SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                    FORM 8-K

                                 CURRENT REPORT

         Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

Date of Report (Date of Earliest Event Reported):  November 29, 1999

                               APPLE SUITES, INC.
             (Exact name of registrant as specified in its charter)

      VIRGINIA                    333-77055                    54-1933472
     (State of                   (Commission                  (IRS Employer
   incorporation)                File Number)               Identification No.)

                  306 EAST MAIN STREET
                  RICHMOND, VIRGINIA                               23219
                  (Address of principal                          (Zip Code)
                  executive offices)

               Registrant's telephone number, including area code:
                                 (804) 643-1761


<PAGE>

                               APPLE SUITES, INC.

                                    FORM 8-K

                                      Index

<TABLE>
<CAPTION>
                                                                                                                   Page No.
                                                                                                                   --------

<S>         <C>                                                                                                  <C>
Item 2.        Acquisition or Disposition of Assets                                                                   7

Item 7.        Financial Statements and Exhibits

         a.    Financial Statements

         Atlanta  -  Peachtree;  Baltimore  -  BWI  Airport;  Clearwater,
         Detroit--Warren; Salt Lake City--Midvale

1.       Property Financial Statements

           Independent Auditors Report                                                                               33

           Combined Balance Sheets - December 31, 1998 and December 31, 1997                                         34

           Combined  Statements of  Shareholders'  Equity - Years ended December
           31, 1997 and December 31, 1998                                                                            36

           Combined Income Statements - Years ended December 31, 1998 and
           December 31, 1997                                                                                         37

           Combined Statements of Cash Flows - Years ended December 31, 1998 and
           December 31, 1997                                                                                         38

           Notes to the Combined Financial Statements - December 31, 1998 and
           December 31, 1997                                                                                         39

                                      * * *

           Combined Balance Sheet - August 31, 1999 (unaudited)                                                      42

           Combined  Statement of Shareholders'  Equity - For the Period January
           1, 1999 through August 31, 1999 (unaudited)                                                               44

           Combined  Income  Statement - For the Period  January 1, 1999 through
           August 31, 1999 (unaudited)                                                                               45

           Combined  Statement  of Cash Flows - For the  Period  January 1, 1999
           through August 31, 1999 (unaudited)                                                                       46
</TABLE>

                                       2

<PAGE>

<TABLE>

<S>         <C>                                                                                                  <C>

           Notes to the Combined  Financial  Statements - For the Period January
           1, 1999 through August 31, 1999 (unaudited)                                                               47

   2.      Pro Forma Financial Statements

           Apple Suites, Inc.--Pro Forma Condensed Consolidated Balance Sheet as
           of September 30, 1999 (unaudited)                                                                         50

           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)                                                                      52

           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)                                                          55
</TABLE>
                                       3

<PAGE>

<TABLE>

<S>         <C>                                                                                                  <C>

b.       Exhibits

                  4.1      Note dated November 29, 1999 in the principal  amount
                           of $ 30,210,000 made payable by Apple Suites, Inc. to
                           the order of Promus Hotels, Inc.

                  4.2      Fee and Leasehold Deed to Secure Debt,  Assignment of
                           Leases  and  Rents  and  Security   Agreement   dated
                           November 29, 1999 from Apple  Suites,  Inc. and Apple
                           Suites  Management,  Inc.  for the  benefit of Promus
                           Hotels, Inc.  pertaining  to  the  Atlanta--Peachtree
                           hotel.

                  4.3      Fee and Leasehold Deed to Secure Debt,  Assignment of
                           Leases  and  Rents  and  Security   Agreement   dated
                           November 29, 1999 from Apple  Suites,  Inc. and Apple
                           Suites  Management,  Inc.  for the  benefit of Promus
                           Hotels,  Inc.,  constituting  a  second  lien  on the
                           Atlanta--Galleria/Cumberland hotel.

                  4.4      Purchase  Money  Fee and  Leasehold  Deed  of  Trust,
                           Assignment of Leases and Rents and Security Agreement
                           dated  November 29, 1999 from Apple Suites,  Inc. and
                           Apple  Suites  Management,  Inc.  for the  benefit of
                           Promus Hotels,  Inc. pertaining to the Baltimore--BWI
                           Airport hotel.

                  4.5      Fee and Leasehold Mortgage,  Assignment of Leases and
                           Rents and Security  Agreement dated November 29, 1999
                           from Apple Suites,  Inc. and Apple Suites Management,
                           Inc.   for  the  benefit  of  Promus   Hotels,   Inc.
                           pertaining to the Clearwater hotel.

                  4.6      Fee and Leasehold Mortgage,  Assignment of Leases and
                           Rents and Security  Agreement dated November 29, 1999
                           from Apple Suites,  Inc. and Apple Suites Management,
                           Inc.   for  the  benefit  of  Promus   Hotels,   Inc.
                           pertaining to the Detroit--Warren hotel.

                  4.7      Fee and Leasehold Deed of Trust, Assignment of Leases
                           and Rents and Security  Agreement and Fixture  Filing
                           dated November 29, 1999, from Apple Suites,  Inc. and
                           Apple  Suites  Management,  Inc.,  for the benefit of
                           Promus  Hotels,  Inc.  pertaining  to the  Salt  Lake
                           City--Midvale hotel.

                  4.8      Deed of Trust  Modification  Agreement dated November
                           29, 1999,  among Promus  Hotels,  Inc.,  Apple Suites
                           REIT Limited  Partnership  and Apple Suites  Services
                           Limited   Partnership   pertaining   to   the   North
                           Dallas--Plano hotel.

                  4.9      Deed of Trust  Modification  Agreement dated November
                           29, 1999,  among Promus  Hotels,  Inc.,  Apple Suites
                           REIT Limited  Partnership  and Apple Suites  Services
                           Limited Partnership pertaining to the Dallas--Addison
                           and Dallas--Irving/Las Colinas hotels.

                  10.1     Indemnity  dated November 29, 1999 from Apple Suites,
                           Inc.  to  Promus  Hotels,   Inc.  pertaining  to  the
                           Atlanta--Peachtree hotel.
</TABLE>

                                       4


<PAGE>


<TABLE>

<S>         <C>                                                                                                  <C>

                  10.2     Indemnity  dated November 29, 1999 from Apple Suites,
                           Inc.  to  Promus  Hotels,   Inc.  pertaining  to  the
                           Baltimore--BWI Airport hotel.

                  10.3     Indemnity  dated November 29, 1999 from Apple Suites,
                           Inc.  to  Promus  Hotels,   Inc.  pertaining  to  the
                           Clearwater  hotel.  10.4 Indemnity dated November 29,
                           1999 from Apple Suites,  Inc. to Promus Hotels,  Inc.
                           pertaining to the to the Detroit--Warren hotel.

                  10.5     Indemnity  dated November 29, 1999 from Apple Suites,
                           Inc. to Promus  Hotels,  Inc.  pertaining to the Salt
                           Lake City--Midvale hotel.

                  10.6     Exhibits  A-3,  A-4,  A-5,  A-6  and  A-7,  Schedules
                           2.1(c), 2.1(d), 2.1(e), 2.1(f) and 2.1(g),  Schedules
                           3.1(a)-3,  3.1(a)-4, 3.1(a)-5, 3.1(a)-6 and 3.1(a)-7,
                           and Schedules 3.1(b)-3,  3.1(b)-4, 3.1(b)-5, 3.1(b)-6
                           and  3.1(b)-7  to the Master  Hotel  Lease  Agreement
                           dated  September 20, 1999 between Apple Suites,  Inc.
                           (as lessor) and Apple  Suites  Management,  Inc.  (as
                           lessee).

                  10.7     Homewood Suites License  Agreement dated November 29,
                           1999  between  Promus  Hotels,  Inc. and Apple Suites
                           Management, Inc. pertaining to the Atlanta--Peachtree
                           hotel.

                  10.8     Homewood Suites License  Agreement dated November 29,
                           1999  between  Promus  Hotels,  Inc. and Apple Suites
                           Management,  Inc.  pertaining  to the  Baltimore--BWI
                           Airport hotel.

                  10.9     Homewood Suites License  Agreement dated November 29,
                           1999  between  Promus  Hotels,  Inc. and Apple Suites
                           Management, Inc. pertaining to the Clearwater hotel.

                  10.10    Homewood Suites License  Agreement dated November 29,
                           1999  between  Promus  Hotels,  Inc. and Apple Suites
                           Management,  Inc.  pertaining to the  Detroit--Warren
                           hotel.

                  10.11    Homewood Suites License  Agreement dated November 29,
                           1999  between  Promus  Hotels,  Inc. and Apple Suites
                           Management,   Inc.   pertaining   to  the  Salt  Lake
                           City--Midvale hotel.

                  10.12    Management  Agreement dated November 29, 1999 between
                           Apple Suites Management, Inc. and Promus Hotels, Inc.
                           pertaining to the Atlanta--Peachtree hotel.

                  10.13    Management  Agreement dated November 29, 1999 between
                           Apple Suites Management, Inc. and Promus Hotels, Inc.
                           pertaining to the Baltimore--BWI Airport hotel.
</TABLE>

                                       5

<PAGE>

<TABLE>
<S>         <C>                                                                                                  <C>

                  10.14    Management  Agreement dated November 29, 1999 between
                           Apple  Suites  Management,  Inc.  and  Promus  Hotels
                           Florida, Inc. pertaining to the Clearwater hotel.

                  10.15    Management  Agreement dated November 29, 1999 between
                           Apple Suites Management, Inc. and Promus Hotels, Inc.
                           pertaining to the Detroit--Warren hotel.

                  10.16    Management  Agreement dated November 29, 1999 between
                           Apple Suites Management, Inc. and Promus Hotels, Inc.
                           pertaining to the Salt Lake City--Midvale hotel.

                  10.17    Comfort  Letter dated  November 29, 1999 among Promus
                           Hotels,  Inc.,  Apple  Suites,  Inc. and Apple Suites
                           Management, Inc. pertaining to the Atlanta--Peachtree
                           hotel.

                  10.18    Comfort  Letter dated  November 29, 1999 among Promus
                           Hotels,  Inc.,  Apple  Suites,  Inc. and Apple Suites
                           Management,  Inc.  pertaining  to the  Baltimore--BWI
                           Airport hotel.

                  10.19    Comfort  Letter dated  November 29, 1999 among Promus
                           Hotels,  Inc.,  Promus  Hotels  Florida,  Inc.  Apple
                           Suites,  Inc.  and  Apple  Suites  Management,   Inc.
                           pertaining to the Clearwater hotel.

                  10.20    Comfort  Letter dated  November 29, 1999 among Promus
                           Hotels,  Inc.,  Apple  Suites,  Inc. and Apple Suites
                           Management,  Inc.  pertaining to the  Detroit--Warren
                           hotel.

                  10.21    Comfort  Letter dated  November 29, 1999 among Promus
                           Hotels,  Inc.,  Apple  Suites,  Inc. and Apple Suites
                           Management,   Inc.   pertaining   to  the  Salt  Lake
                           City--Midvale hotel.

                  10.22    Promissory Note dated November 29, 1999 in the amount
                           of $ 251,500 made payable by Apple Suites Management,
                           Inc. to the order of Apple Suites, Inc.

                  10.23    Promissory Note dated November 29, 1999 in the amount
                           of $ 52,500 made payable by Apple Suites  Management,
                           Inc. to the order of Apple Suites, Inc.

                  10.24    Negative  Pledge  Agreements  dated November 29, 1999
                           between Apple Suites,  Inc. and Promus  Hotels,  Inc.
                           pertaining to the Richmond--West End hotel.

                  24       Consent of Independent Auditors
</TABLE>

                                       6


<PAGE>



Item 2.  Acquisition or Disposition of Assets

                                 OUR PROPERTIES

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

                              PROPERTY ACQUISITIONS

PAYMENT SUMMARY

         We  purchased  five  existing  Homewood  Suites(R)  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.

                                       7

<PAGE>


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:

<TABLE>
<CAPTION>


                                    Original                Remaining
      Date of                      Principal             Principal as of        Annual Rate        Date of
  Promissory Note                    Amount             December 1, 1999        of Interest        Maturity
  ---------------                    ------             ----------------        -----------        --------
<S>                               <C>                      <C>                     <C>          <C>

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

</TABLE>


         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

                                       8

<PAGE>


         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 letter agreement dated October,
1999, 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:

<TABLE>
<CAPTION>


            Date of                  Principal                Monthly                 Total Due
            Maturity                    Due                 Interest Due             at Maturity
            --------                    ---                 ------------             -----------
<S>                                  <C>                     <C>                    <C>

         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

</TABLE>


         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(R)  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.

                                       9

<PAGE>

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.

                          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).   These
encumbrances are created by substantially similar documents. For simplicity,  we
will refer to each of these documents as a "deed of trust."

                                       10

<PAGE>

         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.

         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.  The
following  table  summarizes  the  encumbrances  on our hotels and the  relative
priority of those encumbrances:

                                       11

<PAGE>

<TABLE>
<CAPTION>


  Name                                     Summary of                                  Date of Corresponding
  of Hotel                                 Encumbrance                                 Promissory Note
  --------                                 -----------                                 ---------------
<S>                                        <C>                                         <C>

  Dallas - Addison                         first mortgage / security interest......... September 20, 1999
                                           second mortgage / security interest........ October 5, 1999
                                           modification of above for new debt......... November 29, 1999

  Dallas - Irving/Las Colinas              first mortgage / security interest......... September 20, 1999
                                           second mortgage / security interest........ October 5, 1999
                                           modification of above for new debt......... November 29, 1999

  North Dallas - Plano                     first mortgage / security interest......... September 20, 1999
                                           second mortgage / security interest........ October 5, 1999
                                           modification of above for new debt......... November 29, 1999

  Richmond - West End                      first mortgage / security interest......... September 20, 1999
                                           negative pledge............................ October 5, 1999
                                           negative pledge............................ November 29, 1999

  Atlanta - Galleria/Cumberland            first mortgage / security interest......... October 5, 1999
                                           second mortgage / security interest........ November 29, 1999

  Atlanta - Peachtree                      first mortgage / security interest......... November 29, 1999

  Baltimore - BWI Airport                  first mortgage / security interest......... November 29, 1999

  Clearwater                               first mortgage / security interest......... November 29, 1999

  Detroit - Warren                         first mortgage / security interest......... November 29, 1999

  Salt Lake City - Midvale                 first mortgage / security interest......... November 29, 1999

</TABLE>


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

                                       12

<PAGE>


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.

         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:

                                       13

<PAGE>



                                                       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

<TABLE>
<CAPTION>


                 Atlanta -         Baltimore -                             Detroit -        Salt Lake City -
  Year           Peachtree         BWI Airport         Clearwater           Warren               Midvale
  ----           ---------         -----------         ----------           ------               -------
<S>               <C>               <C>                 <C>                <C>                  <C>

  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

</TABLE>

                                       14

<PAGE>

         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(R)  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(R) 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(R)
"System." The "System" includes the service mark "Homewood  Suites(R)" 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(R) hotel business.

         In exchange for the license to use the Homewood Suites(R) 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.

                                       15

<PAGE>


         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  24 hours a day in strict  compliance  with
detailed  policies,  procedures and  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(R) Hotels,  wherever
located.

         Under the license agreements,  Apple Suites Management, Inc. is granted
the right to use the  Homewood  Suites(R)  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(R) 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.

                                       16

<PAGE>

HOTEL MANAGEMENT AGREEMENTS

         Promus Hotels,  Inc. is managing the hotels we purchased as of November
29,  1999  (except for the hotel in  Florida,  which is being  managed by Promus
Hotels Florida, Inc.). 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.

         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.

                                       17

<PAGE>


         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

                                       18

<PAGE>


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  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: (1) 36 times the  monthly  average of fees  payable for
the  period  during  which the hotel has been  open;  or (2) 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.

                            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(R)
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.

                                      19

<PAGE>


         Each suite at a Homewood Suites(R) 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(R) 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(R),  Doubletree Hotels(R) and Embassy Suites(R).
Such  cross-marketing may affect occupancy at the Homewood Suites(R)  properties
by directing travelers toward, or away from, Homewood Suites(R).

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

         The hotel opened in February 1990. It has wood frame construction, with
an  exterior  of brick  veneer  and wood  siding.  The  hotel  consists  of four
buildings,  each with one, two or three  stories.  The hotel contains 92 suites,
which have a combined 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

                                       20

<PAGE>


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

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

         During 1999, the average stay at the hotel 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

                                       21

<PAGE>


         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.

         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.

                                       22

<PAGE>

                             BALTIMORE - BWI AIRPORT

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

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

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

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

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

         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
assurance,  however,  the proceeds of the offering  will be

                                       23

<PAGE>


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 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 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.

                                       24

<PAGE>


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

<TABLE>
<CAPTION>


                               Assessed            Assessed           Taxable         Tax Rate          Amount
Tax Jurisdiction*            Value (1999)        Value (1998)         Amount*        (per $100)         of Tax
----------------             ------------        ------------         ------         ----------         ------
<S>                           <C>                <C>                <C>              <C>             <C>

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

         * In Maryland,  the real estate tax process is coordinated by state and
         county.  The  taxable  amount is  weighted  to  reflect  the prior year
         assessment. It is computed as follows:
         40%  x  [ Prior Year Assessment +  ( Change in Assessment / 3 ) ]

</TABLE>

         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.

                                   CLEARWATER

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

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

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

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

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

                                       25

<PAGE>


         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.

                                       26

<PAGE>


         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:

                                               1999
                           1998                (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 Rate
         Tax Jurisdiction    Assessed Value   (per $1000)       Amount 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.

                                       27

<PAGE>


                                DETROIT - WARREN

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

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

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

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

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

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

                                       28

<PAGE>


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:

                                                                        1999
             1995          1996         1997          1998          (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.

                                       29

<PAGE>

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

<TABLE>
<CAPTION>


                                 Assessed           Tax Rate            Amount           Administrative
Tax Jurisdiction                   Value          (per $1000)           of Tax                 Fee
----------------                   -----          -----------           ------                 ---
<S>                             <C>              <C>                  <C>                    <C>

County of Macomb                $1,131,410           5.0171           $ 5,676.40             $ 53.80
City of Warren                  $1,131,410          16.0468           $18,155.51               n/a
School District                 $1,131,410          28.6050           $32,363.98             $323.64
                                                                       ---------              ------

                                                           TOTAL       56,195.89             $377.44

</TABLE>

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

         The  hotel  opened  in  November   1996.   It  has   concrete   masonry
construction,  with an  aluminum  siding  exterior.  The hotel  consists  of one
buildings  with  three  stories.  The hotel  contains  98  suites,  which have a
combined  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

                                       30

<PAGE>


         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%

         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:

<TABLE>
<CAPTION>


    Length of Stay                  Homewood             Homewood
    (number of nights)               (King)              (Double)              Master             Two Bedroom
    ------------------               ------              --------              ------             -----------
<S>                                  <C>                  <C>                  <C>                  <C>

    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

</TABLE>

                                       31

<PAGE>


         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 Rate
         Tax Jurisdiction         Assessed Value    (per $100)    Amount 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 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.


                                       32

<PAGE>

<TABLE>
<CAPTION>
<S>                                          <C>                                      <C>
                                                   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.
</TABLE>

                          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.


November 7, 1999                                      /s/ L.P. Martin & Co, P.C.

                                       33

<PAGE>

                       HOMEWOOD SUITES ACQUISITION HOTELS

                             COMBINED BALANCE SHEETS


                                     ASSETS


<TABLE>
<CAPTION>
                                                                                       December 31,
                                                                               1998                   1997
                                                                         ---------------       ---------------
<S>                                                                    <C>                   <C>
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
                                                                         ===============       ===============
</TABLE>






The accompanying notes are an integral part of these financial statements.

                                        34

<PAGE>

                      LIABILITIES AND SHAREHOLDERS' EQUITY


<TABLE>
<CAPTION>
                                                                                      December 31,
                                                                               1998                  1997
                                                                         ---------------       ---------------
<S>                                                                     <C>                   <C>
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
                                                                         ===============       ===============
</TABLE>


                                       35

<PAGE>


                       HOMEWOOD SUITES ACQUISITION HOTELS

                   COMBINED STATEMENTS OF SHAREHOLDERS' EQUITY

<TABLE>
<CAPTION>
                                                                                                    Total
                                                   Contributed               Retained          Shareholders'
                                                      Capital                Earnings               Equity
                                                   ---------------       ---------------       ---------------
<S>                                                <C>                   <C>                   <C>
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
                                                   ===============       ===============       ===============
</TABLE>



The accompanying notes are an integral part of these financial statements.

                                       36

<PAGE>


                       HOMEWOOD SUITES ACQUISITION HOTELS

                           COMBINED INCOME STATEMENTS

<TABLE>
<CAPTION>
                                                                                 Years Ended December 31,
                                                                                1998                  1997
                                                                         ---------------       ---------------
<S>                                                                      <C>                   <C>
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
                                                                         ===============       ===============
</TABLE>






The accompanying notes are an integral part of these financial statements.

                                       37

<PAGE>


                       HOMEWOOD SUITES ACQUISITION HOTELS

                        COMBINED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
                                                                                  Years Ended December 31,
                                                                                1998                  1997
                                                                         ---------------       ---------------
<S>                                                                      <C>                   <C>
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
                                                                         ===============       ===============
</TABLE>


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.

                                       38

<PAGE>


                       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:

<TABLE>
<CAPTION>
   Property                         Hotel Location                       Date Opened               # of Suites
   --------                         --------------                       -----------               -----------
<S>                              <C>                                  <C>                          <C>
   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
</TABLE>

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.

(Continued)

                                       39

<PAGE>


                       HOMEWOOD SUITES ACQUISITION HOTELS

                   NOTES TO THE COMBINED FINANCIAL STATEMENTS

                           DECEMBER 31, 1998 AND 1997

NOTE 2- SIGNIFICANT ACCOUNTING POLICIES

Property - The Hotel  properties  are  recorded at cost.  Depreciation  has been
recorded straight-line using the following lives:

<TABLE>
<CAPTION>
                                                                                                   Life
                                                                                                   ----
<S>                                                                                            <C>
   Land Improvements                                                                           10-15 Years
   Buildings and Improvements                                                                  15-35 Years
   Furniture, Fixtures and Equipment                                                           3-10 Years
</TABLE>

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.

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.

(Continued)

                                       40

<PAGE>

                       HOMEWOOD SUITES ACQUISITION HOTELS

                   NOTES TO THE COMBINED FINANCIAL STATEMENTS

                           DECEMBER 31, 1998 AND 1997

NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES, Continued

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.

                                       41

<PAGE>

                       HOMEWOOD SUITES ACQUISITION HOTELS

                       COMBINED BALANCE SHEET (UNAUDITED)

                                 AUGUST 31, 1999


                                     ASSETS


<TABLE>
<S>                                                                                            <C>
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
                                                                                               ===============
</TABLE>



The accompanying notes are an integral part of this financial statement.

                                       42

<PAGE>

                      LIABILITIES AND SHAREHOLDERS' EQUITY

<TABLE>
<S>                                                                                            <C>
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
                                                                                               ===============
</TABLE>



                                       43

<PAGE>


                       HOMEWOOD SUITES ACQUISITION HOTELS

             COMBINED STATEMENT OF SHAREHOLDERS' EQUITY (UNAUDITED)

             FOR THE PERIOD JANUARY 1, 1999 THROUGH AUGUST 31, 1999

<TABLE>
<CAPTION>
                                                                                                     Total
                                                   Contributed               Retained            Shareholders'
                                                     Capital                 Earnings                Equity
                                                   ---------------       ---------------       ---------------
<S>                                                <C>                   <C>                   <C>
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
                                                   ===============       ===============       ===============
</TABLE>




The accompanying notes are an integral part of this financial statement.

                                       44

<PAGE>

                       HOMEWOOD SUITES ACQUISITION HOTELS

                      COMBINED INCOME STATEMENT (UNAUDITED)

             FOR THE PERIOD JANUARY 1, 1999 THROUGH AUGUST 31, 1999

<TABLE>
<S>                                                                                            <C>
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
                                                                                               ===============
</TABLE>



The accompanying notes are an integral part of this financial statement.

                                       45

<PAGE>

                       HOMEWOOD SUITES ACQUISITION HOTELS

                  COMBINED STATEMENT OF CASH FLOWS (UNAUDITED)

             FOR THE PERIOD JANUARY 1, 1999 THROUGH AUGUST 31, 1999

<TABLE>
<S>                                                                                            <C>
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.
</TABLE>



The accompanying notes are an integral part of this financial statement.

                                       46

<PAGE>


                       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:

<TABLE>
<CAPTION>
   Property                         Hotel Location                       Date Opened               # of Suites
   --------                         --------------                       -----------               -----------
<S>                              <C>                                 <C>                          <C>
   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
</TABLE>

The  Owner  purchased  the Salt  Lake  hotel  October  1,  1997.  The  financial
statements  include the results of the Salt Lake Hotel operations from this date
forward.

Economic conditions in the localities in which the individual Hotels are located
impact revenues and the ability to collect accounts receivable.

The Hotels specialize in providing  extended stay lodging to business or leisure
travelers. While customers may rent rooms for a night, terms of up to a month or
longer are available. Services offered, which are particularly attractive to the
extended stay traveler,  include laundry services,  24 hour on-site  convenience
stores and grocery shopping services.

The Hotels have been owned and managed by various  affiliates of Promus  Hotels,
Inc. (the Owner)  throughout the financial  statement  period.  The accompanying
combined  financial  statements of the Hotels have been  presented on a combined
basis  because  the Owner has a contract  pending to sell the five  Hotels to an
affiliate of Apple Suites,  Inc., a real estate  investment trust established to
acquire equity interests in hotel properties.  The statements have been prepared
pursuant to the rules and regulations of the Securities and Exchange  Commission
for inclusion in a filing by Apple Suites, Inc.

The  corporate  owner pays  income  taxes on taxable  income of the company as a
whole and does not allocate income taxes to individual properties.  Accordingly,
the combined financial statements have been presented on a pretax basis.

(Continued)

                                       47

<PAGE>
                       HOMEWOOD SUITES ACQUISITION HOTELS

             NOTES TO THE COMBINED FINANCIAL STATEMENTS (UNAUDITED)

             FOR THE PERIOD JANUARY 1, 1999 THROUGH AUGUST 31, 1999

                (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:

<TABLE>
<CAPTION>
                                                                                                      Life
                                                                                                      ----
<S>                                                                                                 <C>
   Land Improvements                                                                                10-15 Years
   Buildings and Improvements                                                                       15-35 Years
   Furniture, Fixtures and Equipment                                                                3-10 Years
</TABLE>

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.

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.

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.

 (Continued)
                                       48
<PAGE>


                       HOMEWOOD SUITES ACQUISITION HOTELS

             NOTES TO THE COMBINED FINANCIAL STATEMENTS (UNAUDITED)

             FOR THE PERIOD JANUARY 1, 1999 THROUGH AUGUST 31, 1999

NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES, Continued

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

During the period January 1, 1999 through  August 31, 1999, the following  Owner
related fees were expensed.

<TABLE>
<CAPTION>
     Fee Type                                       Basis for Determination                     Total Expense
     --------                                       -----------------------                     -------------
<S>                                                <C>                                         <C>
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
</TABLE>

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.

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.

                                       49


<PAGE>

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.

<TABLE>
<CAPTION>
                                                                                                 Homewood
                                                                           Historical             Suites
                                                                            Balance            Acquisition (A)              Total
                                                                             Sheet              Adjustments               Proforma
                                                                       ------------------------------------------------------------


ASSETS

<S>                                                                   <C>                   <C>                    <C>
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
                                                                       ============================================================
</TABLE>

                                       50

<PAGE>
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:


<TABLE>
<CAPTION>
                                                                                                 2%
                                      Date Commenced          Date            Purchase       Acquisition                    Debt
   Property                             Operations          Acquired            Price            Fee         Total        Incurred
-----------------------------------------------------------------------------------------------------------------------------------
<S>                                 <C>               <C>                  <C>            <C>           <C>          <C>
  Homewood Suites-Atlanta, GA              1990           October 1, 1999     $ 9,800,000    $ 196,000     $ 9,996,000  $ 7,350,000
  Homewood Suites-Clearwater, FL      February 1998     November 24, 1999     10,416,000      208,320       10,624,320    7,812,000
  Homewood Suites-Salt Lake, UT            1996         November 24, 1999      5,153,000      103,060        5,256,060    3,864,750
  Homewood Suites-Atlanta, GA              1990         November 24, 1999      4,033,000       80,660        4,113,660    3,024,750
  Homewood Suites-Detroit, MI              1990         November 24, 1999      4,330,000       86,600        4,416,600    3,247,500
  Homewood Suites-Baltimore, MD         March 1998      November 24, 1999     16,348,000      326,960       16,674,960   12,261,000
                                                                           --------------------------------------------------------

              Total                                                         $ 50,080,000  $ 1,001,600     $ 51,081,600 $ 37,560,000
</TABLE>

(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.

                                       51

<PAGE>
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)
<TABLE>
<CAPTION>
                                                                                                        PRO FORMA
                                                                            HISTORICAL                  ADJUSTMENTS
                                                                           STATEMENT OF               HOMEWOOD SUITES
                                                                            OPERATIONS                ACQUISITION (A I)
                                                                  -----------------------------------------------------
<S>                                                              <C>                             <C>
Revenue:
   Percentage lease revenue                                                        $ -              $ 6,169,723   (B)
   Interest income and other income                                                  -                        -
Expenses:
   Taxes and insurance                                                               -                1,040,638   (C)
   General and administrative                                                        -                  115,112   (D)
   Depreciation                                                                      -                1,256,071   (E)
   Interest expense                                                                  -                2,688,125   (F)
                                                                  -----------------------------------------------------
Total expenses                                                                       -                5,099,946
                                                                  ----------------------------------------------
Net income                                                                         $ -
                                                                  =====================
Earnings per common share:
   Basic and Diluted                                                               $ -
                                                                  =====================
Basic and diluted weighted average common shares outstanding                         -                1,412,531  (G)
                                                                  =====================
</TABLE>
<TABLE>
<CAPTION>
                                                                             PRO FORMA
                                                                            ADJUSTMENTS
                                                                          HOMEWOOD SUITES                  TOTAL
                                                                         ACQUISITION (A II)              PRO FORMA
                                                                 ---------------------------------------------------
<S>                                                                     <C>                            <C>
Revenue:
   Percentage lease revenue                                             $ 4,918,647    (B)             $ 11,088,370
   Interest income and other income                                               -                               -
Expenses:
   Taxes and insurance                                                      432,979    (C)                1,473,617
   General and administrative                                               111,414    (D)                  226,526
   Depreciation                                                           1,155,328    (E)                2,411,398
   Interest expense                                                       2,338,818    (F)                5,026,943
                                                                 ---------------------------------------------------
Total expenses                                                            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              1,228,980    (G)                2,641,511
                                                                                             =======================
</TABLE>
                                       52
<PAGE>

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999 (UNAUDITED)


<TABLE>
<CAPTION>
                                                                                                       PRO FORMA
                                                                                                      ADJUSTMENTS
                                                                               HISTORICAL               HOMEWOOD
                                                                              STATEMENT OF               SUITES
                                                                               OPERATIONS          ACQUISITION (A I)
                                                                      ---------------------------------------------------
<S>                                                               <C>                     <C>
Revenue:
   Percentage lease revenue                                                  $ 417,306              $ 4,264,391   (B)
   Interest income and other income                                             64,370                        -

Expenses:
   Taxes and insurance                                                          79,729                  822,599   (C)
   General and administrative                                                   36,028                   85,924   (D)
   Depreciation                                                                 97,510                  931,211   (E)
   Interest expense                                                            229,701                1,977,313   (F)
                                                                     ---------------------------------------------------

Total expenses                                                                 442,968                3,817,047

Net income                                                                   $  38,708              $   447,344
                                                                     ==============================================

Earnings per common share:
   Basic and Diluted                                                         $    0.02
                                                                     =====================

Basic and diluted weighted average common shares outstanding                 2,286,052                1,385,360   (G)
                                                                     =====================
</TABLE>


<TABLE>
<CAPTION>
                                                                                 PRO FORMA
                                                                                ADJUSTMENTS
                                                                                 HOMEWOOD
                                                                                   SUITES                       TOTAL
                                                                               ACQUISITION (A II)             PRO FORMA
                                                                        -----------------------------------------------------
<S>                                                              <C>                                  <C>
Revenue:
   Percentage lease revenue                                                       $ 4,598,632    (B)       $ 9,280,329
   Interest income and other income                                                         -                   64,370

Expenses:
   Taxes and insurance                                                                529,548    (C)         1,431,876
   General and administrative                                                          85,379    (D)           207,331
   Depreciation                                                                       953,304    (E)         1,982,025
   Interest expense                                                                 1,925,888    (F)         4,132,902
                                                                  -----------------------------------------------------

Total expenses                                                                      3,494,119                7,754,134

Net income                                                                        $ 1,104,513              $ 1,590,565
                                                                   ===========================       ==================

Earnings per common share:
   Basic and Diluted                                                                                            $ 0.32
                                                                                                     ==================

Basic and diluted weighted average common shares outstanding                        1,349,330    (G)         5,020,742
                                                                                                     ==================
</TABLE>
                                       53
<PAGE>


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.

<TABLE>
<CAPTION>
                                                               Date Commenced                                Date
         Property                                                Operations                                Acquired
-------------------------------------------------------------------------------------------------------------------------------
<S>                                                        <C>                                     <C>
I         Homewood Suites-Dallas, TX                                1990                              September 1, 1999
I         Homewood Suites-Las Colinas, TX                           1990                              September 1, 1999
I         Homewood Suites-Plano, TX                                 1997                              September 1, 1999
I         Homewood Suites-Richmond. VA                            May 1998                            September 1, 1999
I         Homewood Suites-Atlanta, GA                               1990                               October 1, 1999
-------------------------------------------------------------------------------------------------------------------------------
II        Homewood Suites-Clearwater, FL                       February 1998                          November 24, 1999
II        Homewood Suites-Salt Lake, UT                             1996                              November 24, 1999
II        Homewood Suites-Atlanta, GA                               1990                              November 24, 1999
II        Homewood Suites-Detroit, MI                               1990                              November 24, 1999
II        Homewood Suites-Baltimore, MD                          March 1998                           November 24, 1999
</TABLE>


       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.
(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).

                                       54
<PAGE>

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

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



<TABLE>
<CAPTION>
                                                             Historical              Homewood                   Homewood
                                                            Statement of              Suites                     Suites
                                                             Operations           Acquisitions (A I)        Acquisitions (A II)
                                           ----------------------------------------------------------------------------------------
<S>                                                 <C>                         <C>                      <C>
Revenues:
   Suite revenue                                                 $ -              $ 14,075,852               $ 10,812,372
   Other income                                                    -                   811,817                    733,318

Expenses:
   Operating expenses                                              -                 5,586,712                  4,748,240
   General and administrative                                      -                   348,088                    315,165

   Advertising and promotion                                       -                   648,273                    502,899

   Utilities                                                       -                   626,269                    543,828
   Taxes and insurance                                             -                 1,040,638                    432,979
   Depreciation expense                                            -                 2,394,294                  2,214,501
   Franchise fees                                                  -                   563,035                    432,494

   Management fees                                                 -                         -                          -
   Rent expense-Apple Suites, Inc.                                 -                         -                          -
   Other                                                           -                   226,964                    349,961
                                             --------------------------------------------------------------------------------------

Total expenses                                                     -                11,434,273                  9,540,067

Income before income tax                                           -                 3,453,396                  2,005,623

     Income tax expense                                            -                         -                          -
                                             --------------------------------------------------------------------------------------

Net income                                                       $ -              $  3,453,396               $  2,005,623
                                             ======================================================================================
</TABLE>

                                       55

<PAGE>


<TABLE>
<CAPTION>
                                                      Pro Forma                    Total
                                                     Adjustments                 Pro Forma
                                          -----------------------------------------------------
<S>                                             <C>                        <C>
Revenues:
   Suite revenue                                            -                  $ 24,888,224
   Other income                                             -                     1,545,135

Expenses:
   Operating expenses                                       -                    10,334,952
   General and administrative                      $ (112,000) (B)
                                                       50,000  (C)                  601,253
   Advertising and promotion                         (999,318) (D)
                                                      995,529  (E)                1,147,383
   Utilities                                                -                     1,170,097
   Taxes and insurance                             (1,473,617) (F)                        -
   Depreciation expense                            (4,608,795) (G)                        -
   Franchise fees                                    (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                                             (576,925) (N)                        -
                                          --------------------      ------------------------

Total expenses                                      5,533,578                    26,507,918

Income before income tax                           (5,533,578)                      (74,559)

     Income tax expense                                     -  (M)                        -
                                          --------------------      ------------------------

Net income                                       $ (5,533,578)                    $ (74,559)
                                          ====================      ========================
</TABLE>

                                       56

<PAGE>

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999

<TABLE>
<CAPTION>
                                                                HISTORICAL                 HOMEWOOD                   HOMEWOOD
                                                               STATEMENT OF                 SUITES                     SUITES
                                                                OPERATIONS            ACQUISITIONS (A I)        ACQUISITIONS (A II)
                                                 ----------------------------------------------------------------------------------
<S>                                                      <C>                     <C>                        <C>
REVENUES:
   Suite revenue                                                $ 961,604               $ 9,818,797                $ 9,885,579
   Other income                                                    59,548                   560,096                    580,287

EXPENSES:
   Operating expenses                                             259,098                 3,794,204                  3,984,624
   General and administrative                                      85,676                   250,317                    245,792

   Advertising and promotion                                       93,237                   438,985                    475,007

   Utilities                                                       26,101                   354,113                    451,112
   Taxes and insurance                                                  -                   822,599                    529,548
   Depreciation expense                                                 -                 1,783,021                  1,814,014
   Franchise fees                                                  38,464                   392,757                    395,423

   Management fees                                                 40,769                   311,275                    313,854

   Rent expense-Apple Suites, Inc.                                417,306                         -                          -
   Other                                                           15,425                         -                          -
                                                  ---------------------------------------------------------------------------------

Total expenses                                                    976,076                 8,147,271                  8,209,374

Income before income tax                                           45,076                 2,231,622                  2,256,492

     Income tax expense                                            18,030                         -                          -
                                                  ---------------------------------------------------------------------------------

Net income                                                      $  27,046               $ 2,231,622                $ 2,256,492
                                                  =================================================================================
</TABLE>

<TABLE>
<CAPTION>
                                                             PRO FORMA                      TOTAL
                                                            ADJUSTMENTS                   PRO FORMA
                                                 ---------------------------------------------------
<S>                                                       <C>                      <C>
REVENUES:
   Suite revenue                                                    -                  $ 20,665,980
   Other income                                                     -                     1,199,931

EXPENSES:
   Operating expenses                                               -                     8,037,926
   General and administrative                            $    (90,000) (B)
                                                               37,500  (C)                  529,285
   Advertising and promotion                                 (788,180) (D)
                                                              788,175  (E)                1,007,224
   Utilities                                                        -                       831,326
   Taxes and insurance                                     (1,352,147) (F)                        -
   Depreciation expense                                    (3,597,035) (G)                        -
   Franchise fees                                            (788,180) (H)
                                                              788,175  (I)                  826,639
   Management fees                                           (625,128) (J)
                                                              919,790  (K)                  960,560
   Rent expense-Apple Suites, Inc.                          8,863,023  (L)                9,280,329
   Other                                                            -                        15,425
                                                 ---------------------      ------------------------

Total expenses                                              4,155,993                    21,488,714

Income before income tax                                   (4,155,993)                      377,197

     Income tax expense                                       132,848  (M)                  150,878
                                                 ---------------------      ------------------------

Net income                                               $ (4,288,842)                 $     226,319
                                                 =====================      ========================
</TABLE>

                                       57

<PAGE>

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:


<TABLE>
<CAPTION>
                                                             Date Commenced                         Date
         Property                                              Operations                         Acquired
--------------------------------------------------------------------------------------------------------------------
<S>                                                      <C>                              <C>
I         Homewood Suites-Dallas, TX                              1990                        September 1, 1999
I         Homewood Suites-Las Colinas, TX                         1990                        September 1, 1999
I         Homewood Suites-Plano, TX                               1997                        September 1, 1999
I         Homewood Suites-Richmond. VA                          May 1998                      September 1, 1999
I         Homewood Suites-Atlanta, GA                             1990                         October 1, 1999
--------------------------------------------------------------------------------------------------------------------
II        Homewood Suites-Clearwater, FL                      February 1998                   November 24, 1999
II        Homewood Suites-Salt Lake, UT                           1996                        November 24, 1999
II        Homewood Suites-Atlanta, GA                             1990                        November 24, 1999
II        Homewood Suites-Detroit, MI                             1990                        November 24, 1999
II        Homewood Suites-Baltimore, MD                        March 1998                     November 24, 1999
</TABLE>


     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 to 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.

                                       58

<PAGE>



                                   SIGNATURES

Pursuant  to the  requirements  of the  Securities  Exchange  Act of  1934,  the
registrant  has duly  caused  this  report  to be  signed  on its  behalf by the
undersigned hereunto duly authorized.

                                   Apple Suites, Inc.

Date: December 14, 1999            By:  /s/ Glade M. Knight
                                        ----------------------------------------
                                   Glade M. Knight,
                                   Chief Executive Officer of Apple Suites, Inc.
[{"type": "8-K", "sequence": "1", "description": "FORM 8-K", "secsgml_size_bytes": 185554}]
{"company-data": {"conformed-name": "APPLE SUITES INC", "cik": "0001084681", "assigned-sic": "6798", "irs-number": "541933472", "state-of-incorporation": "VA", "fiscal-year-end": "1231"}, "filing-values": {"form-type": "8-K", "act": "34", "file-number": "333-77055", "film-number": "99774320"}, "business-address": {"street1": "306 EAST MAIN ST", "city": "RICHMOND", "state": "VA", "zip": "23219", "phone": "8046431761"}, "mail-address": {"street1": "306 EAST MAIN ST", "city": "RICHMOND", "state": "VA", "zip": "23219"}}
SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                    FORM 8-K

                                 CURRENT REPORT

         Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

Date of Report (Date of Earliest Event Reported):  November 29, 1999

                               APPLE SUITES, INC.
             (Exact name of registrant as specified in its charter)

      VIRGINIA                    333-77055                    54-1933472
     (State of                   (Commission                  (IRS Employer
   incorporation)                File Number)               Identification No.)

                  306 EAST MAIN STREET
                  RICHMOND, VIRGINIA                               23219
                  (Address of principal                          (Zip Code)
                  executive offices)

               Registrant's telephone number, including area code:
                                 (804) 643-1761
APPLE SUITES, INC.

                                    FORM 8-K

                                      Index
Page No.
                                                                                                                   --------
Item 2.        Acquisition or Disposition of Assets                                                                   7

Item 7.        Financial Statements and Exhibits

         a.    Financial Statements

         Atlanta  -  Peachtree;  Baltimore  -  BWI  Airport;  Clearwater,
         Detroit--Warren; Salt Lake City--Midvale

1.       Property Financial Statements

           Independent Auditors Report                                                                               33

           Combined Balance Sheets - December 31, 1998 and December 31, 1997                                         34

           Combined  Statements of  Shareholders'  Equity - Years ended December
           31, 1997 and December 31, 1998                                                                            36

           Combined Income Statements - Years ended December 31, 1998 and
           December 31, 1997                                                                                         37

           Combined Statements of Cash Flows - Years ended December 31, 1998 and
           December 31, 1997                                                                                         38

           Notes to the Combined Financial Statements - December 31, 1998 and
           December 31, 1997                                                                                         39

                                      * * *

           Combined Balance Sheet - August 31, 1999 (unaudited)                                                      42

           Combined  Statement of Shareholders'  Equity - For the Period January
           1, 1999 through August 31, 1999 (unaudited)                                                               44

           Combined  Income  Statement - For the Period  January 1, 1999 through
           August 31, 1999 (unaudited)                                                                               45

           Combined  Statement  of Cash Flows - For the  Period  January 1, 1999
           through August 31, 1999 (unaudited)                                                                       46
2
Notes to the Combined  Financial  Statements - For the Period January
           1, 1999 through August 31, 1999 (unaudited)                                                               47

   2.      Pro Forma Financial Statements

           Apple Suites, Inc.--Pro Forma Condensed Consolidated Balance Sheet as
           of September 30, 1999 (unaudited)                                                                         50

           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)                                                                      52

           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)                                                          55
3
b.       Exhibits

                  4.1      Note dated November 29, 1999 in the principal  amount
                           of $ 30,210,000 made payable by Apple Suites, Inc. to
                           the order of Promus Hotels, Inc.

                  4.2      Fee and Leasehold Deed to Secure Debt,  Assignment of
                           Leases  and  Rents  and  Security   Agreement   dated
                           November 29, 1999 from Apple  Suites,  Inc. and Apple
                           Suites  Management,  Inc.  for the  benefit of Promus
                           Hotels, Inc.  pertaining  to  the  Atlanta--Peachtree
                           hotel.

                  4.3      Fee and Leasehold Deed to Secure Debt,  Assignment of
                           Leases  and  Rents  and  Security   Agreement   dated
                           November 29, 1999 from Apple  Suites,  Inc. and Apple
                           Suites  Management,  Inc.  for the  benefit of Promus
                           Hotels,  Inc.,  constituting  a  second  lien  on the
                           Atlanta--Galleria/Cumberland hotel.

                  4.4      Purchase  Money  Fee and  Leasehold  Deed  of  Trust,
                           Assignment of Leases and Rents and Security Agreement
                           dated  November 29, 1999 from Apple Suites,  Inc. and
                           Apple  Suites  Management,  Inc.  for the  benefit of
                           Promus Hotels,  Inc. pertaining to the Baltimore--BWI
                           Airport hotel.

                  4.5      Fee and Leasehold Mortgage,  Assignment of Leases and
                           Rents and Security  Agreement dated November 29, 1999
                           from Apple Suites,  Inc. and Apple Suites Management,
                           Inc.   for  the  benefit  of  Promus   Hotels,   Inc.
                           pertaining to the Clearwater hotel.

                  4.6      Fee and Leasehold Mortgage,  Assignment of Leases and
                           Rents and Security  Agreement dated November 29, 1999
                           from Apple Suites,  Inc. and Apple Suites Management,
                           Inc.   for  the  benefit  of  Promus   Hotels,   Inc.
                           pertaining to the Detroit--Warren hotel.

                  4.7      Fee and Leasehold Deed of Trust, Assignment of Leases
                           and Rents and Security  Agreement and Fixture  Filing
                           dated November 29, 1999, from Apple Suites,  Inc. and
                           Apple  Suites  Management,  Inc.,  for the benefit of
                           Promus  Hotels,  Inc.  pertaining  to the  Salt  Lake
                           City--Midvale hotel.

                  4.8      Deed of Trust  Modification  Agreement dated November
                           29, 1999,  among Promus  Hotels,  Inc.,  Apple Suites
                           REIT Limited  Partnership  and Apple Suites  Services
                           Limited   Partnership   pertaining   to   the   North
                           Dallas--Plano hotel.

                  4.9      Deed of Trust  Modification  Agreement dated November
                           29, 1999,  among Promus  Hotels,  Inc.,  Apple Suites
                           REIT Limited  Partnership  and Apple Suites  Services
                           Limited Partnership pertaining to the Dallas--Addison
                           and Dallas--Irving/Las Colinas hotels.

                  10.1     Indemnity  dated November 29, 1999 from Apple Suites,
                           Inc.  to  Promus  Hotels,   Inc.  pertaining  to  the
                           Atlanta--Peachtree hotel.
4
10.2     Indemnity  dated November 29, 1999 from Apple Suites,
                           Inc.  to  Promus  Hotels,   Inc.  pertaining  to  the
                           Baltimore--BWI Airport hotel.

                  10.3     Indemnity  dated November 29, 1999 from Apple Suites,
                           Inc.  to  Promus  Hotels,   Inc.  pertaining  to  the
                           Clearwater  hotel.  10.4 Indemnity dated November 29,
                           1999 from Apple Suites,  Inc. to Promus Hotels,  Inc.
                           pertaining to the to the Detroit--Warren hotel.

                  10.5     Indemnity  dated November 29, 1999 from Apple Suites,
                           Inc. to Promus  Hotels,  Inc.  pertaining to the Salt
                           Lake City--Midvale hotel.

                  10.6     Exhibits  A-3,  A-4,  A-5,  A-6  and  A-7,  Schedules
                           2.1(c), 2.1(d), 2.1(e), 2.1(f) and 2.1(g),  Schedules
                           3.1(a)-3,  3.1(a)-4, 3.1(a)-5, 3.1(a)-6 and 3.1(a)-7,
                           and Schedules 3.1(b)-3,  3.1(b)-4, 3.1(b)-5, 3.1(b)-6
                           and  3.1(b)-7  to the Master  Hotel  Lease  Agreement
                           dated  September 20, 1999 between Apple Suites,  Inc.
                           (as lessor) and Apple  Suites  Management,  Inc.  (as
                           lessee).

                  10.7     Homewood Suites License  Agreement dated November 29,
                           1999  between  Promus  Hotels,  Inc. and Apple Suites
                           Management, Inc. pertaining to the Atlanta--Peachtree
                           hotel.

                  10.8     Homewood Suites License  Agreement dated November 29,
                           1999  between  Promus  Hotels,  Inc. and Apple Suites
                           Management,  Inc.  pertaining  to the  Baltimore--BWI
                           Airport hotel.

                  10.9     Homewood Suites License  Agreement dated November 29,
                           1999  between  Promus  Hotels,  Inc. and Apple Suites
                           Management, Inc. pertaining to the Clearwater hotel.

                  10.10    Homewood Suites License  Agreement dated November 29,
                           1999  between  Promus  Hotels,  Inc. and Apple Suites
                           Management,  Inc.  pertaining to the  Detroit--Warren
                           hotel.

                  10.11    Homewood Suites License  Agreement dated November 29,
                           1999  between  Promus  Hotels,  Inc. and Apple Suites
                           Management,   Inc.   pertaining   to  the  Salt  Lake
                           City--Midvale hotel.

                  10.12    Management  Agreement dated November 29, 1999 between
                           Apple Suites Management, Inc. and Promus Hotels, Inc.
                           pertaining to the Atlanta--Peachtree hotel.

                  10.13    Management  Agreement dated November 29, 1999 between
                           Apple Suites Management, Inc. and Promus Hotels, Inc.
                           pertaining to the Baltimore--BWI Airport hotel.
5
10.14    Management  Agreement dated November 29, 1999 between
                           Apple  Suites  Management,  Inc.  and  Promus  Hotels
                           Florida, Inc. pertaining to the Clearwater hotel.

                  10.15    Management  Agreement dated November 29, 1999 between
                           Apple Suites Management, Inc. and Promus Hotels, Inc.
                           pertaining to the Detroit--Warren hotel.

                  10.16    Management  Agreement dated November 29, 1999 between
                           Apple Suites Management, Inc. and Promus Hotels, Inc.
                           pertaining to the Salt Lake City--Midvale hotel.

                  10.17    Comfort  Letter dated  November 29, 1999 among Promus
                           Hotels,  Inc.,  Apple  Suites,  Inc. and Apple Suites
                           Management, Inc. pertaining to the Atlanta--Peachtree
                           hotel.

                  10.18    Comfort  Letter dated  November 29, 1999 among Promus
                           Hotels,  Inc.,  Apple  Suites,  Inc. and Apple Suites
                           Management,  Inc.  pertaining  to the  Baltimore--BWI
                           Airport hotel.

                  10.19    Comfort  Letter dated  November 29, 1999 among Promus
                           Hotels,  Inc.,  Promus  Hotels  Florida,  Inc.  Apple
                           Suites,  Inc.  and  Apple  Suites  Management,   Inc.
                           pertaining to the Clearwater hotel.

                  10.20    Comfort  Letter dated  November 29, 1999 among Promus
                           Hotels,  Inc.,  Apple  Suites,  Inc. and Apple Suites
                           Management,  Inc.  pertaining to the  Detroit--Warren
                           hotel.

                  10.21    Comfort  Letter dated  November 29, 1999 among Promus
                           Hotels,  Inc.,  Apple  Suites,  Inc. and Apple Suites
                           Management,   Inc.   pertaining   to  the  Salt  Lake
                           City--Midvale hotel.

                  10.22    Promissory Note dated November 29, 1999 in the amount
                           of $ 251,500 made payable by Apple Suites Management,
                           Inc. to the order of Apple Suites, Inc.

                  10.23    Promissory Note dated November 29, 1999 in the amount
                           of $ 52,500 made payable by Apple Suites  Management,
                           Inc. to the order of Apple Suites, Inc.

                  10.24    Negative  Pledge  Agreements  dated November 29, 1999
                           between Apple Suites,  Inc. and Promus  Hotels,  Inc.
                           pertaining to the Richmond--West End hotel.

                  24       Consent of Independent Auditors
6
Item 2.  Acquisition or Disposition of Assets

                                 OUR PROPERTIES

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

                              PROPERTY ACQUISITIONS

PAYMENT SUMMARY

         We  purchased  five  existing  Homewood  Suites(R)  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.

                                       7
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:
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

                                       8
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 letter agreement dated October,
1999, 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(R)  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.

                                       9
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.

                          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).   These
encumbrances are created by substantially similar documents. For simplicity,  we
will refer to each of these documents as a "deed of trust."

                                       10
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.

         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.  The
following  table  summarizes  the  encumbrances  on our hotels and the  relative
priority of those encumbrances:

                                       11
Name                                     Summary of                                  Date of Corresponding
  of Hotel                                 Encumbrance                                 Promissory Note
  --------                                 -----------                                 ---------------
Dallas - Addison                         first mortgage / security interest......... September 20, 1999
                                           second mortgage / security interest........ October 5, 1999
                                           modification of above for new debt......... November 29, 1999

  Dallas - Irving/Las Colinas              first mortgage / security interest......... September 20, 1999
                                           second mortgage / security interest........ October 5, 1999
                                           modification of above for new debt......... November 29, 1999

  North Dallas - Plano                     first mortgage / security interest......... September 20, 1999
                                           second mortgage / security interest........ October 5, 1999
                                           modification of above for new debt......... November 29, 1999

  Richmond - West End                      first mortgage / security interest......... September 20, 1999
                                           negative pledge............................ October 5, 1999
                                           negative pledge............................ November 29, 1999

  Atlanta - Galleria/Cumberland            first mortgage / security interest......... October 5, 1999
                                           second mortgage / security interest........ November 29, 1999

  Atlanta - Peachtree                      first mortgage / security interest......... November 29, 1999

  Baltimore - BWI Airport                  first mortgage / security interest......... November 29, 1999

  Clearwater                               first mortgage / security interest......... November 29, 1999

  Detroit - Warren                         first mortgage / security interest......... November 29, 1999

  Salt Lake City - Midvale                 first mortgage / security interest......... November 29, 1999
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

                                       12
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.

         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:

                                       13
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
14
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(R)  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(R) 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(R)
"System." The "System" includes the service mark "Homewood  Suites(R)" 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(R) hotel business.

         In exchange for the license to use the Homewood Suites(R) 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.

                                       15
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  24 hours a day in strict  compliance  with
detailed  policies,  procedures and  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(R) Hotels,  wherever
located.

         Under the license agreements,  Apple Suites Management, Inc. is granted
the right to use the  Homewood  Suites(R)  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(R) 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.

                                       16
HOTEL MANAGEMENT AGREEMENTS

         Promus Hotels,  Inc. is managing the hotels we purchased as of November
29,  1999  (except for the hotel in  Florida,  which is being  managed by Promus
Hotels Florida, Inc.). 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.

         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.

                                       17
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

                                       18
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  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: (1) 36 times the  monthly  average of fees  payable for
the  period  during  which the hotel has been  open;  or (2) 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.

                            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(R)
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.

                                      19
Each suite at a Homewood Suites(R) 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(R) 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(R),  Doubletree Hotels(R) and Embassy Suites(R).
Such  cross-marketing may affect occupancy at the Homewood Suites(R)  properties
by directing travelers toward, or away from, Homewood Suites(R).

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

         The hotel opened in February 1990. It has wood frame construction, with
an  exterior  of brick  veneer  and wood  siding.  The  hotel  consists  of four
buildings,  each with one, two or three  stories.  The hotel contains 92 suites,
which have a combined 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

                                       20
The hotel offers a 40-seat  breakfast/lounge  area, a meeting room that
accommodates  25 to 30 people,  and a business center that offers guests the use
of a personal computer, a photocopier and an electric  typewriter.  Recreational
facilities  include an outdoor pool, a whirlpool and an exercise room. The hotel
also  contains  a guest  convenience  store and  laundry.  The hotel has its own
parking lot with 117 spaces.  The hotel provides  complimentary  shuttle service
within a five mile radius.

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

         During 1999, the average stay at the hotel 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

                                       21
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.

         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.

                                       22
BALTIMORE - BWI AIRPORT

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

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

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

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

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

         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
assurance,  however,  the proceeds of the offering  will be

                                       23
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 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 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.

                                       24
The following table sets forth the 1999 real estate tax information for
the hotel:
Assessed            Assessed           Taxable         Tax Rate          Amount
Tax Jurisdiction*            Value (1999)        Value (1998)         Amount*        (per $100)         of Tax
----------------             ------------        ------------         ------         ----------         ------
State of Maryland/            $11,085,900        $10,316,100        $4,229,080          2.57         $108,687.36
Anne Arundel County

         * In Maryland,  the real estate tax process is coordinated by state and
         county.  The  taxable  amount is  weighted  to  reflect  the prior year
         assessment. It is computed as follows:
         40%  x  [ Prior Year Assessment +  ( Change in Assessment / 3 ) ]
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.

                                   CLEARWATER

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

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

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

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

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

                                       25
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.

                                       26
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:

                                               1999
                           1998                (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 Rate
         Tax Jurisdiction    Assessed Value   (per $1000)       Amount 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.

                                       27
DETROIT - WARREN

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

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

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

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

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

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

                                       28
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:

                                                                        1999
             1995          1996         1997          1998          (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.

                                       29
The following table sets forth the 1999 real estate tax information for
the hotel:
Assessed           Tax Rate            Amount           Administrative
Tax Jurisdiction                   Value          (per $1000)           of Tax                 Fee
----------------                   -----          -----------           ------                 ---
County of Macomb                $1,131,410           5.0171           $ 5,676.40             $ 53.80
City of Warren                  $1,131,410          16.0468           $18,155.51               n/a
School District                 $1,131,410          28.6050           $32,363.98             $323.64
                                                                       ---------              ------

                                                           TOTAL       56,195.89             $377.44
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(R)  Salt Lake City - Midvale is located on a 3.44
acre site at 844 E.  North  Union  Avenue,  Midvale,  Utah  84047.  The hotel is
approximately  11 miles from  downtown Salt Lake City and 15 miles from the Salt
Lake City International Airport.

         The  hotel  opened  in  November   1996.   It  has   concrete   masonry
construction,  with an  aluminum  siding  exterior.  The hotel  consists  of one
buildings  with  three  stories.  The hotel  contains  98  suites,  which have a
combined  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

                                       30
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%

         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
31
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 Rate
         Tax Jurisdiction         Assessed Value    (per $100)    Amount 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 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.

                                       32
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.

November 7, 1999                                      /s/ L.P. Martin & Co, P.C.

                                       33
HOMEWOOD SUITES ACQUISITION HOTELS

                             COMBINED BALANCE SHEETS

                                     ASSETS
December 31,
                                                                               1998                   1997
                                                                         ---------------       ---------------
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
                                                                         ===============       ===============
The accompanying notes are an integral part of these financial statements.

                                        34
LIABILITIES AND SHAREHOLDERS' EQUITY
December 31,
                                                                               1998                  1997
                                                                         ---------------       ---------------
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
                                                                         ===============       ===============
35
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.

                                       36
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.

                                       37
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.

                                       38
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.

(Continued)

                                       39
HOMEWOOD SUITES ACQUISITION HOTELS

                   NOTES TO THE COMBINED FINANCIAL STATEMENTS

                           DECEMBER 31, 1998 AND 1997

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.

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.

(Continued)

                                       40
HOMEWOOD SUITES ACQUISITION HOTELS

                   NOTES TO THE COMBINED FINANCIAL STATEMENTS

                           DECEMBER 31, 1998 AND 1997

NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES, Continued

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.

                                       41
HOMEWOOD SUITES ACQUISITION HOTELS

                       COMBINED BALANCE SHEET (UNAUDITED)

                                 AUGUST 31, 1999

                                     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
                                                                                               ===============
The accompanying notes are an integral part of this financial statement.

                                       42
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
                                                                                               ===============
43
HOMEWOOD SUITES ACQUISITION HOTELS

             COMBINED STATEMENT OF SHAREHOLDERS' EQUITY (UNAUDITED)

             FOR THE PERIOD JANUARY 1, 1999 THROUGH AUGUST 31, 1999
Total
                                                   Contributed               Retained            Shareholders'
                                                     Capital                 Earnings                Equity
                                                   ---------------       ---------------       ---------------
Balances, January 1, 1999                          $    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.

                                       44
HOMEWOOD SUITES ACQUISITION HOTELS

                      COMBINED INCOME STATEMENT (UNAUDITED)

             FOR THE PERIOD JANUARY 1, 1999 THROUGH AUGUST 31, 1999
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.

                                       45
HOMEWOOD SUITES ACQUISITION HOTELS

                  COMBINED STATEMENT OF CASH FLOWS (UNAUDITED)

             FOR THE PERIOD JANUARY 1, 1999 THROUGH AUGUST 31, 1999
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.

                                       46
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
   --------                         --------------                       -----------               -----------
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  period.  The accompanying
combined  financial  statements of the Hotels have been  presented on a combined
basis  because  the Owner has a contract  pending to sell the five  Hotels to an
affiliate of Apple Suites,  Inc., a real estate  investment trust established to
acquire equity interests in hotel properties.  The statements have been prepared
pursuant to the rules and regulations of the Securities and Exchange  Commission
for inclusion in a filing by Apple Suites, Inc.

The  corporate  owner pays  income  taxes on taxable  income of the company as a
whole and does not allocate income taxes to individual properties.  Accordingly,
the combined financial statements have been presented on a pretax basis.

(Continued)

                                       47
HOMEWOOD SUITES ACQUISITION HOTELS

             NOTES TO THE COMBINED FINANCIAL STATEMENTS (UNAUDITED)

             FOR THE PERIOD JANUARY 1, 1999 THROUGH AUGUST 31, 1999

                (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
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.

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.

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.

 (Continued)
                                       48
HOMEWOOD SUITES ACQUISITION HOTELS

             NOTES TO THE COMBINED FINANCIAL STATEMENTS (UNAUDITED)

             FOR THE PERIOD JANUARY 1, 1999 THROUGH AUGUST 31, 1999

NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES, Continued

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

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
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.

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.

                                       49
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               Proforma
                                                                       ------------------------------------------------------------

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
                                                                       ============================================================
50
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:
2%
                                      Date Commenced          Date            Purchase       Acquisition                    Debt
   Property                             Operations          Acquired            Price            Fee         Total        Incurred
-----------------------------------------------------------------------------------------------------------------------------------
Homewood Suites-Atlanta, GA              1990           October 1, 1999     $ 9,800,000    $ 196,000     $ 9,996,000  $ 7,350,000
  Homewood Suites-Clearwater, FL      February 1998     November 24, 1999     10,416,000      208,320       10,624,320    7,812,000
  Homewood Suites-Salt Lake, UT            1996         November 24, 1999      5,153,000      103,060        5,256,060    3,864,750
  Homewood Suites-Atlanta, GA              1990         November 24, 1999      4,033,000       80,660        4,113,660    3,024,750
  Homewood Suites-Detroit, MI              1990         November 24, 1999      4,330,000       86,600        4,416,600    3,247,500
  Homewood Suites-Baltimore, MD         March 1998      November 24, 1999     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.

                                       51
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
                                                                            HISTORICAL                  ADJUSTMENTS
                                                                           STATEMENT OF               HOMEWOOD SUITES
                                                                            OPERATIONS                ACQUISITION (A I)
                                                                  -----------------------------------------------------
Revenue:
   Percentage lease revenue                                                        $ -              $ 6,169,723   (B)
   Interest income and other income                                                  -                        -
Expenses:
   Taxes and insurance                                                               -                1,040,638   (C)
   General and administrative                                                        -                  115,112   (D)
   Depreciation                                                                      -                1,256,071   (E)
   Interest expense                                                                  -                2,688,125   (F)
                                                                  -----------------------------------------------------
Total expenses                                                                       -                5,099,946
                                                                  ----------------------------------------------
Net income                                                                         $ -
                                                                  =====================
Earnings per common share:
   Basic and Diluted                                                               $ -
                                                                  =====================
Basic and diluted weighted average common shares outstanding                         -                1,412,531  (G)
                                                                  =====================
PRO FORMA
                                                                            ADJUSTMENTS
                                                                          HOMEWOOD SUITES                  TOTAL
                                                                         ACQUISITION (A II)              PRO FORMA
                                                                 ---------------------------------------------------
Revenue:
   Percentage lease revenue                                             $ 4,918,647    (B)             $ 11,088,370
   Interest income and other income                                               -                               -
Expenses:
   Taxes and insurance                                                      432,979    (C)                1,473,617
   General and administrative                                               111,414    (D)                  226,526
   Depreciation                                                           1,155,328    (E)                2,411,398
   Interest expense                                                       2,338,818    (F)                5,026,943
                                                                 ---------------------------------------------------
Total expenses                                                            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              1,228,980    (G)                2,641,511
                                                                                             =======================
52
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999 (UNAUDITED)
PRO FORMA
                                                                                                      ADJUSTMENTS
                                                                               HISTORICAL               HOMEWOOD
                                                                              STATEMENT OF               SUITES
                                                                               OPERATIONS          ACQUISITION (A I)
                                                                      ---------------------------------------------------
Revenue:
   Percentage lease revenue                                                  $ 417,306              $ 4,264,391   (B)
   Interest income and other income                                             64,370                        -

Expenses:
   Taxes and insurance                                                          79,729                  822,599   (C)
   General and administrative                                                   36,028                   85,924   (D)
   Depreciation                                                                 97,510                  931,211   (E)
   Interest expense                                                            229,701                1,977,313   (F)
                                                                     ---------------------------------------------------

Total expenses                                                                 442,968                3,817,047

Net income                                                                   $  38,708              $   447,344
                                                                     ==============================================

Earnings per common share:
   Basic and Diluted                                                         $    0.02
                                                                     =====================

Basic and diluted weighted average common shares outstanding                 2,286,052                1,385,360   (G)
                                                                     =====================
PRO FORMA
                                                                                ADJUSTMENTS
                                                                                 HOMEWOOD
                                                                                   SUITES                       TOTAL
                                                                               ACQUISITION (A II)             PRO FORMA
                                                                        -----------------------------------------------------
Revenue:
   Percentage lease revenue                                                       $ 4,598,632    (B)       $ 9,280,329
   Interest income and other income                                                         -                   64,370

Expenses:
   Taxes and insurance                                                                529,548    (C)         1,431,876
   General and administrative                                                          85,379    (D)           207,331
   Depreciation                                                                       953,304    (E)         1,982,025
   Interest expense                                                                 1,925,888    (F)         4,132,902
                                                                  -----------------------------------------------------

Total expenses                                                                      3,494,119                7,754,134

Net income                                                                        $ 1,104,513              $ 1,590,565
                                                                   ===========================       ==================

Earnings per common share:
   Basic and Diluted                                                                                            $ 0.32
                                                                                                     ==================

Basic and diluted weighted average common shares outstanding                        1,349,330    (G)         5,020,742
                                                                                                     ==================
53
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
         Property                                                Operations                                Acquired
-------------------------------------------------------------------------------------------------------------------------------
I         Homewood Suites-Dallas, TX                                1990                              September 1, 1999
I         Homewood Suites-Las Colinas, TX                           1990                              September 1, 1999
I         Homewood Suites-Plano, TX                                 1997                              September 1, 1999
I         Homewood Suites-Richmond. VA                            May 1998                            September 1, 1999
I         Homewood Suites-Atlanta, GA                               1990                               October 1, 1999
-------------------------------------------------------------------------------------------------------------------------------
II        Homewood Suites-Clearwater, FL                       February 1998                          November 24, 1999
II        Homewood Suites-Salt Lake, UT                             1996                              November 24, 1999
II        Homewood Suites-Atlanta, GA                               1990                              November 24, 1999
II        Homewood Suites-Detroit, MI                               1990                              November 24, 1999
II        Homewood Suites-Baltimore, MD                          March 1998                           November 24, 1999
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.
(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).

                                       54
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

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
Historical              Homewood                   Homewood
                                                            Statement of              Suites                     Suites
                                                             Operations           Acquisitions (A I)        Acquisitions (A II)
                                           ----------------------------------------------------------------------------------------
Revenues:
   Suite revenue                                                 $ -              $ 14,075,852               $ 10,812,372
   Other income                                                    -                   811,817                    733,318

Expenses:
   Operating expenses                                              -                 5,586,712                  4,748,240
   General and administrative                                      -                   348,088                    315,165

   Advertising and promotion                                       -                   648,273                    502,899

   Utilities                                                       -                   626,269                    543,828
   Taxes and insurance                                             -                 1,040,638                    432,979
   Depreciation expense                                            -                 2,394,294                  2,214,501
   Franchise fees                                                  -                   563,035                    432,494

   Management fees                                                 -                         -                          -
   Rent expense-Apple Suites, Inc.                                 -                         -                          -
   Other                                                           -                   226,964                    349,961
                                             --------------------------------------------------------------------------------------

Total expenses                                                     -                11,434,273                  9,540,067

Income before income tax                                           -                 3,453,396                  2,005,623

     Income tax expense                                            -                         -                          -
                                             --------------------------------------------------------------------------------------

Net income                                                       $ -              $  3,453,396               $  2,005,623
                                             ======================================================================================
55
Pro Forma                    Total
                                                     Adjustments                 Pro Forma
                                          -----------------------------------------------------
Revenues:
   Suite revenue                                            -                  $ 24,888,224
   Other income                                             -                     1,545,135

Expenses:
   Operating expenses                                       -                    10,334,952
   General and administrative                      $ (112,000) (B)
                                                       50,000  (C)                  601,253
   Advertising and promotion                         (999,318) (D)
                                                      995,529  (E)                1,147,383
   Utilities                                                -                     1,170,097
   Taxes and insurance                             (1,473,617) (F)                        -
   Depreciation expense                            (4,608,795) (G)                        -
   Franchise fees                                    (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                                             (576,925) (N)                        -
                                          --------------------      ------------------------

Total expenses                                      5,533,578                    26,507,918

Income before income tax                           (5,533,578)                      (74,559)

     Income tax expense                                     -  (M)                        -
                                          --------------------      ------------------------

Net income                                       $ (5,533,578)                    $ (74,559)
                                          ====================      ========================
56
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999
HISTORICAL                 HOMEWOOD                   HOMEWOOD
                                                               STATEMENT OF                 SUITES                     SUITES
                                                                OPERATIONS            ACQUISITIONS (A I)        ACQUISITIONS (A II)
                                                 ----------------------------------------------------------------------------------
REVENUES:
   Suite revenue                                                $ 961,604               $ 9,818,797                $ 9,885,579
   Other income                                                    59,548                   560,096                    580,287

EXPENSES:
   Operating expenses                                             259,098                 3,794,204                  3,984,624
   General and administrative                                      85,676                   250,317                    245,792

   Advertising and promotion                                       93,237                   438,985                    475,007

   Utilities                                                       26,101                   354,113                    451,112
   Taxes and insurance                                                  -                   822,599                    529,548
   Depreciation expense                                                 -                 1,783,021                  1,814,014
   Franchise fees                                                  38,464                   392,757                    395,423

   Management fees                                                 40,769                   311,275                    313,854

   Rent expense-Apple Suites, Inc.                                417,306                         -                          -
   Other                                                           15,425                         -                          -
                                                  ---------------------------------------------------------------------------------

Total expenses                                                    976,076                 8,147,271                  8,209,374

Income before income tax                                           45,076                 2,231,622                  2,256,492

     Income tax expense                                            18,030                         -                          -
                                                  ---------------------------------------------------------------------------------

Net income                                                      $  27,046               $ 2,231,622                $ 2,256,492
                                                  =================================================================================
PRO FORMA                      TOTAL
                                                            ADJUSTMENTS                   PRO FORMA
                                                 ---------------------------------------------------
REVENUES:
   Suite revenue                                                    -                  $ 20,665,980
   Other income                                                     -                     1,199,931

EXPENSES:
   Operating expenses                                               -                     8,037,926
   General and administrative                            $    (90,000) (B)
                                                               37,500  (C)                  529,285
   Advertising and promotion                                 (788,180) (D)
                                                              788,175  (E)                1,007,224
   Utilities                                                        -                       831,326
   Taxes and insurance                                     (1,352,147) (F)                        -
   Depreciation expense                                    (3,597,035) (G)                        -
   Franchise fees                                            (788,180) (H)
                                                              788,175  (I)                  826,639
   Management fees                                           (625,128) (J)
                                                              919,790  (K)                  960,560
   Rent expense-Apple Suites, Inc.                          8,863,023  (L)                9,280,329
   Other                                                            -                        15,425
                                                 ---------------------      ------------------------

Total expenses                                              4,155,993                    21,488,714

Income before income tax                                   (4,155,993)                      377,197

     Income tax expense                                       132,848  (M)                  150,878
                                                 ---------------------      ------------------------

Net income                                               $ (4,288,842)                 $     226,319
                                                 =====================      ========================
57
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
         Property                                              Operations                         Acquired
--------------------------------------------------------------------------------------------------------------------
I         Homewood Suites-Dallas, TX                              1990                        September 1, 1999
I         Homewood Suites-Las Colinas, TX                         1990                        September 1, 1999
I         Homewood Suites-Plano, TX                               1997                        September 1, 1999
I         Homewood Suites-Richmond. VA                          May 1998                      September 1, 1999
I         Homewood Suites-Atlanta, GA                             1990                         October 1, 1999
--------------------------------------------------------------------------------------------------------------------
II        Homewood Suites-Clearwater, FL                      February 1998                   November 24, 1999
II        Homewood Suites-Salt Lake, UT                           1996                        November 24, 1999
II        Homewood Suites-Atlanta, GA                             1990                        November 24, 1999
II        Homewood Suites-Detroit, MI                             1990                        November 24, 1999
II        Homewood Suites-Baltimore, MD                        March 1998                     November 24, 1999
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 to 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.

                                       58
SIGNATURES

Pursuant  to the  requirements  of the  Securities  Exchange  Act of  1934,  the
registrant  has duly  caused  this  report  to be  signed  on its  behalf by the
undersigned hereunto duly authorized.

                                   Apple Suites, Inc.

Date: December 14, 1999            By:  /s/ Glade M. Knight
                                        ----------------------------------------
                                   Glade M. Knight,
                                   Chief Executive Officer of Apple Suites, Inc.