FILED PURSUANT TO RULE 424(b)3
FILE NUMBER: 333-77055

SUPPLEMENT NO. 3 DATED DECEMBER 17, 1999
TO BE USED WITH SUPLEMENT NO. 2 DATED OCTOBER 5, 1999,
AND PROSPECTUS DATED AUGUST 3, 1999

SUPPLEMENT NO. 3 DATED DECEMBER 17, 1999

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. 3
RELATES TO MATTERS THAT HAVE CHANGED OR OCCURRED SINCE OCTOBER 5, 1999. OTHER
IMPORTANT MATTERS WERE DISCUSSED IN SUPPLEMENT NO. 2, WHICH INCORPORATED AND
REPLACED SUPPLEMENT NO. 1.

SUPPLEMENT NO. 3 DOES NOT INCORPORATE OR REPLACE SUPPLEMENT NO. 2.
PROSPECTIVE INVESTORS SHOULD CAREFULLY REVIEW THE PROSPECTUS, SUPPLEMENT NO. 2
AND THIS SUPPLEMENT.

TABLE OF CONTENTS FOR SUPPLEMENT NO. 3
PAGE
-----
Status of the Offering ............................................. S-2
Our Properties ..................................................... S-2
Property Acquisitions .............................................. S-4
Payment Summary ................................................. S-4
Overview of Hotels .............................................. S-4
Hotel Supplies and Franchise Fees ............................... S-4
Description of Financing ........................................ S-4
Source of Payments .............................................. S-5
Licensing and Management ........................................ S-5
Potential Economic Risk and Benefit to Glade M. Knight .......... S-6
Summary of Material Contracts ...................................... S-7
Description of Properties .......................................... S-13
Management's Discussion and Analysis ............................... S-22
Experts ............................................................ S-25
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 November 19, 1999, 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 1,485,245.00 $14,852,450 $13,367,205
------------ ----------- -----------
TOTAL 3,151,911.67 $29,852,450 $26,867,205
============ =========== ===========

We have used the proceeds of our offering to acquire, either directly or
through our subsidiaries, ten extended-stay hotels. Those hotels are identified
below.

OUR PROPERTIES

We own 10 extended-stay hotels. All of our hotels are licensed to operate
as Homewood Suites(Reg. TM) properties. Homewood Suites(Reg. TM) is a
registered service mark of Promus Hotels, Inc. A summary of our hotels appears
below, and details about the five hotels we purchased as of November 29, 1999
are provided in the following sections:

S-2

(Map of United States shows general location of hotels, with scaling to improve
image quality)

[GRAPHIC OMITTED]

DATE OF NAME AND TOTAL DATE OF NAME AND TOTAL
PURCHASE ADDRESS OF HOTEL SUITES PURCHASE ADDRESS OF HOTEL SUITES
- ---------- ---------------- ------ -------- ---------------- ------

9/20/99 Dallas - Addison 120 11/29/99 Atlanta - Peachtree 92
4451 Beltline Road 450 Technology Parkway
Addison, Texas 75244 Norcross, Georgia 30092
9/20/99 Dallas - Irving/Las Colinas 136 11/29/99 Baltimore - BWI Airport 147
4300 Wingren Drive 1181 Winterson Road
Irving, Texas 75039 Linthicum, Maryland 21090
9/20/99 North Dallas - Plano 99 11/29/99 Clearwater 112
4705 Old Sheppard Place 2233 Ulmerton Road
Plano, Texas 75093 Clearwater, Florida 33762
9/20/99 Richmond - West End 123 11/29/99 Detroit - Warren 76
4100 Innslake Drive 30180 N. Civic Center Drive
Glen Allen, Virginia 23060 Warren, Michigan 48093
10/5/99 Atlanta - Galleria/Cumberland 124 11/29/99 Salt Lake City - Midvale 98
3200 Cobb Parkway 844 E. North Union Avenue
Atlanta, Georgia 30339 Midvale, Utah 84047

S-3

PROPERTY ACQUISITIONS

PAYMENT SUMMARY

We purchased five existing Homewood Suites(Reg. TM) hotels from Promus
Hotels, Inc., or its affiliates, as of November 29, 1999. The total purchase
price for the five hotels was $40,280,000. We used proceeds from our offering
of common shares to pay twenty-five percent of this total, or $10,070,000, at
closing in cash. The balance of 75%, or $30,210,000, is being financed by
Promus Hotels, Inc. as short-term or "bridge financing," as described below.

We paid a real estate commission on these purchases 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 $805,600, which equals two percent (2%) of the
total purchase price for the hotels.

OVERVIEW OF HOTELS

We purchased the following hotels as of November 29, 1999:

NUMBER PURCHASE FINANCED
NAME OF HOTEL OF SUITES PRICE PORTION
- ------------- --------- ----------- -----------
Atlanta - Peachtree 92 $ 4,033,000 $ 3,024,750
Baltimore - BWI Airport 147 $16,348,000 $12,261,000
Clearwater 112 $10,416,000 $ 7,812,000
Detroit - Warren 76 $ 4,330,000 $ 3,247,500
Salt Lake City - Midvale 98 $ 5,153,000 $ 3,864,750

All of these hotels have been leased to Apple Suites Management, Inc. The
existing master hotel lease agreement, dated as of September 20, 1999, has been
supplemented to include these hotels as leased properties. This agreement is
among the material contracts described below.

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. Apple Suites
Management, Inc. is obligated to repay us under a promissory note made in the
principal amount of $52,500. 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 sixty-one (61) monthly
installments. The first installment consists of interest only. The due date for
the first installment, subject to a five-day grace period, is January 1, 2000.
The remaining installments consist of principal and interest on an amortized
basis. The final maturity date is January 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 $251,550. This promissory note is substantially similar to the one
described above, but provides for repayment in one hundred twenty-one (121)
monthly installments and has a final maturity date of January 1, 2010.

DESCRIPTION OF FINANCING

As indicated above, Promus Hotels, Inc. financed 75% of the purchase price
of the five hotels we purchased as of November 29, 1999. 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:

S-4

ORIGINAL REMAINING
DATE OF PRINCIPAL PRINCIPAL AS OF ANNUAL RATE DATE OF
PROMISSORY NOTE AMOUNT DECEMBER 1, 1999 OF INTEREST MATURITY
- -------------------- -------------- ------------------ ------------- -----------------

September 20, 1999 $26,625,000 $26,625,000 8.5% October 1, 2000
October 5, 1999 $ 7,350,000 $ 7,350,000 8.5% October 1, 2000
November 29, 1999 $30,210,000 $30,210,000 8.5% December 1, 2000

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

o monthly principal payments, to the extent of the net equity proceeds
from our offering of common shares

o our delivery of monthly notices to specify such net equity proceeds

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

Principal payments under the promissory note dated as of November 29, 1999
are not scheduled to start until the other promissory notes have been paid in
full. Assuming those other notes continue to be paid on schedule, principal
payments under the note dated as of November 29, 1999 will be due in two
installments on November 1, 2000 and December 1, 2000.

SOURCE OF PAYMENTS

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 used to pay principal. 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 were permitted, by an October 1999
letter agreement, to use our net equity proceeds to pay 25% of the purchase
price of the hotels we acquired on November 29, 1999 (rather than use such
amounts exclusively for payments under the earlier promissory notes.)

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 no payments of principal are
made before those maturity dates:

DATE OF PRINCIPAL MONTHLY TOTAL DUE
MATURITY DUE INTEREST DUE AT MATURITY
- --------------------- -------------- ---------------- -------------------
October 1, 2000 $33,975,000 $ 240,656.25 $ 34,215,656.25
December 1, 2000 $30,210,000 $ 213,987.50 $ 30,423,987.50

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.

LICENSING AND MANAGEMENT

We expect that the hotels we purchased as of November 29, 1999 will
continue to operate as Homewood Suites(Reg. TM) properties. To help achieve
that result, Promus Hotels, Inc. has executed separate license agreements dated
as of December 8, 1999. Promus Hotels, Inc. is managing each of the five hotels
under management agreements dated as of November 29, 1999. These license and
management agreements are among the material contracts described below.

S-5

POTENTIAL ECONOMIC RISK AND BENEFIT TO GLADE M. KNIGHT

Because we are prohibited under federal tax laws from directly operating
our extended-stay hotels, the five hotels we purchased as of November 29, 1999
have been leased to Apple Suites Management, Inc. Our president and chief
executive officer, Glade M. Knight, is the sole shareholder of Apple Suites
Management, Inc.

The master hotel lease agreement has 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 agreement, the license agreements and the management agreements. To the
extent that Apple Suites Management, Inc. has any remaining income after those
payment obligations are met, it will realize an economic benefit. Because this
potential economic benefit depends, in part, on future hotel revenues, the
extent of this potential economic benefit cannot be determined at this time.

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
agreement, 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 agreement, 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 the following: (1) the
aggregate payments under the funding commitments shall not exceed $2 million;
(2) 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-6

SUMMARY OF MATERIAL CONTRACTS

DEEDS OF TRUST AND RELATED DOCUMENTS

Each hotel we own is encumbered by at least one mortgage on its real
property, security interest in its personal property, and 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). At each
closing on our purchase of a hotel or group of hotels, we encumbered the hotels
we were purchasing and the hotels we already owned. These encumbrances are
created by substantially similar documents. For simplicity, we will refer to
each of these documents as a "deed of trust."

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 deed of trust will terminate
when its corresponding promissory note is 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 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 (1) declaring the
entire principal balance under the promissory notes, and all accrued and unpaid
interest, to be due and payable immediately; (2) taking possession of the
secured property, including the hotels; and (3) 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.

Our hotel in Virginia, which was purchased on September 20, 1999, was not
covered by additional deeds of trust at subsequent closings. Instead, the
Virginia hotel was encumbered by separate negative pledges, which correspond to
the promissory notes executed at those closings. The negative pledges prohibit
any transfer or further encumbrance of the Virginia hotel, in whole or in part,
without the prior written consent of Promus Hotels, Inc. The encumbrance
created by a negative pledge will terminate when its corresponding promissory
note is paid in full.

ENVIRONMENTAL INDEMNITIES

A separate environmental indemnity applies to each of the hotels we
purchased as of November 29, 1999. 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 hotel properties.
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 hotel properties, but there can be no assurance that such materials are
not present.

Under the indemnities, we have agreed to indemnify and protect Promus
Hotels, Inc. from any losses that it may incur because of (1) the
nonperformance, or delayed performance and completion, of corrective work; or
(2) the enforcement of the indemnities. Our indemnities with respect to the
hotels generally will terminate upon payment in full under the promissory note
dated as of November 29, 1999. However, in each case, our 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

We have leased the hotels we purchased as of November 29, 1999 to Apple
Suites Management, Inc. Our existing master hotel lease agreement, dated as of
September 20, 1999, has been supplemented to include these hotels as leased
properties.

S-7

The master hotel lease agreement has an initial term of ten years and an
optional five-year extension, provided that Apple Suites Management, Inc. is
not in default either at the time of the exercise of the option or at the end
of the original term of the lease. The first five-year extension would be upon
the same terms, conditions and rentals as in the initial term. Apple Suites
Management, Inc. has the option to extend the lease for an additional five
years following the end of the first five-year extension, provided it is not in
default either at the time of the exercise of the option or at the end of the
original term of the first five-year extension. If this second option is
exercised, we and Apple Suites Management, Inc. must negotiate in good faith to
adjust the rental payments for the additional five-year term to a market rate
for similar hotel properties at that time. If no agreement can be reached on
rental terms for this second five-year extension, a panel of three persons who
have generally recognized expertise in evaluating hotel REIT leases and who are
not affiliates of us or Apple Suites Management, Inc. will determine such
rental terms.

We may terminate the master hotel lease agreement if (1) we sell the
hotels to a third party; (2) there is a change of control of Apple Suites
Management, Inc.; or (3) the Internal Revenue Code is amended to permit us to
operate the hotels directly or otherwise render the use of a lease by a hotel
REIT obsolete. If we terminate the master hotel lease agreement we must
compensate Apple Suites Management, Inc. by either paying the fair market value
of the lease as of such termination, or offering to lease one or more
substitute hotel facilities.

The master hotel lease agreement provides that Apple Suites Management,
Inc. will pay us a base rent, percentage rent and certain additional charges.
Base rent is payable in advance in equal monthly installments. In addition, for
each calendar quarter during the term of the leases, Apple Suites Management,
Inc. will pay percentage rent based on a percentage of gross revenues (less
sales and room taxes), referred to as "suite revenue," derived in connection
with the rental of suites at the hotels. The percentage rent is equal to (a)
17% of all year-to-date suite revenue, up to the applicable quarterly suite
revenue breakpoint (as shown below); plus (b) 55% of the year-to-date suite
revenue in excess of the applicable quarterly suite revenue breakpoint, less
both base rents and the percentage rent paid year to date. The base rent and
the quarterly suite revenue breakpoints will be adjusted each year beginning on
January 1, 2001, based on the most recently published Consumer Price Index. The
base rents for 1999 and 2000 are shown below:

BASE RENT
NAME OF HOTEL (1999 AND 2000)
------------- ----------------
Atlanta-Peachtree .............. $414,150
Baltimore-BWI Airport .......... $895,750
Clearwater ..................... $664,150
Detroit-Warren ................. $408,450
Salt Lake City-Midvale ......... $438,150

The quarterly suite revenue breakpoints from 1999 through 2008, before any
adjustment based on the Consumer Price Index, are described in the table below
and in the subsequent paragraph:

SUITE REVENUE BREAKPOINTS FOR THE FIRST QUARTER
OF EACH YEAR FROM 1999 THROUGH 2008

ATLANTA- BALTIMORE- DETROIT- SALT LAKE CITY-
YEAR PEACHTREE BWI AIRPORT CLEARWATER WARREN MIDVALE
- --------- ----------- ------------- ------------ ---------- ----------------

1999 $149,094 $322,470 $239,094 $147,042 $157,734
2000 $134,599 $291,119 $215,849 $132,746 $142,399
2001 $138,740 $300,076 $222,490 $136,831 $146,780
2002 $144,953 $313,513 $232,453 $142,958 $153,353
2003 $149,094 $322,470 $239,094 $147,042 $157,734
2004 $153,236 $331,428 $245,736 $151,127 $162,116
2005 $157,377 $340,385 $252,377 $155,211 $166,497
2006 $161,519 $349,343 $259,019 $159,296 $170,879
2007 $165,660 $358,300 $265,660 $163,380 $175,260
2008 $169,802 $367,258 $272,302 $167,465 $179,642

S-8

In all cases, the suite revenue breakpoints for the second, third and
fourth quarters of the same years are determined by multiplying the breakpoint
for the first quarter (as shown above) by two, three or four, respectively.

Under the master hotel lease agreement, Apple Suites Management, Inc. is
responsible for paying all taxes, other than real estate and personal property
taxes, imposed with respect to the hotels or any business conducted by it at
the hotels. In addition, Apple Suites Management, Inc. is responsible for
obtaining and maintaining utility services to the hotels and paying all charges
for electricity, gas, oil, water, sewer and other utilities used in the hotels
during the term of the master hotel lease. Apple Suites Management, Inc. is
also responsible for paying all premiums for personal property insurance,
comprehensive general liability insurance, worker's compensation insurance,
vehicle liability insurance, hazard insurance and any other insurance that we
may reasonably request for the hotels and their operations. We are required to
maintain building insurance (including earthquake and flood insurance),
insurance for loss or damage to the steam boilers and similar apparatus and
loss of income insurance.

The master hotel lease agreement requires Apple Suites Management, Inc. to
maintain the hotels in good order and repair, except for ordinary wear and
tear. However, we are required to maintain any underground utilities and the
structural elements of the hotels, including the exterior walls and roof. In
addition, pursuant to the license agreements and management agreements (as
described below), we are required to maintain, and to upgrade, the hotels under
the standards specified under those agreements in order to operate the hotels
as Homewood Suites(Reg. TM) hotels. We are also obligated to pay for a reserve
for periodic repair, replacement or refurbishing of furniture, fixtures and
equipment. Our payments must equal up to 5% of our gross revenues (less sales
and room taxes) from the rental of suites at the hotels.

HOTEL LICENSE AGREEMENTS

Each of the hotels we purchased as of November 29, 1999 is licensed to
operate as a Homewood Suites(Reg. TM) property. These licenses were granted by
Promus Hotels, Inc. to Apple Suites Management, Inc. under substantially
similar license agreements dated as of November 29, 1999.

The license agreement for each hotel provides that Apple Suites
Management, Inc. has the right to operate the hotel using the Homewood
Suites(Reg. TM) "System." The "System" includes the service mark "Homewood
Suites(Reg. TM)" and other associated service marks and similar property
rights, access to a reservation system, distribution of advertising, access to
a "Standards Manual," and access to other training, information, programs and
policies comprising the Homewood Suites(Reg. TM) hotel business.

In exchange for the license to use the Homewood Suites(Reg. TM) System,
Apple Suites Management, Inc. has agreed to numerous requirements and
restrictions applicable to its operation of the hotel. Apple Suites Management,
Inc. is also required to pay royalties and other fees, as described below.

Apple Suites Management, Inc. will be subject to various operational
requirements pursuant to the license agreements and a "Standards Manual." The
Standards Manual may be changed at any time by Promus Hotels, Inc. 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, Inc. Furthermore, the failure of
Promus Hotels, Inc. to comply with the management agreements will not, of
itself, relieve Apple Suites Management, Inc. from the obligations imposed upon
it under the license agreements. In such event, the remedies available to Apple
Suites Management, Inc. 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. The
requirements are designed to insure that each hotel meets uniform guidelines
for all Homewood Suites(Reg. TM) Hotels, wherever located.

S-9

Under the license agreements, Apple Suites Management, Inc. is granted the
right to use the Homewood Suites(Reg. TM) System only during the term of the
license agreements, and has no other ownership interest in, or rights to, such
System. The term of each license agreement is 20 years, but the agreement is
subject to early termination for various reasons, including default by Apple
Suites Management, Inc. 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 a Homewood Suites(Reg. TM) Hotel.

Apple Suites Management, Inc. is required to pay to Promus Hotels, Inc.
the following monthly amounts: (1) A royalty fee equal to 4% of the gross
suites revenues (less sales and room taxes) received from rental of suites at
the hotel; (2) a marketing contribution equal to 4% of gross suites revenues;
(3) any amounts due Promus Hotels, Inc. for goods or services provided by
Promus Hotels, Inc. to Apple Suites Management, Inc.; and (4) the amount of
sales, gross receipts or similar taxes imposed on Promus Hotels, Inc. as a
result of the payments described in clauses (1), (2), and (3) of this sentence.

Apple Suites Management, Inc. is required to prepare and deliver to Promus
Hotels, Inc. daily, monthly and other reports which, among other things,
certify gross revenues from operation of the hotel. 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 from time to time
require Apple Suites Management, Inc. to upgrade hotel facilities to meet the
standards then specified in the Standards Manual. We expect to pay the costs of
any such 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 the hotels we purchased as of November 29, 1999 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 management agreements with Apple Suites
Management, Inc. (which is leasing the hotels from us, as discussed above).
These management agreements are substantially similar and are dated as of
November 29, 1999.

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 (1) advertising and promoting
the hotels in coordination with the requirements of the license agreements
described above; and (2) 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, Inc. 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, Inc. 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: (1) three percent (3%) of adjusted gross revenues for the first full
year after the commencement of the management agreement; (2) four percent (4%)
of adjusted gross revenues for the second full year after the commencement of
the management agreement; and (3) five percent (5%) of adjusted gross revenues
for each year thereafter.

S-10

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 (1) refunds; (2) sales and
other similar taxes; (3) proceeds from the sale or other disposition of the
hotels, furnishings and other capital assets; (4) fire and extended coverage
insurance proceeds; (5) credits or refunds made to customers; (6) condemnation
awards; (7) proceeds of financing or refinancing of the hotels; (8) interest on
bank accounts; and (9) 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, Inc.. 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, Inc. 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 (1) 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 (2) 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.

In addition, if the hotel license agreement with respect to 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 $882,433 (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, Inc. 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, Inc. equal to 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 the hotels we purchased as of November 29, 1999 to
Apple Suites Management, Inc., is based upon certain technical tax
considerations that apply to us as a real estate investment trust (or REIT) for
federal income tax purposes. To address operational complexities and other
potential problems that may arise from using Apple Suites Management, Inc. as
the lessee of our hotels and the party to the license agreements and management
agreements, we have entered into a "Comfort Letter" with Promus Hotels, Inc.
with respect to each hotel. Each comfort letter is dated as of November 29,
1999. 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 a particular 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

S-11

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 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) and must be a person or entity that has
adequate financial resources to perform under the lease, is not the franchisor
or operator of a competing chain of hotels, and enjoys a favorable reputation
for integrity. 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. Other liquidated damage provisions apply
in the case of termination of the license agreement before commencement of
construction of the hotel or if construction is complete but the hotel is not
yet opened.

Third, the comfort letters provide that if the income tax rules applicable
to real estate investment trusts 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.

S-12

DESCRIPTION OF PROPERTIES

All of the hotels we purchased as of November 29, 1999 are extended-stay
hotels, and are licensed to operate as Homewood Suites(Reg. TM) properties. 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 at a Homewood Suites(Reg. TM) property 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 livings 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 hotels are marketed, in part, through the Homewood Suites(Reg. TM) web
site (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 Promus Hotels, Inc. Those other
franchises include Hampton Inns(Reg. TM), Doubletree Hotels(Reg. TM) and
Embassy Suites(Reg. TM). Such cross-marketing may affect occupancy at the
Homewood Suites(Reg. TM) properties by directing travelers toward, or away
from, Homewood Suites(Reg. TM).

All five of the hotels were actively conducting business at the time of
their acquisition. We believe that the acquisitions were conducted without
materially disrupting any of the daily activities at the hotels. During the
past 12 months, each hotel has been covered with property and liability
insurance, and we have arranged to continue such coverage. We believe the
hotels are adequately covered by insurance. More specific property descriptions
for each hotel appear below.

ATLANTA - PEACHTREE

The Homewood Suites(Reg. TM) 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 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

S-13

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 has been approximately 6.4
nights, and approximately 52% of the guests have stayed for five nights or
more. Occupancy at the hotel is not seasonal. The following table shows average
daily occupancy rates, expressed as a percentage, for each of the last five
years:

AVERAGE DAILY OCCUPANCY RATE (CALENDAR YEAR)

1995 1996 1997 1998 1999 (THROUGH OCTOBER)
--------- ---------- ---------- ---------- -----------------------
79.5% 77.4% 74.8% 72.9% 70.9%

For January 1, 1999 through October 31, 1999, the average daily rate per
suite was $82.06, and the average daily net revenue per suite was $58.15. As
explained above, revenue from the hotel's operations will be used to pay
interest due under the promissory note dated November 29, 1999. 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 net revenue specified above, approximately 13.17% 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 $105 $139
5 to 11 85 95 119
12 to 29 75 85 109
30 or more 59 69 99

The hotel offers a weekend discount. This discount varies by type of suite
and generally reduces the basic rate by 20 to 33%. 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. During the past 12 months, we estimate that approximately 86% of the
hotel's guests received a corporate discount.

The chief corporate accounts (as designated in the hotel's records)
include Perkin Elmer, Hitachi, GTE Data Services, Valmet, Glenayre, Ultimate
Software, Uptons, Mizuno and Alltel Supply. From January 1, 1999 through August
9, 1999, the 10 biggest corporate accounts were responsible for approximately
50% 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. In particular, the occupancy from GTE
Data Services was due to a one-time occurrence, and Upton's is closing its
business in the area.

The table below shows the average effective annual rental per square foot
for each of the last five years:
1999
1995 1996 1997 1998 (ANNUALIZED)
------------- ----------- ----------- ----------- -------------
$ 42.53 $ 47.16 $ 45.42 $ 41.95 $ 36.19

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 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-14

The following table sets forth the 1999 real estate tax information for
the hotel:

TAX ASSESSED TAXABLE TAX AMOUNT
JURISDICTION VALUE PORTION (40%) RATE OF TAX
- ------------------- ------------- --------------- ------------ ---------------

Gwinnett County $5,688,440 $2,275,380 0.03225 $ 73,381.01

We estimate that the annual property tax on the expected improvements will
be approximately $6,500 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(Reg. TM) 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 area of 75,600 square feet.
The following types of suites are available:

SQUARE FEET
TYPE OF SUITE NUMBER AVAILABLE 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.

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 $588,000 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 has been approximately 8
nights, and approximately 68% of the guests have stayed for five nights or
more. 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 (THROUGH OCTOBER)
--------- -----------------------
67.0% 85.8%

For January 1, 1999 through October 31, 1999, the average daily rate per
suite was $94.15, and the average daily net revenue per suite was $80.75. As
explained above, revenue from the hotel's operations will be used to pay
interest due under the promissory note dated November 29, 1999. There can be no

S-15

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 net revenue specified above, approximately 24.05% 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 $179
5 to 11 119 119 179
12 to 29 99 99 179
30 or more 89 89 179

The chief corporate accounts (as designated in the hotel's records)
include the National Security Agency, Ft. Meade (training and field visitors),
Defense Security Services, Northrop Grumman, the Internal Revenue Service and
DCITP (division of Computer Sciences Corp.). From January 1, 1999 through
August 3, 1999, these corporate accounts were responsible for over 45% 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:

1999
1998 (ANNUALIZED)
------------- -------------
$ 33.46 $ 57.28

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 1999 real estate tax information for the hotel is summarized below
(and is based on a formula that uses the assessed value for 1999 and 1998 to
determine a separate taxable amount):

TAX ASSESSED ASSESSED TAXABLE TAX RATE AMOUNT
JURISDICTION VALUE (1999) VALUE (1998) AMOUNT (PER $100) OF TAX
- --------------------- -------------- -------------- ------------- ------------ ----------------

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

We estimate that the annual property tax on the expected improvements will
be approximately $6,100 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 proposed construction to build two extended-stay hotels within
approximately seven miles of the hotel. We expect these hotels to be franchised
with Hilton Garden Inn and Town Place Suites.

S-16

CLEARWATER

The Homewood Suites(Reg. TM) 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 $432,000 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 has been approximately 2.9
nights, and approximately 43% of the guests have stayed for five nights or
more. 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 (THROUGH OCTOBER)
--------- -----------------------
63.4% 77.3%

For January 1, 1999 through October 31, 1999, the average daily rate per
suite was $90.65, and the average daily net revenue per suite was $70.03. As
explained above, revenue from the hotel's operations will be used to pay
interest due under the promissory note dated November 29, 1999. 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 net revenue specified above, approximately 23.19% 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 $139 $149 $159
5 to 29 115 125 139
30 or more 79 89 125

The hotel offers a weekend discount. This discount varies by type of suite
and generally reduces the basic rate by 20 to 33%. 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. During the past 12 months, we estimate that approximately 85% of the
hotel's guests received a corporate discount.

S-17

The chief corporate accounts (as designated in the hotel's records)
include Home Shopping Network, Raymond James & Assoc., Lucent Technologies,
Tech Data, Honeywell, Franklin Templeton, Unisys, Graham Technology,
Transitions Optical and Omnicare. From January 1, 1999 through August 2, 1999,
the 10 biggest corporate accounts were responsible for approximately 30% 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 (ANNUALIZED)
------------- ------------------
$ 35.31 $ 48.99

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 sets forth the 1999 real estate tax information for
the hotel:

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 $10,000 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 proposed construction to build four extended-stay hotels within
approximately three miles of the hotel. We expect these hotels to be franchised
with Hawthorn Suites, Radisson Suites, Spring Hill Suites and Woodbridge
Suites.

DETROIT - WARREN

The Homewood Suites(Reg. TM) 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 area of 31,520 square feet. The following types of suites are
available:

TYPE OF SUITE NUMBER AVAILABLE 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.

S-18

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 $432,000 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 has been approximately 3.6
nights, and approximately 57% of the guests have stayed for five nights or
more. Occupancy at the hotel is not seasonal. The following table shows average
daily occupancy rates, expressed as a percentage, for each of the last five
years:

AVERAGE DAILY OCCUPANCY RATE (CALENDAR YEAR)

1995 1996 1997 1998 1999 (THROUGH OCTOBER)
- --------- ---------- ---------- ---------- -----------------------
71.5% 71.6% 80.3% 76.2% 76.3%

For January 1, 1999 through October 31, 1999, the average daily rate per
suite was $88.26, and the average daily net revenue per suite was $67.35. As
explained above, revenue from the hotel's operations will be used to pay
interest due under the promissory note dated November 29, 1999. 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 net revenue specified above, approximately 14.77% 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 $139 $159
7 to 29 95 119 149
30 to 89 89 99 139
90 or more 79 89 129

The hotel offers a weekend discount. This discount varies by type of suite
and generally reduces the basic rate by 20 to 33%. 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. During the past 12 months, we estimate that approximately 40% of the
hotel's guests received a corporate discount.

The chief corporate accounts (as designated in the hotel's records)
include General Motors, Daimler Chrysler, Cross Huller, Tim Hortons, Ernst &
Young, Impco Technologies and Synergetics. From January 1, 1999 through August
9, 1999, the 10 biggest corporate accounts were responsible for over 45% 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 each of the last five years:

1995 1996 1997 1998 1999 (ANNUALIZED)
- ------------- ----------- ----------- ----------- ------------------
$ 45.37 $ 49.68 $ 57.14 $ 58.75 $ 59.24

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.

S-19

The following table sets forth the 1999 real estate tax information for
the hotel (excluding certain administrative fees, which in the aggregate
represent less than $400):

TAX ASSESSED TAX RATE AMOUNT
JURISDICTION VALUE (PER $1000) 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 $21,500 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 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 proposed construction to build two
extended-stay hotels within approximately five miles of the hotel. We expect
these hotels to be franchised with Red Roof Inn and Sleep Inn.

SALT LAKE CITY - MIDVALE

The Homewood Suites(Reg. TM) 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 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 $332,000 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 has been approximately 3.2
nights, and approximately 47.5% of the guests have stayed for five nights or
more. 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 (THROUGH OCTOBER)
--------- ---------- -----------------------
51.1% 63.8% 65.1%

S-20

For January 1, 1999 through October 31, 1999, the average daily rate per
suite was $89.46, and the average daily net revenue per suite was $58.21. As
explained above, revenue from the hotel's operations will be used to pay
interest due under the promissory note dated November 29, 1999. 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 net revenue specified above, approximately 15.78% 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 $119 $129 $139 $209
5 to 12 109 119 129 199
13 to 29 99 109 119 189
30 or more 89 99 109 179

The hotel offers a weekend discount. This discount varies by type of suite
and generally reduces the basic rate by 20 to 33%. 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. During the past 12 months, 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 Ford Associates, American Express, Meridian, Blue Cross/Blue Shield,
Baxter Healthcare, Sonic Innovation, Onyx, Federal Express and Cimetrix. From
January 1, 1999 through October 31, 1999, the 10 biggest corporate accounts
were responsible for approximately 20% 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 1999
(ANNUALIZED) 1998 (ANNUALIZED)
-------------- ----------- -------------
$ 27.30 $ 35.09 $ 34.64

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.

The following table sets forth the 1999 real estate tax information for
the hotel:

TAX ASSESSED TAX RATE AMOUNT
JURISDICTION VALUE (PER $100) 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 $4,600 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

S-21

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.

MANAGEMENT'S DISCUSSION AND ANALYSIS

The following discussion and analysis relates to our financial condition
and the results of our operations as of September 30, 1999 (or the three months
ended as of that date). Financial statements for that date (or period) are set
forth below.

GENERAL

We own extended-stay hotel properties. As of September 30, 1999, we owned
four hotel properties with 478 rooms. All of our properties are leased to Apple
Suites Management, Inc. or its subsidiary (the "Lessee") pursuant to master
hotel lease agreements. Each master hotel lease agreement obligates the Lessee
to pay rent equal to the sum of a base rent and a percentage rent based on
suite revenues of each hotel property. The Lessee's ability to make payments to
us pursuant to the master hotel lease agreements is dependent primarily upon
the operations of the hotel properties.

The Lessee holds the franchise and market reservation agreement for each
of the hotel properties, which are operated as Homewood Suites(Reg. TM) hotels.
The Lessee engages a third-party manager (Promus Hotels, Inc. or an affiliate)
to operate the hotel properties.

RESULTS OF OPERATIONS

Apple Suites, Inc.

Revenues

As our operations began effective September 1, 1999, a comparison to 1998
is not possible. During September 1999, we had revenues of $417,306. All of our
percentage lease revenue is derived from the master hotel lease agreements
covering the hotel properties in operations with the Lessee.

Our other income consists of $64,370 of interest income earned from the
investments of its cash and cash reserves.

Expenses

Our expenses consist of property taxes, insurance, general and
administrative expenses, interest on notes payable and depreciation on the
hotel properties. Total expenses, exclusive of interest and depreciation, for
the three month period ended September 30, 1999 were $115,757 or 24% of total
revenue.

Interest expense was $229,701 for three month period ended September 30,
1999 or 48% of total revenue.

Depreciation expense was $97,510 for the three month period ended
September 30, 1999.

Taxes, insurance, and other was $79,729 for the three month period ended
September 30, 1999 or 17% of total revenue.

General and administrative expense totaled 7% of total revenues. These
expenses represent our administrative expenses.

The Hotels and the Lessee

Revenues

As operations began effective September 1, 1999, a comparison to 1998 is
not possible. Total revenues were $1,021,152. Total revenues consist primarily
of suite revenue, which was $961,604 for the three month period ended September
30, 1999.

S-22

For the three month period ended September 30, 1999 the average occupancy
rate was 80%, average daily rate ("ADR") was $84, and revenue per available
room ("REVPAR") was $67.

Expenses

Total expenses for the three month period ended September 30, 1999 were
$976,076 or 95% of total revenues. The expense from the master hotel lease
agreements represents $417,306 or 41% of total revenue.

LIQUIDITY AND CAPITAL RESOURCES

There was a significant change in our liquidity during the three month
period ended September 30, 1999, as we commenced operations effective September
1, 1999 with the acquisition of four hotel properties using a combination of
proceeds from our offering and debt. During August and September 1999, we sold
2,532,137 shares (1,666,667 shares at $9 per share and 865,471 shares at $10
per share) of our common stock to investors. The total gross proceeds from the
shares sold were $23,654,701, which netted $20,629,226 to us after the payment
of selling commissions and other offering costs.

Using a combination of proceeds from the sale of common shares and debt,
we acquired four hotels with a total purchase price of $35,500,000. In
conjunction with this acquisition, we executed a $26,625,000 note. In addition,
we purchased a hotel in October 1999 for a purchase price of $9,800,000. A note
in the amount of $7,350,000 was executed by us in conjunction with this
acquisition.

The Lessee's obligations under the master hotel lease agreements are
unsecured. The Lessee has limited capital resources, and, accordingly its
ability to make lease payments under such agreements is substantially dependent
on the ability of the Lessee to generate sufficient cash flow from operations
of the hotel properties.

Notes payable

On April 20, 1999, we obtained a line of credit in a principal amount of
$1 million with a commercial bank. 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. Glade M. Knight, our
President and Chairman, guaranteed repayment of the loan.

In conjunction with the purchase of four hotel properties, a note was
executed by us and made payable to the order of Promus Hotels, Inc. in the
amount of $26,625,000. The note bears an effective interest rate of 8.5% per
annum. Interest payments are due monthly and the maturity date is October 1,
2000. Principal payments are to be made to the extent of net proceeds from the
offering of common shares.

Cash and cash equivalents

Cash and cash equivalents totaled $10,924,786 at September 30, 1999.

Capital requirements

While we always assess potential acquisitions of hotel properties, no
material definitive commitments existed for the purchase of additional hotel
properties on November 1, 1999. The potential sources to fund the renovations
and acquisitions include additional equity and cash reserves.

No renovations were completed as of September 30, 1999. We expect to spend
approximately $1,200,000 on renovation expenditures at our existing hotel
properties during the next 12 months, which are expected to be funded through
existing cash reserves.

Inflation

Operators of hotel properties, in general, possess the ability to adjust
room rates daily to reflect the effects of inflation. Competitive pressures
may, however, limit the third party manager's ability to raise room rates.

S-23

Seasonality

The hotel industry is seasonal in nature. Seasonal variations in occupancy
at our hotels may cause quarterly fluctuations in our lease revenues. To the
extent the 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 to make quarterly distributions.

Impact of Year 2000

The year 2000 issue is the result of computer programs being written using
two digits rather than four to define the applicable year. Any of our computer
programs or hardware that have date-sensitive software or embedded chips may
recognize a date using "00" as the year 1900 rather than the year 2000. This
could result in a system failure or miscalculations causing disruptions of
operations, including, among other things, a temporary inability to process
transactions, send invoices, or engage in similar normal business activities.

As of September 30, 1999, approximately 95% of our computer systems have
been upgraded and deemed to be year 2000 compliant. Our accounting and payroll
applications have been upgraded and are currently being tested by us, and
testing is scheduled to be completed in the fourth quarter of 1999.

As of September 30, 1999, the Lessee's computer systems have been upgraded
and deemed to be year 2000 compliant.

We are dependent on Promus Hotels, Inc. for year 2000 compliance with
respect to computer systems to manage the hotels, including personal computers,
property management computer software and the central reservation systems. We
have received information from Promus Hotels, Inc. as to the status of its year
2000 readiness.

Promus Hotels, Inc. has indicated it believes its personal computers and
property management systems to be year 2000 compliant, with verification of
compliance expected to be completed by November 30, 1999. Promus Hotels, Inc.
has indicated that its central reservation systems are year 2000 compliant.

We, the Lessee, and Promus Hotels, Inc. are also exposed to the risk that
one or more vendors or service providers could experience year 2000 problems
that impact the ability of such vendor or service provider to provide goods and
services. Though this is not considered as significant a risk with respect to
the suppliers of goods, due to the availability of alternative suppliers, the
disruption of certain services, such as utilities, airlines and credit card
companies, could, depending upon the extent of the disruption, have a material
adverse impact on our operations. To date, we are not aware of any vendor or
service provider year 2000 issue that management believes would have a material
adverse impact on our operations. However, we have no means of ensuring that
vendors or service providers will be year 2000-ready. The inability of vendors
or service providers to complete their year 2000 resolution process in a timely
fashion could have an adverse impact on us. The effect on non-compliance by
vendors or services providers could disrupt service or cause potential hotel
quests to postpone or cancel their travel plans, causing a disruption of
business.

The hotels contain embedded computer chips to perform functions relating
to the operation of, including elevators, automated room key systems, HVAC, and
fire and safety system. In particular, year 2000 problems with such systems at
the hotels could disrupt operations at the affected hotels.

Additionally, many of these systems, which operate automatically, can be
operated manually and, consequently, in the event these systems experience a
failure as a result to the year 2000 problem, the disruption caused by such
failure could be manually overridden.

Failure to correct a material year 2000 problem could result in an
interruption, in or a failure of, certain normal business activities or
operations. We believe that, with the implementation of new or upgraded
business systems and completion of the year 2000 project as scheduled, and
information from Promus Hotels, Inc. that the systems are compliant, the
possibility of significant interruptions of normal operations due to the
failure of those systems will be reduced. However, we are also dependent upon
the

S-24

power and telecommunications infrastructure within the United States. The most
treasonable likely worst-case scenario would be that we may experience
disruption in operations if any of these third-party suppliers reported a
system failure. Although our year 2000 project will reduce the level of
uncertainty about the compliance and readiness of material third-party
providers, due to the general uncertainty over year 2000 readiness of these
third-party suppliers, we are unable to determine at this time whether the
consequences of year 2000 failures will have a material impact.

We have contingency plans for certain critical applications. These
contingency plans involve, among other actions, manual workarounds and
contracting with vendors capable of providing services.

We and the Lessee believe that we are devoting the resources necessary to
achieve year 2000 readiness in a timely manner. Costs associated with any year
2000 readiness projects are not expected to be material to us or the Lessee.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

In connection with the acquisition of the four hotel properties, we
incurred $26,625,000 of short-term borrowings at a fixed interest rate of 8.5%.
We have repricing risk associated with any re-financing of this debt which is
due on October 1, 2000. However, we intend to repay the entire balance of the
obligation from proceeds of our "best efforts" common stock offering.

EXPERTS

The combined financial statements for the hotels we purchased as of
November 29, 1999 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.

S-25

APPLE SUITES, INC.

INDEX TO FINANCIAL STATEMENTS

PAGE

-----

PROPERTY FINANCIAL STATEMENTS
(Atlanta - Peachtree, Baltimore - BWI Airport, Clearwater, Detroit - Warren, and Salt
Lake City -
Midvale)

Independent Auditors' Report .......................................................... F-2
Combined Balance Sheets -- December 31, 1998 and December 31, 1997 .................... F-3
Combined Statements of Shareholders' Equity -- Years ended December 31, 1997 and
December 31, 1998 ................................................................... F-4
Combined Income Statements -- Years ended December 31, 1998 and December 31, 1997 ..... F-5
Combined Statements of Cash Flows -- Years ended December 31, 1998 and December 31, F-6
1997
Notes to the Combined Financial Statements -- December 31, 1998 and December 31, 1997 . F-7
* * *
Combined Balance Sheet -- August 31, 1999 (unaudited) ................................. F-9
Combined Statement of Shareholders' Equity -- For the Period January 1, 1999 through
August 31, 1999
(unaudited) ......................................................................... F-10
Combined Income Statement -- For the Period January 1, 1999 through August 31, 1999 F-11
(unaudited)
Combined Statement of Cash Flows -- For the Period January 1, 1999 through August 31,
1999 (unaudited) .................................................................... F-12
Notes to the Combined Financial Statements -- For the Period January 1, 1999
through August 31, 1999 (unaudited) ................................................. F-13
COMPANY FINANCIAL STATEMENTS (UNAUDITED)
Apple Suites, Inc.
Consolidated Balance Sheets as of September 30, 1999 and March 26, 1999 ............... F-15
Consolidated Statement of Operations for the Three Months Ended September 30, 1999 .... F-16
Consolidated Statement of Cash Flows for the Three Months Ended September 30, 1999 .... F-17
Notes to Consolidated Financial Statements ............................................ F-18
Apple Suites Management, Inc.
Consolidated Balance Sheet as of September 30, 1999 ................................... F-23
Consolidated Statement of Operations for the Three Months Ended September 30, 1999 .... F-24
Consolidated Statement of Cash Flows for the Three Months Ended September 30, 1999 .... F-25
Notes to Consolidated Financial Statements ............................................ F-26
PRO FORMA FINANCIAL STATEMENTS (UNAUDITED)
Apple Suites, Inc.
Pro Forma Condensed Consolidated Balance Sheet as of September 30, 1999 ............... F-28
Notes to Pro Forma Condensed Consolidated Balance Sheet ............................... F-28
Pro Forma Condensed Consolidated Statements of Operations for the Year Ended December 31,
1998 and the Nine Months Ended September 30, 1999 ................................... F-29
Notes to Pro Forma Condensed Consolidated Statements of Operations .................... F-30
Apple Suites Management, Inc.
Pro Forma Condensed Consolidated Statements of Operations for the Year Ended December 31,
1998 and the Nine Months Ended September 30, 1999 ................................... F-32
Notes to Pro Forma Condensed Consolidated Statements of Operations .................... F-33

F-1

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. 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, 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.

November 7, 1999

F-2

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-3

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-4

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-5

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-6

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-7

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.

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 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.

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 $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-8

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-9

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-10

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-11

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-12

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 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.

(SEE INDEPENDENT ACCOUNTANTS' COMPILATION REPORT)

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-13

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-14

APPLE SUITES, INC.

CONSOLIDATED BALANCE SHEETS (UNAUDITED)

SEPTEMBER 30, MARCH 26,
1999 1999
--------------- ----------

ASSETS
Investment in hotel properties-net of accumulated depreciation of
$97,510 ............................................................ $ 36,292,592 --
Cash and cash equivalents ........................................... 10,924,786 $ 100
Rent receivable from Apple Suites Management, Inc. .................. 417,306 --
Due from Apple Suites Management, Inc. .............................. 301,636 --
Prepaid expenses .................................................... 4,522 --
Other Assets ........................................................ 48,577 --
------------ -----
Total Assets .................................................... $ 47,989,419 $ 100
============ =====
LIABILITIES AND SHAREHOLDERS' EQUITY LIABILITIES
Notes Payable ....................................................... $ 26,625,000 --
Accounts payable .................................................... 8,303 --
Accrued expenses .................................................... 664,082 --
------------ -----
Total Liabilities ............................................... 27,297,385 --
SHAREHOLDERS' EQUITY
Common stock, no par value, authorized 200,000,000
shares; issued and outstanding 2,532,147 shares .................... $ 20,629,326 $ 100
Class B convertible stock, no par value, authorized 240,000 shares;
issued and outstanding 240,000 shares .............................. 24,000 --
Net income greater than distributions ............................... 38,708 --
------------ -----
Total Shareholders' Equity ...................................... 20,692,034 100
------------ -----
Total Liabilities and Shareholders' Equity ...................... 47,989,419 $ 100
============ =====

See accompanying notes to consolidated financial statements.

F-15

APPLE SUITES, INC.

CONSOLIDATED STATEMENT OF OPERATIONS (UNAUDITED)

THREE MONTHS
ENDED
SEPTEMBER 30,
1999
--------------

REVENUES:
Percentage lease revenue ........................... $ 417,306
Interest income and other revenue .................. 64,370
EXPENSES:
Taxes, insurance and other ......................... 79,729
General and administrative ......................... 36,028
Depreciation ....................................... 97,510
Interest expense ................................... 229,701
---------
Total Expenses .................................. 442,968
---------
Net Income .......................................... $ 38,708
=========
Basic and diluted earnings per common share ......... $ 0.02
Distributions per common share ...................... $ --
=========

See accompanying notes to consolidated financial statements.

F-16

APPLE SUITES, INC.

CONSOLIDATED STATEMENT OF CASH FLOWS

THREE MONTHS
ENDED
SEPTEMBER 30,
1999
----------------

CASH FLOW FROM OPERATING ACTIVITIES
Net income .................................................................... $ 38,708
Adjustments to reconcile net income to net cash
provided by operating activities
Depreciation .................................................................. 97,510
Changes in operating assets and liabilities:
Prepaid expenses (4,552)
Due from Apple Suites Management, Inc. ........................................ (455,592)
Other Assets .................................................................. (48,577)
Accounts payable .............................................................. 8,303
Accrued expenses .............................................................. 153,281
------------
Net Cash Used in Operating Activities ....................................... (210,889)
CASH FLOW FROM INVESTING ACTIVITIES:
Loan to Apple Suites Management, Inc. ......................................... (263,350)
Acquisitions of hotel properties, net of liabilities assumed and debt incurred (9,254,301)
------------
Net Cash used in investing activities ......................................... (9,517,651)
CASH FLOW FROM FINANCING ACTIVITIES:
Payment from officer-shareholder for Class B shares ........................... 24,000
Net proceeds from issuance of common shares ................................... 20,629,226
------------
Net cash provided by financing activities ................................... 20,653,226
Increase in cash and cash equivalents ....................................... 10,924,686
Cash and cash equivalents, beginning of period ................................ 100
------------
Cash and cash equivalents, end of period ...................................... $ 10,924,786
============

See accompanying notes to consolidated financial statements.

F-17

APPLE SUITES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
SEPTEMBER 30, 1999

(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 September 30, 1999 are not necessarily
indicative of the results that may be expected for the period ended December
31, 1999. These consolidated financial statements should be read in conjunction
with the audited balance sheet dated March 26, 1999, included in the Company's
currently effective Form S-11 filed with the Securities and Exchange
Commission.

ORGANIZATION

Apple Suites, Inc. (the "Company"), a Virginia corporation, was formed on
March 5, 1999, the first investor closing was on August 23, 1999, and the first
hotel acquisition was effective September 1, 1999 and, therefore, no statement
of operations and cash flows are presented prior to the three month period
ended September 30, 1999. The consolidated financial statements include the
accounts of the Company and its subsidiaries. All significant intercompany
transactions and balances have been eliminated.

The Company operates in one defined business segment consisting of
extended-stay hotel properties. At September 30, 1999, the Company leased to
Apple Suites Management, Inc. (the "Lessee") its four hotel properties acquired
effective September 1, 1999. The hotel properties operate as Homewood
Suites(Reg. TM) Hotels.

The Lessee has entered into management agreements pursuant to which the
four hotel properties leased by it are managed by Promus Hotels, Inc.
("Promus").

RELATIONSHIP WITH LESSEE

The Company must rely solely on the Lessee to generate sufficient cash
flow from operation of the hotel properties to enable the Lessee to meet its
substantial rent obligation to the Company under the Percentage Leases. At
September 30, 1999, the Lessee's rent payable to the Company amounted to
$417,306. The ability of the Lessee to fund its daily operations and continue
to remain current on its substantial rent obligation to the Company is a result
of the original terms under the Percentage Leases, for the payment of rent to
the Company, which allow monthly base rent to be paid in arrears and quarterly
percentage rent to be paid 15 days following the quarter-end. The Company's
management will continue to evaluate the financial condition of the Lessee and
continue to evaluate other factors regarding the relationship between the
Company and the Lessee.

The Company did not have any items of comprehensive income requiring
separate reporting and disclosure for the periods presented.

START-UP COSTS

Start-up costs are expensed as incurred.

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.

F- 18

APPLE SUITES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
SEPTEMBER 30, 1999 - (CONTINUED)
(1) GENERAL INFORMATION AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES - (CONTINUED)

INVESTMENT IN HOTEL PROPERTIES

The hotel properties are stated at cost, net of depreciation, and includes
real estate brokerage commissions paid to Apple Suites Realty Group, Inc., a
related party (see Note 5). Repairs 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 27.5 years for buildings and
major improvements and 5 to 7 years for furniture and equipment.

The carrying values of each hotel property are evaluated periodically to
determine if circumstances exist indicating an impairment in the carrying value
of the investment in the hotel and the estimated undiscounted cash flows are
less than their carrying amount. Adjustments are made based on fair value of
the underlying property if impairment is indicated. No impairment losses have
been recorded to date.

REVENUE RECOGNITION

Percentage 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. The Lessee is in compliance with their rental obligations under the
Percentage Leases.

EARNINGS PER COMMON SHARE

Basic and diluted earnings per common share are calculated in accordance
with FASB Statement No. 128 "Earnings Per 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.

INCOME TAXES

The Company has elected to be treated as a REIT under Section 856 to 860
of the Internal Revenue Code. Accordingly, no provision for federal income
taxes has been reflected in the financial statements. Earnings and profits,
which will determine the taxability of distributions to shareholders, will
differ from income reported for financial reporting purposes primarily due to
the differences for federal income tax purposes in the estimated useful lives
used to compute depreciation.

USE OF ESTIMATES

The preparation of financial statements in accordance with generally
accepted accounting principles 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.

SEASONALITY

The hotel industry is seasonal in nature. Seasonal variations in revenues
at the Company's hotels may cause quarterly fluctuations in the Company's lease
revenues.

F- 19

APPLE SUITES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
SEPTEMBER 30, 1999 - (CONTINUED)

(2) INVESTMENT IN HOTELS

Investment in hotels at September 30, 1999 consist of the following:

Land .................................. $ 6,402,444
Building .............................. 29,509,658
Furniture and equipment ............... 478,000
-----------
$36,390,102
Less accumulated depreciation ......... (97,510)
-----------
$36,292,592
-----------

Three of the hotel properties are located in Texas and one hotel property
is located in Virginia and are subject to the Percentage Leases as described in
Note 5.

(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 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. Glade M. Knight,
President and Chairman, guaranteed repayment of the loan.

In conjunction with purchase of four hotel properties, a note was executed
by the Company made payable to the order of Promus in the amount of
$26,625,000. The note bears a fixed interest rate of 8.5% per annum. Interest
payments are due monthly and the maturity date is October 1, 2000. Principal
payments are to be made to the extent of net equity proceeds from the offering
of common shares.

(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 $23,654,701 from the
sale of 1,666,667 shares at $9 per share and 865,470 shares at $10 per share
during the three month period ended September 30, 1999. The net proceeds of the
offering, after deducting selling commissions and other offering costs were
$20,629,226.

(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 on the occurrence
of certain contingencies. The Leases contain an optional five-year extension.
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 $417,306 for the three month
period ended September 30, 1999.

F- 20

APPLE SUITES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
SEPTEMBER 30, 1999 - (CONTINUED)
(5) COMMITMENTS AND RELATED PARTIES - (CONTINUED)

Minimum future rental income (i.e. base rents) payable to the Company
under the Percentage Leases in effect at September 30, 1999 are as follows:

Remainder of 1999 ................. $ 659,670
2000 .............................. 2,638,680
2001 .............................. 2,638,680
2002 .............................. 2,638,680
2003 .............................. 2,638,680
Thereafter ........................ 14,952,520
-----------
$26,166,910
-----------

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 hotel properties. The
Company is also committed to fund certain capital expenditures required for the
retention of the franchise licenses with respect of the hotels.

The Lessee engages a third-party manager (Promus) to operate the hotel
properties leased by it and pays the manager a base management 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, each equal to 4% of gross revenues, respectively.

On September 17, 1999, the Company entered into two debt agreements with
the Lessee. The Company loaned the Lessee $215,550 for franchise fees and
$47,800 for hotel supplies for the four hotel properties. The debt agreements
are evidenced by two promissory notes bearing interest at a rate of 9% per
annum. Principal and interest payments are due monthly. The entire balance of
principal and interest is due on October 1, 2009 for the franchise fees note
and October 1, 2004 for the hotel supply note.

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, in addition to certain reimbursable expenses.
For the three months ended September 30, 1999, the Company paid ASRG $710,000
under the agreement.

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. At September 30, 1999, the Company had paid ASA $4,928
under this agreement.

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- 21

APPLE SUITES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
SEPTEMBER 30, 1999 - (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
SEPTEMBER 30, 1999
-------------------

Numerator:
Net income and numerator for basic and diluted earnings ......... $ 38,708
Denominator:
Denominator for basic earnings per share-weighted- average
shares ......................................................... 2,286,052
Effect of dilutive securities:
Stock options ................................................... --
-----------
Denominator for diluted earnings per share-adjusted
weighted-average shares and assumed conversions ................. 2,286,052
-----------
Basic and diluted earnings per common share ....................... $ .02
-----------

(7) ACQUISITIONS

The following unaudited pro forma information for the nine months ended
September 30, 1999 is presented as if the acquisition of the five hotel
properties (including the hotel property acquired effective October 1, 1999,
see Note 8) 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.

NINE MONTHS ENDED
9/30/99
------------------

Percentage lease revenue ....................... $ 4,407,032
Net income ..................................... 26,115
Net income per share-basic and diluted ......... $ .01

The pro forma information reflects adjustments for actual lease revenue
and expenses of the five hotel properties 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; and (3) interest expense has been adjusted
to reflect the acquisition as of the beginning of the period.

(8) SUBSEQUENT EVENTS

On October 29, 1999, the Company distributed to its shareholders
approximately $169,990 ($.08 per share) of which approximately $92,540 was
reinvested in the purchase of additional shares. On October 26, 1999, the
Company closed the sale to investors of 327,340 shares at $10 per share
representing net proceeds to the Company of $2,946,060.

Effective October 1, 1999, the Company acquired a Homewood Suites(Reg. TM)
hotel property in Atlanta, Georgia for $9,800,000. The hotel property was
purchased through a combination of equity proceeds from the equity offering and
a note in the amount of $7,350,000 made payable to the order of Promus. The
note bears a fixed interest rate of 8.5%per annum. Interest payments are due
monthly and the maturity date is October 1, 2000. This hotel will be leased by
the Lessee and managed by Promus in substantially the same manner as the other
four Homewood Suites(Reg. TM) hotels owned at September 30, 1999.

F- 22

APPLE SUITES MANAGEMENT, INC.

CONSOLIDATED BALANCE SHEET (UNAUDITED)

SEPTEMBER 30,
1999
--------------

CURRENT ASSETS
Cash and cash equivalents ..................................................... $ 840,445
Receivables ................................................................... 454,004
Inventories ................................................................... 64,164
----------
Total Current Assets ..................................................... 1,358,613
LONG-TERM ASSETS
Prepaid franchise fees ......................................................... 216,521
----------
Total assets ............................................................. $1,575,134
==========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Account payable ............................................................... $ 15,915
Rent payable to Apple Suites, Inc. ............................................ 417,306
Due to affiliates ............................................................. 38,286
Accrued expenses .............................................................. 813,131
Current portion of long-term payable to Apple Suites, Inc. .................... 19,961
----------
Total Current Liabilities ................................................ 1,304,599
LONG-TERM LIABILITIES
Long-term notes payable to Apple Suites, Inc. .................................. 243,389
----------
Total Liabilities ........................................................ 1,547,988
SHAREHOLDERS' EQUITY
Common Stock, no par value, 5,000 authorized; 10 shares issued and outstanding 100
Retained earnings ............................................................. 27,046
----------
Total Shareholders' Equity ............................................... 27,146
----------
Total Liabilities and Shareholders' Equity ............................... $1,575,134
==========

See accompanying notes to consolidated financial statements.

F-23

APPLE SUITES MANAGEMENT, INC.

CONSOLIDATED STATEMENT OF OPERATIONS (UNAUDITED)

THREE MONTHS
ENDED
SEPTEMBER 30,
1999
--------------
REVENUE
Suite revenue ............................ $ 961,604
Other revenue ............................ 59,548
----------
Total revenue ....................... 1,021,152
EXPENSES
Operating expense ........................ 259,098
General and administrative ............... 85,676
Advertising and promotion ................ 93,237
Utilities ................................ 26,101
Franchise fees ........................... 38,464
Management fees .......................... 40,769
Rent expense--Apple Suites, Inc. ......... 417,306
Other .................................... 15,425
----------
Total expenses ...................... 976,076
Income before income taxes ................ 45,076
Income tax expense ........................ 18,030
----------
Net income ................................ $ 27,046
==========

See accompanying notes to consolidated financial statements.

F-24

APPLE SUITES MANAGEMENT, INC.

CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED)

THREE MONTHS
ENDED
SEPTEMBER 30,
1999
--------------

CASH FLOW FROM OPERATING ACTIVITIES:
Net income ..................................................................... $ 27,046
Adjustments to reconcile net income to net cash provided by operating activities
Changes in operating assets and liabilities:
Receivables ................................................................. (454,004)
Inventories ................................................................. (64,164)
Other assets ................................................................ (216,521)
Rent payable to Apple Suites, Inc. .......................................... 417,306
Accounts payable ............................................................ 15,915
Accrued expenses ............................................................ 851,417
----------
Net cash provided by operating activities ................................. 576,995
CASH FLOW FROM FINANCING ACTIVITIES:
Proceeds from sale of common stock ............................................. 100
Proceeds from promissory notes ................................................. 263,350
----------
Net cash provided by financing activities ................................. 263,450
Increase in cash and cash equivalents ..................................... 840,445
Cash and cash equivalents, beginning of period .................................. --
----------
Cash and cash equivalents, end of period ........................................ $ 840,445
==========

See accompanying notes to consolidated financial statements.

F-25

APPLE SUITES MANAGEMENT, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
SEPTEMBER 30, 1999

(1) GENERAL INFORMATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

ORGANIZATION

Apple Suites Management, Inc. (the "Lessee") was formed on March 11, 1999
and is owned 100% by Glade M. Knight. Mr. Knight also serves as the Chairman
and President of the Company. The Lessee commenced operations effective
September 1, 1999 with the acquisition of the four hotel properties by Apple
Suites, Inc. (the "Company").

Each hotel is leased by the Company to the Lessee under a Percentage Lease
agreement that includes a noncancelable term of ten years, subject to earlier
termination upon certain events, and an optional five year extension. The lease
requires a 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
revenue.

The accompanying unaudited financial statements reflect, in the opinion of
management, all adjustments necessary for a fair presentation of the interim
financial statements. All such adjustments are of a normal and recurring
nature.

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.

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 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.

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.

INCOME TAXES

The Company provides for income taxes under the provisions of SFAS No. 109
"Accounting for Income Taxes". SFAS No. 109 requires an asset and liability
based approach in accounting for income taxes. Current tax liability is
included in accrued expenses on the balance sheet.

USE OF ESTIMATES

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.

F-26

APPLE SUITES MANAGEMENT, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
SEPTEMBER 30, 1999 - (CONTINUED)

(2) COMMITMENTS AND RELATED PARTY TRANSACTIONS

The Percentage Leases expire in 2009, subject to earlier termination on
the occurrence of certain contingencies. The Percentage Leases contain an
optional five-year extension. 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 Lessee's future commitments to the Company under the Percentage Leases
in effect at September 30, 1999 are as follows:

Remainder of 1999 ............... $ 659,670
2000 ............................ 2,638,680
2001 ............................ 2,638,680
2002 ............................ 2,638,680
2003 ............................ 2,638,680
Thereafter ...................... 14,952,520
-----------
$26,166,910
-----------

At September 30, 1999, all rent payments due the Company are current.
Under the terms of the Percentage Leases, base rent is payable to the Company
in arrears and percentage rent is payable 15 days following a quarter-end. At
September 30, 1999, rent payable was $417,306.

On September 17, 1999, the Lessee entered into two debt agreements with
the Company. The Lessee borrowed from the Company $215,550 for franchise fees
and $47,800 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 entire principal balance and interest of the
hotel supply note is due October 1, 2004 and the franchise fee note is due
October 1, 2009.

(3) SHAREHOLDER'S EQUITY

The Lessee requires or may require funds to capitalize its business to
satisfy its obligations under Master Hotel Lease Agreements with the Company,
dated September 17, 1999.

The Lessee has two funding commitments (together "Payor") of $1 million
each from Mr. Knight and Apple Suites Realty Group, Inc., respectively.

The funding commitments are contractual obligations of the Payor to pay
funds to the Lessee. Funds paid to the Lessee under the commitments are
intended to represent contributions to the capital reserves of the Lessee, does
not represent any 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 repayment of all amounts
to the Payor. As of September 30, 1999, no contributions have been made by the
Payor to the Lessee.

(4) SUBSEQUENT EVENTS

Effective October 1, 1999, the Company acquired a hotel property in
Atlanta, Georgia. This hotel will be leased by the Lessee and managed by Promus
in substantially the same manner as the other four Homewood Suites(Reg. TM)
hotels.

F-27

APPLE SUITES, INC.

PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
AS OF SEPTEMBER 30, 1999 (UNAUDITED)

The following unaudited Pro Forma Condensed Consolidated Balance Sheet of
Apple Suites, Inc. (the "Company") is presented as if the acquisition of the
six Homewood Suites hotels from Promus Hotels, Inc. ("Promus") had occurred on
September 30, 1999. See Note A for individual hotel details. Such information
is based in part upon the consolidated balance sheet of the Company. 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 September 30, 1999,
nor does it purport to represent the future financial position of the Company.

HOMEWOOD
HISTORICAL SUITES
BALANCE ACQUISITION (A) TOTAL
SHEET ADJUSTMENTS PRO FORMA
-------------- ------------------------ --------------

ASSETS
Investment in hotel properties ........................... $36,292,592 $ 51,081,600 (A) $87,374,192
Cash and cash equivalents ................................ 10,924,786 (10,924,786)(D) --
Rent receivable from Apple Suites
Management, Inc. ........................................ 417,306 -- 417,306
Due from Apple Suites Management, Inc. ................... 301,636 -- 301,636
Prepaid expenses ......................................... 4,522 -- 4,522
Other assets ............................................. 48,577 -- 48,577
----------- --------------- -----------
Total Assets .......................................... $47,989,419 $ 40,156,814 $88,146,233
=========== =============== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES
Notes payable ............................................ $26,625,000 $ 37,560,000 (B) $64,185,000
Accounts payable ......................................... 8,303 -- 8,303
Accrued expenses ......................................... 664,082 -- 664,082
----------- --------------- -----------
Total Liabilities ..................................... 27,297,385 37,560,000 64,857,385
SHAREHOLDERS' EQUITY
Common stock, no par value, authorized 200,000,000
shares; issued and outstanding 2,532,147 shares ......... 20,629,326 2,596,814 (C) 23,226,140
Class B convertible stock, no par value, authorized
240,000 shares; issued and outstanding 240,000 shares 24,000 -- 24,000
Net income greater than distributions .................... 38,708 -- 38,708
----------- --------------- -----------
Total Shareholders' Equity ............................... 20,692,034 2,596,814 23,288,848
----------- --------------- -----------
Total Liabilities and Shareholders' Equity ............... $47,989,419 $ 40,156,814 $88,146,233
=========== =============== ===========

- ----------
NOTES TO PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET

(A) Increase represents the purchase of 6 hotels, including the 2% acquisition
fee payable to Apple Suites Realty Group, Inc. The hotels acquired are as
follows:

DATE COMMENCED DATE ACQUIRED
PROPERTY OPERATIONS (FOR PRO-RATION PURPOSES)
- -------------------------------- ---------------- ---------------------------
Homewood Suites-Atlanta, GA 1990 October 1, 1999
Homewood Suites-Clearwater, FL February 1998 November 24, 1999
Homewood Suites-Salt Lake, UT 1996 November 24, 1999
Homewood Suites-Atlanta, GA 1990 November 24, 1999
Homewood Suites-Detroit, MI 1990 November 24, 1999
Homewood Suites-Baltimore, MD March 1998 November 24, 1999
Total

2%
PURCHASE ACQUISITION DEBT
PROPERTY PRICE FEE TOTAL INCURRED
- -------------------------------- ------------- ------------- ------------- -------------

Homewood Suites-Atlanta, GA $ 9,800,000 $ 196,000 $ 9,996,000 $ 7,350,000
Homewood Suites-Clearwater, FL 10,416,000 208,320 10,624,320 7,812,000
Homewood Suites-Salt Lake, UT 5,153,000 103,060 5,256,060 3,864,750
Homewood Suites-Atlanta, GA 4,033,000 80,660 4,113,660 3,024,750
Homewood Suites-Detroit, MI 4,330,000 86,600 4,416,600 3,247,500
Homewood Suites-Baltimore, MD 16,348,000 326,960 16,674,960 12,261,000
----------- ---------- ----------- -----------
Total $50,080,000 $1,001,600 $51,081,600 $37,560,000

(B) Represents the debt incurred at acquisition. The notes bear interest of
8.5% per annum. The maturity date for the note in the amount of $7,350,000
is October 1, 2000 and the maturity date for the note in the amount of
$30,210,000 is December 1, 2000. The Company is required to make monthly
principal payments in the amount of the equity proceeds received during a
month in excess of offering expenses.

(C) Increase to common stock to reflect the net proceeds from the sale of
common stock from the Company's continuous offering used to purchase these
hotels.

(D) Reflects the use of cash on hand to purchase these hotels.

F-28

APPLE SUITES, INC.

PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1998 AND THE
NINE MONTHS ENDED SEPTEMBER 30, 1999 (UNAUDITED)

The following unaudited Pro Forma Condensed Consolidated Statements of
Operations of Apple Suites, Inc. (the "Company") are presented as if the
acquisition of the ten Homewood Suites hotels from Promus Hotels, Inc.
("Promus") had occurred at the beginning of the periods presented or date
placed into service by Promus if later (See Note A) and all of the hotels had
been leased to Apple Suites Management, Inc. (the "Lessee") pursuant to the
Percentage Leases. 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 most significant assumption which may not be indicative of future
operations is the amount of financial leverage employed. These Pro Forma
statements assume 75% of the purchase price was funded with debt for the entire
periods 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.

FOR THE TWELVE MONTHS ENDED DECEMBER 31, 1998 (UNAUDITED)
----------------------------------------------------------------------------------
PRO FORMA
ADJUSTMENTS
HOMEWOOD HOMEWOOD
HISTORICAL SUITES SUITES
STATEMENT OF ACQUISITION ACQUISITION TOTAL
OPERATIONS (A I) (A II) PRO FORMA
-------------- --------------------- --------------------- -----------------

REVENUE:
Percentage lease revenue ................. $ -- $ 6,169,723 (B) $ 4,918,647 (B) $ 11,088,370
Interest income and other income ......... -- -- -- --
EXPENSES:
Taxes and insurance ...................... -- 1,040,638 (C) 432,979 (C) 1,473,617
General and administrative ............... -- 115,112 (D) 111,414 (D) 226,526
Depreciation ............................. -- 1,256,071 (E) 1,155,328 (E) 2,411,398
Interest expense ......................... -- 2,688,125 (F) 2,338,818 (F) 5,026,943
----- ---------------- ------------ -------------
Total expenses ............................ -- 5,099,946 4,038,538 9,138,484
----- ---------------- ------------ -------------
Net income ................................ $ -- $ 1,949,886
===== =============
Earnings per common share:
Basic and Diluted ........................ $ -- $ 0.74
===== =============
Basic and diluted weighted average common
shares outstanding ....................... -- 1,412,531 (G) 1,228,980 (G) 2,641,511
===== =============

F-29

APPLE SUITES, INC.
PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1998 AND
THE NINE MONTHS ENDED SEPTEMBER 30, 1999 (UNAUDITED) -- (CONTINUED)

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999 (UNAUDITED)
--------------------------------------------------------------------------------
PRO FORMA
ADJUSTMENTS
HOMEWOOD HOMEWOOD
HISTORICAL SUITES SUITES
STATEMENT OF ACQUISITION ACQUISITION TOTAL
OPERATIONS (A I) (A II) PRO FORMA
-------------- --------------------- --------------------- ---------------

REVENUE:
Percentage lease revenue ................. $ 417,306 $ 4,264,391 (B) $ 4,598,632 (B) $ 9,280,329
Interest income and other income ......... 64,370 -- -- 64,370
EXPENSES:
Taxes and insurance ...................... 79,729 822,599 (C) 529,548 (C) 1,431,876
General and administrative ............... 36,028 85,924 (D) 85,379 (D) 207,331
Depreciation ............................. 97,510 931,211 (E) 953,304 (E) 1,982,025
Interest expense ......................... 229,701 1,977,313 (F) 1,925,888 (F) 4,132,902
---------- ------------ ------------ -----------
Total expenses ............................ 442,968 3,817,047 3,494,119 7,754,134
Net income ................................ $ 38,708 $ 447,344 $ 1,104,513 $ 1,590,565
========== ============ ============ ===========
Earnings per common share:
Basic and Diluted ........................ $ 0.02 $ 0.32
========== ===========
Basic and diluted weighted average
common shares outstanding ................ 2,286,052 1,385,360 (G) 1,349,330 (G) 5,020,742
========== ===========

- ----------
NOTES TO PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(A) Represents results of operations for the ten hotels acquired on a pro forma
basis as if the ten hotels were owned by the Company at the beginning of
the periods presented or date placed into service by Promus if later, see
below.

DATE COMMENCED DATE ACQUIRED
PROPERTY OPERATIONS (FOR PRO-RATION PURPOSES)
- -------------------------------------------------------------------------------------------------

I Homewood Suites - Dallas, TX 1990 September 1, 1999
I Homewood Suites - LasColinas, 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

Since three of the hotels (Richmond, VA, Clearwater, FL, and Baltimore, MD)
were under construction in 1998 and full operations did not commence until the
respective dates, no pro forma adjustments were made for the periods prior to
completion.

(B) Represents lease payment from the Lessee to the Company calculated on a pro
foma 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.
Refer to the Master Hotel Lease Agreement section to Report for details.

(C) Represents historical real estate and personal property taxes and insurance
which will be paid by the Company pursuant to the Percentage 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.

F-30

APPLE SUITES, INC.
PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1998 AND
THE NINE MONTHS ENDED SEPTEMBER 30, 1999 (UNAUDITED) -- (CONTINUED)

(E) Represents the depreciation on the ten hotels acquired based on the
purchase price, excluding amounts allocated to land, of $71,554,112 for
the period of time not owned by the Company. The weighted average life of
the depreciable assets was 27.5 years. The estimated useful lives are
based on management's knowledge of the properties and the hotel industry
in general. Depreciable assets of $31,913,270 did not commence
depreciation until the respective opening dates.

(F) Represents the interest expense for the ten 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 $64.185 million 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
"best efforts" offering of $9 per share (net $8.06 per share).

F-31

APPLE SUITES MANAGEMENT, INC.

PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1998 AND THE
NINE MONTHS ENDED SEPTEMBER 30, 1999 (UNAUDITED)

The following unaudited Pro Forma Condensed Consolidated Statements of
Operations of Apple Suites Management, Inc. (the "Lessee") are presented as if
the ten hotels purchased from Promus Hotels, Inc. ("Promus") had been leased
from Apple Suites, Inc. (the "Company") pursuant to the Percentage Leases from
the beginning of periods presented or date placed into service by Promus (see
Note A). Further, the results of operations reflect the Management Agreement
and License Agreement entered into between Promus and the Lessee or affiliate
to operate the acquired hotels. Such pro forma information is based in part
upon the Consolidated Statements of Operations of the Lessee, and the Homewood
Suites 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 Statements of
Operations for the periods 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 does it
purport to represent the results of operations for the future periods.

FOR THE TWELVE MONTHS ENDED DECEMBER 31, 1998
-----------------------------------------------------------------------------------
HOMEWOOD HOMEWOOD
HISTORICAL SUITES SUITES
STATEMENT OF ACQUISITION ACQUISITION PRO FORMA TOTAL
OPERATIONS (A I) (A II) ADJUSTMENTS PRO FORMA
-------------- --------------- --------------- -------------------- ---------------

REVENUES:
Suite revenue ...................... $ -- $ 14,075,852 $ 10,812,372 -- $ 24,888,224
Other income ....................... -- 811,817 733,318 -- 1,545,135
EXPENSES:
Operating expenses ................. -- 5,586,712 4,748,240 -- 10,334,952
General and administrative ......... -- 348,088 315,165 $ (112,000)(B)
50,000 (C) 601,253
Advertising and promotion .......... -- 648,273 502,899 (999,318)(D)
995,529 (E) 1,147,383
Utilities .......................... -- 626,269 543,828 -- 1,170,097
Taxes and insurance ................ -- 1,040,638 432,979 (1,473,617)(F) --
Depreciation expense ............... -- 2,394,294 2,214,501 (4,608,795)(G) --
Franchise fees ..................... -- 563,035 432,494 (995,529)(H)
995,529 (I) 995,529
Management fees .................... -- -- -- 1,170,334 (K) 1,170,334
Rent expense -- Apple Suites, Inc. -- -- -- 11,088,370 (L) 11,088,370
Other .............................. -- 226,964 349,961 (576,925)(N) --
---- ------------ ------------ ------------- ------------
Total expenses ...................... -- 11,434,273 9,540,067 5,533,578 26,507,918
Income before income tax ............ -- 3,453,396 2,005,623 (5,533,578) (74,559)
Income tax expense .................. -- -- -- -- (M) --
---- ------------ ------------ ------------- ------------
Net income .......................... $ -- $ 3,453,396 $ 2,005,623 $ (5,533,578) $ (74,559)
==== ============ ============ ============= ============

F- 32

APPLE SUITES MANAGEMENT, INC.

PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1998 AND THE
NINE MONTHS ENDED SEPTEMBER 30, 1999 (UNAUDITED) - (CONTINUED)

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999
--------------------------------------------------------------------------------
HOMEWOOD HOMEWOOD
HISTORICAL SUITES SUITES
STATEMENT OF ACQUISITION ACQUISITION PRO FORMA TOTAL
OPERATIONS (A I) (A II) ADJUSTMENTS PRO FORMA
-------------- ------------- ------------- ---------------------- --------------

REVENUES:
Suite revenue ................. $ 961,604 $ 9,818,797 $9,885,579 -- $20,665,980
Other income .................. 59,548 560,096 580,287 -- 1,199,931
EXPENSES:
Operating expenses ............ 259,098 3,794,204 3,984,624 -- 8,037,926
General and administrative 85,676 250,317 245,792 $ (90,000)(B)
37,500 (C) 529,285
Advertising and promotion 93,237 438,985 475,007 (788,180)(D)
788,175 (E) 1,007,224
Utilities ..................... 26,101 354,113 451,112 -- 831,326
Taxes and insurance ........... -- 822,599 529,548 (1,352,147)(F) --
Depreciation expense .......... -- 1,783,021 1,814,014 (3,597,035)(G) --
Franchise fees ................ 38,464 392,757 395,423 (788,180)(H)
788,175 (I) 826,639
Management fees ............... 40,769 311,275 313,854 (625,128)(J)
919,790 (K) 960,560
Rent expense - Apple
Suites, Inc. ................ 417,306 -- -- 8,863,023 (L) 9,280,329
Other ......................... 15,425 -- -- -- 15,425
--------- ----------- ---------- ------------- -----------
Total expenses ................ 976,076 8,147,271 8,209,374 4,155,993 21,488,714
Income before income tax . 45,076 2,231,622 2,256,492 (4,155,993) 377,197
Income tax expense ............ 18,030 -- -- 132,848 (M) 150,878
--------- ----------- ---------- ------------- -----------
Net income .................... $ 27,046 $ 2,231,622 $2,256,492 $ (4,288,842) $ 226,319
========= =========== ========== ============= ===========

- ----------
NOTES TO PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(A) Represents results of operations for the ten 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 or
date placed into service by Promus, see below. The hotels acquired are as
follows:

DATE COMMENCED DATE ACQUIRED
PROPERTY OPERATIONS (FOR PRO-RATION PURPOSES)
- -------------------------------------------------------------------------------------------------

I Homewood Suites -- Dallas, TX 1990 September 1, 1999
I Homewood Suites -- LasColinas, 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

F- 33

APPLE SUITES MANAGEMENT, INC.

PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1998 AND THE
NINE MONTHS ENDED SEPTEMBER 30, 1999 (UNAUDITED) - (CONTINUED)

Since three hotels were under construction in 1998 and full operations did not
commence until the respective dates, no pro forma adjustments were made prior
to the date the hotel commenced operations.

(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 nine
months ended September 30, 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 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. Refer to the Master Hotel Lease Agreement section in
Report for details.

(M) Represents the combined state and federal income tax expense estimated on a
combined rate of 40%.

(N) Represents the elimination of pre-opening operating expenses not incurred
by the Lessee.

F- 34