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):  December 22, 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>
<S>                                                                                         <C>
                                                                                          Page No.

Item 2.        Acquisition or Disposition of Assets                                          6

Item 7.        Financial Statements and Exhibits

         a.    Financial Statements

         Jackson, Mississippi

1.       Property Financial Statements

           Independent Auditors Report                                                      18

           Balance Sheets - December 31, 1998 and December 31, 1997                         19

           Statements of  Shareholders'  Equity - Years ended  December 31, 1997
           and December 31, 1998                                                            21

           Income Statements - Years ended December 31, 1998 and
           December 31, 1997                                                                22

           Statements of Cash Flows - Years ended December 31, 1998 and December
           31, 1997                                                                         23

           Notes to the Financial Statements - December 31, 1998 and
           December 31, 1997                                                                24

                                      * * *

           Balance Sheet - August 31, 1999 (unaudited)                                      27

           Statement of  Shareholders'  Equity - For the Period  January 1, 1999
           through August 31, 1999 (unaudited)                                              29

           Income  Statement - For the Period January 1, 1999 through August 31,
           1999 (unaudited)                                                                 30

           Statement  of Cash  Flows - For the Period  January  1, 1999  through
           August 31, 1999 (unaudited)                                                      31

                                       2
<PAGE>

           Notes to the  Financial  Statements - For the Period  January 1, 1999
           through August 31, 1999 (unaudited)                                              32

   2.      Pro Forma Financial Statements

           Apple Suites, Inc.--Pro Forma Condensed Consolidated Balance Sheet as
           of September 30, 1999 (unaudited)                                                35

           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)                                 37

           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)                         40

</TABLE>


                                       3
<PAGE>


b.       Exhibits

                  4.1      Note dated December 22, 1999 in the principal amount
                           of $ 4,384,500 made payable by Apple Suites, Inc. to
                           the order of Promus Hotels, Inc.

                  4.2      Fee and Leasehold Deed of Trust, Assignment of Leases
                           and Rents and Security Agreement dated December 22,
                           1999 from Apple Suites, Inc. and Apple Suites
                           Management, Inc. for the benefit of Promus Hotels,
                           Inc. pertaining to the Jackson, Mississippi hotel.

                  4.3      Fee and Leasehold Deed to Secure Debt, Assignment of
                           Leases and Rents and Security Agreement dated
                           December 22, 1999 from Apple Suites, Inc. and Apple
                           Suites Management, Inc. for the benefit of Promus
                           Hotels, Inc., constituting a second lien on the
                           Atlanta - Peachtree hotel.

                  4.4      Deed to Secure Debt Modification Agreement dated
                           December 22, 1999, among Promus Hotels, Inc., Apple
                           Suites, Inc. and Apple Suites Management, Inc.
                           pertaining to the Atlanta - Galleria/Cumberland
                           hotel.

                  4.5      Fee and Leasehold Mortgage, Assignment of Leases and
                           Rents and Security Agreement dated December 22, 1999
                           from Apple Suites, Inc. and Apple Suites Management,
                           Inc. for the benefit of Promus Hotels, Inc.
                           constituting a second lien on the
                           Detroit - Warren hotel.

                  4.6      Fee and Leasehold Deed of Trust, Assignment of Leases
                           and Rents and Security Agreement and Fixture Filing
                           dated December 22, 1999, from Apple Suites, Inc. and
                           Apple Suites Management, Inc. for the benefit of
                           Promus Hotels, Inc. constituting a second lien on
                           the Salt Lake City - Midvale hotel.

                  4.7      Second  Deed of Trust  Modification  Agreement  dated
                           December 22, 1999,  among Promus Hotels,  Inc., Apple
                           Suites  REIT  Limited  Partnership  and Apple  Suites
                           Services Limited Partnership  pertaining to the North
                           Dallas - Plano hotel.

                  4.8      Second  Deed of Trust  Modification  Agreement  dated
                           December 22, 1999,  among Promus Hotels,  Inc., Apple
                           Suites  REIT  Limited  Partnership  and Apple  Suites
                           Services Limited Partnership pertaining to the Dallas
                           - Addison and Dallas - Irving/Las Colinas hotels.

                  10.1     Indemnity dated December 22, 1999 from Apple Suites,
                           Inc. to Promus Hotels, Inc. pertaining to the
                           Jackson, Mississippi hotel.

                  10.2     Schedules 2.1(h), 3.1(a)-8, and 3.1(b)-8 to the
                           Master Hotel Lease Agreement dated September 20, 1999
                           between Apple Suites, Inc. (as lessor) and
                           Apple Suites Management, Inc. (as lessee).


                                       4
<PAGE>




                  10.3     Homewood Suites License Agreement dated December 22,
                           1999 between Promus Hotels, Inc. and Apple Suites
                           Management, Inc. pertaining to the
                           Jackson, Mississippi hotel.

                  10.4     Management Agreement dated December 22, 1999 between
                           Apple Suites Management, Inc. and Promus Hotels, Inc.
                           pertaining to the Jackson, Mississippi hotel.

                  10.5     Letter dated December 22, 1999 interpreting
                           Management Agreement dated December 22, 1999 among
                           Apple Suites, Inc., Promus Hotels, Inc., Promus
                           Hotels Florida, Inc. and Hampton Inns, Inc.
                           pertaining to the Jackson, Mississippi hotel.

                  10.6     Comfort Letter dated December 22, 1999 among Promus
                           Hotels, Inc., Apple Suites, Inc. and Apple Suites
                           Management, Inc. pertaining to the Jackson,
                           Mississippi hotel.

                  10.7     Negative Pledge Agreements dated December 22, 1999
                           between Apple Suites, Inc. and Promus Hotels, Inc.

                  10.8     Promissory Note dated December 22, 1999 in the amount
                           of $ 45,000 made payable by Apple Suites Management,
                           Inc. to the order of Apple Suites, Inc.
                           (Hotel Franchise Fees)

                  10.9     Promissory Note dated December 22, 1999 in the amount
                           of $ 9,100 made payable by Apple Suites Management,
                           Inc. to the order of Apple Suites, Inc.

                  24       Consent of Independent Auditors

                                       5
<PAGE>

Item 2.  Acquisition or Disposition of Assets

         We  purchased  the  Jackson-Ridgeland  (Mississippi)  hotel  (described
below), an existing Homewood Suites(R) property,  from Promus Hotels, Inc. as of
December 22, 1999.  The total purchase  price for the hotel was  $5,846,000.  We
used proceeds from our offering of common shares to pay  twenty-five  percent of
this  total,  or  $1,461,500,  at  closing  in  cash.  The  balance  of 75%,  or
$4,384,500,  is being financed by Promus  Hotels,  Inc. as short-term or "bridge
financing," as described below.

         We paid a real  estate  commission  on this  purchase  to Apple  Suites
Realty Group,  Inc., as our real estate  broker.  This  corporation  is owned by
Glade M. Knight,  who is our president and chief  executive  officer.  The total
amount of the real estate commission was $116,920, which equals two percent (2%)
of the total purchase price.

GENERAL BACKGROUND

         The Jackson-Ridgeland  hotel is an extended-stay hotel, and is licensed
to operate as Homewood Suites(R)  property.  We believe that the majority of the
guests at the hotel during the past 12 months have been business  travelers.  We
expect that this pattern will continue.

         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 living rooms contain a recliner and a  videocassette  player.  The
kitchens vary, but generally have a microwave, refrigerator,  dishwasher, coffee
maker and stove, together with basic cookware and utensils.

         The hotel is 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).

         The  hotel  was  actively  conducting  business  at the  time of  their
acquisition.  We believe that the acquisition was conducted  without  materially
disrupting any of the daily activities at the

                                       6
<PAGE>

hotel.  During the past 12 months,  the hotel has been covered with property and
liability insurance,  and we have arranged to continue such coverage. We believe
the hotel is adequately covered by insurance.

SPECIFIC FEATURES

         The  Homewood  Suites(R)  Jackson - Ridgeland is located on a 3.94 acre
site  at  853  Centre  Street,  Ridgeland,   Mississippi  39157.  The  hotel  is
approximately  10 miles from  downtown  Jackson  and 15 miles  from the  Jackson
Municipal Airport.

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

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

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

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

         We believe that the hotel has been  generally  well  maintained  and is
generally  in very good  condition.  Over the next 12  months,  we plan to spend
approximately  $333,000  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 three
nights,  and  approximately  48.2% 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
                        ----         ----          ----

                        63.8%        80.6%         78.2%


                                       7
<PAGE>

         For January 1, 1999 through  December 28, 1999,  the average daily rate
per suite was $81.98, and the average daily net revenue per suite was $63.92. As
explained  below,  revenue  from  the  hotel's  operations  will  be used to pay
interest due under the promissory note dated December 22, 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  17.55%  of the  hotel's
revenue would be needed to cover its portion of the interest payments.

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

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

      1  to  4                    $92            $92             $149
      5  to 11                     82             82              119
      12 to 28                     74             74              119
      29 or more                   69             69              109

         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 70% of the
hotel's guests received a corporate discount.

         The chief  corporate  accounts (as  designated in the hotel's  records)
include  Fire  Victims,   Entergy,  Copac,  Computer  Task  Group,   Mississippi
Diversified,   Mississippi   Baptist  Health   Systems,   Hydro  Ellay  Enfield,
Saks/McRaes, International Paper and HMA. From January 1, 1999 through August 2,
1999, the 10 biggest corporate accounts were responsible for approximately 24.5%
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
               (annualized)           1998              1999
               ------------           ----              ----

                  $33.32             $50.70            $50.88

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

                                       8
<PAGE>

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:

<TABLE>
<CAPTION>

Tax                         Estimated Value         Taxable Portion              Tax                 Amount
Jurisdiction                (tax purposes)        (15% of Est. Value)            Rate                of Tax
------------                ---------------       -------------------            ----                ------
<S>                           <C>                       <C>                    <C>                 <C>
Madison County                $4,044,310                $606,650               0.09917             $60,161.48
</TABLE>

         We estimate that the annual  property tax on the expected  improvements
will be approximately $33,000 or less.

         At least six  competing  hotels are located  within  seven miles of the
hotel.  (The  names  of  the  competing  franchises,  as  listed  below,  may be
registered  as service  marks or trade  names.) One of the  competing  hotels is
newer than the hotel.  The newer  competing hotel has a franchise with Townplace
Suites.  The other  competing  hotels have  franchises with Residence Inn, Cabot
Lodge, Courtyard by Marriott, Harvey Hotel and Hilton. We believe that the rates
charged by the hotel are generally  competitive  with the rates charged by these
other hotels. We are aware of ongoing or proposed construction for up to six new
extended-stay hotels within 12 miles of the hotel. We expect these new hotels to
be  franchised  with Comfort Inn,  Hawthorne  Suites,  Jameson Inn,  King Edward
Hotel, Hilton Gardens and Springhill Suites.

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 $9,100.  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 $45,000.  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 Jackson-Ridgeland hotel. This financing is substantially similar to
the  financing  provided by Promus  Hotels,  Inc.  when we  purchased  our other
hotels. The amounts we owe to Promus Hotels, Inc. are evidenced by the following
promissory notes:

                                        9
<PAGE>

<TABLE>
<CAPTION>
                                    Original                Remaining
      Date of                      Principal             Principal as of        Annual Rate         Date of
  Promissory Note                    Amount              January 1, 2000        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
December 22, 1999                 $ 4,384,500              $ 4,384,500              8.5%        January 1, 2001
</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

         Principal  payments under the promissory  note dated as of December 22,
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
under the note dated as of December 22, 1999 will be due in a single installment
on its maturity date.

SOURCE OF PAYMENTS

         Revenue  from the  operation of the hotels will be used to pay interest
under the promissory  notes we have made to Promus Hotels,  Inc. The "net equity
proceeds" from our offering of common shares will be used to pay principal.  The
phrase "net  equity  proceeds"  means the total  proceeds  from our  offering of
common shares, as reduced by selling commissions, a marketing expense allowance,
closing costs,  various fees and charges (legal,  accounting,  and so forth),  a
working capital reserve and a reserve for renovations,  repairs and replacements
of capital improvements. We were permitted, by an October 1999 letter agreement,
to use  our  net  equity  proceeds  to pay  25% of  the  purchase  price  of the
Jackson-Ridgeland  hotel (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,

                                       10
<PAGE>

assuming  that  interest  payments  are made on schedule and that 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
January 1, 2001                  $ 4,384,500             $ 31,056.88            $ 4,415,556.88
</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 Jackson-Ridgeland  hotel will continue to operate as
Homewood Suites(R)  property.  To help achieve that result,  Promus Hotels, Inc.
has executed a license  agreement  dated as of January 4, 2000.  Promus  Hotels,
Inc. is managing the hotel under a management agreement dated as of December 22,
1999. These license and management  agreements are among the material  contracts
described below.


                          SUMMARY OF MATERIAL CONTRACTS

DEEDS OF TRUST AND RELATED DOCUMENTS

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

         At each  closing  on our  purchase  of a hotel or group of  hotels,  we
further encumbered our other hotels.  Those further  encumbrances are created by
either  additional  deeds of trust or  negative  pledges.  These  documents  are
described below.

         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.

                                       11
<PAGE>

         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.

         Negative  pledges  apply to three  of our hotels  (Richmond - West End,
Clearwater  and  Baltimore - BWI  Airport).  The negative  pledges  prohibit any
transfer or further  encumbrance of the hotels, in whole or in part, without the
prior written  consent of Promus Hotels,  Inc. Each negative pledge was executed
concurrently  with a particular  promissory  note,  and will  terminate when its
corresponding promissory note is paid in full.

ENVIRONMENTAL INDEMNITY

         An environmental indemnity applies to the Jackson-Ridgeland hotel. This
indemnity  protects  Promus  Hotels,  Inc.  in the event that we  undertake  any
corrective  work to remove or  eliminate  hazardous  materials  from the  hotel.
Hazardous  materials  are  defined in the  indemnity  to include,  for  example,
asbestos and other toxic materials.  We are not aware of any hazardous materials
at the hotel, but there can be no assurance that such materials are not present.

         Under the  indemnity,  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 indemnity  generally will terminate
upon  payment in full under the  promissory  note dated as of December 22, 1999.
However,  our  indemnity  will  continue  with  respect to those  litigation  or
administrative  claims,  if any,  that involve  indemnified  losses and that are
pending at the date of full  payment.  In  addition,  for a period of four years
after the date of such full payment, we will be obligated to pay any enforcement
costs for subsequent litigation or administrative claims.

MASTER HOTEL LEASE AGREEMENT

         We have leased the Jackson-Ridgeland  hotel to Apple Suites Management,
Inc. Our existing master hotel lease agreement,  dated as of September 20, 1999,
has been supplemented to include this hotel as leased properties.

         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 hotel.  The percentage rent is equal to (a) 17%
of all year-to-date suite revenue,

                                       12
<PAGE>

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.

         An annual base rent is $462,750 for both 1999 and 2000.  The  quarterly
suite revenue  breakpoints  through  2008,  before any  adjustment  based on the
Consumer  Price Index,  are  described in the table below and in the  subsequent
paragraph:

<TABLE>
<CAPTION>

                 Suite Revenue Breakpoints for the First Quarter

  2000             2001         2002         2003         2004        2005          2006         2007         2008
  ----             ----         ----         ----         ----        ----          ----         ----         ----
<S>             <C>          <C>          <C>          <C>          <C>           <C>          <C>          <C>
$150,394        $155,021     $161,963     $166,590     $171,218     $175,845      $180,473     $185,100     $189,728
</TABLE>

         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.

HOTEL LICENSE AGREEMENT

         The  Jackson-Ridgeland  hotel is  licensed  to  operate  as a  Homewood
Suites(R)  property.  This license was granted by Promus  Hotels,  Inc. to Apple
Suites Management, Inc. under a license agreement dated as of January 4, 2000.

         The license agreement 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.

         Apple Suites  Management,  Inc. will be subject to various  operational
requirements  pursuant to the license  agreement  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  hotel  under a
management  agreement.  As a practical  matter,  many of the requirements in the
license  agreement 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 agreement will not, of itself,
relieve Apple Suites Management, Inc. from the obligations imposed upon it under
the license  agreement.  In such event,  the remedies  available

                                       13
<PAGE>

to Apple Suites  Management,  Inc. may be limited to monetary damages for breach
of the hotel management agreement.

         The  hotel  must  be  operated  in  accordance  with  the  requirements
established by Promus Hotels,  Inc. These requirements cover matters such as the
types of services and products  that may be offered at the hotel,  the style and
type of signage,  the  appearance  and  condition  of the hotel,  the use of the
reservations system for guests,  adherence to a 100% Satisfaction Guarantee rule
of  operation,   required  insurance  coverage  and  other   requirements.   The
requirements are designed to insure that each hotel meets uniform guidelines for
all Homewood Suites(R) Hotels, wherever located.

         Under the license agreement,  Apple Suites Management,  Inc. is granted
the right to use the  Homewood  Suites(R)  System  only  during  the term of the
license  agreement,  and has no other ownership  interest in, or rights to, such
System.  The term of the 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 the
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 the
hotel  will be used to fund  advertising  or  marketing  for the hotel  actually
making the contribution.

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

HOTEL MANAGEMENT AGREEMENT

         The  Jackson-Ridgeland  hotel is being managed by Promus  Hotels,  Inc.
under  a  management  agreement  dated  December  22,  1999  with  Apple  Suites
Management, Inc. (which is leasing the hotel from us, as discussed above).

                                       14
<PAGE>

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

         As part of its responsibilities for directing the day-to-day activities
of the hotel,  Promus  Hotels,  Inc.  will hire,  supervise  and  determine  the
compensation and terms of employment of all hotel personnel. Promus Hotels, Inc.
also will  determine the terms for  admittance,  room rates and all use of hotel
rooms.  Promus Hotels, Inc. will select and purchase all operating equipment and
supplies  for  the  hotel.  Promus  Hotels,  Inc.  will be  responsible  for (1)
advertising and promoting the hotel in coordination with the requirements of the
license agreement described above; and (2) obtaining and maintaining any permits
and licenses required to operate the hotel.

         Each year, Promus Hotels,  Inc. will submit a proposed operating budget
for the hotel to Apple Suites  Management,  Inc. for its  approval.  Each budget
will include a business plan  describing the business  objectives and strategies
for the hotel for the period covered by the budget. In addition,  Promus Hotels,
Inc. 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 hotel in accordance
with the hotel license agreement.  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,
Inc. 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 hotel,  as reduced by  (1) refunds;
(2)  sales  and  other  similar  taxes;  (3)  proceeds  from  the  sale or other
disposition  of the hotel  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 hotel;
(8) interest on bank accounts;  and (9) gratuities or service charges added to a
customer's bill.

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

         The  management  agreement  has a 15-year term.  However,  Apple Suites
Management,  Inc.  may  terminate  the  management  agreement  after  its  tenth
anniversary.  If  it  does  so,  Promus  Hotels,  Inc.  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

                                       15
<PAGE>

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 is  terminated,  Promus
Hotels,  Inc. may terminate the management  agreement.  If Promus  Hotels,  Inc.
terminates  the  management  agreement it will be entitled to a termination  fee
equal  to (a)  $449,143  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 the management  agreement if Promus Hotels, Inc.
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,  Inc. 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  Jackson-Ridgeland  hotel 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 hotel
and the party to the license agreement and management agreement, we have entered
into a "Comfort Letter" with Promus Hotels,  Inc. dated as of December 22, 1999.
The  comfort  letter  grants 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 letter are described below.

         First,  as  long as we are  the  owner  of the  hotel  and the  license
agreement  is in  effect,  Promus  Hotels,  Inc.  has agreed to notify us of any
breach of the 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.

                                       16

<PAGE>

         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  letter  provides  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.

                                       17

<PAGE>
<TABLE>
<S>    <C>                                      <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  balance sheets of the Homewood Suites
Hotel - Jackson as of December 31, 1998 and 1997, and the related  statements of
income,  shareholders'  equity and cash flows for the years  then  ended.  These
financial  statements are the responsibility of the management of the hotel. Our
responsibility  is to express an opinion on these financial  statements based on
our audits.

         We conducted our audits in accordance with generally  accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement.  An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements.  An audit also includes
assessing the  accounting  principles  used and  significant  estimates  made by
management,  as well as evaluating the overall financial statement presentation.
We believe  that our audits  provide a  reasonable  basis for our  opinion.  The
accompanying  financial  statements  were  prepared for the purpose of complying
with the rules and  regulations  of the  Securities  and Exchange  Commission as
described  in Note 1 to the  financial  statements  and are not intended to be a
complete presentation of the Homewood Suites Hotel - Jackson.

         In our opinion,  the  financial  statements  referred to above  present
fairly, in all material respects,  the financial position of the Homewood Suites
Hotel - Jackson  as of  December  31,  1998 and  1997,  and the  results  of its
operations  and its cash  flows  for the years  then  ended in  conformity  with
generally accepted accounting principles.


                                           /s/ L. P. Martin & Co., P. C.


November 7, 1999

                                       18
<PAGE>



                         HOMEWOOD SUITES HOTEL - JACKSON

                                 BALANCE SHEETS

                                     ASSETS

                                                        December 31,
                                                 1998                   1997
CURRENT ASSETS
   Cash                                   $        34,756      $         13,970
   Accounts Receivable, Net                       148,205               104,456
   Prepaids and Other                              25,350                25,350
                                          ---------------       ---------------

           TOTAL CURRENT ASSETS                   208,311               143,776
                                          ---------------       ---------------

INVESTMENT IN HOTEL PROPERTY
   Land and Improvements                          749,969               749,969
   Buildings and Improvements                   5,284,823             5,161,652
   Furniture, Fixtures and Equipment            1,197,181             1,182,151
                                          ---------------       ---------------

           TOTAL                                7,231,973             7,093,772
   Less:  Accumulated Depreciation               (797,849)             (380,298)
                                          ---------------       ---------------

        NET INVESTMENT IN HOTEL PROPERTY        6,434,124             6,713,474
                                          ---------------       ---------------




           TOTAL ASSETS                   $     6,642,435       $     6,857,250
                                          ===============       ===============














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

                                       19
<PAGE>







                      LIABILITIES AND SHAREHOLDERS' EQUITY

                                                        December 31,
                                                 1998                   1997
CURRENT LIABILITIES
   Accounts Payable                       $        98,225       $       144,491
   Accrued Taxes                                   87,475                43,165
   Accrued Expenses - Other                        41,034                39,523
                                          ---------------       ---------------

           TOTAL CURRENT LIABILITIES              226,734               227,179
                                          ---------------       ---------------



SHAREHOLDERS' EQUITY
   Contributed Capital                          6,046,570             6,734,271
   Retained Earnings (Accumulated Deficit)        369,131              (104,200)
                                          ---------------       ---------------

           TOTAL SHAREHOLDERS' EQUITY           6,415,701             6,630,071
                                          ---------------       ---------------





           TOTAL LIABILITIES AND
            SHAREHOLDERS' EQUITY          $     6,642,435       $     6,857,250
                                          ===============       ===============







                                       20
<PAGE>


                         HOMEWOOD SUITES HOTEL - JACKSON

                       STATEMENTS OF SHAREHOLDERS' EQUITY

<TABLE>
<CAPTION>

                                                                  Retained
                                                                  Earnings               Total
                                          Contributed           (Accumulated          Shareholders'
                                             Capital              Deficit)               Equity

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

Balances, January 1, 1997                 $     4,638,129       $       (70,003)      $     4,568,126

Net Loss                                                -               (34,197)              (34,197)

Capital Contributions, Net                      2,096,142                     -             2,096,142
                                          ---------------       ---------------       ---------------

Balances, December 31, 1997                     6,734,271              (104,200)            6,630,071

Net Income                                              -               473,331               473,331

Capital Distributions, Net                       (687,701)                    -              (687,701)
                                          ---------------       ---------------       ---------------

Balances, December 31, 1998               $     6,046,570       $       369,131       $     6,415,701
                                          ===============       ===============       ===============

</TABLE>



















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

                                       21

<PAGE>


                         HOMEWOOD SUITES HOTEL - JACKSON

                                INCOME STATEMENTS


                                                    Years Ended December 31,
                                                  1998                  1997

GROSS OPERATING REVENUE
   Suite Revenue                          $     2,115,861       $     1,390,347
   Other Customer Revenue                         161,811               130,494
                                          ---------------       ---------------

           TOTAL REVENUE                        2,277,672             1,520,841
                                          ---------------       ---------------

EXPENSES
   Property and Operating                         927,878               700,874
   General and Administrative                      69,009                56,870
   Advertising and Promotion                      128,067                87,703
   Utilities                                       87,815                73,585
   Real Estate and Personal Property Taxes,
     and Property Insurance                        89,387                43,959
   Depreciation Expense                           417,551               380,298
   Franchise Fees                                  84,634                     -
   Pre-Opening Expenses                                 -               211,749
                                          ---------------       ---------------

           TOTAL EXPENSES                       1,804,341             1,555,038
                                          ---------------       ---------------

           NET INCOME (LOSS)              $       473,331       $       (34,197)
                                          ===============       ===============
















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

                                       22
<PAGE>


                         HOMEWOOD SUITES HOTEL - JACKSON

                            STATEMENTS OF CASH FLOWS

                                                  Years Ended December 31,
                                                  1998                  1997
CASH FLOWS FROM (TO) OPERATING ACTIVITIES
   Net Income (Loss)                      $       473,331       $       (34,197)
                                          ---------------       ---------------
   Adjustments to Reconcile Net Income
     (Loss) to Net Cash Provided by
      Operating Activities:
       Depreciation                               417,551               380,298
       Change In:
         Accounts Receivable                      (43,749)             (104,456)
         Prepaids and Other Current Assets              -               (25,350)
         Accounts Payable                         (46,266)                7,278
         Accrued Taxes                             44,310                42,292
         Accrued Expenses - Other                   1,511                36,532
                                          ---------------       ---------------
   Net Adjustments                                373,357               336,594
                                          ---------------       ---------------

           NET CASH FLOWS FROM OPERATING
             ACTIVITIES                           846,688               302,397

CASH FLOWS TO FINANCING ACTIVITIES
     Capital Distributions, Net                  (825,902)             (290,927)
                                          ---------------       ---------------

           NET INCREASE  IN CASH                   20,786                11,470

           CASH, BEGINNING OF YEAR                 13,970                 2,500
                                          ---------------       ---------------

           CASH, END OF YEAR              $        34,756       $        13,970
                                          ===============       ===============

SUPPLEMENTAL DISCLOSURES:
   NONCASH FINANCING AND INVESTING ACTIVITIES
     YEAR ENDED DECEMBER 31, 1998
       Investments  in hotel  properties in the amount of $138,201 were financed
       with capital contributions.

     YEAR ENDED DECEMBER 31, 1997
       Investments  in  hotel  properties  in the  amount  of  $7,093,772,  were
       financed with capital contributions.

       Construction in progress in the amount of $5,186,984 was  reclassified to
       investment in hotel properties.

       Accounts payable for construction  costs totaling  $480,281 was curtailed
       with capital contributions.

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

                                       23
<PAGE>


                         HOMEWOOD SUITES HOTEL - JACKSON

                        NOTES TO THE FINANCIAL STATEMENTS

                           DECEMBER 31, 1998 AND 1997


NOTE 1 - ORGANIZATION AND BASIS OF PRESENTATION

The Homewood  Suites Hotel - Jackson is a 91 suite hotel,  located in Ridgeland,
Mississippi,  which  opened  for  business  on  February  20,  1997.  The  Hotel
specializes in providing extended stay lodging to business or leisure travelers.
While customers may rent rooms for a night, terms of up to a month or longer are
available.  Services offered, which are particularly  attractive to the extended
stay traveler,  include laundry services, 24 hour on-site convenience stores and
grocery shopping services.

Economic  conditions in the area in which the Hotel is located  impact  revenues
and the ability to collect accounts receivable.

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

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

NOTE 2 - SIGNIFICANT ACCOUNTING POLCIIES

Property  - The  hotel  property  is  recorded  at cost.  Depreciation  has been
recorded straight-line using the following lives:

                                                              Life
   Land Improvements                                      10-15 Years
   Buildings and Improvements                             15-35 Years
   Furniture, Fixtures and Equipment                       3-10 Years









(Continued)

                                       24
<PAGE>


                         HOMEWOOD SUITES HOTEL - JACKSON

                        NOTES TO THE FINANCIAL STATEMENTS

                           DECEMBER 31, 1998 AND 1997


NOTE 2- SIGNIFICANT ACCOUNTING POLICIES, Continued

Major renewals,  betterments and  improvements  are  capitalized,  while ongoing
maintenance  and  repairs are  expensed  as  incurred.  Building  costs  include
interest  capitalized during the construction  period.  Construction in progress
represents  Hotel  assets  under  construction.  At the  point  construction  is
completed  and the  Hotel  is ready to be  placed  in  service,  the  costs  are
reclassified   to   investment  in  Hotel   property  for  financial   statement
presentation.  Construction in progress totaling  $5,186,984 was reclassified to
investment in hotel property during 1997.

Estimates - The preparation of financial statements in accordance with generally
accepted  accounting  principals  requires  management  to  make  estimates  and
assumptions  that affect the reported amounts of assets,  liabilities,  revenues
and expenses and disclosures  related thereto.  Actual results could differ from
those estimates.

Annually,  management  of the hotel  reviews the  carrying  value and  remaining
depreciable lives of the Hotel property and related assets.  Management does not
believe there are any current indications of impairment. However, it is possible
that estimates of the remaining useful lives will change in the near term.

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 Hotel. In 1997, pre-opening expenses of
$211,749, were expensed as incurred.









(Continued)

                                       25
<PAGE>


                         HOMEWOOD SUITES HOTEL - JACKSON

                        NOTES TO THE FINANCIAL STATEMENTS

                           DECEMBER 31, 1998 AND 1997


NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES, Continued

Inventories  - The  Hotel  maintains  supplies  of  room  linens  and  food  and
beverages.  However,  due to the ongoing routine  replacement of these items and
the difficulty in establishing  market values,  management has chosen to expense
these items at point of purchase.

NOTE 3 - RELATED PARTY TRANSACTIONS

The Owner allocates a monthly  accounting fee of $1,000 to the Hotel. These fees
totaled  $12,000 in 1998 and $10,338 in 1997. The Owner also charges the Hotel a
fee for corporate  advertising,  training and reservations equal to four percent
of net suite revenue. These fees totaled $84,634 in 1998 and $53,614 in 1997. In
1998,  the Owner charged a franchise fee of $84,634 to the Hotel,  also computed
at four  percent  of  suite  revenue.  No  franchise  fee was  charged  in 1997.
Effective in 1999, the Owner will be charging a "base  management  fee" of three
percent of suite revenue to the hotel.

The acquisition  cost of the property and related  furnishings and equipment was
financed by the Owner.  The Owner  allocated  interest to the property on monies
advanced  to  fund  the  construction   costs.  The  interest  costs  have  been
capitalized and  depreciated in accordance with the Hotel's normal  depreciation
policy. Interest capitalized and included in the cost basis of the Hotel totaled
$235,723 in 1997.

On most  property and equipment  purchases,  excluding  base hotel  construction
contracts, the following fees paid to Promus Hotels, Inc. have been capitalized:

           Purchase Fee  - 4% of Asset Cost
           Project  Management  Fee  -  4.5%  and  5.5.%  of  labor  portion  of
             capitalized asset costs in 1998 and 1997, respectively.

The Hotel maintains a depository bank account into which customer  revenues have
been deposited.  The bulk of the Hotel's operating expenditures are paid through
the  Owner's  corporate  accounts.   Funds  are  transferred  from  the  Hotel's
depository bank accounts to the Owner  periodically.  The transfers to the Owner
and  expenditures  made on behalf of the  Hotel by the Owner are  accounted  for
through  various  intercompany  accounts.  No interest has been charged on these
intercompany  advances from ongoing  operations.  There is no intention to repay
any  advances  to or from the  Owner.  Accordingly,  the net  amounts  have been
included in  shareholders'  equity with 1998 and 1997  intercompany/intracompany
transfers being reflected as net capital contributions or distributions.


                                       26
<PAGE>


                         HOMEWOOD SUITES HOTEL - JACKSON

                            BALANCE SHEET (unaudited)

                                 AUGUST 31, 1999


                                     ASSETS


CURRENT ASSETS
   Cash                                                          $       43,476
   Accounts Receivable, Net                                             227,188
   Prepaids and Other                                                    25,350
                                                                ---------------

           TOTAL CURRENT ASSETS                                         296,014
                                                                ---------------
INVESTMENT IN HOTEL PROPERTY
   Land and Improvements                                                754,803
   Buildings and Improvements                                         5,278,927
   Furniture, Fixtures and Equipment                                  1,197,295
                                                                ---------------

           TOTAL                                                      7,231,025
   Less:  Accumulated Depreciation                                   (1,082,506)
                                                                ---------------
           NET INVESTMENT IN HOTEL PROPERTY                           6,148,519
                                                                ---------------
           TOTAL ASSETS                                         $     6,444,533
                                                                ===============


















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

                                       27
<PAGE>

                      LIABILITIES AND SHAREHOLDERS' EQUITY


CURRENT LIABILITIES
   Accounts Payable                                             $         1,626
   Accrued Taxes                                                         69,100
   Accrued Expenses - Other                                              47,842
                                                                ---------------

           TOTAL CURRENT LIABILITIES                                    118,568
                                                                ---------------
SHAREHOLDERS' EQUITY
   Contributed Capital                                                5,625,316
   Retained Earnings                                                    700,649
                                                                ---------------
           TOTAL SHAREHOLDERS' EQUITY                                 6,325,965
                                                                ---------------



           TOTAL LIABILITIES AND SHAREHOLDERS'
             EQUITY                                             $     6,444,533
                                                                ===============



                                       28
<PAGE>


                         HOMEWOOD SUITES HOTEL - JACKSON

                  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                          $     6,046,570       $       369,131       $     6,415,701

Net Income                                                       -               331,518               331,518

Capital Distributions, Net                                (421,254)                    -              (421,254)
                                                   ---------------       ---------------       ---------------

Balances, August 31, 1999                          $     5,625,316       $       700,649       $     6,325,965
                                                   ===============       ===============       ===============

</TABLE>











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

                                       29
<PAGE>


                         HOMEWOOD SUITES HOTEL - JACKSON

                          INCOME STATEMENT (UNAUDITED)

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


GROSS OPERATING REVENUE
   Suite Revenue                                                $     1,487,301
   Other Customer Revenue                                               112,292
                                                                ---------------

           TOTAL REVENUE                                              1,599,593
                                                                ---------------
EXPENSES
   Property and Operating                                               636,068
   General and Administrative                                            51,587
   Advertising and Promotion                                             75,268
   Utilities                                                             50,426
   Real Estate and Personal Property Taxes,
     and Property Insurance                                              62,589
   Depreciation Expense                                                 284,657
   Franchise and Management Fees                                        107,480
                                                                ---------------

           TOTAL EXPENSES                                             1,268,075
                                                                ---------------
           NET INCOME                                           $       331,518
                                                                ===============











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

                                       30
<PAGE>


                         HOMEWOOD SUITES HOTEL - JACKSON

                       STATEMENT OF CASH FLOWS (UNAUDITED)

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



CASH FLOWS FROM (TO) OPERATING ACTIVITIES
   Net Income                                          $       331,518
                                                       ---------------
   Adjustments to Reconcile Net Income to Net Cash
     Provided by Operating Activities:
       Depreciation                                            284,657
       Change in:
         Accounts Receivable                                   (78,983)
         Accounts Payable                                      (96,599)
         Accrued Taxes                                         (18,375)
         Accrued Expenses - Other                                6,808
                                                       ---------------

   Net Adjustments                                              97,508
                                                       ---------------
           NET CASH FLOWS FROM OPERATING
             ACTIVITIES                                        429,026

CASH FLOWS FROM INVESTING ACTIVITIES
   Net Disposal of Investment in Hotel Property                    948

CASH FLOWS TO FINANCING ACTIVITIES
   Net Equity Distributions                                   (421,254)
                                                       ---------------
           NET INCREASE IN CASH                                  8,720

           CASH, JANUARY 1, 1999                                34,756
                                                       ---------------

           CASH, AUGUST 31, 1999                       $        43,476
                                                       ===============








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


                                       31
<PAGE>


                         HOMEWOOD SUITES HOTEL - JACKSON

                  NOTES TO THE FINANCIAL STATEMENTS (UNAUDITED)

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




NOTE 1 - ORGANIZATION AND BASIS OF PRESENTATION

The Homewood  Suites Hotel - Jackson is a 91 suite hotel,  located in Ridgeland,
Mississippi,  which opened in February, 1997. The Hotel specializes in providing
extended stay lodging to business or leisure travelers. While customers may rent
rooms for a night,  terms of up to a month or  longer  are  available.  Services
offered,  which are  particularly  attractive  to the  extended  stay  traveler,
include  laundry  services,  24 hour  on-site  convenience  stores  and  grocery
shopping services.

Economic  conditions in the area in which the Hotel is located  impact  revenues
and the ability to collect accounts receivable.

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

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

NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES

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

                                                         Life
   Land Improvements                                  10-15 Years
   Buildings and Improvements                         15-35 Years
   Furniture, Fixtures and Equipment                   3-10 Years







(Continued)

                                       32
<PAGE>


                         HOMEWOOD SUITES HOTEL - JACKSON

                  NOTES TO THE FINANCIAL STATEMENTS (UNAUDITED)

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




NOTE 2- SIGNIFICANT ACCOUNTING POLICIES, Continued

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  principals  requires  management  to  make  estimates  and
assumptions  that affect the reported amounts of assets,  liabilities,  revenues
and expenses and disclosures  related thereto.  Actual results could differ from
those estimates.

Annually,  management  of the Hotel  reviews the  carrying  value and  remaining
depreciable lives of the Hotel property and related assets.  Management does not
believe there are any current indications of impairment. However, it is possible
that estimates of the remaining useful lives will change in the near term.

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.

Inventories - The   Hotel  maintains  supplies  of  room  linens  and  food  and
beverages.  However,  due to the ongoing routine  replacement of these items and
the difficulty in establishing  market values,  management has chosen to expense
these items at point of purchase.





 (Continued)

                                       33
<PAGE>



                         HOMEWOOD SUITES HOTEL - JACKSON

                  NOTES TO THE FINANCIAL STATEMENTS (UNAUDITED)

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




NOTE 3 - RELATED PARTY TRANSACTIONS

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

       Fee Type                      Basis for Determination       Total Expense

Accounting Fees                      $1,000 per month              $       8,000
Corporate Advertising, Training
   and Reservations                  4% of net suite revenue              59,492
Franchise Fees                       4% of net suite revenue              59,492
Management Fees                      3% of net suite revenue              47,988

The acquisition  cost of the property and related  furnishings and equipment was
financed by the Owner.  The Owner  allocated  interest to the property on monies
advanced  to  fund  the  construction   costs.  The  interest  costs  have  been
capitalized and  depreciated in accordance with the Hotel's normal  depreciation
policy.

On most  property and equipment  purchases,  excluding  base hotel  construction
contracts, the following fees paid to Promus Hotels, Inc. have been capitalized:

           Purchase Fee  - 4% of Asset Cost
           Project Management Fee - 4.5% of labor portion of capitalized
           asset costs

The Hotel maintains a depository bank account into which customer  revenues have
been deposited.  The bulk of the Hotel's operating expenditures are paid through
the  Owner's  corporate  accounts.   Funds  are  transferred  from  the  Hotel's
depository bank accounts to the Owner  periodically.  The transfers to the Owner
and  expenditures  made on behalf of the  Hotel by the Owner are  accounted  for
through  various  intercompany  accounts.  No interest has been charged on these
intercompany  advances from ongoing  operations.  There is no intention to repay
any  advances  to or from the  Owner.  Accordingly,  the net  amounts  have been
included in shareholders' equity with intercompany/intracompany  transfers being
reflected as net capital distributions.

                                       34
<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 seven
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           Homewood
                                                                      Historical        Suites             Suites
                                                                       Balance      Acquisition (AII)  Acquisition (AIII)    Total
                                                                        Sheet          Adjustments        Adjustments       Proforma
                                                                     --------------------------------------------------------------
<S>                                                                 <C>            <C>                <C>               <C>
ASSETS

Investment in hotel properties                                      $ 36,292,592   $ 51,081,600 (A)   $  5,962,920(A)   $ 93,337,112
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       $  5,962,920      $ 94,109,153
                                                                    ================================================================

LIABILITIES and SHAREHOLDERS' EQUITY

Liabilities
Notes payable                                                       $ 26,625,000   $ 37,560,000 (B)   $  4,384,500 (B)  $ 68,569,500
Accounts payable                                                           8,303             --                 --             8,303
Accrued expenses                                                         664,082             --                 --           664,082
                                                                    ----------------------------------------------------------------

Total Liabilities                                                     27,297,385     37,560,000          4,384,500        69,241,885

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)      1,578,420 (C)    24,804,560

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          1,578,420        24,867,268
                                                                    ----------------------------------------------------------------

Total Liabilities and Shareholders' Equity                          $ 47,989,419   $ 40,156,814       $  5,962,920      $ 94,109,153
                                                                    ================================================================

</TABLE>


                                       35
<PAGE>


Notes to Pro Forma Condensed Consolidated Balance Sheet (unaudited)

(A)  Increase represents the purchase of 7 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>          <C>

II        Homewood Suites-Atlanta, GA          1990         October 1, 1999     $ 9,800,000   $   196,000   $ 9,996,000  $ 7,350,000
II        Homewood Suites-Clearwater, FL   February 1998   November 24, 1999     10,416,000       208,320    10,624,320    7,812,000
II        Homewood Suites-Salt Lake, UT        1996        November 24, 1999      5,153,000       103,060     5,256,060    3,864,750
II        Homewood Suites-Atlanta, GA          1990        November 24, 1999      4,033,000        80,660     4,113,660    3,024,750
II        Homewood Suites-Detroit, MI          1990        November 24, 1999      4,330,000        86,600     4,416,600    3,247,500
II        Homewood Suites-Baltimore, MD      March 1998    November 24, 1999     16,348,000       326,960    16,674,960   12,261,000
III       Homewood Suites-Jackson, MS      February 1997   December 22, 1999      5,846,000       116,920     5,962,920    4,384,500
                                                                                ----------------------------------------------------

                    Total                                                       $55,926,000   $ 1,118,520   $57,044,520  $41,944,500

</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,the  maturity  date  for the  note in the  amount  of
     $30,210,000  is December 1, 2000 and the  maturity  date of the note in the
     amount of  $4,384,500  is January 1, 2001.  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.








                                       36
<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 eleven  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 lease  agreements  between the Company and the Lessee were based on economic
conditions  existing at the time of acquisition.  Applicaton of these agreements
to periods prior to the acquisition may not be meaningful.  The most significant
assumption  which may not be  indicative  of future  operations is the amount of
financial  leverage  employed.  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
                                                                 Adjustments
                                        Historical         Homewood          Homewood             Homewood
                                       Statement of         Suites            Suites               Suites               Total
                                        Operations    Acquisition (A I)   Acquisition (A II)  Acquisition (A III)     Pro Forma
                                        ----------    -----------------   ------------------ -------------------     ---------
<S>                                     <C>          <C>                   <C>                   <C>              <C>
Revenue:
   Percentage lease revenue               $ --      $6,526,922 (B)      $5,241,307 (B)         $1,070,700 (B)     $12,838,929
   Interest income and other income         --              --                  --                     --                  --

Expenses:
   Taxes and insurance                      --       1,040,638 (C)         432,979 (C)             89,387 (C)       1,563,004
   General and administrative               --          90,175 (D)          86,477 (D)             65,659 (D)         242,311
   Depreciation                             --       1,256,071 (E)       1,155,328 (E)            199,487 (E)       2,610,686
   Interest expense                         --       2,688,125 (F)       2,338,818 (F)            372,683 (F)       5,399,626
                                         --------   -----------         -----------            ----------         -----------
Total expenses                              --       5,075,009           4,013,602                727,216           9,815,827
                                         --------   -----------         -----------            ----------         -----------
Net income                                $ --      $1,451,913          $1,227,705             $  343,484         $ 3,023,102
                                         ========   ===========         ===========            ==========         ===========
Earnings per common share:
   Basic and Diluted                      $ --                                                                    $      1.11
                                         ========                                                                 ===========

Basic and diluted weighted average
   common shares outstanding                --       1,412,531 (G)       1,132,040 (G)            176,360 (G)       2,720,931
                                         ========                                                                 ============
</TABLE>




                                       37
<PAGE>

For the nine months ended September 30, 1999 (unaudited)

<TABLE>
<CAPTION>
                                                                        Pro forma
                                                                       Adjustments
                                                Historical     Homewood            Homewood          Homewood
                                               Statement of     Suites              Suites            Suites               Total
                                                Operations   Acquisition (A I)  Acquisition (A II) Acquisition (A III)    Pro Forma
                                                ----------   -----------------  -----------------  -------------------    ---------
Revenue:
<S>                                            <C>           <C>                  <C>                <C>                <C>
   Percentage lease revenue                    $ 417,306   $4,510,833(B)        $4,853,958(B)       $855,420(B)        $10,637,517
   Interest income and other income               64,370         -                       -                 -                64,370

Expenses:
   Taxes and insurance                            79,729      822,599(C)           529,548(C)         70,413(C)          1,502,289
   General and administrative                     36,028       67,221(D)            66,676(D)         49,244(D)            219,169
   Depreciation                                   97,510      931,211(E)           953,304(E)        149,615(E)          2,131,640
   Interest expense                              229,701    1,977,313(F)         1,925,888(F)        279,512(F)          4,412,414
                                                 -------   ----------           ----------          --------           -----------

Total expenses                                   442,968    3,798,344            3,475,416           548,784             8,265,511

Net income                                     $  38,708   $  712,490           $1,378,542          $306,636           $ 2,436,376
                                              ==========   ==========           ==========          ========           ===========


Earnings per common share:
   Basic and Diluted                           $    0.02                                                               $      0.83
                                              ==========   ==========           ==========          ========           ===========
Basic and diluted weighted average
   common shares outstanding                   2,286,052         -   (G)           461,427(G)        176,360(G)          2,923,838
                                              ==========   ==========           ==========          ========           ===========

</TABLE>






                                       38
<PAGE>

Notes to Pro Forma Condensed Consolidated Statements of Operations (unaudited)

(A)  Represents  results of operations  for the eleven hotels  acquired on a pro
     forma  basis as if the  eleven  hotels  were  owned by the  Company  at the
     beginning of the 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
--------------------------------------------------------------------------------
III          Homewood Suites-Jackson, MS     February 1997     December 22, 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
     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.
(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 eleven hotels  acquired  based on the
     purchase price, excluding amounts allocated to land, of $37,450,320 for the
     first acquisition,  $34,954,481 for the second acquisition,  and $5,485,886
     for the third acquisition, 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 eleven hotel  acquisitions for the
     period in which the hotels were not owned.  Interest was computed using the
     interest  rates  of 8.5% on  mortgage  debt of  $33,975,000  for the  first
     acquisition,  $30,210,000 for the second acquisition and $4,384,500 for the
     third acquisition that was incurred at acquisition.
(G)  Represents  additional  common shares assuming the properties were acquired
     at the  beginning of the periods  presented  with the net proceeds from the
     "best efforts" offering of $9 per share (net $8.06 per share) for the first
     $15,000,000  in  proceeds  and $10 per share  (net $8.95 per share) for the
     remainder.




                                       39

<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 (unaudited)

The  following  unaudited  Pro  Forma  Condensed   Consolidated   Statements  of
Operations of Apple Suites  Management,  Inc. (the "Lessee") are presented as if
the eleven 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.  The lease  agreements  between the Company and the
Lessee were based on economic conditions existing at the time of of acquisition.
Application of these  agreements to periods prior to the  acquisition may not be
meaningful.  Such pro forma  information is based in part upon the  Consolidated
Statements of Operations of the Lessee and 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 (unaudited)

<TABLE>
<CAPTION>
                                  Historical    Homewood             Homewood            Homewood
                                 Statement of    Suites               Suites              Suites         Pro Forma       Total
                                 Operations   Acquisitions(A I)  Acquisitions(A II)  Acquisition(A III) Adjustments    Pro Forma
                                 ----------   -----------------  ------------------  ------------------ -----------    ---------
<S>                                  <C>     <C>                <C>                   <C>               <C>            <C>
Revenues:
   Suite revenue                     $ -    $ 14,075,852       $ 10,812,372          $ 2,115,861            -         $ 27,004,085
   Other income                        -         811,817            733,318              161,811            -            1,706,946

Expenses:
   Operating expenses                  -       5,586,712          4,748,240              927,878            -           11,262,830
   General and administrative          -         348,088            315,165               69,009       (124,000)(B)
                                                                                                         50,000 (C)        658,262
   Advertising and promotion           -         648,273            502,899              128,067     (1,083,952)(D)
                                                                                                      1,080,163 (E)      1,275,450
   Utilities                           -         626,269            543,828               87,815            -            1,257,912
   Taxes and insurance                 -       1,040,638            432,979               89,387     (1,563,004)(F)             -
   Depreciation expense                -       2,394,294          2,214,501              417,551     (5,026,346)(G)             -
   Franchise fees                      -         563,035            432,494               84,634     (1,080,163)(H)
                                                                                                      1,080,163 (I)      1,080,163
   Management fees                     -               -                  -                    -      1,273,441 (K)      1,273,441
   Rent expense-Apple Suites, Inc.     -               -                  -                    -     12,838,929 (L)     12,838,929
   Other                               -         226,964            349,961                    -       (576,925)(M)             -
                                    ------    -----------      ------------          -----------    -----------       ------------

Total expenses                         -      11,434,273          9,540,067            1,804,341      6,868,307         29,646,988

Income before income tax               -       3,453,396          2,005,623              473,331     (6,868,307)          (935,957)

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

Net income                          $ -      $ 3,453,396        $ 2,005,623           $ 473,331    $(6,868,307)       $   (935,957)
                                    ======   ===========       ============          ==========    ============       ============
</TABLE>




                                       40
<PAGE>

For the nine months ended September 30, 1999 (unaudited)

<TABLE>
<CAPTION>
                                 Historical      Homewood             Homewood            Homewood
                                Statement of      Suites               Suites               Suites          Pro Forma    Total
                                 Operations  Acquisitions (A I)   Acquisitions (A II) Acquisition (A III)  Adjustments Pro Forma
                                 ----------  ------------------   ------------------- -------------------  ----------- ---------
<S>                              <C>          <C>                <C>                  <C>                   <C>        <C>
 Revenues:
   Suite revenue                 $ 961,604    $ 9,818,797        $ 9,885,579          $ 1,673,214             -        $ 22,339,194
   Other income                     59,548        560,096            580,287              126,329             -           1,326,260

Expenses:
   Operating expenses              259,098      3,794,204          3,984,624              715,577             -           8,753,503
   General and administrative       85,676        250,317            245,792               58,035        (99,000)(B)
                                                                                                          37,500 (C)        578,320
   Advertising and promotion        93,237        438,985            475,007               84,677       (855,109)(D)
                                                                                                         855,104 (E)      1,091,901
   Utilities                        26,101        354,113            451,112               56,729             -             888,055
   Taxes and insurance                   -        822,599            529,548               70,413     (1,422,560)(F)            -
   Depreciation expense                  -      1,783,021          1,814,014              320,239     (3,917,274)(G)            -
   Franchise fees                   38,464        392,757            395,423               66,929       (855,109)(H)
                                                                                                         855,104 (I)        893,568
   Management fees                  40,769        311,275            313,854               53,987       (679,115)(J)
   Rent expense-Apple Suites, Inc. 417,306              -                  -                    -      1,000,772 (K)      1,041,542
                                                                                                      10,220,211 (L)     10,637,542
   Other                            15,425              -                  -                    -             -              15,425
                                 ---------     ----------        -----------           ----------    -----------         ----------
Total expenses                     976,076      8,147,271          8,209,374            1,426,586      5,140,524         23,899,831

Income before income tax            45,076      2,231,622          2,256,492              372,957     (5,140,524)          (234,377)

     Income tax expense             18,030              -                  -                    -        (18,030)(N)              -
                                 ---------    -----------        -----------           ----------    -----------         ----------
Net income                       $  27,046    $ 2,231,622        $ 2,256,492           $  372,957    $(5,122,495)        $ (234,378)
                                 =========    ===========        ===========           ==========    ===========         ==========
</TABLE>


                                       41

<PAGE>

Notes to Pro Forma Condensed Consolidated Statements of Operations (unaudited)

(A)     Represents  results of operations for the eleven  Homewood  Suites hotel
        acquisitions  on a pro forma basis as if the hotels acquired were leased
        and operated by the Lessee at the beginning of the periods  presented 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>                             <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
-----------------------------------------------------------------------------------------------------------------------------------
III       Homewood Suites-Jackson, MS                                   February 1997                       December 22, 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 agreement. 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  elimination  of  pre-opening   operating  expenses  not
        incurred by the Lessee.
(N)     Represents  the  reduction of estimated  tax  liability at September 30,
        1999 based on net loss for the proforma period.


                                       42


<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: January 6, 2000                        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": 118488}]
{"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": "502573"}, "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):  December 22, 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                                          6

Item 7.        Financial Statements and Exhibits

         a.    Financial Statements

         Jackson, Mississippi

1.       Property Financial Statements

           Independent Auditors Report                                                      18

           Balance Sheets - December 31, 1998 and December 31, 1997                         19

           Statements of  Shareholders'  Equity - Years ended  December 31, 1997
           and December 31, 1998                                                            21

           Income Statements - Years ended December 31, 1998 and
           December 31, 1997                                                                22

           Statements of Cash Flows - Years ended December 31, 1998 and December
           31, 1997                                                                         23

           Notes to the Financial Statements - December 31, 1998 and
           December 31, 1997                                                                24

                                      * * *

           Balance Sheet - August 31, 1999 (unaudited)                                      27

           Statement of  Shareholders'  Equity - For the Period  January 1, 1999
           through August 31, 1999 (unaudited)                                              29

           Income  Statement - For the Period January 1, 1999 through August 31,
           1999 (unaudited)                                                                 30

           Statement  of Cash  Flows - For the Period  January  1, 1999  through
           August 31, 1999 (unaudited)                                                      31

                                       2
Notes to the  Financial  Statements - For the Period  January 1, 1999
           through August 31, 1999 (unaudited)                                              32

   2.      Pro Forma Financial Statements

           Apple Suites, Inc.--Pro Forma Condensed Consolidated Balance Sheet as
           of September 30, 1999 (unaudited)                                                35

           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)                                 37

           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)                         40
3
b.       Exhibits

                  4.1      Note dated December 22, 1999 in the principal amount
                           of $ 4,384,500 made payable by Apple Suites, Inc. to
                           the order of Promus Hotels, Inc.

                  4.2      Fee and Leasehold Deed of Trust, Assignment of Leases
                           and Rents and Security Agreement dated December 22,
                           1999 from Apple Suites, Inc. and Apple Suites
                           Management, Inc. for the benefit of Promus Hotels,
                           Inc. pertaining to the Jackson, Mississippi hotel.

                  4.3      Fee and Leasehold Deed to Secure Debt, Assignment of
                           Leases and Rents and Security Agreement dated
                           December 22, 1999 from Apple Suites, Inc. and Apple
                           Suites Management, Inc. for the benefit of Promus
                           Hotels, Inc., constituting a second lien on the
                           Atlanta - Peachtree hotel.

                  4.4      Deed to Secure Debt Modification Agreement dated
                           December 22, 1999, among Promus Hotels, Inc., Apple
                           Suites, Inc. and Apple Suites Management, Inc.
                           pertaining to the Atlanta - Galleria/Cumberland
                           hotel.

                  4.5      Fee and Leasehold Mortgage, Assignment of Leases and
                           Rents and Security Agreement dated December 22, 1999
                           from Apple Suites, Inc. and Apple Suites Management,
                           Inc. for the benefit of Promus Hotels, Inc.
                           constituting a second lien on the
                           Detroit - Warren hotel.

                  4.6      Fee and Leasehold Deed of Trust, Assignment of Leases
                           and Rents and Security Agreement and Fixture Filing
                           dated December 22, 1999, from Apple Suites, Inc. and
                           Apple Suites Management, Inc. for the benefit of
                           Promus Hotels, Inc. constituting a second lien on
                           the Salt Lake City - Midvale hotel.

                  4.7      Second  Deed of Trust  Modification  Agreement  dated
                           December 22, 1999,  among Promus Hotels,  Inc., Apple
                           Suites  REIT  Limited  Partnership  and Apple  Suites
                           Services Limited Partnership  pertaining to the North
                           Dallas - Plano hotel.

                  4.8      Second  Deed of Trust  Modification  Agreement  dated
                           December 22, 1999,  among Promus Hotels,  Inc., Apple
                           Suites  REIT  Limited  Partnership  and Apple  Suites
                           Services Limited Partnership pertaining to the Dallas
                           - Addison and Dallas - Irving/Las Colinas hotels.

                  10.1     Indemnity dated December 22, 1999 from Apple Suites,
                           Inc. to Promus Hotels, Inc. pertaining to the
                           Jackson, Mississippi hotel.

                  10.2     Schedules 2.1(h), 3.1(a)-8, and 3.1(b)-8 to the
                           Master Hotel Lease Agreement dated September 20, 1999
                           between Apple Suites, Inc. (as lessor) and
                           Apple Suites Management, Inc. (as lessee).

                                       4
10.3     Homewood Suites License Agreement dated December 22,
                           1999 between Promus Hotels, Inc. and Apple Suites
                           Management, Inc. pertaining to the
                           Jackson, Mississippi hotel.

                  10.4     Management Agreement dated December 22, 1999 between
                           Apple Suites Management, Inc. and Promus Hotels, Inc.
                           pertaining to the Jackson, Mississippi hotel.

                  10.5     Letter dated December 22, 1999 interpreting
                           Management Agreement dated December 22, 1999 among
                           Apple Suites, Inc., Promus Hotels, Inc., Promus
                           Hotels Florida, Inc. and Hampton Inns, Inc.
                           pertaining to the Jackson, Mississippi hotel.

                  10.6     Comfort Letter dated December 22, 1999 among Promus
                           Hotels, Inc., Apple Suites, Inc. and Apple Suites
                           Management, Inc. pertaining to the Jackson,
                           Mississippi hotel.

                  10.7     Negative Pledge Agreements dated December 22, 1999
                           between Apple Suites, Inc. and Promus Hotels, Inc.

                  10.8     Promissory Note dated December 22, 1999 in the amount
                           of $ 45,000 made payable by Apple Suites Management,
                           Inc. to the order of Apple Suites, Inc.
                           (Hotel Franchise Fees)

                  10.9     Promissory Note dated December 22, 1999 in the amount
                           of $ 9,100 made payable by Apple Suites Management,
                           Inc. to the order of Apple Suites, Inc.

                  24       Consent of Independent Auditors

                                       5
Item 2.  Acquisition or Disposition of Assets

         We  purchased  the  Jackson-Ridgeland  (Mississippi)  hotel  (described
below), an existing Homewood Suites(R) property,  from Promus Hotels, Inc. as of
December 22, 1999.  The total purchase  price for the hotel was  $5,846,000.  We
used proceeds from our offering of common shares to pay  twenty-five  percent of
this  total,  or  $1,461,500,  at  closing  in  cash.  The  balance  of 75%,  or
$4,384,500,  is being financed by Promus  Hotels,  Inc. as short-term or "bridge
financing," as described below.

         We paid a real  estate  commission  on this  purchase  to Apple  Suites
Realty Group,  Inc., as our real estate  broker.  This  corporation  is owned by
Glade M. Knight,  who is our president and chief  executive  officer.  The total
amount of the real estate commission was $116,920, which equals two percent (2%)
of the total purchase price.

GENERAL BACKGROUND

         The Jackson-Ridgeland  hotel is an extended-stay hotel, and is licensed
to operate as Homewood Suites(R)  property.  We believe that the majority of the
guests at the hotel during the past 12 months have been business  travelers.  We
expect that this pattern will continue.

         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 living rooms contain a recliner and a  videocassette  player.  The
kitchens vary, but generally have a microwave, refrigerator,  dishwasher, coffee
maker and stove, together with basic cookware and utensils.

         The hotel is 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).

         The  hotel  was  actively  conducting  business  at the  time of  their
acquisition.  We believe that the acquisition was conducted  without  materially
disrupting any of the daily activities at the

                                       6
hotel.  During the past 12 months,  the hotel has been covered with property and
liability insurance,  and we have arranged to continue such coverage. We believe
the hotel is adequately covered by insurance.

SPECIFIC FEATURES

         The  Homewood  Suites(R)  Jackson - Ridgeland is located on a 3.94 acre
site  at  853  Centre  Street,  Ridgeland,   Mississippi  39157.  The  hotel  is
approximately  10 miles from  downtown  Jackson  and 15 miles  from the  Jackson
Municipal Airport.

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

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

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

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

         We believe that the hotel has been  generally  well  maintained  and is
generally  in very good  condition.  Over the next 12  months,  we plan to spend
approximately  $333,000  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 three
nights,  and  approximately  48.2% 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
                        ----         ----          ----

                        63.8%        80.6%         78.2%

                                       7
For January 1, 1999 through  December 28, 1999,  the average daily rate
per suite was $81.98, and the average daily net revenue per suite was $63.92. As
explained  below,  revenue  from  the  hotel's  operations  will  be used to pay
interest due under the promissory note dated December 22, 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  17.55%  of the  hotel's
revenue would be needed to cover its portion of the interest payments.

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

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

      1  to  4                    $92            $92             $149
      5  to 11                     82             82              119
      12 to 28                     74             74              119
      29 or more                   69             69              109

         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 70% of the
hotel's guests received a corporate discount.

         The chief  corporate  accounts (as  designated in the hotel's  records)
include  Fire  Victims,   Entergy,  Copac,  Computer  Task  Group,   Mississippi
Diversified,   Mississippi   Baptist  Health   Systems,   Hydro  Ellay  Enfield,
Saks/McRaes, International Paper and HMA. From January 1, 1999 through August 2,
1999, the 10 biggest corporate accounts were responsible for approximately 24.5%
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
               (annualized)           1998              1999
               ------------           ----              ----

                  $33.32             $50.70            $50.88

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

                                       8
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                         Estimated Value         Taxable Portion              Tax                 Amount
Jurisdiction                (tax purposes)        (15% of Est. Value)            Rate                of Tax
------------                ---------------       -------------------            ----                ------
Madison County                $4,044,310                $606,650               0.09917             $60,161.48
We estimate that the annual  property tax on the expected  improvements
will be approximately $33,000 or less.

         At least six  competing  hotels are located  within  seven miles of the
hotel.  (The  names  of  the  competing  franchises,  as  listed  below,  may be
registered  as service  marks or trade  names.) One of the  competing  hotels is
newer than the hotel.  The newer  competing hotel has a franchise with Townplace
Suites.  The other  competing  hotels have  franchises with Residence Inn, Cabot
Lodge, Courtyard by Marriott, Harvey Hotel and Hilton. We believe that the rates
charged by the hotel are generally  competitive  with the rates charged by these
other hotels. We are aware of ongoing or proposed construction for up to six new
extended-stay hotels within 12 miles of the hotel. We expect these new hotels to
be  franchised  with Comfort Inn,  Hawthorne  Suites,  Jameson Inn,  King Edward
Hotel, Hilton Gardens and Springhill Suites.

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 $9,100.  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 $45,000.  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 Jackson-Ridgeland hotel. This financing is substantially similar to
the  financing  provided by Promus  Hotels,  Inc.  when we  purchased  our other
hotels. The amounts we owe to Promus Hotels, Inc. are evidenced by the following
promissory notes:

                                        9
Original                Remaining
      Date of                      Principal             Principal as of        Annual Rate         Date of
  Promissory Note                    Amount              January 1, 2000        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
December 22, 1999                 $ 4,384,500              $ 4,384,500              8.5%        January 1, 2001
We  consider  the  financing  from  Promus  Hotels,  Inc. to be "bridge
financing"  because of its  short-term  nature  (that is, each  promissory  note
reaches  maturity  within  approximately  one  year of its  date of  execution).
Despite the temporary use of bridge  financing,  over the long-term we will seek
to hold our properties on an all-cash basis, as indicated in the prospectus.

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

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

         Principal  payments under the promissory  note dated as of December 22,
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
under the note dated as of December 22, 1999 will be due in a single installment
on its maturity date.

SOURCE OF PAYMENTS

         Revenue  from the  operation of the hotels will be used to pay interest
under the promissory  notes we have made to Promus Hotels,  Inc. The "net equity
proceeds" from our offering of common shares will be used to pay principal.  The
phrase "net  equity  proceeds"  means the total  proceeds  from our  offering of
common shares, as reduced by selling commissions, a marketing expense allowance,
closing costs,  various fees and charges (legal,  accounting,  and so forth),  a
working capital reserve and a reserve for renovations,  repairs and replacements
of capital improvements. We were permitted, by an October 1999 letter agreement,
to use  our  net  equity  proceeds  to pay  25% of  the  purchase  price  of the
Jackson-Ridgeland  hotel (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,

                                       10
assuming  that  interest  payments  are made on schedule and that 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
January 1, 2001                  $ 4,384,500             $ 31,056.88            $ 4,415,556.88
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 Jackson-Ridgeland  hotel will continue to operate as
Homewood Suites(R)  property.  To help achieve that result,  Promus Hotels, Inc.
has executed a license  agreement  dated as of January 4, 2000.  Promus  Hotels,
Inc. is managing the hotel under a management agreement dated as of December 22,
1999. These license and management  agreements are among the material  contracts
described below.

                          SUMMARY OF MATERIAL CONTRACTS

DEEDS OF TRUST AND RELATED DOCUMENTS

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

         At each  closing  on our  purchase  of a hotel or group of  hotels,  we
further encumbered our other hotels.  Those further  encumbrances are created by
either  additional  deeds of trust or  negative  pledges.  These  documents  are
described below.

         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.

                                       11
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.

         Negative  pledges  apply to three  of our hotels  (Richmond - West End,
Clearwater  and  Baltimore - BWI  Airport).  The negative  pledges  prohibit any
transfer or further  encumbrance of the hotels, in whole or in part, without the
prior written  consent of Promus Hotels,  Inc. Each negative pledge was executed
concurrently  with a particular  promissory  note,  and will  terminate when its
corresponding promissory note is paid in full.

ENVIRONMENTAL INDEMNITY

         An environmental indemnity applies to the Jackson-Ridgeland hotel. This
indemnity  protects  Promus  Hotels,  Inc.  in the event that we  undertake  any
corrective  work to remove or  eliminate  hazardous  materials  from the  hotel.
Hazardous  materials  are  defined in the  indemnity  to include,  for  example,
asbestos and other toxic materials.  We are not aware of any hazardous materials
at the hotel, but there can be no assurance that such materials are not present.

         Under the  indemnity,  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 indemnity  generally will terminate
upon  payment in full under the  promissory  note dated as of December 22, 1999.
However,  our  indemnity  will  continue  with  respect to those  litigation  or
administrative  claims,  if any,  that involve  indemnified  losses and that are
pending at the date of full  payment.  In  addition,  for a period of four years
after the date of such full payment, we will be obligated to pay any enforcement
costs for subsequent litigation or administrative claims.

MASTER HOTEL LEASE AGREEMENT

         We have leased the Jackson-Ridgeland  hotel to Apple Suites Management,
Inc. Our existing master hotel lease agreement,  dated as of September 20, 1999,
has been supplemented to include this hotel as leased properties.

         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 hotel.  The percentage rent is equal to (a) 17%
of all year-to-date suite revenue,

                                       12
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.

         An annual base rent is $462,750 for both 1999 and 2000.  The  quarterly
suite revenue  breakpoints  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

  2000             2001         2002         2003         2004        2005          2006         2007         2008
  ----             ----         ----         ----         ----        ----          ----         ----         ----
$150,394        $155,021     $161,963     $166,590     $171,218     $175,845      $180,473     $185,100     $189,728
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.

HOTEL LICENSE AGREEMENT

         The  Jackson-Ridgeland  hotel is  licensed  to  operate  as a  Homewood
Suites(R)  property.  This license was granted by Promus  Hotels,  Inc. to Apple
Suites Management, Inc. under a license agreement dated as of January 4, 2000.

         The license agreement 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.

         Apple Suites  Management,  Inc. will be subject to various  operational
requirements  pursuant to the license  agreement  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  hotel  under a
management  agreement.  As a practical  matter,  many of the requirements in the
license  agreement 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 agreement will not, of itself,
relieve Apple Suites Management, Inc. from the obligations imposed upon it under
the license  agreement.  In such event,  the remedies  available

                                       13
to Apple Suites  Management,  Inc. may be limited to monetary damages for breach
of the hotel management agreement.

         The  hotel  must  be  operated  in  accordance  with  the  requirements
established by Promus Hotels,  Inc. These requirements cover matters such as the
types of services and products  that may be offered at the hotel,  the style and
type of signage,  the  appearance  and  condition  of the hotel,  the use of the
reservations system for guests,  adherence to a 100% Satisfaction Guarantee rule
of  operation,   required  insurance  coverage  and  other   requirements.   The
requirements are designed to insure that each hotel meets uniform guidelines for
all Homewood Suites(R) Hotels, wherever located.

         Under the license agreement,  Apple Suites Management,  Inc. is granted
the right to use the  Homewood  Suites(R)  System  only  during  the term of the
license  agreement,  and has no other ownership  interest in, or rights to, such
System.  The term of the 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 the
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 the
hotel  will be used to fund  advertising  or  marketing  for the hotel  actually
making the contribution.

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

HOTEL MANAGEMENT AGREEMENT

         The  Jackson-Ridgeland  hotel is being managed by Promus  Hotels,  Inc.
under  a  management  agreement  dated  December  22,  1999  with  Apple  Suites
Management, Inc. (which is leasing the hotel from us, as discussed above).

                                       14
The management  agreement  requires Promus Hotels,  Inc. to operate the
hotel in conformity with the hotel license  agreement  described  above.  Promus
Hotels, Inc. will be responsible for directing the day-to-day  activities of the
hotel and  establishing  policies and procedures  relating to the management and
operation of the hotel.

         As part of its responsibilities for directing the day-to-day activities
of the hotel,  Promus  Hotels,  Inc.  will hire,  supervise  and  determine  the
compensation and terms of employment of all hotel personnel. Promus Hotels, Inc.
also will  determine the terms for  admittance,  room rates and all use of hotel
rooms.  Promus Hotels, Inc. will select and purchase all operating equipment and
supplies  for  the  hotel.  Promus  Hotels,  Inc.  will be  responsible  for (1)
advertising and promoting the hotel in coordination with the requirements of the
license agreement described above; and (2) obtaining and maintaining any permits
and licenses required to operate the hotel.

         Each year, Promus Hotels,  Inc. will submit a proposed operating budget
for the hotel to Apple Suites  Management,  Inc. for its  approval.  Each budget
will include a business plan  describing the business  objectives and strategies
for the hotel for the period covered by the budget. In addition,  Promus Hotels,
Inc. 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 hotel in accordance
with the hotel license agreement.  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,
Inc. 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 hotel,  as reduced by  (1) refunds;
(2)  sales  and  other  similar  taxes;  (3)  proceeds  from  the  sale or other
disposition  of the hotel  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 hotel;
(8) interest on bank accounts;  and (9) gratuities or service charges added to a
customer's bill.

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

         The  management  agreement  has a 15-year term.  However,  Apple Suites
Management,  Inc.  may  terminate  the  management  agreement  after  its  tenth
anniversary.  If  it  does  so,  Promus  Hotels,  Inc.  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

                                       15
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 is  terminated,  Promus
Hotels,  Inc. may terminate the management  agreement.  If Promus  Hotels,  Inc.
terminates  the  management  agreement it will be entitled to a termination  fee
equal  to (a)  $449,143  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 the management  agreement if Promus Hotels, Inc.
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,  Inc. 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  Jackson-Ridgeland  hotel 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 hotel
and the party to the license agreement and management agreement, we have entered
into a "Comfort Letter" with Promus Hotels,  Inc. dated as of December 22, 1999.
The  comfort  letter  grants 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 letter are described below.

         First,  as  long as we are  the  owner  of the  hotel  and the  license
agreement  is in  effect,  Promus  Hotels,  Inc.  has agreed to notify us of any
breach of the 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.

                                       16
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  letter  provides  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.

                                       17
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  balance sheets of the Homewood Suites
Hotel - Jackson as of December 31, 1998 and 1997, and the related  statements of
income,  shareholders'  equity and cash flows for the years  then  ended.  These
financial  statements are the responsibility of the management of the hotel. Our
responsibility  is to express an opinion on these financial  statements based on
our audits.

         We conducted our audits in accordance with generally  accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement.  An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements.  An audit also includes
assessing the  accounting  principles  used and  significant  estimates  made by
management,  as well as evaluating the overall financial statement presentation.
We believe  that our audits  provide a  reasonable  basis for our  opinion.  The
accompanying  financial  statements  were  prepared for the purpose of complying
with the rules and  regulations  of the  Securities  and Exchange  Commission as
described  in Note 1 to the  financial  statements  and are not intended to be a
complete presentation of the Homewood Suites Hotel - Jackson.

         In our opinion,  the  financial  statements  referred to above  present
fairly, in all material respects,  the financial position of the Homewood Suites
Hotel - Jackson  as of  December  31,  1998 and  1997,  and the  results  of its
operations  and its cash  flows  for the years  then  ended in  conformity  with
generally accepted accounting principles.

                                           /s/ L. P. Martin & Co., P. C.

November 7, 1999

                                       18
HOMEWOOD SUITES HOTEL - JACKSON

                                 BALANCE SHEETS

                                     ASSETS

                                                        December 31,
                                                 1998                   1997
CURRENT ASSETS
   Cash                                   $        34,756      $         13,970
   Accounts Receivable, Net                       148,205               104,456
   Prepaids and Other                              25,350                25,350
                                          ---------------       ---------------

           TOTAL CURRENT ASSETS                   208,311               143,776
                                          ---------------       ---------------

INVESTMENT IN HOTEL PROPERTY
   Land and Improvements                          749,969               749,969
   Buildings and Improvements                   5,284,823             5,161,652
   Furniture, Fixtures and Equipment            1,197,181             1,182,151
                                          ---------------       ---------------

           TOTAL                                7,231,973             7,093,772
   Less:  Accumulated Depreciation               (797,849)             (380,298)
                                          ---------------       ---------------

        NET INVESTMENT IN HOTEL PROPERTY        6,434,124             6,713,474
                                          ---------------       ---------------

           TOTAL ASSETS                   $     6,642,435       $     6,857,250
                                          ===============       ===============

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

                                       19
LIABILITIES AND SHAREHOLDERS' EQUITY

                                                        December 31,
                                                 1998                   1997
CURRENT LIABILITIES
   Accounts Payable                       $        98,225       $       144,491
   Accrued Taxes                                   87,475                43,165
   Accrued Expenses - Other                        41,034                39,523
                                          ---------------       ---------------

           TOTAL CURRENT LIABILITIES              226,734               227,179
                                          ---------------       ---------------

SHAREHOLDERS' EQUITY
   Contributed Capital                          6,046,570             6,734,271
   Retained Earnings (Accumulated Deficit)        369,131              (104,200)
                                          ---------------       ---------------

           TOTAL SHAREHOLDERS' EQUITY           6,415,701             6,630,071
                                          ---------------       ---------------

           TOTAL LIABILITIES AND
            SHAREHOLDERS' EQUITY          $     6,642,435       $     6,857,250
                                          ===============       ===============

                                       20
HOMEWOOD SUITES HOTEL - JACKSON

                       STATEMENTS OF SHAREHOLDERS' EQUITY
Retained
                                                                  Earnings               Total
                                          Contributed           (Accumulated          Shareholders'
                                             Capital              Deficit)               Equity
Balances, January 1, 1997                 $     4,638,129       $       (70,003)      $     4,568,126

Net Loss                                                -               (34,197)              (34,197)

Capital Contributions, Net                      2,096,142                     -             2,096,142
                                          ---------------       ---------------       ---------------

Balances, December 31, 1997                     6,734,271              (104,200)            6,630,071

Net Income                                              -               473,331               473,331

Capital Distributions, Net                       (687,701)                    -              (687,701)
                                          ---------------       ---------------       ---------------

Balances, December 31, 1998               $     6,046,570       $       369,131       $     6,415,701
                                          ===============       ===============       ===============
The accompanying notes are an integral part of these financial statements.

                                       21
HOMEWOOD SUITES HOTEL - JACKSON

                                INCOME STATEMENTS

                                                    Years Ended December 31,
                                                  1998                  1997

GROSS OPERATING REVENUE
   Suite Revenue                          $     2,115,861       $     1,390,347
   Other Customer Revenue                         161,811               130,494
                                          ---------------       ---------------

           TOTAL REVENUE                        2,277,672             1,520,841
                                          ---------------       ---------------

EXPENSES
   Property and Operating                         927,878               700,874
   General and Administrative                      69,009                56,870
   Advertising and Promotion                      128,067                87,703
   Utilities                                       87,815                73,585
   Real Estate and Personal Property Taxes,
     and Property Insurance                        89,387                43,959
   Depreciation Expense                           417,551               380,298
   Franchise Fees                                  84,634                     -
   Pre-Opening Expenses                                 -               211,749
                                          ---------------       ---------------

           TOTAL EXPENSES                       1,804,341             1,555,038
                                          ---------------       ---------------

           NET INCOME (LOSS)              $       473,331       $       (34,197)
                                          ===============       ===============

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

                                       22
HOMEWOOD SUITES HOTEL - JACKSON

                            STATEMENTS OF CASH FLOWS

                                                  Years Ended December 31,
                                                  1998                  1997
CASH FLOWS FROM (TO) OPERATING ACTIVITIES
   Net Income (Loss)                      $       473,331       $       (34,197)
                                          ---------------       ---------------
   Adjustments to Reconcile Net Income
     (Loss) to Net Cash Provided by
      Operating Activities:
       Depreciation                               417,551               380,298
       Change In:
         Accounts Receivable                      (43,749)             (104,456)
         Prepaids and Other Current Assets              -               (25,350)
         Accounts Payable                         (46,266)                7,278
         Accrued Taxes                             44,310                42,292
         Accrued Expenses - Other                   1,511                36,532
                                          ---------------       ---------------
   Net Adjustments                                373,357               336,594
                                          ---------------       ---------------

           NET CASH FLOWS FROM OPERATING
             ACTIVITIES                           846,688               302,397

CASH FLOWS TO FINANCING ACTIVITIES
     Capital Distributions, Net                  (825,902)             (290,927)
                                          ---------------       ---------------

           NET INCREASE  IN CASH                   20,786                11,470

           CASH, BEGINNING OF YEAR                 13,970                 2,500
                                          ---------------       ---------------

           CASH, END OF YEAR              $        34,756       $        13,970
                                          ===============       ===============

SUPPLEMENTAL DISCLOSURES:
   NONCASH FINANCING AND INVESTING ACTIVITIES
     YEAR ENDED DECEMBER 31, 1998
       Investments  in hotel  properties in the amount of $138,201 were financed
       with capital contributions.

     YEAR ENDED DECEMBER 31, 1997
       Investments  in  hotel  properties  in the  amount  of  $7,093,772,  were
       financed with capital contributions.

       Construction in progress in the amount of $5,186,984 was  reclassified to
       investment in hotel properties.

       Accounts payable for construction  costs totaling  $480,281 was curtailed
       with capital contributions.

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

                                       23
HOMEWOOD SUITES HOTEL - JACKSON

                        NOTES TO THE FINANCIAL STATEMENTS

                           DECEMBER 31, 1998 AND 1997

NOTE 1 - ORGANIZATION AND BASIS OF PRESENTATION

The Homewood  Suites Hotel - Jackson is a 91 suite hotel,  located in Ridgeland,
Mississippi,  which  opened  for  business  on  February  20,  1997.  The  Hotel
specializes in providing extended stay lodging to business or leisure travelers.
While customers may rent rooms for a night, terms of up to a month or longer are
available.  Services offered, which are particularly  attractive to the extended
stay traveler,  include laundry services, 24 hour on-site convenience stores and
grocery shopping services.

Economic  conditions in the area in which the Hotel is located  impact  revenues
and the ability to collect accounts receivable.

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

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

NOTE 2 - SIGNIFICANT ACCOUNTING POLCIIES

Property  - The  hotel  property  is  recorded  at cost.  Depreciation  has been
recorded straight-line using the following lives:

                                                              Life
   Land Improvements                                      10-15 Years
   Buildings and Improvements                             15-35 Years
   Furniture, Fixtures and Equipment                       3-10 Years

(Continued)

                                       24
HOMEWOOD SUITES HOTEL - JACKSON

                        NOTES TO THE FINANCIAL STATEMENTS

                           DECEMBER 31, 1998 AND 1997

NOTE 2- SIGNIFICANT ACCOUNTING POLICIES, Continued

Major renewals,  betterments and  improvements  are  capitalized,  while ongoing
maintenance  and  repairs are  expensed  as  incurred.  Building  costs  include
interest  capitalized during the construction  period.  Construction in progress
represents  Hotel  assets  under  construction.  At the  point  construction  is
completed  and the  Hotel  is ready to be  placed  in  service,  the  costs  are
reclassified   to   investment  in  Hotel   property  for  financial   statement
presentation.  Construction in progress totaling  $5,186,984 was reclassified to
investment in hotel property during 1997.

Estimates - The preparation of financial statements in accordance with generally
accepted  accounting  principals  requires  management  to  make  estimates  and
assumptions  that affect the reported amounts of assets,  liabilities,  revenues
and expenses and disclosures  related thereto.  Actual results could differ from
those estimates.

Annually,  management  of the hotel  reviews the  carrying  value and  remaining
depreciable lives of the Hotel property and related assets.  Management does not
believe there are any current indications of impairment. However, it is possible
that estimates of the remaining useful lives will change in the near term.

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 Hotel. In 1997, pre-opening expenses of
$211,749, were expensed as incurred.

(Continued)

                                       25
HOMEWOOD SUITES HOTEL - JACKSON

                        NOTES TO THE FINANCIAL STATEMENTS

                           DECEMBER 31, 1998 AND 1997

NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES, Continued

Inventories  - The  Hotel  maintains  supplies  of  room  linens  and  food  and
beverages.  However,  due to the ongoing routine  replacement of these items and
the difficulty in establishing  market values,  management has chosen to expense
these items at point of purchase.

NOTE 3 - RELATED PARTY TRANSACTIONS

The Owner allocates a monthly  accounting fee of $1,000 to the Hotel. These fees
totaled  $12,000 in 1998 and $10,338 in 1997. The Owner also charges the Hotel a
fee for corporate  advertising,  training and reservations equal to four percent
of net suite revenue. These fees totaled $84,634 in 1998 and $53,614 in 1997. In
1998,  the Owner charged a franchise fee of $84,634 to the Hotel,  also computed
at four  percent  of  suite  revenue.  No  franchise  fee was  charged  in 1997.
Effective in 1999, the Owner will be charging a "base  management  fee" of three
percent of suite revenue to the hotel.

The acquisition  cost of the property and related  furnishings and equipment was
financed by the Owner.  The Owner  allocated  interest to the property on monies
advanced  to  fund  the  construction   costs.  The  interest  costs  have  been
capitalized and  depreciated in accordance with the Hotel's normal  depreciation
policy. Interest capitalized and included in the cost basis of the Hotel totaled
$235,723 in 1997.

On most  property and equipment  purchases,  excluding  base hotel  construction
contracts, the following fees paid to Promus Hotels, Inc. have been capitalized:

           Purchase Fee  - 4% of Asset Cost
           Project  Management  Fee  -  4.5%  and  5.5.%  of  labor  portion  of
             capitalized asset costs in 1998 and 1997, respectively.

The Hotel maintains a depository bank account into which customer  revenues have
been deposited.  The bulk of the Hotel's operating expenditures are paid through
the  Owner's  corporate  accounts.   Funds  are  transferred  from  the  Hotel's
depository bank accounts to the Owner  periodically.  The transfers to the Owner
and  expenditures  made on behalf of the  Hotel by the Owner are  accounted  for
through  various  intercompany  accounts.  No interest has been charged on these
intercompany  advances from ongoing  operations.  There is no intention to repay
any  advances  to or from the  Owner.  Accordingly,  the net  amounts  have been
included in  shareholders'  equity with 1998 and 1997  intercompany/intracompany
transfers being reflected as net capital contributions or distributions.

                                       26
HOMEWOOD SUITES HOTEL - JACKSON

                            BALANCE SHEET (unaudited)

                                 AUGUST 31, 1999

                                     ASSETS

CURRENT ASSETS
   Cash                                                          $       43,476
   Accounts Receivable, Net                                             227,188
   Prepaids and Other                                                    25,350
                                                                ---------------

           TOTAL CURRENT ASSETS                                         296,014
                                                                ---------------
INVESTMENT IN HOTEL PROPERTY
   Land and Improvements                                                754,803
   Buildings and Improvements                                         5,278,927
   Furniture, Fixtures and Equipment                                  1,197,295
                                                                ---------------

           TOTAL                                                      7,231,025
   Less:  Accumulated Depreciation                                   (1,082,506)
                                                                ---------------
           NET INVESTMENT IN HOTEL PROPERTY                           6,148,519
                                                                ---------------
           TOTAL ASSETS                                         $     6,444,533
                                                                ===============

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

                                       27
LIABILITIES AND SHAREHOLDERS' EQUITY

CURRENT LIABILITIES
   Accounts Payable                                             $         1,626
   Accrued Taxes                                                         69,100
   Accrued Expenses - Other                                              47,842
                                                                ---------------

           TOTAL CURRENT LIABILITIES                                    118,568
                                                                ---------------
SHAREHOLDERS' EQUITY
   Contributed Capital                                                5,625,316
   Retained Earnings                                                    700,649
                                                                ---------------
           TOTAL SHAREHOLDERS' EQUITY                                 6,325,965
                                                                ---------------

           TOTAL LIABILITIES AND SHAREHOLDERS'
             EQUITY                                             $     6,444,533
                                                                ===============

                                       28
HOMEWOOD SUITES HOTEL - JACKSON

                  STATEMENT OF SHAREHOLDERS' EQUITY (UNAUDITED)

             FOR THE PERIOD JANUARY 1, 1999 THROUGH AUGUST 31, 1999
Total
                                                   Contributed               Retained          Shareholders'
                                                       Capital               Earnings              Equity
Balances, January 1, 1999                          $     6,046,570       $       369,131       $     6,415,701

Net Income                                                       -               331,518               331,518

Capital Distributions, Net                                (421,254)                    -              (421,254)
                                                   ---------------       ---------------       ---------------

Balances, August 31, 1999                          $     5,625,316       $       700,649       $     6,325,965
                                                   ===============       ===============       ===============
The accompanying notes are an integral part of this financial statement.

                                       29
HOMEWOOD SUITES HOTEL - JACKSON

                          INCOME STATEMENT (UNAUDITED)

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

GROSS OPERATING REVENUE
   Suite Revenue                                                $     1,487,301
   Other Customer Revenue                                               112,292
                                                                ---------------

           TOTAL REVENUE                                              1,599,593
                                                                ---------------
EXPENSES
   Property and Operating                                               636,068
   General and Administrative                                            51,587
   Advertising and Promotion                                             75,268
   Utilities                                                             50,426
   Real Estate and Personal Property Taxes,
     and Property Insurance                                              62,589
   Depreciation Expense                                                 284,657
   Franchise and Management Fees                                        107,480
                                                                ---------------

           TOTAL EXPENSES                                             1,268,075
                                                                ---------------
           NET INCOME                                           $       331,518
                                                                ===============

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

                                       30
HOMEWOOD SUITES HOTEL - JACKSON

                       STATEMENT OF CASH FLOWS (UNAUDITED)

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

CASH FLOWS FROM (TO) OPERATING ACTIVITIES
   Net Income                                          $       331,518
                                                       ---------------
   Adjustments to Reconcile Net Income to Net Cash
     Provided by Operating Activities:
       Depreciation                                            284,657
       Change in:
         Accounts Receivable                                   (78,983)
         Accounts Payable                                      (96,599)
         Accrued Taxes                                         (18,375)
         Accrued Expenses - Other                                6,808
                                                       ---------------

   Net Adjustments                                              97,508
                                                       ---------------
           NET CASH FLOWS FROM OPERATING
             ACTIVITIES                                        429,026

CASH FLOWS FROM INVESTING ACTIVITIES
   Net Disposal of Investment in Hotel Property                    948

CASH FLOWS TO FINANCING ACTIVITIES
   Net Equity Distributions                                   (421,254)
                                                       ---------------
           NET INCREASE IN CASH                                  8,720

           CASH, JANUARY 1, 1999                                34,756
                                                       ---------------

           CASH, AUGUST 31, 1999                       $        43,476
                                                       ===============

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

                                       31
HOMEWOOD SUITES HOTEL - JACKSON

                  NOTES TO THE FINANCIAL STATEMENTS (UNAUDITED)

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

NOTE 1 - ORGANIZATION AND BASIS OF PRESENTATION

The Homewood  Suites Hotel - Jackson is a 91 suite hotel,  located in Ridgeland,
Mississippi,  which opened in February, 1997. The Hotel specializes in providing
extended stay lodging to business or leisure travelers. While customers may rent
rooms for a night,  terms of up to a month or  longer  are  available.  Services
offered,  which are  particularly  attractive  to the  extended  stay  traveler,
include  laundry  services,  24 hour  on-site  convenience  stores  and  grocery
shopping services.

Economic  conditions in the area in which the Hotel is located  impact  revenues
and the ability to collect accounts receivable.

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

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

NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES

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

                                                         Life
   Land Improvements                                  10-15 Years
   Buildings and Improvements                         15-35 Years
   Furniture, Fixtures and Equipment                   3-10 Years

(Continued)

                                       32
HOMEWOOD SUITES HOTEL - JACKSON

                  NOTES TO THE FINANCIAL STATEMENTS (UNAUDITED)

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

NOTE 2- SIGNIFICANT ACCOUNTING POLICIES, Continued

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  principals  requires  management  to  make  estimates  and
assumptions  that affect the reported amounts of assets,  liabilities,  revenues
and expenses and disclosures  related thereto.  Actual results could differ from
those estimates.

Annually,  management  of the Hotel  reviews the  carrying  value and  remaining
depreciable lives of the Hotel property and related assets.  Management does not
believe there are any current indications of impairment. However, it is possible
that estimates of the remaining useful lives will change in the near term.

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.

Inventories - The   Hotel  maintains  supplies  of  room  linens  and  food  and
beverages.  However,  due to the ongoing routine  replacement of these items and
the difficulty in establishing  market values,  management has chosen to expense
these items at point of purchase.

 (Continued)

                                       33
HOMEWOOD SUITES HOTEL - JACKSON

                  NOTES TO THE FINANCIAL STATEMENTS (UNAUDITED)

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

NOTE 3 - RELATED PARTY TRANSACTIONS

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

       Fee Type                      Basis for Determination       Total Expense

Accounting Fees                      $1,000 per month              $       8,000
Corporate Advertising, Training
   and Reservations                  4% of net suite revenue              59,492
Franchise Fees                       4% of net suite revenue              59,492
Management Fees                      3% of net suite revenue              47,988

The acquisition  cost of the property and related  furnishings and equipment was
financed by the Owner.  The Owner  allocated  interest to the property on monies
advanced  to  fund  the  construction   costs.  The  interest  costs  have  been
capitalized and  depreciated in accordance with the Hotel's normal  depreciation
policy.

On most  property and equipment  purchases,  excluding  base hotel  construction
contracts, the following fees paid to Promus Hotels, Inc. have been capitalized:

           Purchase Fee  - 4% of Asset Cost
           Project Management Fee - 4.5% of labor portion of capitalized
           asset costs

The Hotel maintains a depository bank account into which customer  revenues have
been deposited.  The bulk of the Hotel's operating expenditures are paid through
the  Owner's  corporate  accounts.   Funds  are  transferred  from  the  Hotel's
depository bank accounts to the Owner  periodically.  The transfers to the Owner
and  expenditures  made on behalf of the  Hotel by the Owner are  accounted  for
through  various  intercompany  accounts.  No interest has been charged on these
intercompany  advances from ongoing  operations.  There is no intention to repay
any  advances  to or from the  Owner.  Accordingly,  the net  amounts  have been
included in shareholders' equity with intercompany/intracompany  transfers being
reflected as net capital distributions.

                                       34
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 seven
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           Homewood
                                                                      Historical        Suites             Suites
                                                                       Balance      Acquisition (AII)  Acquisition (AIII)    Total
                                                                        Sheet          Adjustments        Adjustments       Proforma
                                                                     --------------------------------------------------------------
ASSETS

Investment in hotel properties                                      $ 36,292,592   $ 51,081,600 (A)   $  5,962,920(A)   $ 93,337,112
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       $  5,962,920      $ 94,109,153
                                                                    ================================================================

LIABILITIES and SHAREHOLDERS' EQUITY

Liabilities
Notes payable                                                       $ 26,625,000   $ 37,560,000 (B)   $  4,384,500 (B)  $ 68,569,500
Accounts payable                                                           8,303             --                 --             8,303
Accrued expenses                                                         664,082             --                 --           664,082
                                                                    ----------------------------------------------------------------

Total Liabilities                                                     27,297,385     37,560,000          4,384,500        69,241,885

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)      1,578,420 (C)    24,804,560

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          1,578,420        24,867,268
                                                                    ----------------------------------------------------------------

Total Liabilities and Shareholders' Equity                          $ 47,989,419   $ 40,156,814       $  5,962,920      $ 94,109,153
                                                                    ================================================================
35
Notes to Pro Forma Condensed Consolidated Balance Sheet (unaudited)

(A)  Increase represents the purchase of 7 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
------------------------------------------------------------------------------------------------------------------------------------
II        Homewood Suites-Atlanta, GA          1990         October 1, 1999     $ 9,800,000   $   196,000   $ 9,996,000  $ 7,350,000
II        Homewood Suites-Clearwater, FL   February 1998   November 24, 1999     10,416,000       208,320    10,624,320    7,812,000
II        Homewood Suites-Salt Lake, UT        1996        November 24, 1999      5,153,000       103,060     5,256,060    3,864,750
II        Homewood Suites-Atlanta, GA          1990        November 24, 1999      4,033,000        80,660     4,113,660    3,024,750
II        Homewood Suites-Detroit, MI          1990        November 24, 1999      4,330,000        86,600     4,416,600    3,247,500
II        Homewood Suites-Baltimore, MD      March 1998    November 24, 1999     16,348,000       326,960    16,674,960   12,261,000
III       Homewood Suites-Jackson, MS      February 1997   December 22, 1999      5,846,000       116,920     5,962,920    4,384,500
                                                                                ----------------------------------------------------

                    Total                                                       $55,926,000   $ 1,118,520   $57,044,520  $41,944,500
(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,the  maturity  date  for the  note in the  amount  of
     $30,210,000  is December 1, 2000 and the  maturity  date of the note in the
     amount of  $4,384,500  is January 1, 2001.  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.

                                       36
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 eleven  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 lease  agreements  between the Company and the Lessee were based on economic
conditions  existing at the time of acquisition.  Applicaton of these agreements
to periods prior to the acquisition may not be meaningful.  The most significant
assumption  which may not be  indicative  of future  operations is the amount of
financial  leverage  employed.  These Pro  Forma  statements  assume  75% of the
purchase  price was  funded  with debt for the  entire  periods  presented.  The
Company  intends to repay this debt with the  proceeds  from its "best  efforts"
offering.  This repayment of debt would result in lower interest expense, higher
net income, but lower earnings per share.

For the twelve months ended December 31, 1998 (unaudited)
Pro forma
                                                                 Adjustments
                                        Historical         Homewood          Homewood             Homewood
                                       Statement of         Suites            Suites               Suites               Total
                                        Operations    Acquisition (A I)   Acquisition (A II)  Acquisition (A III)     Pro Forma
                                        ----------    -----------------   ------------------ -------------------     ---------
Revenue:
   Percentage lease revenue               $ --      $6,526,922 (B)      $5,241,307 (B)         $1,070,700 (B)     $12,838,929
   Interest income and other income         --              --                  --                     --                  --

Expenses:
   Taxes and insurance                      --       1,040,638 (C)         432,979 (C)             89,387 (C)       1,563,004
   General and administrative               --          90,175 (D)          86,477 (D)             65,659 (D)         242,311
   Depreciation                             --       1,256,071 (E)       1,155,328 (E)            199,487 (E)       2,610,686
   Interest expense                         --       2,688,125 (F)       2,338,818 (F)            372,683 (F)       5,399,626
                                         --------   -----------         -----------            ----------         -----------
Total expenses                              --       5,075,009           4,013,602                727,216           9,815,827
                                         --------   -----------         -----------            ----------         -----------
Net income                                $ --      $1,451,913          $1,227,705             $  343,484         $ 3,023,102
                                         ========   ===========         ===========            ==========         ===========
Earnings per common share:
   Basic and Diluted                      $ --                                                                    $      1.11
                                         ========                                                                 ===========

Basic and diluted weighted average
   common shares outstanding                --       1,412,531 (G)       1,132,040 (G)            176,360 (G)       2,720,931
                                         ========                                                                 ============
37
For the nine months ended September 30, 1999 (unaudited)
Pro forma
                                                                       Adjustments
                                                Historical     Homewood            Homewood          Homewood
                                               Statement of     Suites              Suites            Suites               Total
                                                Operations   Acquisition (A I)  Acquisition (A II) Acquisition (A III)    Pro Forma
                                                ----------   -----------------  -----------------  -------------------    ---------
Revenue:
Percentage lease revenue                    $ 417,306   $4,510,833(B)        $4,853,958(B)       $855,420(B)        $10,637,517
   Interest income and other income               64,370         -                       -                 -                64,370

Expenses:
   Taxes and insurance                            79,729      822,599(C)           529,548(C)         70,413(C)          1,502,289
   General and administrative                     36,028       67,221(D)            66,676(D)         49,244(D)            219,169
   Depreciation                                   97,510      931,211(E)           953,304(E)        149,615(E)          2,131,640
   Interest expense                              229,701    1,977,313(F)         1,925,888(F)        279,512(F)          4,412,414
                                                 -------   ----------           ----------          --------           -----------

Total expenses                                   442,968    3,798,344            3,475,416           548,784             8,265,511

Net income                                     $  38,708   $  712,490           $1,378,542          $306,636           $ 2,436,376
                                              ==========   ==========           ==========          ========           ===========

Earnings per common share:
   Basic and Diluted                           $    0.02                                                               $      0.83
                                              ==========   ==========           ==========          ========           ===========
Basic and diluted weighted average
   common shares outstanding                   2,286,052         -   (G)           461,427(G)        176,360(G)          2,923,838
                                              ==========   ==========           ==========          ========           ===========
38
Notes to Pro Forma Condensed Consolidated Statements of Operations (unaudited)

(A)  Represents  results of operations  for the eleven hotels  acquired on a pro
     forma  basis as if the  eleven  hotels  were  owned by the  Company  at the
     beginning of the 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
--------------------------------------------------------------------------------
III          Homewood Suites-Jackson, MS     February 1997     December 22, 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
     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.
(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 eleven hotels  acquired  based on the
     purchase price, excluding amounts allocated to land, of $37,450,320 for the
     first acquisition,  $34,954,481 for the second acquisition,  and $5,485,886
     for the third acquisition, 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 eleven hotel  acquisitions for the
     period in which the hotels were not owned.  Interest was computed using the
     interest  rates  of 8.5% on  mortgage  debt of  $33,975,000  for the  first
     acquisition,  $30,210,000 for the second acquisition and $4,384,500 for the
     third acquisition that was incurred at acquisition.
(G)  Represents  additional  common shares assuming the properties were acquired
     at the  beginning of the periods  presented  with the net proceeds from the
     "best efforts" offering of $9 per share (net $8.06 per share) for the first
     $15,000,000  in  proceeds  and $10 per share  (net $8.95 per share) for the
     remainder.

                                       39
APPLE SUITES MANAGEMENT, INC.
PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED  DECEMBER  31, 1998 AND THE NINE MONTHS ENDED  SEPTEMBER  30,
1999 (unaudited)

The  following  unaudited  Pro  Forma  Condensed   Consolidated   Statements  of
Operations of Apple Suites  Management,  Inc. (the "Lessee") are presented as if
the eleven 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.  The lease  agreements  between the Company and the
Lessee were based on economic conditions existing at the time of of acquisition.
Application of these  agreements to periods prior to the  acquisition may not be
meaningful.  Such pro forma  information is based in part upon the  Consolidated
Statements of Operations of the Lessee and 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 (unaudited)
Historical    Homewood             Homewood            Homewood
                                 Statement of    Suites               Suites              Suites         Pro Forma       Total
                                 Operations   Acquisitions(A I)  Acquisitions(A II)  Acquisition(A III) Adjustments    Pro Forma
                                 ----------   -----------------  ------------------  ------------------ -----------    ---------
Revenues:
   Suite revenue                     $ -    $ 14,075,852       $ 10,812,372          $ 2,115,861            -         $ 27,004,085
   Other income                        -         811,817            733,318              161,811            -            1,706,946

Expenses:
   Operating expenses                  -       5,586,712          4,748,240              927,878            -           11,262,830
   General and administrative          -         348,088            315,165               69,009       (124,000)(B)
                                                                                                         50,000 (C)        658,262
   Advertising and promotion           -         648,273            502,899              128,067     (1,083,952)(D)
                                                                                                      1,080,163 (E)      1,275,450
   Utilities                           -         626,269            543,828               87,815            -            1,257,912
   Taxes and insurance                 -       1,040,638            432,979               89,387     (1,563,004)(F)             -
   Depreciation expense                -       2,394,294          2,214,501              417,551     (5,026,346)(G)             -
   Franchise fees                      -         563,035            432,494               84,634     (1,080,163)(H)
                                                                                                      1,080,163 (I)      1,080,163
   Management fees                     -               -                  -                    -      1,273,441 (K)      1,273,441
   Rent expense-Apple Suites, Inc.     -               -                  -                    -     12,838,929 (L)     12,838,929
   Other                               -         226,964            349,961                    -       (576,925)(M)             -
                                    ------    -----------      ------------          -----------    -----------       ------------

Total expenses                         -      11,434,273          9,540,067            1,804,341      6,868,307         29,646,988

Income before income tax               -       3,453,396          2,005,623              473,331     (6,868,307)          (935,957)

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

Net income                          $ -      $ 3,453,396        $ 2,005,623           $ 473,331    $(6,868,307)       $   (935,957)
                                    ======   ===========       ============          ==========    ============       ============
40
For the nine months ended September 30, 1999 (unaudited)
Historical      Homewood             Homewood            Homewood
                                Statement of      Suites               Suites               Suites          Pro Forma    Total
                                 Operations  Acquisitions (A I)   Acquisitions (A II) Acquisition (A III)  Adjustments Pro Forma
                                 ----------  ------------------   ------------------- -------------------  ----------- ---------
Revenues:
   Suite revenue                 $ 961,604    $ 9,818,797        $ 9,885,579          $ 1,673,214             -        $ 22,339,194
   Other income                     59,548        560,096            580,287              126,329             -           1,326,260

Expenses:
   Operating expenses              259,098      3,794,204          3,984,624              715,577             -           8,753,503
   General and administrative       85,676        250,317            245,792               58,035        (99,000)(B)
                                                                                                          37,500 (C)        578,320
   Advertising and promotion        93,237        438,985            475,007               84,677       (855,109)(D)
                                                                                                         855,104 (E)      1,091,901
   Utilities                        26,101        354,113            451,112               56,729             -             888,055
   Taxes and insurance                   -        822,599            529,548               70,413     (1,422,560)(F)            -
   Depreciation expense                  -      1,783,021          1,814,014              320,239     (3,917,274)(G)            -
   Franchise fees                   38,464        392,757            395,423               66,929       (855,109)(H)
                                                                                                         855,104 (I)        893,568
   Management fees                  40,769        311,275            313,854               53,987       (679,115)(J)
   Rent expense-Apple Suites, Inc. 417,306              -                  -                    -      1,000,772 (K)      1,041,542
                                                                                                      10,220,211 (L)     10,637,542
   Other                            15,425              -                  -                    -             -              15,425
                                 ---------     ----------        -----------           ----------    -----------         ----------
Total expenses                     976,076      8,147,271          8,209,374            1,426,586      5,140,524         23,899,831

Income before income tax            45,076      2,231,622          2,256,492              372,957     (5,140,524)          (234,377)

     Income tax expense             18,030              -                  -                    -        (18,030)(N)              -
                                 ---------    -----------        -----------           ----------    -----------         ----------
Net income                       $  27,046    $ 2,231,622        $ 2,256,492           $  372,957    $(5,122,495)        $ (234,378)
                                 =========    ===========        ===========           ==========    ===========         ==========
41
Notes to Pro Forma Condensed Consolidated Statements of Operations (unaudited)

(A)     Represents  results of operations for the eleven  Homewood  Suites hotel
        acquisitions  on a pro forma basis as if the hotels acquired were leased
        and operated by the Lessee at the beginning of the periods  presented 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
-----------------------------------------------------------------------------------------------------------------------------------
III       Homewood Suites-Jackson, MS                                   February 1997                       December 22, 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 agreement. 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  elimination  of  pre-opening   operating  expenses  not
        incurred by the Lessee.
(N)     Represents  the  reduction of estimated  tax  liability at September 30,
        1999 based on net loss for the proforma period.

                                       42
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: January 6, 2000                        By:      /s/ Glade M. Knight
                                                 ----------------------------
                                                 Glade M. Knight,
                                                 Chief Executive Officer of
                                                 Apple Suites, Inc.