 1,693,648
Rent expense-Apple Suites,
Inc. ........................... (L) 16,684,124
Other ........................... (M) 30,964
-------- -----------
Total expenses .................. 38,181,886
Income before income tax ........ 876,999
Income tax expense .............. (N) 350,800
-------- -----------
Net income (loss) ............... $ 526,199
===========

F-23

FOR THE SIX MONTHS ENDED JUNE 30, 2000 (UNAUDITED)

PRO FORMA ADJUSTMENTS
-------------------------------------------
HOMEWOOD
HISTORICAL SUITES
STATEMENT OF ACQUISITION TOTAL
OPERATIONS (A IV) PRO FORMA
-------------- ------------- --------------

Revenues:
Suite revenue ........................... $16,162,186 $3,683,872 -- $19,846,058
Other income ............................ 891,551 186,300 -- 1,077,851
Expenses:
Operating expenses ...................... 4,797,335 1,266,548 -- 6,063,883
General and administrative .............. 1,409,598 66,574 $ (12,000) (B)
25,000 (C) 1,489,172
Advertising and promotion ............... 1,436,043 165,562 (147,354) (D)
147,354 (E) 1,601,605
Utilities ............................... 601,421 130,722 -- 732,143
Taxes and insurance ..................... -- 237,170 (237,170) (F) --
Franchise fees .......................... 645,065 147,354 (147,354) (H)
147,354 (I) 792,419
Management fees ......................... 679,372 116,106 (116,106) (J)
164,807 (K) 844,179
Rent expense-Apple Suites, Inc. ......... 7,242,731 -- 1,648,774 (L) 8,891,505
Interest expense ........................ 45,587 -- -- 45,587
Other ................................... 213,014 50,000 (50,000) (M) 213,014
----------- ---------- ------------ -----------
Total expenses ........................... 17,070,166 2,180,036 1,423,305 20,673,507
Income before income tax ................. (16,429) 1,690,136 (1,423,305) 250,402
Income tax expense ....................... -- -- 100,161 (N) 100,161
----------- ---------- ------------ -----------
Net income (loss) ........................ $ (16,429) $1,690,136 $ (1,523,466) $ 150,241
=========== ========== ============ ===========

F-24

NOTES TO PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(A) Represents results of operations for the eleven Homewood Suites hotel
acquisitions on a pro forma basis as if the hotels acquired were leased
and operated by the Lessee at the beginning of the periods presented for
the respective periods prior to acquisition by the Company, see below. The
hotels acquired are as follows:

DATE COMMENCED DATE
PROPERTY OPERATIONS ACQUIRED

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

III Homewood Suites-Jackson, MS February 1997 December 22, 1999
- --------------------------------------------------------------------------------

IV Homewood Suites-Malvern, PA January 1998 May 8, 2000
IV Homewood Suites-Boulder, CO January 1991 June 30, 2000

(B) Represents the elimination of the historical accounting fee allocated to
the hotels by the prior owner.

(C) Represents the addition of the anticipated legal and accounting and other
expenses to operate as a stand alone company.

(D) Represents the elimination of the historical advertising, training and
reservation fee allocated to the hotels by the prior owner.

(E) Represents the addition of the marketing fee to be incurred under the new
license agreements. The marketing fee is calculated based on the terms of
the license agreements which is 4% of suite revenue.

(F) Represents the elimination of the taxes and insurance. Under the terms of
the master hotel lease agreements these expenses will be incurred by the
Company and, accordingly, are reflected in the Company's Pro Forma
Condensed Consolidated Statement of Operations.

(G) Represents the elimination of the depreciation expense. This expense will
be reflected in the Company's Pro Forma Condensed Consolidated Statement
of Operations.

(H) Represents the elimination of the historical franchise fee allocated to the
hotels by the prior owner.

(I) Represents the addition of franchise fees to be incurred under the new
license agreements. The franchise fees are calculated based on the terms
of the agreement, which is 4% of suite revenue.

(J) Represents the elimination of the historical management fees allocated to
the hotels by the prior owner.

(K) Represents the addition of the management fees of 4% of suite and other
revenue and the accounting fee of $1,000 per hotel per month to be
incurred under the new management agreements for the period presented.

(L) Represents lease payments from the Lessee to the Company calculated on a
pro forma basis by applying the rent provisions in the master hotel lease
agreements to the historical room revenue of the hotels as if the
beginning of the period was the beginning of the lease year. The base rent
and the percentage rent will be calculated and paid based on the terms of
the master hotel lease agreements.

(M) Represents the elimination of rent expense for the ground lease. The rent
expense related to the ground lease will be reflected on the Company's Pro
Forma Condensed Consolidated Statement of Operations.

(N) Represents the combined state and federal income tax expense estimated on
a combined rate of 40%.

F-25

PART II
INFORMATION NOT REQUIRED IN PROSPECTUS

ITEM 31. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.

The following are estimates of the expenses to be incurred in connection with
the issuance and distribution of the securities to be registered:

SEC registration fee............................. $ 83,400
NASD filing fee.................................. 30,500
Printing and engraving fees...................... 300,000
Legal fees and expenses.......................... 350,000
Accounting fees and expenses ................... 100,000
Blue Sky fees and expense ....................... 45,000
Transfer Agent and Registrar fees................ 10,000
Registrant travel expense........................ 30,000
Marketing Expense Allowance...................... 7,500,000
Expense reserve.................................. 551,100
----------
Total....................................... 9,000,000
=========

ITEM 32. SALES TO SPECIAL PARTIES.

On March 5,1999, the Registrant sold 10 Common Shares to Apple Suites
Advisors, Inc. ("ASA") for $100 cash.

ITEM 33. RECENT SALES OF UNREGISTERED SECURITIES.

The following table sets forth information concerning the offering and
the use of proceeds from the offering as of June 30, 2000:

Common Shares Registered:

1,666,666.67 Common Shares $ 9 per Common Share $ 15,000,000
28,500,000.00 Common Shares $10 per Common Share $285,000,000
-------------

Totals: 30,166,666.67 Common Shares
-------------

Common Shares Sold:
1,666,666.67 Common Shares $ 9 per Common Share $ 15,000,000
3,278,885.00 Common Shares $10 per Common Share $ 32,788,853
------------ ------------

Totals: 4,945,551.67 Common Shares $ 47,788,853
------------

Expenses of Issuance and Distribution of Common Shares
1. Underwriting discounts and commissions $ 4,778,885
2. Expenses of underwriters $ --
3. Direct or indirect payments to directors or officers
of the Company or their associates, to ten percent
shareholders, or to affiliates of the Company $ --
4. Fees and expenses to third parties $ 1,124,673
------------

Total Expenses of Issuance and Distribution of Common Shares $ 5,903,558

Net Proceeds to the Company $ 41,885,295

1. Purchase of real estate (including repayment of
indebtedness incurred to purchase real estate) $ 30,450,000
2. Interest on indebtedness $ 4,304,782
3. Working capital $ 4,620,907
4. Fees to the following (all affiliates of officers of
the Company):
a. Apple Suites Advisors, Inc. $ 73,606
b. Apple Suites Realty Group, Inc. $ 2,436,000
5. Fees and expenses of third parties:
a. Legal $ --
b. Accounting $ --
6. Other (specify _________) $ --
------------

Total of Application of Net Proceeds to the Company $ 41,885,295

ITEM 34. INDEMNIFICATION OF DIRECTORS AND OFFICERS.

The Company will obtain, and pay the cost of, directors' and officers'
liability insurance coverage which insures (i) the directors and officers of the
Company from any claim arising out of an alleged wrongful act by the directors
and officers of the Company in their respective capacities as directors and
officers of the Company, and (ii) the Company to the extent that the Company has
indemnified the directors and officers for such loss.

The Virginia Stock Corporation Act (the "Virginia Act") permits, and
the Registrant's Articles of Incorporation and Bylaws require, indemnification
of the Registrant's directors and officers in a variety of circumstances, which
may include liabilities under the Securities Act of 1933. Under Section 13.1-697
of the Virginia Act, a Virginia corporation generally is authorized to indemnify
its directors in civil or criminal actions if they acted in good faith and
believed their conduct to be in the best interests of the corporation and, in
the case of criminal actions, had no reasonable cause to believe that the
conduct was unlawful. The Registrant's Articles of Incorporation and Bylaws
require indemnification of officers and directors with respect to any action
except in the case of willful misconduct, bad faith, reckless disregard of
duties or violations of the criminal law. In addition, the Registrant may carry
insurance on behalf of directors, officers, employees or agents that may cover
liabilities under the Securities Act of 1933. The Registrant's Articles of
Incorporation, as permitted by the Virginia Act, eliminate the damages that may
be assessed against a director or officer of the Registrant in a shareholder or
derivative proceeding. This limit on liability will not apply in the event of
willful misconduct or a knowing violation of the criminal law or of federal or
state securities laws. Reference also is made to the indemnification provisions
set forth in the form of Agency Agreement filed as Exhibit 1 hereto.

ITEM 35. TREATMENT OF PROCEEDS FROM STOCK BEING REGISTERED.

None of the proceeds will be credited to an account other than the
appropriate capital share account.

ITEM 36. FINANCIAL STATEMENTS, FINANCIAL STATEMENT SCHEDULES AND EXHIBITS.

(a) Financial Statements. See Index to Balance Sheet in Prospectus, and the
Index to Financial Statements set forth in each of Supplement No. 5,
Supplement No. 6, Supplement No. 7 and Supplement No. 8.

(b) Financial Statement Schedules. Schedule III -- Real Estate and Accumulated
Depreciation (as of December 31, 1999), included in Supplement No. 5.

(c) Exhibits. Except as expressly noted otherwise, the following Exhibits have
been filed previously under the indicated Exhibit Numbers as part of the
Registrant's previous filing on Form S-11 (File No. 333-77055), as amended,
and are hereby incorporated herein by this reference.

EXHIBIT DESCRIPTION
NUMBER OF DOCUMENT
- ------- -----------

1.1 Agency Agreement between the Registrant and David Lerner Associates,
Inc. with form of Selected Dealer Agreement attached as Exhibit A
thereto.

1.2 Escrow Agreement.

3.1 Articles of Incorporation of the Registrant.

3.2 Bylaws of the Registrant.

3.3 Amended and Restated Bylaws of the Registrant.

4.1 Credit Agreement between the Registrant and First Union National Bank.

4.2 Promissory Note to First Union National Bank.

4.3 Guaranty of Glade M. Knight.

4.4 Note dated September 20, 1999 in the principal amount of $26,625,000
made payable by Apple Suites, Inc. to the order of Promus Hotels, Inc.
(Incorporated by reference to Exhibit 4.1 to Current Report on Form 8-K
filed October 5, 1999 by Apple Suites, Inc.; SEC File No. 333-77055).

4.5 Fee and Leasehold Deed of Trust, Assignment of Lease and Rents and
Security Agreement dated September 20, 1999 from Apple Suites, Inc. and
Apple Suites Management, Inc. for the benefit of Promus Hotels, Inc.
pertaining to the Richmond-West End hotel. (Incorporated by reference
to Exhibit 4.2 to Current Report on Form 8-K filed October 5, 1999 by
Apple Suites, Inc.; SEC File No. 333-77055).

4.6 Fee and Leasehold Deed of Trust, Assignment of Leases and Rents and
Security Agreement dated September 20, 1999 from Apple Suites REIT
Limited Partnership and Apple Suites Services Limited Partnership for
the benefit of Promus Hotels, Inc. pertaining to the Dallas-Addison
hotel. (Incorporated by reference to Exhibit 4.3 to Current Report on
Form 8-K filed October 5, 1999 by Apple Suites, Inc.; SEC File No.
333-77055).

4.7 Fee and Leasehold Deed of Trust, Assignment of Leases and Rents and
Security Agreement dated September 20, 1999 from Apple Suites REIT
Limited Partnership and Apple Suites Services Limited Partnership for
the benefit of Promus Hotels, Inc. pertaining to the Dallas-Irving/Las
Colinas hotel. (Incorporated by reference to Exhibit 4.4 to Current
Report on Form 8-K filed October 5, 1999 by Apple Suites, Inc.; SEC
File No. 333-77055).

4.8 Fee and Leasehold Deed of Trust, Assignment of Leases and Rents and
Security Agreement dated September 20, 1999 from Apple Suites REIT
Limited Partnership and Apple Suites Services Limited Partnership for
the benefit of Promus Hotels, Inc. pertaining to the North Dallas-Plano
hotel. (Incorporated by reference to Exhibit 4.5 to Current Report on
Form 8-K filed October 5, 1999 by Apple Suites, Inc.; SEC File No.
333-77055).

4.9 Note dated October 5, 1999 in the principal amount of $7,350,000 made
payable by Apple Suites, Inc. to the order of Promus Hotels, Inc.
(Incorporated by reference to Exhibit 4.1 to Current Report on Form
8-K/A filed October 21, 1999 by Apple Suites, Inc.; SEC File No.
333-77055).

4.10 Fee and Leasehold Deed to Secure Debt, Assignment of Leases and Rents
and Security Agreement dated October 5, 1999 from Apple Suites, Inc.
and Apple Suites Management, Inc. for the benefit of Promus Hotels,
Inc. encumbering the Atlanta-Galleria/Cumberland hotel. (Incorporated
by reference to Exhibit 4.2 to Current Report on Form 8-K/A filed
October 21, 1999 by Apple Suites, Inc.; SEC File No. 333-77055).

4.11 Fee and Leasehold Deed of Trust, Assignment of Leases and Rents and
Security Agreement dated October 5, 1999 from Apple Suites REIT Limited
Partnership and Apple Suites Services Limited Partnership for the
benefit of Promus Hotels, Inc. imposing a second lien on the
Dallas-Addison and Dallas-Irving/Las Colinas hotels. (Incorporated by
reference to Exhibit 4.3 to Current Report on Form 8-K/A filed October
21, 1999 by Apple Suites, Inc.; SEC File No. 333-77055).

4.12 Fee and Leasehold Deed of Trust, Assignment of Leases and Rents and
Security Agreement dated October 5, 1999 from Apple Suites REIT Limited
Partnership and Apple Suites Services Limited Partnership for the
benefit of Promus Hotels, Inc. imposing a second lien on the North
Dallas-Plano hotel. (Incorporated by

reference to Exhibit 4.4 to Current Report on Form 8-K/A filed October
21, 1999 by Apple Suites, Inc.; SEC File No. 333-77055).

4.13 Negative Pledge Agreement dated October 5, 1999 between Apple Suites,
Inc. and Promus Hotels, Inc. pertaining to the Richmond-West End hotel.
(Incorporated by reference to Exhibit 4.5 to Current Report on Form
8-K/A filed October 21, 1999 by Apple Suites, Inc.; SEC File No.
333-77055).

4.14 Note dated November 29, 1999 in the principal amount of $30,210,000
made payable by Apple Suites, Inc. to the order of Promus Hotels, Inc.
(Incorporated by reference to Exhibit 4.1 to Current Report on Form 8-K
filed December 14, 1999 by Apple Suites, Inc.; SEC File No. 333-77055).

4.15 Fee and Leasehold Deed to Secure Debt, Assignment of Leases and Rents
and Security Agreement dated November 29, 1999 from Apple Suites, Inc.
and Apple Suites Management, Inc. for the benefit of Promus Hotels,
Inc. pertaining to the Atlanta--Peachtree hotel. (Incorporated by
reference to Exhibit 4.2 to Current Report on Form 8-K filed December
14, 1999 by Apple Suites, Inc.; SEC File No. 333-77055).

4.16 Fee and Leasehold Deed to Secure Debt, Assignment of Leases and Rents
and Security Agreement dated November 29, 1999 from Apple Suites, Inc.
and Apple Suites Management, Inc. for the benefit of Promus Hotels,
Inc., constituting a second lien on the Atlanta--Galleria/Cumberland
hotel. (Incorporated by reference to Exhibit 4.3 to Current Report on
Form 8-K filed December 14, 1999 by Apple Suites, Inc.; SEC File No.
333-77055).

4.17 Purchase Money Fee and Leasehold Deed of Trust, Assignment of Leases
and Rents and Security Agreement dated November 29, 1999 from Apple
Suites, Inc. and Apple Suites Management, Inc. for the benefit of
Promus Hotels, Inc. pertaining to the Baltimore--BWI Airport hotel.
(Incorporated by reference to Exhibit 4.4 to Current Report on Form 8-K
filed December 14, 1999 by Apple Suites, Inc.; SEC File No. 333-77055).

4.18 Fee and Leasehold Mortgage, Assignment of Leases and Rents and Security
Agreement dated November 29, 1999 from Apple Suites, Inc. and Apple
Suites Management, Inc. for the benefit of Promus Hotels, Inc.
pertaining to the Clearwater hotel. (Incorporated by reference to
Exhibit 4.5 to Current Report on Form 8-K filed December 14, 1999 by
Apple Suites, Inc.; SEC File No. 333-77055).

4.19 Fee and Leasehold Mortgage, Assignment of Leases and Rents and Security
Agreement dated November 29, 1999 from Apple Suites, Inc. and Apple
Suites Management, Inc. for the benefit of Promus Hotels, Inc.
pertaining to the Detroit--Warren hotel. (Incorporated by reference to
Exhibit 4.6 to Current Report on

Form 8-K filed December 14, 1999 by Apple Suites, Inc.; SEC File No.
333-77055).

4.20 Fee and Leasehold Deed of Trust, Assignment of Leases and Rents and
Security Agreement and Fixture Filing dated November 29, 1999, from
Apple Suites, Inc. and Apple Suites Management, Inc., for the benefit
of Promus Hotels, Inc. pertaining to the Salt Lake City--Midvale hotel.
(Incorporated by reference to Exhibit 4.7 to Current Report on Form 8-K
filed December 14, 1999 by Apple Suites, Inc.; SEC File No. 333-77055).

4.21 Deed of Trust Modification Agreement dated November 29, 1999, among
Promus Hotels, Inc., Apple Suites REIT Limited Partnership and Apple
Suites Services Limited Partnership pertaining to the North
Dallas--Plano hotel. (Incorporated by reference to Exhibit 4.8 to
Current Report on Form 8-K filed December 14, 1999 by Apple Suites,
Inc.; SEC File No. 333-77055).

4.22 Deed of Trust Modification Agreement dated November 29, 1999, among
Promus Hotels, Inc., Apple Suites REIT Limited Partnership and Apple
Suites Services Limited Partnership pertaining to the Dallas--Addison
and Dallas--Irving/Las Colinas hotels. (Incorporated by reference to
Exhibit 4.9 to Current Report on Form 8-K filed December 14, 1999 by
Apple Suites, Inc.; SEC File No. 333-77055).

4.23 Note dated December 22, 1999 in the principal amount of $4,384,500 made
payable by Apple Suites, Inc. to the order of Promus Hotels, Inc.
(Incorporated by reference to Exhibit 4.1 to Current Report on Form 8-K
filed January 6, 2000 by Apple Suites, Inc.; SEC File No. 333-77055).

4.24 Fee and Leasehold Deed of Trust, Assignment of Leases and Rents and
Security Agreement dated December 22, 1999 from Apple Suites, Inc. and
Apple Suites Management, Inc. for the benefit of Promus Hotels, Inc.
pertaining to the Jackson, Mississippi hotel. (Incorporated by
reference to Exhibit 4.2 to Current Report on Form 8-K filed January 6,
2000 by Apple Suites, Inc.; SEC File No. 333-77055).

4.25 Fee and Leasehold Deed to Secure Debt, Assignment of Leases and Rents
and Security Agreement dated December 22, 1999 from Apple Suites, Inc.
and Apple Suites Management, Inc. for the benefit of Promus Hotels,
Inc., constituting a second lien on the Atlanta - Peachtree hotel
(Incorporated by reference to Exhibit 4.3 to Current Report on Form 8-K
filed January 6, 2000 by Apple Suites, Inc.; SEC File No. 333-77055).

4.26 Deed to Secure Debt Modification Agreement dated December 22, 1999,
among Promus Hotels, Inc., Apple Suites, Inc. and Apple Suites
Management, Inc. pertaining to the Atlanta - Galleria/Cumberland hotel
(Incorporated by reference to Exhibit 4.4 to Current Report on Form 8-K
filed January 6, 2000 by Apple Suites, Inc.; SEC File No. 333-77055).

4.27 Fee and Leasehold Mortgage, Assignment of Leases and Rents and Security
Agreement dated December 22, 1999 from Apple Suites, Inc. and Apple
Suites Management, Inc. for the benefit of Promus Hotels, Inc.
constituting a second lien on the Detroit - Warren hotel (Incorporated
by reference to Exhibit 4.5 to Current Report on Form 8-K filed January
6, 2000 by Apple Suites, Inc.; SEC File No. 333-77055).

4.28 Fee and Leasehold Deed of Trust, Assignment of Leases and Rents and
Security Agreement and Fixture Filing dated December 22, 1999, from
Apple Suites, Inc. and Apple Suites Management, Inc. for the benefit of
Promus Hotels, Inc. constituting a second lien on the Salt Lake City -
Midvale hotel (Incorporated by reference to Exhibit 4.6 to Current
Report on Form 8-K filed January 6, 2000 by Apple Suites, Inc.; SEC
File No. 333-77055).

4.29 Second Deed of Trust Modification Agreement dated December 22, 1999,
among Promus Hotels, Inc., Apple Suites REIT Limited Partnership and
Apple Suites Services Limited Partnership pertaining to the North
Dallas - Plano hotel (Incorporated by reference to Exhibit 4.7 to
Current Report on Form 8-K filed January 6, 2000 by Apple Suites, Inc.;
SEC File No. 333-77055).

4.30 Second Deed of Trust Modification Agreement dated December 22, 1999,
among Promus Hotels, Inc., Apple Suites REIT Limited Partnership and
Apple Suites Services Limited Partnership pertaining to the Dallas -
Addison and Dallas - Irving/Las Colinas hotels (Incorporated by
reference to Exhibit 4.8 to Current Report on Form 8-K filed January 6,
2000 by Apple Suites, Inc.; SEC File No. 333-77055).

4.31 Note dated May 8, 2000 in the principal amount of $11,616,750 made
payable by Apple Suites, Inc. to the order of Promus Hotels, Inc.
(Incorporated by reference to Exhibit 4.1 to Current Report on Form 8-K
filed May 23, 2000 by Apple Suites, Inc.; SEC File No. 333-77055).

4.32 Leasehold and Subleasehold Mortgage, Assignment of Leases and Rents and
Security Agreement dated May 8, 2000 from Apple Suites, Inc., as
Trustee for Apple Suites Pennsylvania Business Trust, and Apple Suites
Management, Inc. for the benefit of Promus Hotels, Inc. pertaining to
the Malvern, Pennsylvania hotel. (Incorporated by reference to Exhibit
4.2 to Current Report on Form 8-K filed May 23, 2000 by Apple Suites,
Inc.; SEC File No. 333-77055).

4.33 Fee and Leasehold Deed of Trust, Assignment of Leases and Rents and
Security Agreement dated May 8, 2000 from Apple Suites, Inc. and Apple
Suites Management, Inc. for the benefit of Promus Hotels, Inc.,
constituting a second lien on the Jackson, Mississippi hotel.
(Incorporated by reference to Exhibit 4.3 to Current Report on Form 8-K
filed May 23, 2000 by Apple Suites, Inc.; SEC File No. 333-77055).

4.34 Deed to Secure Debt Modification Agreement dated May 8, 2000, among
Promus Hotels, Inc., Apple Suites, Inc. and Apple Suites Management,
Inc. pertaining to the Atlanta - Peachtree hotel. (Incorporated by
reference to Exhibit 4.4 to Current Report on Form 8-K filed May 23,
2000 by Apple Suites, Inc.; SEC File No. 333-77055).

4.35 Second Deed to Secure Debt Modification Agreement dated May 8, 2000,
among Promus Hotels, Inc., Apple Suites, Inc. and Apple Suites
Management, Inc. pertaining to the Atlanta -Galleria/Cumberland hotel.
(Incorporated by reference to Exhibit 4.5 to Current Report on Form 8-K
filed May 23, 2000 by Apple Suites, Inc.; SEC File No. 333-77055).

4.36 Mortgage Modification Agreement dated May 8, 2000 from Apple Suites,
Inc. and Apple Suites Management, Inc. for the benefit of Promus
Hotels, Inc. constituting a second lien on the Detroit - Warren hotel.
(Incorporated by reference to Exhibit 4.6 to Current Report on Form 8-K
filed May 23, 2000 by Apple Suites, Inc.; SEC File No. 333-77055).

4.37 Deed of Trust Modification Agreement dated May 8, 2000, from Apple
Suites, Inc. and Apple Suites Management, Inc. for the benefit of
Promus Hotels, Inc. constituting a second lien on the Salt Lake City -
Midvale hotel. (Incorporated by reference to Exhibit 4.7 to Current
Report on Form 8-K filed May 23, 2000 by Apple Suites, Inc.; SEC File
No. 333-77055).

4.38 Third Deed of Trust Modification Agreement dated May 8, 2000, among
Promus Hotels, Inc., Apple Suites REIT Limited Partnership and Apple
Suites Services Limited Partnership pertaining to the North Dallas -
Plano hotel. (Incorporated by reference to Exhibit 4.8 to Current
Report on Form 8-K filed May 23, 2000 by Apple Suites, Inc.; SEC File
No. 333-77055).

4.39 Third Deed of Trust Modification Agreement dated May 8, 2000, among
Promus Hotels, Inc., Apple Suites REIT Limited Partnership and Apple
Suites Services Limited Partnership pertaining to the Dallas - Addison
and Dallas - Irving/Las Colinas hotels. (Incorporated by reference to
Exhibit 4.9 to Current Report on Form 8-K filed May 23, 2000 by Apple
Suites, Inc.; SEC File No. 333-77055).

4.40 Note dated May 1, 2000 in the principal amount of $80,000 made payable
by Apple Suites Management, Inc. (or a subsidiary) to the order of
Apple Suites, Inc. with respect to the Richmond - West End hotel.

4.41 Schedule setting forth information on 11 substantially identical notes
dated May 1, 2000 in the principal amount of $80,000 made payable to
the order of Apple Suites, Inc.

4.42 Note dated June 30, 2000 in the principal amount of $11,163,750 made
payable by Apple Suites, Inc. to the order of Promus Hotels, Inc.
(Incorporated by reference to Exhibit 4.1 to Current Report on Form 8-K
filed July 17, 2000 by Apple Suites, Inc.; SEC File No. 333-77055).

4.43 Fee and Leasehold Deed of Trust, Assignment of Leases and Rents and
Security Agreement and Fixture Filing dated June 30, 2000 from Apple
Suites, Inc. and Apple Suites Management, Inc. for the benefit of
Promus Hotels, Inc. pertaining to the Boulder, Colorado hotel.
(Incorporated by reference to Exhibit 4.2 to Current Report on Form 8-K
filed July 17, 2000 by Apple Suites, Inc.; SEC File No. 333-77055).

4.44 Leasehold and Subleasehold Mortgage, Assignment of Leases and Rents and
Security Agreement dated June 30, 2000 from Apple Suites, Inc., as
Trustee for Apple Suites Pennsylvania Business Trust, and Apple Suites
Management, Inc. for the benefit of Promus Hotels, Inc. pertaining to
the Malvern, Pennsylvania hotel. (Incorporated by reference to Exhibit
4.3 to Current Report on Form 8-K filed July 17, 2000 by Apple Suites,
Inc.; SEC File No. 333-77055).

4.45 Deed of Trust Modification Agreement dated June 30, 2000 among Apple
Suites, Inc., Apple Suites Management, Inc., Promus Hotels, Inc. and
Lawyers Title Realty Services, Inc., pertaining to the Jackson,
Mississippi hotel. (Incorporated by reference to Exhibit 4.4 to Current
Report on Form 8-K filed July 17, 2000 by Apple Suites, Inc.; SEC File
No. 333-77055).

4.46 Second Deed to Secure Debt Modification Agreement dated June 30, 2000,
among Promus Hotels, Inc., Apple Suites, Inc. and Apple Suites
Management, Inc. pertaining to the Atlanta -Peachtree hotel.
(Incorporated by reference to Exhibit 4.5 to Current Report on Form 8-K
filed July 17, 2000 by Apple Suites, Inc.; SEC File No. 333-77055).

4.47 Third Deed to Secure Debt Modification Agreement dated June 30, 2000,
among Promus Hotels, Inc., Apple Suites, Inc. and Apple Suites
Management, Inc. pertaining to the Atlanta -Galleria/Cumberland hotel.
(Incorporated by reference to Exhibit 4.6 to Current Report on Form 8-K
filed July 17, 2000 by Apple Suites, Inc.; SEC File No. 333-77055).

4.48 Second Mortgage Modification Agreement dated June 30, 2000 among Apple
Suites, Inc., Apple Suites Management, Inc. and Promus Hotels, Inc.
pertaining to the Detroit - Warren hotel. (Incorporated by reference to
Exhibit 4.7 to Current Report on Form 8-K filed July 17, 2000 by Apple
Suites, Inc.; SEC File No. 333-77055).

4.49 Second Deed of Trust Modification Agreement dated June 30, 2000, among
Apple Suites, Inc., Apple Suites Management, Inc., Promus Hotels, Inc.
and Lawyers Title Realty Services, Inc. pertaining to the Salt Lake
City - Midvale

hotel. (Incorporated by reference to Exhibit 4.8 to Current Report on
Form 8-K filed July 17, 2000 by Apple Suites, Inc.; SEC File No.
333-77055).

4.50 Fourth Deed of Trust Modification Agreement dated June 30, 2000, among
Promus Hotels, Inc., Apple Suites REIT Limited Partnership, Apple
Suites Services Limited Partnership and a named Trustee pertaining to
the North Dallas - Plano hotel. (Incorporated by reference to Exhibit
4.9 to Current Report on Form 8-K filed July 17, 2000 by Apple Suites,
Inc.; SEC File No. 333-77055).

4.51 Fourth Deed of Trust Modification Agreement dated June 30, 2000, among
Promus Hotels, Inc., Apple Suites REIT Limited Partnership, Apple
Suites Services Limited Partnership and a named Trustee pertaining to
the Dallas - Addison and Dallas -Irving/Las Colinas hotels.
(Incorporated by reference to Exhibit 4.10 to Current Report on Form
8-K filed July 17, 2000 by Apple Suites, Inc.; SEC File No. 333-77055).

4.52 Amended and Restated Hotel Lease Agreement dated as of November 24,
1999 between Apple Suites SPE I, Inc. as Lessor, and Apple Suites
Management, Inc. as Lessee, with respect to the hotel in Salt Lake
City, Utah (FILED HEREWITH).

4.53 Percentage Lease Subordination and Attornment Agreement dated September
8, 2000, between and Apple Suites Management, Inc. as Lessee, and First
Union National Bank as Lender (with respect to Exhibit 4.52, as filed
herewith) (FILED HEREWITH).

4.54 Environmental Indemnity Agreement dated September 8, 2000 from Apple
Suites SPE I, Inc. and Apple Suites, Inc. as Indemnitors, in favor of
First Union National Bank as Lender with respect to the hotel in Salt
Lake City, Utah (FILED HEREWITH).

4.55 Schedule setting forth information on 7 substantially identical Amended
and Restated Hotel Lease Agreements (with respect to Exhibit 4.52, as
filed herewith) (FILED HEREWITH).

4.56 Schedule setting forth information on 10 substantially identical
Percentage Lease Subordination and Attornment Agreements (with respect
to Exhibit 4.53, as filed herewith) dated September 8, 2000 with First
National Bank as Lender (FILED HEREWITH).

4.57 Schedule setting for the information on 10 substantially identical
Environmental Indemnity Agreements (with respect to Exhibit 4.54, as
filed herewith) dated September 8, 2000 in favor of First Union
National Bank as Lender (FILED HEREWITH).

5 Opinion of McGuire, Woods, Battle & Boothe LLP as to the legality of
the securities being registered.

8 Opinion of McGuire, Woods, Battle & Boothe LLP as to certain tax
matters.

10.1 Advisory Agreement between the Registrant and Apple Suites Advisors,
Inc.

10.2 Property Acquisition/Disposition Agreement between the Registrant and
Apple Suites Realty Group, Inc.

10.3 Apple Suites, Inc. 1999 Incentive Plan.

10.4 Apple Suites, Inc. 1999 Non-Employee Directors Stock Option Plan.

10.5 Indemnity dated September 20, 1999 from Apple Suites, Inc. to Promus
Hotels, Inc. pertaining to the Richmond-West End hotel. (Incorporated
by reference to Exhibit 10.1 to Current Report on Form 8-K filed
October 5, 1999 by Apple Suites, Inc.; SEC File No. 333-77055).

10.6 Indemnity dated September 20, 1999 from Apple Suites, Inc. to Promus
Hotels, Inc. pertaining to the Dallas-Addison hotel. (Incorporated by
reference to Exhibit 10.2 to Current Report on Form 8-K filed October
5, 1999 by Apple Suites, Inc.; SEC File No. 333-77055).

10.7 Indemnity dated September 20, 1999 from Apple Suites, Inc. to Promus
Hotels, Inc. pertaining to the Dallas-Irving/Las Colinas hotel.
(Incorporated by reference to Exhibit 10.3 to Current Report on Form
8-K filed October 5, 1999 by Apple Suites, Inc.; SEC File No.
333-77055).

10.8 Indemnity dated September 20, 1999 from Apple Suites, Inc. to Promus
Hotels, Inc. pertaining to the to the North Dallas-Plano hotel.
(Incorporated by reference to Exhibit 10.4 to Current Report on Form
8-K filed October 5, 1999 by Apple Suites, Inc.; SEC File No.
333-77055).

10.9 Master Hotel Lease Agreement dated September 20, 1999 between Apple
Suites, Inc. (as lessor) and Apple Suites Management, Inc. (as lessee).
(Incorporated by reference to Exhibit 10.5 to Current Report on Form
8-K filed October 5, 1999 by Apple Suites, Inc.; SEC File No.
333-77055).

10.10 Master Hotel Lease Agreement dated September 20, 1999 between Apple
Suites REIT Limited Partnership (as lessor) and Apple Suites Services
Limited Partnership (as lessee). (Incorporated by reference to Exhibit
10.6 to Current Report on Form 8-K filed October 5, 1999 by Apple
Suites, Inc.; SEC File No. 333-77055).

10.11 Homewood Suites License Agreement dated September 20, 1999 between
Promus Hotels, Inc. and Apple Suites Management, Inc. pertaining to the
Richmond-West End hotel. (Incorporated by reference to Exhibit 10.7 to
Current Report on Form 8-K filed October 5, 1999 by Apple Suites, Inc.;
SEC File No. 333-77055).

10.12 Homewood Suites License Agreement dated September 20, 1999 between
Promus Hotels, Inc. and Apple Suites Services Limited Partnership
pertaining to the Dallas-Addison hotel. (Incorporated by reference to
Exhibit 10.8 to Current Report on Form 8-K filed October 5, 1999 by
Apple Suites, Inc.; SEC File No. 333-77055).

10.13 Homewood Suites License Agreement dated September 20, 1999 between
Promus Hotels, Inc. and Apple Suites Services Limited Partnership
pertaining to the Dallas-Irving/Las Colinas hotel. (Incorporated by
reference to Exhibit 10.9 to Current Report on Form 8-K filed October
5, 1999 by Apple Suites, Inc.; SEC File No. 333-77055).

10.14 Homewood Suites License Agreement dated September 20, 1999 between
Promus Hotels, Inc. and Apple Suites Services Limited Partnership
pertaining to the North Dallas-Plano hotel. (Incorporated by reference
to Exhibit 10.10 to Current Report on Form 8-K filed October 5, 1999 by
Apple Suites, Inc.; SEC File No. 333-77055).

10.15 Management Agreement dated September 20, 1999 between Apple Suites
Management, Inc. and Promus Hotels, Inc. pertaining to the
Richmond-West End hotel. (Incorporated by reference to Exhibit 10.11 to
Current Report on Form 8-K filed October 5, 1999 by Apple Suites, Inc.;
SEC File No. 333-77055).

10.16 Management Agreement dated September 20, 1999 between Apple Suites
Services Limited Partnership and Promus Hotels, Inc. pertaining to the
Dallas-

Addison hotel. (Incorporated by reference to Exhibit 10.12 to Current
Report on Form 8-K filed October 5, 1999 by Apple Suites, Inc.; SEC
File No. 333-77055).

10.17 Management Agreement dated September 20, 1999 between Apple Suites
Services Limited Partnership and Promus Hotels, Inc. pertaining to the
Dallas-Irving/Las Colinas hotel. (Incorporated by reference to Exhibit
10.13 to Current Report on Form 8-K filed October 5, 1999 by Apple
Suites, Inc.; SEC File No. 333-77055).

10.18 Management Agreement dated September 20, 1999 between Apple Suites
Services Limited Partnership and Promus Hotels, Inc. pertaining to the
North Dallas-Plano hotel. (Incorporated by reference to Exhibit 10.14
to Current Report on Form 8-K filed October 5, 1999 by Apple Suites,
Inc.; SEC File No. 333-77055).

10.19 Comfort Letter dated September 20, 1999 among Promus Hotels, Inc.,
Apple Suites, Inc. and Apple Suites Management, Inc. pertaining to the
Richmond-West End hotel. (Incorporated by reference to Exhibit 10.15 to
Current Report on Form 8-K filed October 5, 1999 by Apple Suites, Inc.;
SEC File No. 333-77055).

10.20 Comfort Letter dated September 20, 1999 among Promus Hotels, Inc.,
Apple Suites REIT Limited Partnership and Apple Suites Services Limited
Partnership pertaining to the Dallas-Addison hotel. (Incorporated by
reference to Exhibit 10.16 to Current Report on Form 8-K filed October
5, 1999 by Apple Suites, Inc.; SEC File No. 333-77055).

10.21 Comfort Letter dated September 20, 1999 among Promus Hotels, Inc.,
Apple Suites REIT Limited Partnership and Apple Suites Services Limited
Partnership pertaining to the Dallas-Irving/Las Colinas hotel.
(Incorporated by reference to Exhibit 10.17 to Current Report on Form
8-K filed October 5, 1999 by Apple Suites, Inc.; SEC File No.
333-77055).

10.22 Comfort Letter dated September 20, 1999 among Promus Hotels, Inc.,
Apple Suites REIT Limited Partnership and Apple Suites Services Limited
Partnership pertaining to the North Dallas-Plano hotel. (Incorporated
by reference to Exhibit 10.18 to Current Report on Form 8-K filed
October 5, 1999 by Apple Suites, Inc.; SEC File No. 333-77055).

10.23 Promissory Note dated September 17, 1999 in the amount of $215,550 made
payable by Apple Suites Management, Inc. and Apple Suites Services
Limited Partnership to the order of Apple Suites, Inc. (Incorporated by
reference to Exhibit 10.19 to Current Report on Form 8-K filed October
5, 1999 by Apple Suites, Inc.; SEC File No. 333-77055).

10.24 Promissory Note dated September 17, 1999 in the amount of $47,800 made
payable by Apple Suites Management, Inc. and Apple Suites Services
Limited

Partnership to the order of Apple Suites, Inc. (Incorporated by
reference to Exhibit 10.20 to Current Report on Form 8-K filed October
5, 1999 by Apple Suites, Inc.; SEC File No. 333-77055).

10.25 Articles of Incorporation of Apple Suites General, Inc. (Incorporated
by reference to Exhibit 10.21 to Current Report on Form 8-K filed
October 5, 1999 by Apple Suites, Inc.; SEC File No. 333-77055).

10.26 Bylaws of Apple Suites General, Inc. (Incorporated by reference to
Exhibit 10.22 to Current Report on Form 8-K filed October 5, 1999 by
Apple Suites, Inc.; SEC File No. 333-77055).

10.27 Articles of Incorporation of Apple Suites LP, Inc. (Incorporated by
reference to Exhibit 10.23 to Current Report on Form 8-K filed October
5, 1999 by Apple Suites, Inc.; SEC File No. 333-77055).

10.28 Bylaws of Apple Suites LP, Inc. (Incorporated by reference to Exhibit
10.24 to Current Report on Form 8-K filed October 5, 1999 by Apple
Suites, Inc.; SEC File No. 333-77055).

10.29 Certificate of Limited Partnership of Apple Suites REIT Limited
Partnership. (Incorporated by reference to Exhibit 10.25 to Current
Report on Form 8-K filed October 5, 1999 by Apple Suites, Inc.; SEC
File No. 333-77055).

10.30 Agreement of Limited Partnership of Apple Suites REIT Limited
Partnership. (Incorporated by reference to Exhibit 10.26 to Current
Report on Form 8-K filed October 5, 1999 by Apple Suites, Inc.; SEC
File No. 333-77055).

10.31 Indemnity dated October 5, 1999 from Apple Suites, Inc. to Promus
Hotels, Inc. pertaining to the Atlanta-Galleria/Cumberland hotel.
(Incorporated by reference to Exhibit 10.1 to Current Report on Form
8-K/A filed October 21, 1999 by Apple Suites, Inc.; SEC File No.
333-77055).

10.32 Homewood Suites License Agreement dated October 5, 1999 between Promus
Hotels, Inc. and Apple Suites Management, Inc. pertaining to the
Atlanta-Galleria/Cumberland hotel. (Incorporated by reference to
Exhibit 10.2 to Current Report on Form 8-K/A filed October 21, 1999 by
Apple Suites, Inc.; SEC File No. 333-77055).

10.33 Management Agreement dated October 5, 1999 between Apple Suites
Management, Inc. and Promus Hotels, Inc. pertaining to the
Atlanta-Galleria/Cumberland hotel. (Incorporated by reference to
Exhibit 10.3 to Current Report on Form 8-K/A filed October 21, 1999 by
Apple Suites, Inc.; SEC File No. 333-77055).

10.34 Comfort Letter dated October 5, 1999 among Promus Hotels, Inc., Apple
Suites, Inc. and Apple Suites Management, Inc. pertaining to the
Atlanta-Galleria/Cumberland hotel. (Incorporated by reference to
Exhibit 10.4 to Current Report on Form 8-K/A filed October 21, 1999 by
Apple Suites, Inc.; SEC File No. 333-77055).

10.35 Promissory Note dated October 5, 1999 in the amount of $55,800 made
payable by Apple Suites Management, Inc. and Apple Suites Services
Limited Partnership to the order of Apple Suites, Inc. (Incorporated by
reference to Exhibit 10.5 to Current Report on Form 8-K/A filed October
21, 1999 by Apple Suites, Inc.; SEC File No. 333-77055).

10.36 Promissory Note dated October 5, 1999 in the amount of $12,400 made
payable by Apple Suites Management, Inc. and Apple Suites Services
Limited Partnership to the order of Apple Suites, Inc. (Incorporated by
reference to Exhibit 10.6 to Current Report on Form 8-K/A filed October
21, 1999 by Apple Suites, Inc.; SEC File No. 333-77055).

10.37 Indemnity dated November 29, 1999 from Apple Suites, Inc. to Promus
Hotels, Inc. pertaining to the Atlanta--Peachtree hotel. (Incorporated
by reference to Exhibit 10.1 to Current Report on Form 8-K filed
December 14, 1999 by Apple Suites, Inc.; SEC File No. 333-77055).

10.38 Indemnity dated November 29, 1999 from Apple Suites, Inc. to Promus
Hotels, Inc. pertaining to the Baltimore--BWI Airport hotel.
(Incorporated by reference to Exhibit 10.2 to Current Report on Form
8-K filed December 14, 1999 by Apple Suites, Inc.; SEC File No.
333-77055).

10.39 Indemnity dated November 29, 1999 from Apple Suites, Inc. to Promus
Hotels, Inc. pertaining to the Clearwater hotel. (Incorporated by
reference to Exhibit 10.3 to Current Report on Form 8-K filed December
14, 1999 by Apple Suites, Inc.; SEC File No. 333-77055).

10.40 Indemnity dated November 29, 1999 from Apple Suites, Inc. to Promus
Hotels, Inc. pertaining to the to the Detroit--Warren hotel.
(Incorporated by reference to Exhibit 10.4 to Current Report on Form
8-K filed December 14, 1999 by Apple Suites, Inc.; SEC File No.
333-77055).

10.41 Indemnity dated November 29, 1999 from Apple Suites, Inc. to Promus
Hotels, Inc. pertaining to the Salt Lake City--Midvale hotel.
(Incorporated by reference to Exhibit 10.5 to Current Report on Form
8-K filed December 14, 1999 by Apple Suites, Inc.; SEC File No.
333-77055).

10.42 Exhibits A-3, A-4, A-5, A-6 and A-7, Schedules 2.1(c), 2.1(d), 2.1(e),
2.1(f) and 2.1(g), Schedules 3.1(a)-3, 3.1(a)-4, 3.1(a)-5, 3.1(a)-6 and
3.1(a)-7, and Schedules 3.1(b)-3, 3.1(b)-4, 3.1(b)-5, 3.1(b)-6 and
3.1(b)-7 to the Master Hotel Lease

Agreement dated September 20, 1999 between Apple Suites, Inc. (as
lessor) and Apple Suites Management, Inc. (as lessee). (Incorporated by
reference to Exhibit 10.6 to Current Report on Form 8-K filed December
14, 1999 by Apple Suites, Inc.; SEC File No. 333-77055).

10.43 Homewood Suites License Agreement dated November 29, 1999 between
Promus Hotels, Inc. and Apple Suites Management, Inc. pertaining to the
Atlanta--Peachtree hotel. (Incorporated by reference to Exhibit 10.7 to
Current Report on Form 8-K filed December 14, 1999 by Apple Suites,
Inc.; SEC File No. 333-77055).

10.44 Homewood Suites License Agreement dated November 29, 1999 between
Promus Hotels, Inc. and Apple Suites Management, Inc. pertaining to the
Baltimore--BWI Airport hotel. (Incorporated by reference to Exhibit
10.8 to Current Report on Form 8-K filed December 14, 1999 by Apple
Suites, Inc.; SEC File No. 333-77055).

10.45 Homewood Suites License Agreement dated November 29, 1999 between
Promus Hotels, Inc. and Apple Suites Management, Inc. pertaining to the
Clearwater hotel. (Incorporated by reference to Exhibit 10.9 to Current
Report on Form 8-K filed December 14, 1999 by Apple Suites, Inc.; SEC
File No. 333-77055).

10.46 Homewood Suites License Agreement dated November 29, 1999 between
Promus Hotels, Inc. and Apple Suites Management, Inc. pertaining to the
Detroit--Warren hotel. (Incorporated by reference to Exhibit 10.10 to
Current Report on Form 8-K filed December 14, 1999 by Apple Suites,
Inc.; SEC File No. 333-77055).

10.47 Homewood Suites License Agreement dated November 29, 1999 between
Promus Hotels, Inc. and Apple Suites Management, Inc. pertaining to the
Salt Lake City--Midvale hotel. (Incorporated by reference to Exhibit
10.11 to Current Report on Form 8-K filed December 14, 1999 by Apple
Suites, Inc.; SEC File No. 333-77055).

10.48 Management Agreement dated November 29, 1999 between Apple Suites
Management, Inc. and Promus Hotels, Inc. pertaining to the
Atlanta--Peachtree hotel. (Incorporated by reference to Exhibit 10.12
to Current Report on Form 8-K filed December 14, 1999 by Apple Suites,
Inc.; SEC File No. 333-77055).

10.49 Management Agreement dated November 29, 1999 between Apple Suites
Management, Inc. and Promus Hotels, Inc. pertaining to the
Baltimore--BWI Airport hotel. (Incorporated by reference to Exhibit
10.13 to Current Report on Form 8-K filed December 14, 1999 by Apple
Suites, Inc.; SEC File No. 333-77055).

10.50 Management Agreement dated November 29, 1999 between Apple Suites
Management, Inc. and Promus Hotels Florida, Inc. pertaining to the
Clearwater

hotel. (Incorporated by reference to Exhibit 10.14 to Current Report on
Form 8-K filed December 14, 1999 by Apple Suites, Inc.; SEC File No.
333-77055).

10.51 Management Agreement dated November 29, 1999 between Apple Suites
Management, Inc. and Promus Hotels, Inc. pertaining to the
Detroit--Warren hotel. (Incorporated by reference to Exhibit 10.15 to
Current Report on Form 8-K filed December 14, 1999 by Apple Suites,
Inc.; SEC File No. 333-77055).

10.52 Management Agreement dated November 29, 1999 between Apple Suites
Management, Inc. and Promus Hotels, Inc. pertaining to the Salt Lake
City--Midvale hotel. (Incorporated by reference to Exhibit 10.16 to
Current Report on Form 8-K filed December 14, 1999 by Apple Suites,
Inc.; SEC File No. 333-77055).

10.53 Comfort Letter dated November 29, 1999 among Promus Hotels, Inc., Apple
Suites, Inc. and Apple Suites Management, Inc. pertaining to the
Atlanta--Peachtree hotel. (Incorporated by reference to Exhibit 10.17
to Current Report on Form 8-K filed December 14, 1999 by Apple Suites,
Inc.; SEC File No. 333-77055).

10.54 Comfort Letter dated November 29, 1999 among Promus Hotels, Inc., Apple
Suites, Inc. and Apple Suites Management, Inc. pertaining to the
Baltimore--BWI Airport hotel. (Incorporated by reference to Exhibit
10.18 to Current Report on Form 8-K filed December 14, 1999 by Apple
Suites, Inc.; SEC File No. 333-77055).

10.55 Comfort Letter dated November 29, 1999 among Promus Hotels, Inc.,
Promus Hotels Florida, Inc. Apple Suites, Inc. and Apple Suites
Management, Inc. pertaining to the Clearwater hotel. (Incorporated by
reference to Exhibit 10.19 to Current Report on Form 8-K filed December
14, 1999 by Apple Suites, Inc.; SEC File No. 333-77055).

10.56 Comfort Letter dated November 29, 1999 among Promus Hotels, Inc., Apple
Suites, Inc. and Apple Suites Management, Inc. pertaining to the
Detroit--Warren hotel. (Incorporated by reference to Exhibit 10.20 to
Current Report on Form 8-K filed December 14, 1999 by Apple Suites,
Inc.; SEC File No. 333-77055).

10.57 Comfort Letter dated November 29, 1999 among Promus Hotels, Inc., Apple
Suites, Inc. and Apple Suites Management, Inc. pertaining to the Salt
Lake City--Midvale hotel. (Incorporated by reference to Exhibit 10.21
to Current Report on Form 8-K filed December 14, 1999 by Apple Suites,
Inc.; SEC File No. 333-77055).

10.58 Promissory Note dated November 29, 1999 in the amount of $251,500 made
payable by Apple Suites Management, Inc. to the order of Apple Suites,
Inc.

(Incorporated by reference to Exhibit 10.22 to Current Report on Form
8-K filed December 14, 1999 by Apple Suites, Inc.; SEC File No.
333-77055).

10.59 Promissory Note dated November 29, 1999 in the amount of $52,500 made
payable by Apple Suites Management, Inc. to the order of Apple Suites,
Inc. (Incorporated by reference to Exhibit 10.23 to Current Report on
Form 8-K filed December 14, 1999 by Apple Suites, Inc.; SEC File No.
333-77055).

10.60 Negative Pledge Agreements dated November 29, 1999 between Apple
Suites, Inc. and Promus Hotels, Inc. pertaining to the Richmond--West
End hotel. (Incorporated by reference to Exhibit 10.24 to Current
Report on Form 8-K filed December 14, 1999 by Apple Suites, Inc.; SEC
File No. 333-77055).

10.61 Indemnity dated December 22, 1999 from Apple Suites, Inc. to Promus
Hotels, Inc. pertaining to the Jackson, Mississippi hotel (Incorporated
by reference to Exhibit 10.1 to Current Report on Form 8-K filed
January 6, 2000 by Apple Suites, Inc.; SEC File No. 333-77055).

10.62 Schedules 2.1(h), 3.1(a)-8, and 3.1(b)-8 to the Master Hotel Lease
Agreement dated September 20, 1999 between Apple Suites, Inc. (as
lessor) and Apple Suites Management, Inc. (as lessee) (Incorporated by
reference to Exhibit 10.2 to Current Report on Form 8-K filed January
6, 2000 by Apple Suites, Inc.; SEC File No. 333-77055).

10.63 Homewood Suites License Agreement dated December 22, 1999 between
Promus Hotels, Inc. and Apple Suites Management, Inc. pertaining to the
Jackson, Mississippi hotel (Incorporated by reference to Exhibit 10.3
to Current Report on Form 8-K filed January 6, 2000 by Apple Suites,
Inc.; SEC File No. 333-77055).

10.64 Management Agreement dated December 22, 1999 between Apple Suites
Management, Inc. and Promus Hotels, Inc. pertaining to the Jackson,
Mississippi hotel (Incorporated by reference to Exhibit 10.4 to Current
Report on Form 8-K filed January 6, 2000 by Apple Suites, Inc.; SEC
File No. 333-77055).

10.65 Letter dated December 22, 1999 interpreting Management Agreement dated
December 22, 1999 among Apple Suites, Inc., Promus Hotels, Inc., Promus
Hotels Florida, Inc. and Hampton Inns, Inc. pertaining to the Jackson,
Mississippi hotel (Incorporated by reference to Exhibit 10.5 to Current
Report on Form 8-K filed January 6, 2000 by Apple Suites, Inc.; SEC
File No. 333-77055).

10.66 Comfort Letter dated December 22, 1999 among Promus Hotels, Inc., Apple
Suites, Inc. and Apple Suites Management, Inc. pertaining to the
Jackson, Mississippi hotel (Incorporated by reference to Exhibit 10.6
to Current Report on Form 8-K filed January 6, 2000 by Apple Suites,
Inc.; SEC File No. 333-77055).

10.67 Negative Pledge Agreements dated December 22, 1999 between Apple
Suites, Inc. and Promus Hotels, Inc (Incorporated by reference to
Exhibit 10.7 to Current Report on Form 8-K filed January 6, 2000 by
Apple Suites, Inc.; SEC File No. 333-77055).

10.68 Promissory Note dated December 22, 1999 in the amount of $45,000 made
payable by Apple Suites Management, Inc. to the order of Apple Suites,
Inc. (Hotel Franchise Fees) (Incorporated by reference to Exhibit 10.8
to Current Report on Form 8-K filed January 6, 2000 by Apple Suites,
Inc.; SEC File No. 333-77055).

10.69 Promissory Note dated December 22, 1999 in the amount of $9,100 made
payable by Apple Suites Management, Inc. to the order of Apple Suites,
Inc. (Incorporated by reference to Exhibit 10.9 to Current Report on
Form 8-K filed January 6, 2000 by Apple Suites, Inc.; SEC File No.
333-77055).

10.70 Indemnity dated May 8, 2000 from Apple Suites, Inc. to Promus Hotels,
Inc. pertaining to the Malvern, Pennsylvania hotel. (Incorporated by
reference to Exhibit 10.1 to Current Report on Form 8-K filed May 23,
2000 by Apple Suites, Inc.; SEC File No. 333-77055).

10.71 Master Hotel Lease Agreement dated May 8, 2000 between Apple Suites,
Inc., as Trustee for Apple Suites Pennsylvania Business Trust (as
lessor) and Apple Suites Management, Inc. (as lessee). (Incorporated by
reference to Exhibit 10.2 to Current Report on Form 8-K filed May 23,
2000 by Apple Suites, Inc.; SEC File No. 333-77055).

10.72 Homewood Suites License Agreement between Promus Hotels, Inc. and Apple
Suites Management, Inc. pertaining to the Malvern, Pennsylvania hotel.
(Incorporated by reference to Exhibit 10.3 to Current Report on Form
8-K filed May 23, 2000 by Apple Suites, Inc.; SEC File No. 333-77055).

10.73 Management Agreement dated May 8, 2000 between Apple Suites Management,
Inc. and Promus Hotels, Inc. pertaining to the Malvern, Pennsylvania
hotel. (Incorporated by reference to Exhibit 10.4 to Current Report on
Form 8-K filed May 23, 2000 by Apple Suites, Inc.; SEC File No.
333-77055).

10.74 Letter dated May 8, 2000 among Apple Suites, Inc., Hampton Inns, Inc.,
Promus Hotels Florida, Inc. and Promus Hotels, Inc. pertaining to the
repayment of notes made by Apple Suites, Inc. in connection with the
purchase of all of its Homewood Suites(R)by Hilton hotels.
(Incorporated by reference to Exhibit 10.5 to Current Report on Form
8-K filed May 23, 2000 by Apple Suites, Inc.; SEC File No. 333-77055).

10.75 Letter dated May 8, 2000 between Apple Suites, Inc. and Promus Hotels,
Inc. pertaining to the release of certain hotel properties as security
upon the repayment

of certain debt by Apple Suites, Inc. (Incorporated by reference to
Exhibit 10.6 to Current Report on Form 8-K filed May 23, 2000 by Apple
Suites, Inc.; SEC File No. 333-77055).

10.76 Comfort Letter dated May 8, 2000 among Promus Hotels, Inc., Apple
Suites, Inc., as Trustee for Apple Suites Pennsylvania Business Trust
and Apple Suites Management, Inc. pertaining to the Malvern,
Pennsylvania hotel. (Incorporated by reference to Exhibit 10.7 to
Current Report on Form 8-K filed May 23, 2000 by Apple Suites, Inc.;
SEC File No. 333-77055).

10.77 Negative Pledge Agreement dated May 8, 2000 between Apple Suites, Inc.
and Promus Hotels, Inc. (Incorporated by reference to Exhibit 10.8 to
Current Report on Form 8-K filed May 23, 2000 by Apple Suites, Inc.;
SEC File No. 333-77055).

10.78 Promissory Note dated May 8, 2000 in the amount of $55,350 made payable
by Apple Suites Management, Inc. to the order of Apple Suites, Inc.
(Hotel Franchise Fees). (Incorporated by reference to Exhibit 10.9 to
Current Report on Form 8-K filed May 23, 2000 by Apple Suites, Inc.;
SEC File No. 333-77055).

10.79 Promissory Note dated May 8, 2000 in the amount of $12,300 made payable
by Apple Suites Management, Inc. to the order of Apple Suites, Inc.
(Hotel Supplies). (Incorporated by reference to Exhibit 10.10 to
Current Report on Form 8-K filed May 23, 2000 by Apple Suites, Inc.;
SEC File No. 333-77055).

10.80 Declaration of Trust of Apple Suites Pennsylvania Business Trust.
(Incorporated by reference to Exhibit 10.11 to Current Report on Form
8-K filed May 23, 2000 by Apple Suites, Inc.; SEC File No. 333-77055).

10.81 Ground Lease dated July 1, 1996 between named Landlords and Promus
Hotels, Inc. as Tenant, as amended by Amendment to Ground Lease dated
as of July 1, 1996 and Second Amendment to Ground Lease and Amendment
to Short Form Lease dated as of March 6, 2000. (Incorporated by
reference to Exhibit 10.12 to Current Report on Form 8-K filed May 23,
2000 by Apple Suites, Inc.; SEC File No. 333-77055).

10.82 Assignment and Assumption of Lease dated May 8, 2000 by and among named
Landlords, Promus Hotels, Inc. as Assignor and Apple Suites, Inc., as
Trustee for Apple Suites Pennsylvania Business Trust, as Assignee.
(Incorporated by reference to Exhibit 10.13 to Current Report on Form
8-K filed May 23, 2000 by Apple Suites, Inc.; SEC File No. 333-77055).

10.83 Indemnity dated June 30, 2000 from Apple Suites, Inc. to Promus Hotels,
Inc. pertaining to the Boulder, Colorado hotel. (Incorporated by
reference to Exhibit 10.1 to Current Report on Form 8-K filed July 17,
2000 by Apple Suites, Inc.; SEC File No. 333-77055).

10.84 Schedules 2.1(i), 3.1(a)-9 and 3.1(b)-9 to Master Hotel Lease Agreement
dated September 20, 1999 between Apple Suites, Inc., (as lessor) and
Apple Suites Management, Inc. (as lessee). (Incorporated by reference
to Exhibit 10.2 to Current Report on Form 8-K filed July 17, 2000 by
Apple Suites, Inc.; SEC File No. 333-77055).

10.85 Homewood Suites License Agreement dated June 30, 2000 between Promus
Hotels, Inc. and Apple Suites Management, Inc. pertaining to the
Boulder, Colorado hotel. (Incorporated by reference to Exhibit 10.3 to
Current Report on Form 8-K filed July 17, 2000 by Apple Suites, Inc.;
SEC File No. 333-77055).

10.86 Management Agreement dated June 30, 2000 between Apple Suites
Management, Inc. and Promus Hotels, Inc. pertaining to the Boulder,
Colorado hotel. (Incorporated by reference to Exhibit 10.4 to Current
Report on Form 8-K filed July 17, 2000 by Apple Suites, Inc.; SEC File
No. 333-77055).

10.87 Letter dated June 30, 2000 among Apple Suites, Inc., Apple Suites
Management, Inc., Hampton Inns, Inc., Promus Hotels Florida, Inc. and
Promus Hotels, Inc. affirming certain letter agreements dated May 8,
2000. (Incorporated by reference to Exhibit 10.5 to Current Report on
Form 8-K filed July 17, 2000 by Apple Suites, Inc.; SEC File No.
333-77055).

10.88 Comfort Letter dated June 30, 2000 among Promus Hotels, Inc., Apple
Suites, Inc. and Apple Suites Management, Inc. pertaining to the
Boulder, Colorado hotel. (Incorporated by reference to Exhibit 10.6 to
Current Report on Form 8-K filed July 17, 2000 by Apple Suites, Inc.;
SEC File No. 333-77055).

10.89 Negative Pledge Agreement dated June 30, 2000 between Apple Suites,
Inc. and Promus Hotels, Inc. (Incorporated by reference to Exhibit 10.7
to Current Report on Form 8-K filed July 17, 2000 by Apple Suites,
Inc.; SEC File No. 333-77055).

10.90 Promissory Note dated June 30, 2000 in the amount of $50,400 made
payable by Apple Suites Management, Inc. to the order of Apple Suites,
Inc. (Hotel Franchise Fees) (Incorporated by reference to Exhibit 10.8
to Current Report on Form 8-K filed July 17, 2000 by Apple Suites,
Inc.; SEC File No. 333-77055).

10.91 Promissory Note dated June 30, 2000 in the amount of $11,200 made
payable by Apple Suites Management, Inc. to the order of Apple Suites,
Inc. (Hotel Supplies) (Incorporated by reference to Exhibit 10.9 to
Current Report on Form 8-K filed July 17, 2000 by Apple Suites, Inc.;
SEC File No. 333-77055).

10.92 Note dated July 1, 2000 in the principal amount of $80,000 made payable
by Apple Suites Management, Inc. to the order of Apple Suites, Inc.
with respect to the Boulder, Colorado hotel. (Incorporated by reference
to Exhibit 10.10 to

Current Report on Form 8-K filed July 17, 2000 by Apple Suites, Inc.;
SEC File No. 333-77055).

10.93 Apple Suites SPE I, Inc. Articles of Incorporation (FILED HEREWITH).

10.94 Apple Suites SPE I, Inc. Bylaws (FILED HEREWITH).

10.95 Apple Suites SPE II, Inc. Articles of Incorporation (FILED HEREWITH).

10.96 Apple Suites SPE II, Inc. Bylaws (FILED HEREWITH).

10.97 Apple Suites General, Inc. Articles of Amendment and Restatement to the
Articles of Incorporation (FILED HEREWITH).

10.98 Apple Suites General, Inc. Amended and Restated Bylaws (FILED
HEREWITH).

10.99 Apple Suites LP, Inc. Articles of Amendment and Restatement to the
Articles of Incorporation (FILED HEREWITH).

10.100 Apple Suites LP, Inc. Amended and Restated Bylaws (FILED HEREWITH).

10.101 Amended and Restated Limited Partnership Agreement of Apple Suites REIT
Limited Partnership (FILED HEREWITH).

10.102 Promissory Note dated September 8, 2000 in the principal amount of
$2,500,000 made payable by Apple Suites SPE I, Inc. to First Union
National Bank, with respect to the hotel in Salt Lake City, Utah (FILED
HEREWITH).

10.103 Indemnity and Guaranty Agreement dated September 8, 2000 by Apple
Suites, Inc., Indemnitor, in favor of First Union National Bank as
Lender, with respect to a $2,500,000 loan to Apple Suites SPE I, Inc.
as Borrower, with respect to the hotel in Salt Lake City, Utah (FILED
HEREWITH).

10.104 Deed of Trust, Security Agreement and UCC Fixture Filing dated
September 8, 2000, from Apple Suites SPE I, Inc., Grantor, to Metro
National Title Company, as Trustee for First Union National Bank,
Beneficiary with respect to the hotel in Salt Lake City, Utah (FILED
HEREWITH).

10.105 Assignment of Contracts and Permits dated September 8, 2000 from Apple
Suites SPE I, Inc. as Assignor to First Union National Bank as Assignee
with respect to the hotel in Salt Lake City, Utah (FILED HEREWITH).

10.106 Assignment of Leases, Rents and Profits dated September 8, 2000 by
Apple Suites SPE I, Inc. as Assignee in favor of First Union National
Bank as Assignee with respect to the hotel in Salt Lake City, Utah
(FILED HEREWITH).

10.107 Security Agreement dated September 8, 2000 by Apple Suites SPE I, Inc.,
Debtor, in favor of First Union National Bank, Secured Party, regarding
a $2,500,000 loan with respect to the hotel in Salt Lake City, Utah
(FILED HEREWITH).

10.108 Credit Agreement dated September 8, 2000 between Apple Suites, Inc. and
First Union National Bank as Lender (FILED HEREWITH).

10.109 Promissory Note dated September 8, 2000 in the principal amount of
$10,000,000 made payable by Apple Suites, Inc. to the order of First
Union National Bank (FILED HEREWITH).

10.110 Pledge Agreement dated September 8, 2000 between Apple Suites, Inc. as
Pledgor and First Union National Bank as Pledgee (FILED HEREWITH).

10.111 Schedule setting forth information on 10 substantially identical
promissory notes (with respect to Exhibit 10.102, as filed herewith)
dated September 8, 2000 in various principal amounts made payable to
the order of First Union National Bank (FILED HEREWITH).

10.112 Schedule setting forth information on 10 substantially identical
Indemnity and Guaranty Agreements (with respect to Exhibit 10.103, as
filed herewith) dated September 8, 2000 by Apple Suites, Inc. as
Indemnitor in favor of First Union National Bank as Lender (FILED
HEREWITH).

10.113 Schedule setting forth information on 10 substantially identical Deeds
of Trust (with respect to Exhibit 10.104, as filed herewith) dated
September 8, 2000 with First Union National Bank as Beneficiary (FILED
HEREWITH).

10.114 Schedule setting forth information on 10 substantially identical
Assignments of Contracts and Permits (with respect to Exhibit 10.105,
as filed herewith) dated September 8, 2000 to First Union National Bank
as Assignee (FILED HEREWITH).

10.115 Schedule setting forth information on 10 substantially identical
Assignments of Leases, Rents and Profits (with respect to Exhibit
10.106, as filed herewith) dated September 8, 2000 to First Union
National Bank as Assignee (FILED HEREWITH).

10.116 Schedule setting forth information on 10 substantially identical
Security Agreements (with respect to Exhibit 10.107, as filed herewith)
dated September 8, 2000 in favor of First Union National Bank (FILED
HEREWITH).

23.1 Consent of McGuire, Woods, Battle & Boothe LLP (included in Exhibits 5,
8).

23.2 Consent of Ernst & Young, LLP (regarding prospectus).

23.3 Consent of Lisa B. Kern, Prospective Director.

23.4 Consent of Bruce H. Matson, Prospective Director.

23.5 Consent of Michael S. Waters, Prospective Director.

23.6 Consent of Robert M. Wily, Prospective Director.

23.7 Consent of L.P. Martin & Company. (FILED HEREWITH)

23.8 Consent of Ernst & Young, LLP. (FILED HEREWITH)

24.1 Power of Attorney of Lisa B. Kern.

24.2 Power of Attorney of Bruce H. Matson.

24.3 Power of Attorney of Michael S. Waters.

24.4 Power of Attorney of Robert M. Wily.

ITEM 37. UNDERTAKINGS.

The undersigned registrant hereby undertakes:

(a) To file, during any period in which offers or sales are being made,
a post-effective amendment to this registration statement:

(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;

(ii) To reflect in the prospectus any facts or events arising after the
effective date of the registration statement (or the most recent post-effective
amendment thereof) which, individually or in the aggregate, represent a
fundamental change in the information set forth in the registration statement.
Notwithstanding the foregoing, any increase or decrease in volume of securities
offered (if the total dollar value of securities offered would not exceed that
which was registered) and any deviation from the low or high end of the
estimated maximum offering range may be reflected in the form of prospectus
filed with the Commission pursuant to Rule 424(b) if, in the aggregate, the
changes in volume and price represent no more than a 20% change in the maximum
aggregate offering price set forth in the "Calculation of Registration Fee"
table in the effective registration statement;

(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or any
material change to such information in the registration statement.

(b) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed to be
a new registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.

(c) That all post-effective amendments will comply with the applicable
forms, rules and regulations of the Commission in effect at the time such
post-effective amendments are filed.

(d) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the termination of
the offering.

The Registrant undertakes to send to each Shareholder at least on an
annual basis a detailed statement of any transactions with the Advisor or its
Affiliates, and of fees, commissions, compensation and other benefits paid or
accrued to the Advisor or its Affiliates for the fiscal year completed, showing
the amount paid or accrued to each recipient and the services performed.

The Registrant undertakes to provide to the Shareholders the financial
statements required by Form 10-K for the first full fiscal year of operations of
the Registrant.

The Registrant undertakes to file during the offering period a sticker
supplement pursuant to Rule 424(b)(3) under the Act describing each property not
identified in the Prospectus at such time as there arises a reasonable
probability of investment in such property by the Registrant and to consolidate
all such stickers into a post-effective amendment filed at least once every
three months with the information contained in such amendment provided
simultaneously to the existing Shareholders. Each sticker supplement will also
disclose all compensation and fees received by the Advisor or its Affiliates in
connection with any such investment. The post-effective amendment shall include
audited financial statements meeting the requirements of Rule 3-14 of Regulation
S-X only for properties acquired during the distribution period.

The Registrant undertakes to file, after the end of the offering
period, a current report on Form 8-K containing the financial statements and any
additional information required by Rule 3-14 of Regulation S-X, to reflect each
commitment not previously disclosed in the Prospectus or a supplement thereto
involving the use of 10% or more (on a cumulative basis) of the net proceeds of
the offering and to provide the information contained in such report to the
Shareholders at least once each quarter after the end of the offering period.

Offers and sales of the interests may continue after the filing of a
post-effective amendment containing information previously disclosed in sticker
supplements to the prospectus, as long as the information disclosed in a current
sticker supplement accompanying the prospectus is as complete as the information
contained in the most recently filed post-effective amendment.

Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to officers, directors and controlling persons of
the Registrant pursuant to the foregoing provisions or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities Act
of 1933 and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than for expenses incurred in a
successful defense) is asserted by such officer, director or controlling person
in connection with the securities being registered, the Registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question of whether
such indemnification by it is against public policy as expressed in the
Securities Act of 1933, and will be governed by the final adjudication of such
issue.

ITEM 38.

TABLE VI: ACQUISITIONS OF PROPERTIES BY CORNERSTONE AND APPLE RESIDENTIAL

The following is a summary of rental property acquired by Cornerstone
Realty Income Trust, Inc. as of December 31, 1999. All properties are
residential communities. As of that date, Cornerstone Realty Income had not
disposed of any properties since inception. Cornerstone subsequently sold 16
properties as of March 10, 2000 (identified below with + notation). Purchasers
of our shares will not have any interest in any of the properties listed below.

INITIAL AVERAGE
ACQUISITION TOTAL DATE NUMBER SQUARE FT.
DESCRIPTION COST INVESTMENT* ACQUIRED OF UNITS OF UNITS
- ----------------------------------------------------------------------------------------------------------------

NORTH CAROLINA
Raleigh/Durham, North Carolina
The Hollows + $4,200,000 $6,344,761 Jun-93 176 903
The Trestles 10,350,000 11,674,666 Dec-94 280 776
The Landing 8,345,000 10,273,739 May-96 200 960
Highland Hills 12,100,000 14,777,352 Sep-96 264 1,000
Parkside at Woodlake 14,663,886 15,363,983 Sep-96 266 865
Deerfield 10,675,000 11,434,772 Nov-96 204 888
Paces Arbor + 5,588,219 6,061,500 Mar-97 101 899
Paces Forest + 6,473,481 7,061,353 Mar-97 117 883
Clarion Crossing 10,600,000 11,199,362 Sep-97 228 769
St. Regis 9,800,000 10,313,631 Oct-97 180 840
Remington Place 7,900,000 8,742,446 Oct-97 136 1,098
The Timbers 8,100,000 8,973,326 Jun-98 176 745
Charlotte, North Carolina
Hanover Landing + 5,725,000 7,688,461 Aug-95 192 832
Sailboat Bay + 9,100,000 13,760,358 Nov-95 358 906
Bridgetown Bay 5,025,000 5,978,562 Apr-96 120 867
Meadow Creek 11,100,000 12,846,737 May-96 250 860
Beacon Hill 13,579,203 14,977,670 May-96 349 734
Summerwalk 5,660,000 7,811,259 May-96 160 963
Paces Glen 7,425,000 8,283,569 Jul-96 172 907
Heatherwood 17,630,457 25,678,852 ** 476 1,186
Charleston Place 9,475,000 10,479,833 May-97 214 806
Stone Point 9,700,000 10,340,351 Jan-98 192 848
Winston-Salem, North Carolina
Mill Creek 8,550,000 9,756,845 Sep-95 220 897
Glen Eagles 7,300,000 8,387,218 Oct-95 166 952
Wilmington, North Carolina
Wimbledon Chase + 3,300,000 5,792,212 Feb-94 192 818
Chase Mooring + 3,594,000 7,033,468 Aug-94 224 867
Osprey Landing + 4,375,000 7,568,285 Nov-95 176 981

Other North Carolina

Wind Lake + 8,760,000 11,513,608 Apr-95 299 727
The Meadows 6,200,000 7,499,248 Jan-96 176 1,068
Signature Place 5,462,948 7,490,089 Aug-96 171 1,037
Pinnacle Ridge 5,731,150 6,421,295 Apr-98 168 885

GEORGIA
Atlanta, Georgia
Ashley Run $18,000,000 $19,972,413 Apr-97 348 1,150
Carlyle Club 11,580,000 13,251,328 Apr-97 243 1,089
Dunwoody Springs 15,200,000 19,090,735 Jul-97 350 948
Stone Brooke 7,850,000 8,872,988 Oct-97 188 937
Spring Lake 9,000,000 9,866,697 Aug-98 188 1,009
Other Georgia
West Eagle Greens + 4,020,000 6,426,900 Mar-96 165 796
Savannah West + 9,843,620 14,048,274 Jul-96 450 877

VIRGINIA
Richmond, Virginia
Ashley Park $12,205,000 $13,271,520 Mar-96 272 765
Trolley Square 10,242,575 13,717,622 *** 325 589
Hampton Glen 11,599,931 13,008,010 Aug-96 232 788
The Gables 11,500,000 12,710,802 Jul-98 224 700
Virginia Beach, Virginia
Mayflower Seaside 7,634,144 10,786,692 Oct-93 263 698
Harbour Club 5,250,000 6,543,804 May-94 214 813
BayWatch Pointe + 3,372,525 5,156,962 Jul-95 160 911
Tradewinds 10,200,000 11,781,289 Nov-95 284 930
Arbor Trace 5,000,000 6,141,118 Mar-96 148 850
Other Virginia
County Green + 3,800,000 5,496,059 Dec-93 180 1,000
Trophy Chase 12,628,991 16,648,166 **** 185 803
Greenbrier 11,099,525 12,606,881 Oct-96 258 251

SOUTH CAROLINA
Greenville, South Carolina
Polo Club + $4,300,000 $7,866,907 Jun-93 365 807
Breckinridge + 5,600,000 7,208,834 Jun-95 236 726
Magnolia Run + 5,500,000 7,009,512 Jun-95 212 993
Columbia, South Carolina
Stone Ridge 3,325,000 6,019,560 Dec-93 191 1,047
The Arbors at Windsor Lake 10,875,000 11,701,117 Jan-97 228 966
Other South Carolina
Westchase 11,000,000 13,212,319 Jan-97 352 806
Hampton Pointe 12,225,000 14,667,288 Mar-98 304 1,035
Cape Landing 17,100,000 19,233,648 Oct-98 288 933

TEXAS
Dallas, Texas
Brookfield $8,014,533 $8,161,716 Jul-99 232 714
Toscana 7,334,023 7,365,639 Jul-99 192 601
Pace Cove 11,712,879 11,971,802 Jul-99 328 670
Timberglen 13,220,605 13,584,884 Jul-99 304 728
Summertree 7,724,156 8,229,667 Jul-99 232 575
Devonshire 7,564,892 7,891,678 Jul-99 144 876
Courts at Pear Ridge 11,843,691 11,946,254 Jul-99 242 774
Irving, Texas
Eagle Crest 21,566,317 21,656,922 Jul-99 484 887
Remington Hills 20,921,219 21,404,019 Jul-99 362 957
Estrada Oaks 10,786,882 11,012,434 Jul-99 248 771
Arlington, Texas
Aspen Hills 7,223,722 7,358,975 Jul-99 240 671
Mill Crossing 5,269,792 5,338,858 Jul-99 184 691
Polo Run 7,556,647 8,352,311 Jul-99 224 854
Cottonwood 6,271,756 6,768,671 Jul-99 200 751
Burney Oaks 9,965,236 10,224,472 Jul-99 240 794
Fort Worth, Texas
Copper Crossing 11,776,983 12,005,817 Jul-99 400 739
Bedford, Texas
The Arbors 9,573,954 9,617,764 Jul-99 210 804
Park Village 8,224,541 8,582,259 Jul-99 238 647
Euless, Texas
Wildwood 4,471,294 4,524,238 Jul-99 120 755
Duncanville, Texas
Main Park 9,082,967 9,201,464 Jul-99 192 939
Lewisville, Texas
Paces Point 12,980,245 13,167,942 Jul-99 300 762
Grand Prairie, Texas
Silverbrooke I 15,709,893 16,505,257 Jul-99 472 842
Silverbrooke II 5,808,250 6,022,167 Jul-99 170 741
Grapevine, Texas
Grayson Square I 9,948,959 10,238,037 Jul-99 200 840
Grayson Square II 12,210,121 12,437,775 Jul-99 250 850
Austin, Texas
The Meridian 7,539,224 7,742,932 Jul-99 200 741
Canyon Hills 12,512,502 12,586,448 Jul-99 229 799
Richardson, Texas
Cutters Point 9,859,840 10,367,834 Jul-99 196 1,010
San Antonio, Texas
Sierra Ridge 6,624,666 7,014,246 Jul-99 230 751
--------- ---------

TOTAL 799,739,444 919,128,738
=========== ===========

* Includes real estate commissions, closing costs, and improvements
capitalized since the date of acquisition for properties acquired to date,
excluding the Apple properties. The Apple properties include the allocated
purchase price at the time of the merger and improvements capitalized since the
merger.

** Heatherwood Apartments is comprised of Heatherwood and Italian
Village/Villa Marina Apartments acquired in September 1996 and August 1997,
respectively, at a cost of $10,205,457 and $7,425,000. They are adjoining
properties and are operated as one apartment community.

*** Trolley Square Apartments is comprised of Trolley Square East and
Trolley Square West Apartments acquired in June 1996 and December 1996,
respectively, at a cost of $6,000,000 and $4,242,575. They are adjacent
properties and are operated as one apartment community.

**** Trophy Chase Apartments is comprised of Trophy Chase and Hunter's Creek
acquired in April 1996 and July 1999, respectively, at a cost of $3,710,000 and
$8,918,991. They are adjacent properties and are operated as one apartment
community.

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, the
Registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form S-11 and has duly caused this
Post-Effective Amendment No. 4 to the Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Richmond,
Commonwealth of Virginia, on September 20, 2000.

APPLE SUITES, INC.

By: /s/ Glade M. Knight
---------------------------------
Glade M. Knight

President, and as President, the Registrant's
Principal Executive Officer, Principal Financial
Officer and Principal Accounting Officer

Pursuant to the requirements of the Securities Act of 1933, this
Post-Effective Amendment No. 4 to this Registration Statement has been signed by
the following person on behalf of the Registrant and in the capacities and on
the date indicated.

SIGNATURE CAPACITIES DATE
--------- ---------- ----

/s/ Glade M. Knight Director and President, and As September 20, 2000
- ------------------------------------ President, the Registrant's
Glade M. Knight Principal Executive Officer,
Principal Financial Officer and
Principal Accounting Officer

* Director September 20, 2000
- ------------------------------------
Lisa B. Kern

* Director September 20, 2000
- ------------------------------------
Bruce H. Matson

* Director September 20, 2000
- ------------------------------------
Michael S. Waters

* Director September 20, 2000
- ------------------------------------
Robert M. Wily

* By: /s/ Glade M. Knight
---------------------------
Glade M. Knight, as
attorney-in-fact for the
above-named persons