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): September 20, 1999


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


    VIRGINIA                       333-77055                    54-1938865
   (State of                      (Commission                  (IRS Employer
 incorporation                    File Number)               Identification No.)


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


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


<PAGE>
                               APPLE SUITES, INC.

                                    FORM 8-K

                                      Index

<TABLE>
<CAPTION>

                                                                                     PAGE
                                                                                     -----
<S>                                                                                 <C>

Item 2.        Acquisition or Disposition of Assets                                     1

Item 7.        Financial Statements and Exhibits

         a.    Financial Statements

         Atlanta - Galleria/Cumberland; Dallas - Addison; Dallas - Irving/
         Las Colinas; North Dallas - Plano; Richmond - West End

           Independent Auditors Report                                                 29

           Combined Balance Sheets - December 31, 1998 and December 31, 1997           30

           Combined  Statements of  Shareholders'  Equity - Years ended December       32
           31, 1997 and December 31, 1998

           Combined Income Statements - Years ended December 31, 1998 and              33
           December 31, 1997

           Combined Statements of Cash Flows - Years ended December 31, 1998 and       34
           December 31, 1997

           Notes to the Combined Financial Statements - December 31, 1998 and          35
           December 31, 1997

                                      * * *

           Combined Balance Sheet - June 30, 1999 (unaudited)                          39

           Combined  Statement of Shareholders'  Equity - For the Period January       41
           1, 1999 through June 30, 1999 (unaudited)

           Combined  Income  Statement - For the Period  January 1, 1999 through       42
           June 30, 1999 (unaudited)

           Combined  Statement  of Cash Flows - For the  Period  January 1, 1999       43
           through June 30, 1999 (unaudited)

           Notes to the Combined  Financial  Statements - For the Period January       44
           1, 1999 through June 30, 1999 (unaudited)

                                      * * *

           Apple Suites, Inc. -  Pro Forma Condensed  Consolidated Balance Sheet       48
           as of June 30, 1999 (unaudited)

           Apple  Suites, Inc. - Pro Form  Condensed  Consolidated  Statement of       50
           Operations  for the Year Ended  December 31,  1998 and the Six Months
           Ended June 30, 1999 (unaudited)

           Apple  Suites  Management, Inc.  - Pro Forma  Condensed  Consolidated       53
           Statement of Operations for the Year Ended  December 31, 1998 and the
           Six Months Ended June 30, 1999 (unaudited)

</TABLE>

                                       (i)



<PAGE>


b.       Exhibits

                  4.1      Note dated September 20, 1999 in the principal amount
                           of $ 26,625,000 made payable by Apple Suites, Inc. to
                           the order of Promus Hotels, Inc.

                  4.2      Fee and Leasehold Deed of Trust, Assignment of Lease
                           and Rents and Security Agreement dated September 20,
                           1999 from Apple Suites, Inc. and Apple Suites
                           Management, Inc. for the benefit of Promus Hotels,
                           Inc. pertaining to the Richmond-West End hotel.

                  4.3      Fee and Leasehold Deed of Trust, Assignment of Leases
                           and Rents and Security  Agreement dated September 20,
                           1999 from Apple Suites REIT Limited  Partnership  and
                           Apple Suites  Services  Limited  Partnership  for the
                           benefit  of Promus  Hotels,  Inc.  pertaining  to the
                           Dallas-Addison hotel.

                  4.4      Fee and Leasehold Deed of Trust, Assignment of Leases
                           and Rents and Security  Agreement dated September 20,
                           1999 from Apple Suites REIT Limited  Partnership  and
                           Apple Suites  Services  Limited  Partnership  for the
                           benefit  of Promus  Hotels,  Inc.  pertaining  to the
                           Dallas-Irving/Las Colinas hotel.

                  4.5      Fee and Leasehold Deed of Trust, Assignment of Leases
                           and Rents and Security  Agreement dated September 20,
                           1999 from Apple Suites REIT Limited  Partnership  and
                           Apple Suites  Services  Limited  Partnership  for the
                           benefit  of Promus  Hotels,  Inc.  pertaining  to the
                           North Dallas-Plano hotel.

                  10.1     Indemnity dated September 20, 1999 from Apple Suites,
                           Inc. to Promus Hotels, Inc. pertaining to the
                           Richmond-West End hotel.

                  10.2     Indemnity dated September 20, 1999 from Apple Suites,
                           Inc. to Promus Hotels, Inc. pertaining to the
                           Dallas-Addison hotel.

                  10.3     Indemnity dated September 20, 1999 from Apple Suites,
                           Inc. to Promus Hotels, Inc. pertaining to the
                           Dallas-Irving/Las Colinas hotel.

                  10.4     Indemnity dated September 20, 1999 from Apple Suites,
                           Inc. to Promus Hotels, Inc. pertaining to the to the
                           North Dallas-Plano hotel.

                  10.5     Master Hotel Lease Agreement dated September 20, 1999
                           between Apple Suites, Inc. (as lessor) and Apple
                           Suites Management, Inc. (as lessee).

                  10.6     Master Hotel Lease Agreement dated September 20, 1999
                           between  Apple  Suites REIT Limited  Partnership  (as
                           lessor) and Apple Suites Services Limited Partnership
                           (as lessee).

                  10.7     Homewood Suites License Agreement dated September 20,
                           1999 between Promus Hotels, Inc. and Apple Suites
                           Management, Inc. pertaining to the Richmond-West
                           End hotel.

                  10.8     Homewood Suites License Agreement dated September 20,
                           1999 between Promus Hotels, Inc. and Apple Suites
                           Services Limited Partnership pertaining to the
                           Dallas-Addison hotel.



                                      (ii)


<PAGE>


                  10.9     Homewood Suites License Agreement dated September 20,
                           1999  between  Promus  Hotels,  Inc. and Apple Suites
                           Services  Limited   Partnership   pertaining  to  the
                           Dallas-Irving/Las Colinas hotel.

                  10.10    Homewood Suites License Agreement dated September 20,
                           1999 between Promus Hotels, Inc. and Apple Suites
                           Services Limited Partnership pertaining to the North
                           Dallas-Plano hotel.

                  10.11    Management Agreement dated September 20, 1999 between
                           Apple Suites Management, Inc. and Promus Hotels, Inc.
                           pertaining to the Richmond-West End hotel.

                  10.12    Management Agreement dated September 20, 1999 between
                           Apple Suites Services Limited  Partnership and Promus
                           Hotels, Inc. pertaining to the Dallas-Addison hotel.

                  10.13    Management Agreement dated September 20, 1999 between
                           Apple Suites Services Limited  Partnership and Promus
                           Hotels,  Inc.  pertaining  to  the  Dallas-Irving/Las
                           Colinas hotel.

                  10.14    Management Agreement dated September 20, 1999 between
                           Apple Suites Services Limited  Partnership and Promus
                           Hotels,  Inc.  pertaining  to the North  Dallas-Plano
                           hotel.

                  10.15    Comfort Letter dated September 20, 1999 among  Promus
                           Hotels, Inc., Apple Suites, Inc. and Apple Suites
                           Management, Inc. pertaining to the Richmond-West
                           End hotel.

                  10.16    Comfort Letter dated  September 20, 1999 among Promus
                           Hotels,  Inc., Apple Suites REIT Limited  Partnership
                           and  Apple  Suites   Services   Limited   Partnership
                           pertaining to the Dallas-Addison hotel.

                  10.17    Comfort Letter dated  September 20, 1999 among Promus
                           Hotels,  Inc., Apple Suites REIT Limited  Partnership
                           and  Apple  Suites   Services   Limited   Partnership
                           pertaining to the Dallas-Irving/Las Colinas hotel.

                  10.18    Comfort Letter dated  September 20, 1999 among Promus
                           Hotels,  Inc., Apple Suites REIT Limited  Partnership
                           and  Apple  Suites   Services   Limited   Partnership
                           pertaining to the North Dallas-Plano hotel.

                  10.19    Promissory  Note  dated  September  17,  1999  in the
                           amount  of  $215,550  made  payable  by Apple  Suites
                           Management,  Inc. and Apple Suites  Services  Limited
                           Partnership to the order of Apple Suites, Inc.

                  10.20    Promissory  Note  dated  September  17,  1999  in the
                           amount  of  $47,800  made  payable  by  Apple  Suites
                           Management,  Inc. and Apple Suites  Services  Limited
                           Partnership to the order of Apple Suites, Inc.

                  10.21    Articles of Incorporation of Apple Suites General,
                           Inc.

                  10.22    Bylaws of Apple Suites General, Inc.


                                     (iii)


<PAGE>

                  10.23    Articles of Incorporation of Apple Suites LP, Inc.

                  10.24    Bylaws of Apple Suites LP, Inc.

                  10.25    Certificate of Limited Partnership  of  Apple  Suites
                           REIT Limited Partnership.

                  10.26    Agreement of Limited Partnership of Apple Suites REIT
                           Limited Partnership.

                  24       Consent of Independent Auditors












                                      (iv)


<PAGE>

ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS

        We (Apple  Suites,  Inc.) have purchased, either directly or through our
subsidiaries,  five existing Homewood Suites(R) hotels.  Homewood Suites(R) is a
registered  service mark of Promus  Hotels,  Inc. The five hotels were purchased
from Promus  Hotels,  Inc. or its  affiliates.  The total purchase price for the
five hotels was $45,300,000. We used proceeds from our offering of common shares
to pay twenty-five  percent of this total,  or $11,325,000,  at closing in cash.
The balance of 75%, or $33,975,000,  is being financed by Promus Hotels, Inc. as
short-term or "bridge financing," as described below.

         We have paid a real  estate  commission  of  $906,000  to Apple  Suites
Realty Group,  Inc., as our real estate  broker.  This amount equals two percent
(2%) of the total purchase price for the hotels.

OVERVIEW OF HOTELS

         We have closed on our purchases of the following hotels:
<TABLE>
<CAPTION>

Name and                                Total          Date of       Purchase          Financed
Location of Hotel                       Suites         Purchase      Price             Portion
-----------------                       ------         --------      -----             -------
<S>                                       <C>          <C>           <C>               <C>
Atlanta-Galleria/Cumberland               124          10/5/99       $  9,800,000      $ 7,350,000
Atlanta, Georgia

Dallas-Addison                            120          9/20/99       $  9,500,000      $ 7,125,000
Addison, Texas

Dallas-Irving/Las Colinas                 136          9/20/99       $ 11,200,000      $ 8,400,000
Irving, Texas

North Dallas-Plano                         99          9/20/99       $  5,400,000      $ 4,050,000
Plano, Texas

Richmond-West End                         123          9/20/99       $  9,400,000      $ 7,050,000
Glen Allen, Virginia
</TABLE>

         We directly  acquired  the hotels in  Atlanta,  Georgia and Glen Allen,
Virginia.  Those two hotels have been leased to Apple  Suites  Management,  Inc.
under a master  hotel lease  agreement  dated as of  September  20,  1999.  This
agreement is among the material contracts described below.

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

                                       1
<PAGE>

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





                                [Graphic Omitted]














                                       2
<PAGE>


HOTEL SUPPLIES AND FRANCHISE FEES

         We have provided the lessees of the hotels  (Apple  Suites  Management,
Inc. and Apple Suites Services Limited  Partnership) with funds for the purchase
of certain hotel supplies,  such as sheets, towels and so forth. The lessees are
obligated to repay us under two promissory  notes made in the principal  amounts
of $47,800 (for the hotels in Texas and Virginia, as a group)  and  $12,400 (for
the hotel in Atlanta).  These promissory notes are substantially  similar.  Each
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 respective due dates for the first installment,  subject to a five-day
grace  period,  are  October  1,  1999  and  November  1,  1999.  The  remaining
installments  consist of principal and interest on an amortized basis. The final
maturity dates are October 1, 2004 and November 1, 2004, respectively.

         We have also  provided  the  lessees of the  hotels  with funds for the
payment of hotel franchise fees to Promus Hotels, Inc. The lessees are obligated
to repay us under two promissory notes made in the principal amounts of $215,550
(for the hotels in Texas and Virginia,  as a group)  and  $55,800 (for the hotel
in  Atlanta).  These  promissory  notes are  substantially  similar  to the ones
described above, except that these promissory notes provide for repayment in one
hundred  twenty-one (121) monthly  installments and have final maturity dates of
October 1, 2009 and November 1, 2009, respectively.

DESCRIPTION OF FINANCING

         As  indicated  above,  Promus  Hotels,  Inc.  is  financing  75% of the
purchase price of the five hotels. We have executed two promissory notes payable
to Promus Hotels,  Inc. to evidence our debt. To secure the debt,  each hotel is
subject to a mortgage  created by a deed of trust.  The deeds of trust are among
the material contracts described below.

         The  principal  amounts  of the two  promissory  notes are  $26,625,000
(which represents the aggregate  financing for the hotels in Texas and Virginia)
and $7,350,000  (which  represents  the financing for the hotel in Atlanta).  In
other  respects,  the  two  promissory  notes  are  substantially  similar.  The
promissory notes provide for, among other things, the following:

         o   monthly  interest  payments,  based on an annual  interest  rate of
             eight and one-half percent (8.5%)

         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  10 days  of its due  date

         o   initial payment dates, subject to a 10-day grace period, of October
             1, 1999 (for the  $26,625,000  note) and  November 1, 1999 (for the
             $7,350,000 note)

         o   final maturity dates of October 1, 2000 (for the $26,625,000  note)
             and November 1, 2000 (for the $7,350,000 note)


                                       3
<PAGE>


         Revenue from the  operation of the hotels will be used to pay interest.
As indicated above, 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,  etc.),  a working  capital  reserve and a reserve for  renovations,
repairs and replacements of capital improvements.

         We  expect  to make  monthly  payments  of  principal.  There can be no
assurance,  however,  that the net equity  proceeds  from our offering of common
shares will be sufficient to pay the principal under the promissory  notes on or
before the required due dates. If no payments of principal are made prior to the
maturity of the promissory  notes, a principal  payment of $33,975,000  would be
due at maturity, together with a monthly interest payment of $240,656.25. In the
event of default under the promissory  notes,  various remedies are available to
Promus Hotels, Inc. under the deeds of trust, as described below.

         We  consider  the  financing  from  Promus  Hotels,  Inc. to be "bridge
financing"  because of its short-term nature (i.e., one year). Thus, 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.

LICENSING AND MANAGEMENT

         We expect  that all five of the  hotels  will  continue  to  operate as
Homewood Suites(R) franchises, which are licensed by Promus Hotels, Inc. To help
achieve  that  result,   Promus  Hotels,  Inc.  has  executed  separate  license
agreements,  dated as of  September  20,  1999 with the respect to the hotels in
Texas and Virginia, and dated as of October 5, 1999 with respect to the hotel in
Atlanta.  Promus  Hotels,  Inc.  is  managing  each  of the  five  hotels  under
management  agreements dated as of September 20, 1999 with respect to the hotels
in Texas and Virginia, and dated as of October 5, 1999 with respect to the hotel
in Atlanta.  These  license and  management  agreements  are among the  material
contracts described below.

POTENTIAL ECONOMIC RISK AND BENEFIT TO GLADE M. KNIGHT

         Because  we  are  prohibited  under  federal  tax  laws  from  directly
operating  our  extended-stay  hotels,  we have entered into leases for the five
hotels we have purchased. The hotels are leased to Apple Suites Management, Inc.
or  its  indirectly  wholly-owned  subsidiary,  Apple  Suites  Services  Limited
Partnership.  Our president and chief executive officer, Glade M. Knight, is the
sole shareholder of Apple Suites Management, Inc. and, as a result, the indirect
owner of Apple Suites Services Limited Partnership.

         The master hotel lease agreements have been structured to minimize,  to
the extent possible,  the economic benefit to Apple Suites Management,  Inc. and
to maximize the rental income we receive from the hotels. However, revenues from
operating  the hotels may exceed  payment  obligations  of the lessees under the
master hotel lease agreements and the license and management agreements.  To the
extent that Apple Suites  Management,  Inc. has any remaining income after those
payment  obligations are met, it will realize an economic benefit.  Because this


                                       4
<PAGE>


potential  economic  benefit  depends,  in part, on future hotel  revenues,  the
extent of this potential economic benefit cannot be determined at this time.

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

         If the cash flow from the  operations  of the hotels  and the  retained
earnings of Apple Suites  Management,  Inc. are  insufficient to make the rental
payments due under the master lease agreements,  Apple Suites  Management,  Inc.
can receive  additional  funding from two funding  commitments  in the aggregate
amount of $2 million.  The funding commitments have been made by Glade M. Knight
and Apple Suites Realty Group, Inc., which is wholly-owned by Mr. Knight.  These
funding commitments are payable on demand by Apple Suites Management, Inc. Under
each  funding  commitment,  Apple Suites  Management,  Inc. can make one or more
demands for funding,  subject to the following: (1) the aggregate payments under
the funding commitments shall not exceed $2 million; (2) the demands for payment
shall be limited, in amount and frequency,  to those demands that are reasonably
necessary  to satisfy  any  capitalization  or net worth  requirements  of Apple
Suites  Management,  Inc., or payment  obligations  under the master hotel lease
agreements.  Apple Suites Management, Inc. is not required to repay the funds it
receives under the funding commitments.


                          SUMMARY OF MATERIAL CONTRACTS

                                 DEEDS OF TRUST

         Each hotel is  encumbered  by a mortgage  on its real  property,  and a
security interest in its personal property, together with an assignment of hotel
rents and  revenues,  all in favor of Promus  Hotels,  Inc.  These  encumbrances
secure the payment of principal and interest under the promissory  notes we have
made to Promus Hotels, Inc.

         These encumbrances are created by five separate deeds of trust. For the
four  hotels in Texas and  Virginia,  these deeds of trust are each named a "Fee
and  Leasehold  Deed of  Trust,  Assignment  of Leases  and  Rents and  Security
Agreement."  For the  hotel  in  Atlanta,  the deed of trust is named a "Fee and
Leasehold  Deed to Secure  Debt,  Assignment  of Leases  and Rents and  Security
Agreement."

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

         Each deed of trust defines certain events of default.  For each deed of
trust,  those events  include,  among others,  any default under the  promissory
notes,  any  default  under any other 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


                                       5
<PAGE>

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.

         In  addition,  our hotels in Texas and  Virginia  are each subject to a
second  mortgage  and security  interest,  under terms and  conditions  that are
substantially similar to the ones described above. These additional encumbrances
provide  further  security for the payment of principal  and interest  under our
promissory note to Promus Hotels, Inc. with respect to the hotel in Atlanta.

                            ENVIRONMENTAL INDEMNITIES

         Each hotel is subject to a separate indemnity.  The indemnities protect
Promus Hotels, Inc. in the event that we undertake any corrective work to remove
or eliminate hazardous materials from the hotel properties.  Hazardous materials
are defined in the indemnities to include, for example, asbestos and other toxic
materials.  We are not aware of any hazardous materials at the hotel properties,
but there can be no assurance that such materials are not present.

         Under the  indemnities,  we have agreed to indemnify and protect Promus
Hotels, Inc. from any losses that it may incur because of (1) the nonperformance
or delayed performance and completion of corrective work; or (2) the enforcement
of the  indemnities.  Our  indemnities  with  respect to the hotels in Texas and
Virginia generally will terminate upon payment in full under the promissory note
we have made to Promus Hotels, Inc. in the principal amount of $26,625,000.  Our
indemnity  with respect to the hotel in Atlanta  generally  will  terminate upon
payment in full under the promissory note we have made to Promus Hotels, Inc. in
the principal amount of $7,350,000.  However, in each case, our indemnities will
continue with respect to those litigation or administrative claims, if any, that
involve  indemnified losses and that are pending at the date of full payment. In
addition,  for a period of 4 years after the date of such full payment,  we will
be  obligated  to  pay  any  enforcement  costs  for  subsequent  litigation  or
administrative claims.

                          MASTER HOTEL LEASE AGREEMENTS

         We have leased our hotels in Atlanta, Georgia and Richmond, Virginia to
Apple Suites  Management,  Inc. under a master hotel lease agreement dated as of
September 20, 1999. We have leased our hotels in Texas to Apple Suites  Services
Limited  Partnership,  a subsidiary  of Apple  Suites  Management,  Inc.,  under
another master hotel lease agreement  dated as of September 20, 1999.  These two
master  hotel lease  agreements  are  substantially  similar.  To  simplify  the
following  discussion,  the term "Apple Suites Management" will mean the lessee,
whether it is Apple Suites  Management,  Inc. or Apple Suites  Services  Limited
Partnership.

         The master hotel lease agreements have an initial term of ten years and
an optional five-year extension, provided that Apple Suites Management is not in
default  either at the time of the  exercise  of the option or at the end of the
original term of the lease. The first five-year extension would be upon the same
terms,  conditions and rentals as in the initial term.  Apple Suites


                                       6
<PAGE>

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

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

         Each master hotel lease agreement provides that Apple Suites Management
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 will pay
percentage  rent based on a percentage  of gross  revenues  (less sales and room
taxes), referred to as "suite revenue," derived in connection with the rental of
suites  at  the  hotels.  The  percentage  rent  is  equal  to  (a)  17%  of all
year-to-date  suite  revenue,  up to  the  applicable  quarterly  suite  revenue
breakpoint (as shown below);  plus (b) 55% of the year-to-date  suite revenue in
excess of the  applicable  quarterly  suite revenue  breakpoint,  less both base
rents  and the  percentage  rent  paid  year to  date.  The  base  rent  and the
percentage  rent will be adjusted each year beginning on January 1, 2001,  based
on the  most  recently  published  Consumer  Price  Index.  The base  rents  and
quarterly  suite revenue  breakpoints  for each of the five hotels over the next
ten years are describe in the following table:

                  Name of Hotel                     Base Rent
                  -------------                     ---------

                  Atlanta-Galleria/Cumberland       $661,320

                  Dallas-Addison                    $638,220

                  Dallas-Irving/Las Colinas         $824,340

                  North Dallas-Plano                $501,930

                  Richmond-West End                 $674,190



                                       7
<PAGE>



                       QUARTERLY SUITE REVENUE BREAKPOINTS



                HOMEWOOD SUITES(R) ATLANTA - GALLERIA/CUMBERLAND
                                ATLANTA, GEORGIA

---------------- ---------------- --------------- ------------- ---------------
  QUARTERS            1999             2000           2001           2002
  --------            ----             ----           ----           ----

1st Quarter         $285,570         $265,530       $270,540       $275,550

2nd Quarter         $571,140         $531,060       $541,080       $551,100

3rd Quarter         $856,710         $796,590       $811,620       $826,650

4th Quarter        $1,142,280       $1,062,120     $1,082,160     $1,102,200

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



<TABLE>
<CAPTION>

---------------- ------------ ------------- -------------- ------------- ----------- ------------
  QUARTERS           2003        2004           2005           2006          2007        2008
  --------           ----        ----           ----           ----          ----        ----
<S>                <C>         <C>            <C>            <C>           <C>         <C>
1st Quarter        $280,560    $285,570       $290,580       $295,590      $300,600    $305,610

2nd Quarter        $561,120    $571,140       $581,160       $591,180      $601,200    $611,220

3rd Quarter        $841,680    $856,710       $871,740       $886,770      $901,800    $916,830

4th Quarter       $1,122,240  $1,142,280     $1,162,320     $1,182,360    $1,202,400  $1,222,440

---------------- ----------- -------------- -------------- ------------- ----------- ------------
</TABLE>



                       HOMEWOOD SUITES(R) DALLAS - ADDISON
                                 ADDISON, TEXAS

------------------- -------------- -------------- --------------- --------------
  QUARTERS              1999           2000            2001            2002
  --------              ----           ----            ----            ----

1st Quarter           $275,595       $256,255        $261,090        $265,925

2nd Quarter           $551,190       $512,510        $522,180        $531,850

3rd Quarter           $826,785       $768,765        $783,270        $797,775

4th Quarter          $1,102,380     $1,025,020      $1,044,360      $1,063,700

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



<TABLE>
<CAPTION>

---------------- ------------- ------------- -------------- ------------- ----------- -----------
  QUARTERS           2003          2004          2005           2006          2007        2008
  --------           ----          ----          ----           ----          ----        ----
<S>                <C>           <C>           <C>            <C>           <C>         <C>
1st Quarter        $270,760      $275,595      $280,430       $285,265      $290,100    $294,935

2nd Quarter        $541,520      $551,190      $560,860       $570,530      $580,200    $589,870

3rd Quarter        $812,280      $826,785      $841,290       $855,795      $870,300    $884,805

4th Quarter       $1,083,040    $1,102,380    $1,121,720     $1,141,060    $1,160,400  $1,179,740

---------------- ------------- ------------- -------------- ------------- ----------- -----------
</TABLE>

                                       8

<PAGE>


                 HOMEWOOD SUITES(R) DALLAS - IRVING/LAS COLINAS
                                  IRVING, TEXAS

------------------- -------------- -------------- --------------- --------------
  QUARTERS              1999           2000            2001            2002
  --------              ----           ----            ----            ----

1st Quarter           $355,965       $330,985        $337,230        $343,475

2nd Quarter           $711,930       $661,970        $674,460        $686,950

3rd Quarter          $1,067,895      $992,955       $1,011,690      $1,030,425

4th Quarter          $1,423,860     $1,323,940      $1,348,920      $1,373,900

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



<TABLE>
<CAPTION>

---------------- ----------- ------------- -------------- ------------- -------------------------
  QUARTERS          2003          2004          2005           2006          2007        2008
  --------          ----          ----          ----           ----          ----        ----
<S>               <C>           <C>           <C>            <C>           <C>         <C>
1st Quarter       $349,720      $355,965      $362,210       $368,455      $374,700    $380,945

2nd Quarter       $699,440      $711,930      $724,420       $736,910      $749,400    $761,890

3rd Quarter      $1,049,160    $1,067,895    $1,086,630     $1,105,365    $1,124,100  $1,142,835

4th Quarter      $1,398,880    $1,423,860    $1,448,840     $1,473,820    $1,498,800  $1,523,780

---------------- ----------- ------------- -------------- ------------- -------------------------
</TABLE>




                     HOMEWOOD SUITES(R) NORTH DALLAS - PLANO
                                  PLANO, TEXAS



------------------- -------------- -------------- --------------- --------------
  QUARTERS              1999           2000            2001            2002
  --------              ----           ----            ----            ----

1st Quarter           $216,742       $201,533        $205,335        $209,138

2nd Quarter           $433,485       $403,065        $410,670        $418,275

3rd Quarter           $650,228       $604,598        $616,005        $627,413

4th Quarter           $866,970       $806,130        $821,340        $836,550

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



<TABLE>
<CAPTION>

---------------- ------------ ------------- -------------- ------------- ------------- ----------
  QUARTERS          2003          2004          2005           2006          2007          2008
  --------          ----          ----          ----           ----          ----          ----

<S>               <C>           <C>           <C>            <C>           <C>           <C>
1st Quarter       $212,940      $216,742      $220,545       $224,348      $228,150      $231,953

2nd Quarter       $425,880      $433,485      $441,090       $448,695      $456,300      $463,905

3rd Quarter       $638,820      $650,228      $661,635       $673,043      $684,450      $695,858

4th Quarter       $851,760      $866,970      $882,180       $897,390      $912,600      $927,810

---------------- ------------ ------------- -------------- ------------- ------------- ----------
</TABLE>


                                       9

<PAGE>



                     HOMEWOOD SUITES(R) RICHMOND - WEST END
                              GLEN ALLEN, VIRGINIA

------------------- ---------------- --------------- ------------- -------------
  QUARTERS               1999             2000           2001           2002
  --------               ----             ----           ----           ----

1st Quarter            $291,128         $270,698       $275,805       $280,913

2nd Quarter            $582,255         $541,395       $551,610       $561,825

3rd Quarter            $873,383         $812,093       $872,415       $842,738

4th Quarter           $1,164,510       $1,082,790     $1,103,220     $1,123,650

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



<TABLE>
<CAPTION>

--------------- --------------- -------------- -------------- ------------- ------------- ---------
  QUARTERS            2003          2004           2005           2006          2007        2008
  --------            ----          ----           ----           ----          ----        ----
<S>                 <C>           <C>            <C>            <C>           <C>         <C>
1st Quarter         $286,020      $291,128       $296,235       $301,343      $306,450    $311,558

2nd Quarter         $572,040      $582,255       $592,470       $602,685      $612,900    $623,115

3rd Quarter         $858,060      $873,383       $888,705       $904,028      $919,350    $934,673

4th Quarter        $1,144,080    $1,164,510     $1,184,940     $1,205,370    $1,225,800  $1,246,230

--------------- --------------- -------------- -------------- ------------- ------------ ----------
</TABLE>



                                       10
<PAGE>


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

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

                            HOTEL LICENSE AGREEMENTS

         Each hotel is licensed to operate as a Homewood Suites(R) hotel under a
separate  Homewood  Suites(R)  "License  Agreement." The license  agreements are
substantially  similar.  Under each  license  agreement,  the licensor is Promus
Hotels,  Inc.  and the  licensee  is the lessee of the hotel.  To  simplify  the
following  discussion,   the  term  "Apple  Suites  Management"  will  mean  the
licensee/lessee,  whether it is Apple  Suites  Management,  Inc. or its indirect
wholly-owned subsidiary, Apple Suites Services Limited Partnership.

         Under the license  agreements,  Promus Hotels, Inc. grants Apple Suites
Management 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 agrees to numerous requirements and restrictions applicable to
its  operation of the hotel.  Apple Suites  Management  is also  required to pay
royalties and other fees, also described below.


                                       11
<PAGE>

         Apple  Suites  Management  will  be  subject  to  various   operational
requirements  pursuant to the license  agreements and a "Standards  Manual." The
Standards Manual may be changed at any time by Promus Hotels,  Inc. As described
below,  Promus Hotels, Inc. will act as the manager of the hotels under separate
management  agreements.  As a practical matter,  many of the requirements in the
license  agreements and Standards  Manual will be the  responsibility  of Promus
Hotels,   Inc.   However,   certain   requirements  will  remain  the  practical
responsibility of Apple Suites  Management.  Furthermore,  the failure of Promus
Hotels,  Inc.  to comply  with the  management  agreements  will not, of itself,
relieve Apple Suites  Management from the obligations  imposed upon it under the
license agreements.  In such event, Apple Suites Management's only remedy may be
to seek damages for breach of the management agreements.

         The hotels must be operated  24 hours a day in strict  compliance  with
detailed  policies,  procedures and  requirements  established by Promus Hotels,
Inc. These requirements cover matters such as the types of services and products
that may be offered at the hotel, the style and type of signage,  the appearance
and  condition  of the hotel,  the use of the  reservations  system for  guests,
adherence to a 100% Satisfaction Guarantee rule of operation, required insurance
coverage and other  requirements.  The  requirements are designed to insure that
each hotel meets uniform guidelines for all Homewood Suites(R) Hotels,  wherever
located.

         Under the license  agreements,  Apple Suites  Management is granted the
right to use the Homewood  Suites(R)  System only during the term of the license
agreements,  and it obtains  no other  ownership  interest  in or rights to such
System.  The term of each license  agreement is 20 years,  but the  agreement is
subject to early  termination for various  reasons,  including  default by Apple
Suites  Management  or  its  seeking  of  bankruptcy  protection.  If a  license
agreement is  terminated  for any reason,  the hotel must  immediately  cease to
identify itself as a Homewood Suites(R) Hotel.

         Apple Suites  Management 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;  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  is required to prepare and deliver to Promus
Hotels, Inc. daily, monthly and other reports which, among other things, certify
gross revenues from  operation of the hotel.  The 4% marketing  contribution  is
subject to change by Promus Hotels, Inc. from time to time.  Furthermore,  there
is no assurance  that the  marketing  contribution  from a hotel will be used to
fund  advertising  or marketing  with respect to the hotel  actually  making the
contribution.

         Under the license agreements, Promus Hotels, Inc. may from time to time
require Apple Suites  Management  to upgrade  hotel  facilities to meet the then
current standards  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.

                                       12
<PAGE>

                           HOTEL MANAGEMENT AGREEMENTS

         Apple Suites  Management,  Inc. has agreed to have Promus Hotels,  Inc.
manage our hotel in Richmond, Virginia, under a management agreement dated as of
September  20,  1999,  and our hotel in  Atlanta,  under a  separate  management
agreement  dated  as  of  October  5,  1999.   Apple  Suites  Services   Limited
Partnership,  a subsidiary of Apple Suites Management,  Inc., has agreed to have
Promus Hotels,  Inc. manage our three hotels in Texas under separate  management
agreements  dated as of  September  20,  1999.  The  management  agreements  are
substantially  similar.  To simplify the following  discussion,  the term "Apple
Suites Management" will mean the lessee of the hotel, whether it is Apple Suites
Management, Inc. or Apple Suites Services Limited Partnership.

         Under the management  agreements,  Promus Hotels,  Inc. will direct the
operation of the hotels in conformity with the management  agreements  described
herein and the hotel license  agreements  described above.  Promus Hotels,  Inc.
will be responsible  for directing the  day-to-day  activities of the hotels and
establishing policies and procedures relating to the management and operation of
the hotels.

         As part of its responsibilities for directing the day-to-day activities
of the hotels,  Promus  Hotels,  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  hotels.  Promus  Hotels,  Inc.  will be  responsible  for (1)
advertising  and promoting the hotels in coordination  with the  requirements of
the license  agreements  described  above; and (2) obtaining and maintaining any
permits and licenses required to operate the hotels.

         Each year Promus Hotels,  Inc. will submit a proposed  operating budget
for each hotel to Apple Suites  Management  for its  approval.  Each budget will
include a business plan  describing  the business  objectives and strategies for
each hotel for the period  covered by the budget.  In addition,  Promus  Hotels,
Inc. will submit a recommended capital budget to Apple Suites Management for its
approval.  The capital budget will apply to furnishings,  equipment and ordinary
hotel capital  replacements  needed to operate the hotels in accordance with the
hotel  license  agreements.  At  a  minimum,  each  year's  budget  for  capital
improvements will provide for capital expenditures that are required to meet the
minimum  standards  of the hotel  license  agreement,  subject to the  following
limits:  (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 be
equal to 4% of adjusted  gross  revenues.  Adjusted  gross  revenues are defined
generally  as all revenues  derived from the hotels,  as reduced by (1) refunds;
(2)  sales  and  other  similar  taxes;  (3)  proceeds  from  the  sale or other
disposition of the hotels,  furnishings and other capital  assets;  (4) fire and
extended coverage insurance proceeds;  (5) credits or refunds made to customers;


                                       13
<PAGE>

(6) condemnation awards; (7) proceeds of financing or refinancing of the hotels;
(8) interest on bank accounts;  and (9) gratuities or service charges added to a
customer's bill.

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

         Each  management  agreement has a 15-year term.  However,  Apple Suites
Management may terminate the agreement after its tenth  anniversary.  If it does
so Promus Hotels,  Inc. will be entitled to a termination  fee. The  termination
fee if Apple Suites  Management  terminates the management  agreement  after the
tenth  anniversary  is  based on a  formula  generally  equal  to the  aggregate
management  fees  earned  during the  preceding  24 months  divided  by two.  In
addition,  if the hotel license  agreement with respect to a particular hotel is
terminated,  Promus  Hotels,  Inc. may  terminate the  corresponding  management
agreement. If Promus Hotels, Inc. terminates the management agreement it will be
entitled to a termination  fee equal to (1) $733,000 if the  termination  occurs
within two years of the effective  date of the management  agreement;  or (2) an
amount  based on a formula that takes into  account the  management  fees earned
over the preceding 24 month period.

         Beginning in the first full calendar year of  operations,  Apple Suites
Management may terminate a 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.  Promas
Hotels,  Inc.  can avoid  termination  by making a cash  payment to Apple Suites
Management  that  equals  the  shortfall  for the  second  such  year  (with the
shortfall being the difference  between the gross operating profits achieved and
85% of the budgeted gross operating profit for the second such year). Generally,
gross operating profit is defined as the amount by which adjusted gross revenues
exceed operating costs.

                                 COMFORT LETTERS

         In the master hotel lease  agreements,  the use of a separate  "lessee"
(Apple Suites  Management,  Inc. or Apple Suites Services  Limited  Partnership,
depending  upon the state in which the hotel is located)  is based upon  certain
technical tax considerations  applicable to real estate investment trusts. In an
effort to minimize operational  complexities or problems that may arise from the
lease  structure  or from the fact that the lessee,  rather  than Apple  Suites,
Inc., is the party to the license agreements and management agreements,  we have
entered into a "Comfort  Letter" with Promus  Hotels,  Inc. with respect to each
hotel.  The comfort  letters grant us certain rights if problems arise under the
license  agreements or leases,  or if the lease structure is no longer necessary
for tax  purposes.  The chief  provisions  of the comfort  letters are described
below.

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

         Second, if there is a default under the lease and we elect to terminate
the lease, we have the right, which may be exercised within 90 days after giving
notice  of  termination  to  Promus  Hotels,  Inc.,  to enter  into a new  lease
agreement with a successor lessee. In general, any such successor lessee must be
majority  owned and  controlled  by us or our  affiliates  (which  includes


                                       14
<PAGE>


our directors  and  executive  officers) and must be a person or entity that has
adequate  financial  resources to perform under the lease, is not the franchisor
or operator of a competing  chain of hotels,  and enjoys a favorable  reputation
for integrity.  If we enter into a new lease,  the successor  lessee will have a
right to enter into a new license  agreement and new  management  agreement with
Promus Hotels,  Inc. for the balance of the original terms of those  agreements.
However,  if we are unable to provide a qualified  successor  lessee within such
90-day period,  the license  agreement may be terminated at the option of Promus
Hotels,  Inc.  and we will be  obligated  to pay  liquidated  damages  to Promus
Hotels,  Inc. In general,  liquidated  damages are an amount  equal to the total
fees  payable  under  the  license  agreement  for  the  three  years  prior  to
termination. If the hotel has been open for less than three years, the amount is
equal to the greater of: (1) 36 times the  monthly  average of fees  payable for
the  period  during  which the hotel has been  open;  or (2) 36 times the amount
payable for the last full month of operation prior to termination.  If the hotel
is open but has not been in operation for a full month, liquidated damages equal
$3,000 per suite in the hotel.  Other liquidated  damage provisions apply in the
case of termination of the license agreement before commencement of construction
of the hotel or if construction is complete but the hotel is not yet opened.

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


                            DESCRIPTION OF PROPERTIES

         All five of the hotels are  extended-stay  hotels,  and are part of the
Homewood Suites(R) franchise.  We believe that the majority of the guests at the
hotels  during the past 12 months have been business  travelers.  We expect that
this pattern will continue.

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

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

         The hotels are marketed,  in part,  through the Homewood  Suites(R) web
site  (http://www.homewood-suites.com),  which is generally available 24 hours a
day,  seven days a


                                       15
<PAGE>

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  hotels  franchises  include
Hampton   Inns(R),    Doubletree   Hotels(R)   and   Embassy   Suites(R).   Such
cross-marketing  may affect  occupancy at the Homewood  Suites(R)  properties by
directing travelers toward, or away from, Homewood Suites(R).

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

                          ATLANTA - GALLERIA/CUMBERLAND
                                ATLANTA, GEORGIA

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

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

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

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

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

         We believe that the hotel has been  generally  well  maintained  and is
generally  in very good  condition.  Over the next 12  months,  we plan to spend
approximately  $397,000  on  renovations  or  improvements.  We expect  that the
principal  renovations and improvements will involve exterior  painting,  carpet
replacement and furniture  acquisitions (sofas,  recliners and


                                       16
<PAGE>

televisions).  We  expect  to  pay  for  the  costs  of  these  renovations  and
improvements with proceeds from our ongoing offering of common shares.

         During 1999, the average stay at the hotel has been  approximately  3.5
nights, and approximately 66% of the guests have stayed for five nights or more.
Occupancy at the hotel is not seasonal.  The following table shows average daily
occupancy rates, expressed as a percentage, for each of the last five years:

                     Average Daily Occupancy Rate (calendar year)

         1995          1996         1997         1998        1999 (through July)
         ----          ----         ----         ----       -------------------

         76.7%         71.7%        77.2%        77.4%             80.8%

         For January 1, 1999 through  September 21, 1999, the average daily rate
per suite was $90.83, and the average daily net revenue per suite was $70.86. As
explained  above,  revenue  from  the  hotel's  operations  will  be used to pay
interest due under the promissory notes payable to Promus Hotels, Inc. We expect
to make monthly  payments of principal to reduce the accrual of interest.  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 notes, and that the hotel continues to have
the level of net revenue  specified above,  approximately  19.48% of the hotel's
revenue would be needed to cover its portion of the interest payments.

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

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

     1 to   4                     $119                 $129              $179
     5 to  11                      109                  119               169
     12 to 29                       92                   99               159
     30 or more                     79                   89               149

         The hotel offers a weekend  discount.  This discount  varies by type of
suite and generally reduces the basic rate by 25 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 80% of the
hotel's guests received a corporate discount.

         The chief  corporate  accounts (as  designated in the hotel's  records)
include Sprint,  SITA Group, JD Edwards,  Worldspan and Boeing.  From January 1,
1999 through July 26, 1999, the


                                       17
<PAGE>

ten biggest  corporate  accounts  were  responsible  for over 65% of the hotel's
occupancy.  There can be no assurance,  however, that the hotel will continue to
receive  significant  occupancy,  or any occupancy,  from the corporate accounts
identified above. In particular,  one of the largest  corporate  accounts during
1999 was with Boeing,  which is scheduled to eliminate its operations in Atlanta
during 2000.

         The  average  effective  annual  rental per square foot for each of the
last five years is shown in the table below:

                                                       1999
       1995       1996       1997       1998       (annualized)
       ----       ----       ----       ----       ------------

      $34.44     $34.16     $36.45     $36.57        $37.66


         The  depreciable  real property  component of the hotel has a currently
estimated Federal tax basis of $5,355,919 and will be depreciated over a life of
27.5 years using the  straight-line  method.  The basis of the personal property
component  of the hotel will be  depreciated  in  accordance  with the  modified
accelerated cost recovery system of the Internal Revenue Code.

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

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

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

         We estimate that the annual  property tax on the expected  improvements
will be approximately $5,000 or less.

         At least seven  competing  hotels are located within three miles of the
hotel.  (The  names  of  the  competing  franchises,  as  listed  below,  may be
registered as service  marks or trade names.) Three of the competing  hotels are
newer than the hotel.  The newer competing hotels have franchises with Homestead
Village,  Sheraton  Suites and Summer Suites.  The other  competing  hotels have
franchises  with Courtyard by Marriott,  Embassy  Suites,  Hawthorne  Suites and
Residence  Inn.  We believe  that the rates  charged by the hotel are  generally
competitive  with the rates charged by these other  hotels.  We are aware of one
proposed   construction   project  to  build  an   extended-stay   hotel  within
approximately  one mile of the hotel. We expect this hotel to be franchised with
Hampton Inn Suites.

                                DALLAS - ADDISON
                                 ADDISON, TEXAS

         The Homewood  Suites(R) Dallas - Addison is located on a 3.34 acre site
in Addison,  Texas. Its address is 4451 Beltline Road, Addison, Texas 75244. The
hotel is located within  approximately  15 miles of downtown Dallas and 25 miles
of the Dallas/Fort Worth International Airport.


                                       18
<PAGE>


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

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

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

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

         We believe that the hotel has been  generally  well  maintained  and is
generally  in very good  condition.  Over the next 12  months,  we plan to spend
approximately  $360,000  on  renovations  or  improvements.  We expect  that the
principal  renovations and  improvements  will involve  upgrading  bathrooms and
kitchens,  providing  additional signage and replacing exterior doors. We expect
to pay for the costs of these  renovations and  improvements  with proceeds from
our ongoing offering of common shares.

         During 1999, the average stay at the hotel has been  approximately  3.5
nights, and approximately 55% of the guests have stayed for five nights or more.
Occupancy at the hotel is not seasonal.  The following table shows average daily
occupancy rates, expressed as a percentage, for each of the last five years:

                  Average Daily Occupancy Rate (calendar year)


         1995        1996       1997      1998           1999 (through July)
         ----        ----       ----      ----           -------------------

         83.9%       78.4%      78.1%     76.9%                  68.3%

         For January 1, 1999 through  September 21, 1999, the average daily rate
per suite was $99.29, and the average daily net revenue per suite was $80.01. As
explained  above,  revenue  from  the  hotel's  operations  will  be used to pay
interest due under the promissory notes payable to Promus Hotels, Inc. We expect
to make monthly  payments of principal to reduce the accrual of interest.  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


                                       19
<PAGE>


maturity of the promissory notes, and that the hotel continues to have the level
of net revenue  specified  above,  approximately  17.28% of the hotel's  revenue
would be needed to cover its portion of the interest payments.

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

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

     1  to  4                $139        $149            $154          $181
     5  to 11                 109         119             129           169
     12 to 29                  89          99             119           149
     30 or more                79          89              99           139


         The hotel offers a weekend  discount.  This discount  varies by type of
suite and generally reduces the basic rate by 25 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 75% of the
hotel's guests received a corporate discount.

         The chief  corporate  accounts (as  designated in the hotel's  records)
include the  Internal  Revenue  Service,  MBNA,  Mobil/Exxon,  Computer  Science
Corporation,  Lucent  Technologies and People Soft. From January 1, 1999 through
August 2, 1999, the ten biggest corporate accounts were responsible for over 22%
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  average  effective  annual  rental per square foot for each of the
last five years is shown in the table below:

                                                    1999
       1995      1996       1997     1998       (annualized)
       ----      ----       ----     ----       ------------

      $56.35    $55.18     $54.05   $54.25        $46.87


         The  depreciable  real property  component of the hotel has a currently
estimated Federal tax basis of $7,363,796 and will be depreciated over a life of
27.5 years using the  straight-line  method.  The basis of the personal property
component  of the hotel will be  depreciated  in  accordance  with the  modified
accelerated cost recovery system of the Internal Revenue Code.


                                       20
<PAGE>


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

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

         County of Dallas    $8,100,000        0.43307          $  35,078.67
         City of Dallas       8,100,000        1.46053            118,302.93
         Town of Addison      8,100,000        0.40000             32,400.00

                                                        TOTAL   $ 185,781.60

         We  estimate   that  the  annual  real  estate  tax  on  the   expected
improvements will be approximately $8,000 or less.

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

                           DALLAS - IRVING/LAS COLINAS
                                  IRVING, TEXAS

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

         The hotel opened in January 1990. It has wood frame construction,  with
an exterior of brick veneer, stucco, and wood siding. The hotel consists of five
buildings,  each with two or three stories. The hotel contains 136 suites, which
have a combined  area of 80,144 square feet.  The following  types of suites are
available:

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

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

         The hotel offers a meeting room that accommodates 25 to 30 people,  and
a  business  center  that  offers  guests  the  use of a  personal  computer,  a
photocopier  and an  electric  typewriter.  Recreational  facilities  include an
outdoor pool, a whirlpool,  a basketball  court and an exercise


                                       21
<PAGE>


room. The hotel also contains a guest convenience  store and laundry.  The hotel
has its own  parking  lot with 181  spaces.  The  hotel  provides  complimentary
shuttle service within a 3 mile radius.

         We believe that the hotel has been  generally  well  maintained  and is
generally  in very good  condition.  Over the next 12  months,  we plan to spend
approximately  $440,000  on  renovations  or  improvements.  We expect  that the
principal   renovations  and  improvements  will  involve  upgrading  bathrooms,
repairing  the parking lot and  improving the meeting room. We expect to pay for
the costs of these  renovations and improvements  with proceeds from our ongoing
offering of common shares.

         During 1999,  the average stay at the hotel has been  approximately  10
nights, and approximately 60% of the guests have stayed for five nights or more.
Occupancy at the hotel is not seasonal.  The following table shows average daily
occupancy rates, expressed as a percentage, for each of the last five years:

                  Average Daily Occupancy Rate (calendar year)

         1995        1996      1997     1998        1999 (through July)
         ----        ----      ----     ----        -------------------

         75.2%       75.2%     77.8%    75.8 %             76.0%

         For January 1, 1999 through  September 21, 1999, the average daily rate
per suite was $99.08, and the average daily net revenue per suite was $79.94. As
explained  above,  revenue  from  the  hotel's  operations  will  be used to pay
interest due under the promissory notes payable to Promus Hotels, Inc. We expect
to make monthly  payments of principal to reduce the accrual of interest.  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 notes, and that the hotel continues to have
the level of net revenue  specified above,  approximately  17.99% of the hotel's
revenue would be needed to cover its portion of the interest payments.

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

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

      1 to   4                     $129                 $139              $189
      5 to  12                      109                  119               169
      13 to 29                       99                  114               159
      30 or more                     89                   99               149


         The hotel offers a weekend  discount.  This discount  varies by type of
suite and generally reduces the basic rate by 25 to 33%. The weekend discount is
not available to guests who stay


                                       22
<PAGE>

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  75% of the hotel's guests  received a corporate
discount.

         The chief  corporate  accounts (as  designated in the hotel's  records)
include  GTE/Bell  Atlantic,  Sprint,  SAP  America,  Ernst & Young,  Oracle and
Associates of America (a financial  services group of Ford Motor Company).  From
January 1, 1999 through July 19, 1999, the ten biggest  corporate  accounts were
responsible  for over 47% 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  average  effective  annual  rental per square foot for each of the
last five years is shown in the table below:

                                                  1999
       1995      1996      1997     1998      (annualized)
       ----      ----      ----     ----      ------------

      $42.17    $44.42    $46.85   $47.48        $46.56

         The  depreciable  real property  component of the hotel has a currently
estimated Federal tax basis of $8,348,973 and will be depreciated over a life of
27.5 years using the  straight-line  method.  The basis of the personal property
component  of the hotel will be  depreciated  in  accordance  with the  modified
accelerated cost recovery system of the Internal Revenue Code.

         The following table sets forth the 1998 real estate tax information for
the hotel:


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

   County of Dallas                 $9,519,990       0.43307     $ 41,228.22
   City of Irving                    9,519,990       0.49300       46,933.55
   Irving School District            9,519,990       1.67840      159,783.51
   Dallas County Utility District    9,519,990       1.59480      151,824.80

                                                         TOTAL   $399,770.08



         We  estimate   that  the  annual  real  estate  tax  on  the   expected
improvements will be approximately $18,000 or less.

         At least five  competing  hotels are located  within three miles of the
hotel.  (The  names  of  the  competing  franchises,  as  listed  below,  may be
registered as service  marks or trade names.) Three of the competing  hotels are
newer  than the  hotel.  The newer  hotels  have  franchises  with  AmeriSuites,
StudioPlus and Summerfield  Suites.  The other competing  hotels have franchises
with Harvey Hotel Suites and Residence Inn. We believe that the rates charged by
the hotel  are


                                       23
<PAGE>


generally competitive with the rates charged by these other hotels. We are aware
of two  proposed  construction  projects to build  extended-stay  hotels  within
approximately  five  miles  of  the  hotel.  We  have  no  definite  franchising
information for these hotels.

                              NORTH DALLAS - PLANO
                                  PLANO, TEXAS

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

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

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

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

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

         We believe that the hotel has been  generally  well  maintained  and is
generally  in  very  good  condition.  We do not  have  any  current  plans  for
significant   renovations  or  improvements  at  the  hotel,   although  routine
maintenance and upkeep will be required.

         During 1999, the average stay at the hotel has been  approximately  6.3
nights, and approximately 55% of the guests have stayed for five nights or more.
Occupancy at the hotel is not seasonal.  The following table shows average daily
occupancy rates, expressed as a percentage, since the opening of the hotel:

                  Average Daily Occupancy Rate (calendar year)

                  1997             1998              1999 (through July)
                  ----             ----              -------------------

                  64.4%            70.9%                  69.3%


                                       24
<PAGE>


         For January 1, 1999 through  September 21, 1999, the average daily rate
per suite was $88.07, and the average daily net revenue per suite was $65.33. As
explained  above,  revenue  from  the  hotel's  operations  will  be used to pay
interest due under the promissory notes payable to Promus Hotels, Inc. We expect
to make monthly  payments of principal to reduce the accrual of interest.  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 notes, and that the hotel continues to have
the level of net revenue  specified above,  approximately  14.58% of the hotel's
revenue would be needed to cover its portion of the interest payments.

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

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

                  1  to  6                     $114                $159
                  7  to 29                       79                 129
                  30 or more                     59                 119

         The hotel offers a weekend  discount.  This discount  varies by type of
suite and generally reduces the basic rate by 25 to 33%. The weekend discount is
not available to guests who stay for five nights or more.  The hotel also offers
discounts to guests who stay under certain corporate  accounts.  These discounts
are often  negotiated  with the  corporate  customer  and vary from  account  to
account.  During the past 12 months,  we estimate that  approximately 85% of the
hotel's guests received a corporate discount.

         The chief accounts (as designated in the hotel's  records)  include Dr.
Pepper/7-Up,  Arco,  Raytheon/E-Systems,  Alcatel Netowork  Systems,  State Farm
Insurance,  USA Cycling,  Sterling Software, J.C. Penney, Rug Doctor and Eastman
Kodak.  From January 1, 1999 through August 12, 1999, the ten biggest  corporate
accounts have been responsible for over 39% 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 average  effective  annual rental per square foot since the opening
of the hotel is shown in the table below:

         1997                                     1999
    (annualized)              1998            (annualized)
    --------------          -----------        ------------

        $38.87                $43.99              $41.60

         The  depreciable  real property  component of the hotel has a currently
estimated Federal tax basis of $4,762,151 and will be depreciated over a life of
27.5 years using the straight-line method. The


                                       25
<PAGE>

basis of the personal  property  component of the hotel will be  depreciated  in
accordance  with the modified  accelerated  cost recovery system of the Internal
Revenue Code.

         The following table sets forth the 1998 real estate tax information for
the hotel:

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

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

         At least nine  competing  hotels are  located  within five miles of the
hotel.  (The  names  of  the  competing  franchises,  as  listed  below,  may be
registered as service  marks or trade  names.) Five of the competing  hotels are
newer  than the  hotel.  The newer  hotels  have  franchises  with  AmeriSuites,
Candlewood  Suites,  Homegate  Suites,  Hawthorne  Suites and Residence Inn. The
other  competing  hotels have  franchises  with  Courtyard  by Marriott  (in two
cases),  Hampton  Inn  Suites and  Mainstay  Suites.  We believe  that the rates
charged by the hotel are generally  competitive  with the rates charged by these
other  hotels.  We are aware of three  proposed  construction  projects to build
extended-stay hotels within  approximately five miles of the hotel.  Although we
do not have complete  franchising  information for these hotels, we expect three
of them to be franchised with Doubletree  Suites,  Marriott Townplace and Weston
Suites.

                               RICHMOND - WEST END
                              GLEN ALLEN, VIRGINIA

         The  Homewood  Suites(R)  Richmond - West End is located on a 3.75 acre
site on Innslake Drive in Richmond's  Innsbrook Corporate Center. Its address is
4100 Innslake Drive,  Glen Allen,  Virginia  23060.  The hotel is located within
approximately  14  miles of  downtown  Richmond  and 20  miles  of the  Richmond
International Airport.

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

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

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

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


                                       26
<PAGE>


         We believe that the hotel has been  generally  well  maintained  and is
generally  in  very  good  condition.  We do not  have  any  current  plans  for
significant   renovations  or  improvements  at  the  hotel,   although  routine
maintenance and upkeep will be required.

         During  1999,  the average stay at the hotel has been  approximately  4
nights, and approximately 50% 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 hotel opened:

                  Average Daily Occupancy Rate (calendar year)

                        1998             1999 (through July)
                        ----             -------------------

                        61.7%                    77.1%

         For January 1, 1999 through  September 21, 1999, the average daily rate
per suite was $92.34, and the average daily net revenue per suite was $66.48. As
explained  above,  revenue  from  the  hotel's  operations  will  be used to pay
interest due under the promissory notes payable to Promus Hotels, Inc. We expect
to make monthly  payments of principal to reduce the accrual of interest.  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 notes, and that the hotel continues to have
the level of net revenue  specified above,  approximately  20.08% of the hotel's
revenue would be needed to cover its portion of the interest payments.

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

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

       1  to  4               $109             $119           $149 - 179
       5  to 29                 89               99               119
       30 to 89                 79               89               119
       90 or more               69               79               119

         The hotel offers a weekend  discount.  This discount  varies by type of
suite and generally reduces the basic rate by 25 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 50% of the
hotel's guests received a corporate discount.

         The chief  accounts  (as  designated  in the hotel's  records)  include
Capital One, Circuit City Stores, First Union Bank,  Compulink,  Saxon Mortgage,
Virginia Power, Owens & Minor, Target Stores and Richfood Holdings. From January
1,  1999  through  July  31,  1999,  the ten  biggest


                                       27
<PAGE>


corporate  accounts  were  responsible  for over 44% of the  hotel's  occupancy.
Capital  One,  in  particular,  was  responsible  for more than 5,200  nights of
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 average  effective  annual rental per square foot since the opening
of the hotel is shown in the table below:

                       1998                 1999
                  (annualized)          (annualized)
                  -------------         ------------

                      $37.80               $44.88


         The  depreciable  real property  component of the hotel has a currently
estimated Federal tax basis of $8,523,055 and will be depreciated over a life of
27.5 years using the  straight-line  method.  The basis of the personal property
component  of the hotel will be  depreciated  in  accordance  with the  modified
accelerated cost recovery system of the Internal Revenue Code.

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

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

         County of Henrico     $5,806,300           0.94000         $54,579.22

         At least  seven  competing  hotels are  located  within one mile of the
hotel.  (The  names  of  the  competing  franchises,  as  listed  below,  may be
registered as service  marks or trade names.) Three of the competing  hotels are
newer than the hotel.  The newer hotels have franchises  with Candlewood  Suites
(scheduled to open in October  1999),  Comfort Suites and Courtyard by Marriott.
The other  competing  hotels have  franchises  with  AmeriSuites,  Hampton  Inn,
Homestead  Village and  Residence  Inn. We believe that the rates charged by the
hotel are generally competitive with the rates charged by these other hotels. We
are aware of three proposed  construction projects to build extended-stay hotels
within  approximately  three miles of the hotel.  We expect  these  hotels to be
franchised with Holiday Inn Express, Hilton Garden Inn and Marriott.


                                       28


<PAGE>



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

                                                  L.P. MARTIN & COMPANY
                                                A PROFESSIONAL CORPORATION
               MEMBERS                          CERTIFIED PUBLIC ACCOUNTANTS                        MEMBERS
         VIRGINIA SOCIETY OF                        4132 INNSLAKE DRIVE                      AMERICAN INSTITUTE OF
     CERTIFIED PUBLIC ACCOUNTANTS                GLEN ALLEN, VIRGINIA 23060              CERTIFIED PUBLIC ACCOUNTANTS

LEE P. MARTIN, JR., C.P.A.                         PHONE: (804) 346-2626                        ROBERT C. JOHNSON, C.P.A.
WILLIAM L. GRAHAM, C.P.A.                           FAX: (804) 346-9311                   LEE P. MARTIN, C.P.A. (1948-76)
BERNARD G. KINZIE, C.P.A.
W. BARCLAY BRADSHAW, C.P.A.
</TABLE>





                          Independent Auditors' Report


Apple Suites, Inc.
Richmond, Virginia


         We  have  audited  the  accompanying  combined  balance  sheets  of the
Homewood Suites Acquisition Hotels (described in Note 1) as of December 31, 1998
and 1997, and the related combined  statements of income,  shareholders'  equity
and cash flows for the years then  ended.  These  financial  statements  are the
responsibility of the management of the hotels. Our responsibility is to express
an opinion on these financial statements based on our audits.

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

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


August 23, 1999                         /s/ L.P. Martin & Company, P.C.







                                      29


<PAGE>

                       HOMEWOOD SUITES ACQUISITION HOTELS

                            COMBINED BALANCE SHEETS


                                     ASSETS


<TABLE>
<CAPTION>
                                                                                   December 31,
                                                                               1998            1997
                                                                            ----------      ----------
<S>                                                                       <C>             <C>
CURRENT ASSETS
   Cash                                                                   $    374,092    $    393,079
   Accounts Receivable, Net                                                    714,718         330,540
   Prepaids and Other                                                            8,355          15,904
                                                                          ------------    ------------
          TOTAL CURRENT ASSETS                                               1,097,165         739,523
                                                                          ------------    ------------
INVESTMENT IN HOTEL PROPERTIES
   Land and Improvements                                                     8,031,122       7,454,360
   Buildings and Improvements                                               29,091,731      22,188,107
   Furniture, Fixtures and Equipment                                        10,822,281       8,417,814
                                                                          ------------    ------------
          TOTAL                                                             47,945,134      38,060,281
   Less: Accumulated Depreciation                                          (11,098,460)     (8,704,166)
                                                                          ------------    ------------

          NET INVESTMENT IN HOTEL PROPERTIES                                36,846,674      29,356,115
                                                                          ------------    ------------
OTHER ASSETS
   Construction in Progress                                                         --       5,994,799
                                                                          ------------    ------------
          TOTAL ASSETS                                                    $ 37,943,839    $ 36,090,437
                                                                          ============    ============
</TABLE>






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


                                      30


<PAGE>

                      LIABILITIES AND SHAREHOLDERS' EQUITY


<TABLE>
<CAPTION>
                                                                                      December 31,
                                                                            ---------------------------------
                                                                                  1997             1998
                                                                            ----------------- ---------------
<S>                                                                           <C>             <C>
CURRENT LIABILITIES
  Accounts Payable                                                               $   440,076     $   845,173
  Accrued Taxes                                                                      997,897         787,680
  Accrued Expenses--Other                                                            252,761         158,670
                                                                            ----------------- ---------------
      TOTAL CURRENT LIABILITIES                                                    1,690,734       1,791,523
                                                                            ----------------- ---------------
SHAREHOLDERS' EQUITY
  Contributed Capital                                                             11,000,030      12,499,235
  Retained Earnings                                                               25,253,075      21,799,679
                                                                            ----------------- ---------------
      TOTAL SHAREHOLDERS' EQUITY                                                  36,253,105      34,298,914
                                                                            ----------------- ---------------
      TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY                                 $37,943,839     $36,090,437
                                                                            ----------------- ---------------
</TABLE>



                                      31
<PAGE>

                       HOMEWOOD SUITES ACQUISITION HOTELS
                   COMBINED STATEMENTS OF SHAREHOLDERS' EQUITY

<TABLE>
<CAPTION>
                                                                                                  Total
                                                              Contributed       Retained      Shareholders'
                                                                Capital         Earnings         Equity
                                                             --------------- --------------- ----------------
<S>                                                            <C>             <C>              <C>
Balances, January 1, 1997                                       $ 5,966,169     $17,961,115      $23,927,284
Net Income                                                               --       3,838,564        3,838,564
Capital Contributions, Net                                        6,533,066              --        6,533,066
                                                             --------------- --------------- ----------------
Balances, December 31, 1997                                      12,499,235      21,799,679       34,298,914
Net Income                                                               --       3,453,396        3,453,396
Capital Distributions, Net                                       (1,499,205)             --       (1,499,205)
                                                             --------------- --------------- ----------------
Balances, December 31, 1998                                     $11,000,030     $25,253,075      $36,253,105
                                                             =============== =============== ================
</TABLE>

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



                                      32
<PAGE>

                       HOMEWOOD SUITES ACQUISITION HOTELS

                           COMBINED INCOME STATEMENTS

<TABLE>
<CAPTION>
                                                                                Years Ended December 31,
                                                                            ---------------------------------
                                                                                  1998             1997
                                                                            ------------------ --------------
<S>                                                                               <C>            <C>
GROSS OPERATING REVENUE
  Suite Revenue                                                                   $14,075,852    $10,683,420
  Other Customer Revenue                                                              811,817        555,232
                                                                            ------------------ --------------
      TOTAL REVENUE                                                                14,887,669     11,238,652
                                                                            ------------------ --------------
EXPENSES
  Property and Operating                                                            5,586,712      3,843,073
  General and Administrative                                                          348,088        208,174
  Advertising and Promotion                                                           648,273        476,762
  Utilities                                                                           626,269        473,887
  Real Estate and Personal Property Taxes, and Property Insurance                   1,040,638        789,462
  Depreciation Expense                                                              2,394,294      1,487,077
  Franchise Fees                                                                      563,035             --
  Pre-Opening Expenses                                                                226,964        121,653
                                                                            ------------------ --------------
      TOTAL EXPENSES                                                               11,434,273      7,400,088
                                                                            ------------------ --------------
      NET INCOME                                                                  $ 3,453,396    $ 3,838,564
                                                                            ------------------ --------------
</TABLE>

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



                                      33
<PAGE>

                       HOMEWOOD SUITES ACQUISITION HOTELS

                        COMBINED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
                                                                              Years Ended December 31,
                                                                         ------------------------------------
                                                                               1998               1997
                                                                         ------------------ -----------------
<S>                                                                             <C>               <C>
CASH FLOWS FROM (TO) OPERATING ACTIVITIES
  Net Income                                                                    $3,453,396        $3,838,564
  Adjustments to Reconcile Net Income to Net Cash
    Provided by Operating Activities
    Depreciation                                                                 2,394,294         1,487,077
  Change In:
    Accounts Receivable                                                           (384,178)         (138,055)
    Prepaids and Other Current Assets                                                7,549            (7,691)
    Accounts Payable                                                              (405,097)           38,368
    Accrued Taxes                                                                  210,217           195,246
    Accrued Expenses--Other                                                         94,091            (1,058)
                                                                         ------------------ -----------------
    Net Adjustments                                                              1,916,876         1,573,887
                                                                         ------------------ -----------------
      NET CASH FLOWS FROM OPERATING ACTIVITIES                                   5,370,373         5,412,451
                                                                         ------------------ -----------------
CASH FLOWS TO FINANCING ACTIVITIES
  Capital Distributions, Net                                                    (5,389,259)       (5,266,712)
                                                                         ------------------ -----------------
      NET INCREASE (DECREASE) IN CASH                                              (18,987)          145,739

      CASH, BEGINNING OF YEAR                                                      393,079           247,340
                                                                         ------------------ -----------------
      CASH, END OF YEAR                                                         $  374,092        $  393,079
                                                                         ================== =================
</TABLE>


SUPPLEMENTAL DISCLOSURES:

     NONCASH FINANCING AND INVESTING ACTIVITIES:

     December  31,  1997  construction  in  progress  totaling   $5,994,799  was
     reclassified to investment in hotel properties during 1998.

     Investment in hotel properties  totaling $3,890,054 in 1998 and $11,799,781
     in 1997 was financed with capital contributions.

     During 1997, the hotels disposed of fully depreciated  furniture,  fixtures
     and equipment in the amount of $503,106.

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



                                      34

<PAGE>

                       HOMEWOOD SUITES ACQUISITION HOTELS

                   NOTES TO THE COMBINED FINANCIAL STATEMENTS

                           DECEMBER 31, 1998 AND 1997

NOTE 1 -- ORGANIZATION AND BASIS OF PRESENTATION

The Homewood Suites Acquisition Hotels (the Hotels) consist of the following:

  Property                 Hotel Location         Date Opened      # of Suites
  --------                 --------------         -----------      -----------

  Atlanta -- Galleria/
    Cumberland             Atlanta, Georgia           1990             124
  Dallas -- Addison        Addison, Texas             1990             120
  Dallas -- Los Colina     Irving, Texas              1990             136
  North Dallas -- Plano    Plano, Texas            April, 1997          99
  Richmond -- West End     Glen Allen, Virginia     May, 1998          123

The Owner purchased the North  Dallas-Plano hotel October 1, 1997. The financial
statements include the results of the operations from this date forward.

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

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

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

NOTE 2 -- SIGNIFICANT ACCOUNTING POLICIES

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

                                                      Life
                                                  ------------
   Land Improvements                              12-15 Years
   Buildings and Improvements                     30-35 Years
   Furniture, Fixtures and Equipment              3-10 Years



(Continued)


                                      35

<PAGE>

                       HOMEWOOD SUITES ACQUISITION HOTELS

                   NOTES TO THE COMBINED 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 properties under  construction.  At the point  construction is
completed  and the  Hotels  are  ready to be placed  in  service,  the costs are
reclassified  to  investment  in  Hotel   properties  for  financial   statement
presentation.

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

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

Accounts receivable are recorded net of an allowance for doubtful accounts based
on  management's  historical  experience in  estimating  credit  losses.  Actual
uncollectible  balances  written  off may be more or  less  than  the  allowance
recorded.

Cash - Cash includes all highly liquid investments with a maturity date of three
months or less when purchased.

Advertising - Advertising costs are expensed in the period incurred.

Pre-Opening  Costs - Pre-opening  costs represent  operating  expenses  incurred
prior to  initial  opening  of the  hotels.  In 1998,  pre-opening  expenses  of
$226,964 for the  Richmond-West  End hotel were  expensed as incurred.  In 1997,
pre-opening  expenses  of  $66,045  for  the  North  Dallas  - Plano  hotel  and
pre-opening  expenses of $55,608 for the Richmond - West End hotel were expensed
as incurred.

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



(Continued)



                                      36

<PAGE>

                       HOMEWOOD SUITES ACQUISITION HOTELS

                   NOTES TO THE COMBINED FINANCIAL STATEMENTS

                           DECEMBER 31, 1998 AND 1997

NOTE 3 -- RELATED PARTY TRANSACTIONS

The Owner allocates a monthly accounting fee of $1,000 to each hotel. These fees
totaled  $56,000 in 1998 and $39,000 in 1997. The Owner also chargers each Hotel
a fee for corporate advertising, training and reservations equal to four percent
of net suite revenue.  These fees totaled $566,569 in 1998 and $427,337 in 1997.
In 1998,  the Owner charged a franchise  fee of $563,035 to these  hotels,  also
computed at four percent of suite revenue. No franchise fee was charged in 1997.
Effective in 1999, the Owner will be charging a "base  management  fee" of three
percent of suite revenue to each hotel.

The  acquisition  costs of the properties and related  furnishings and equipment
was financed by the owner.  For all properties,  excluding North Dallas -- Plano
which was a purchased project,  the owner allocated interest to each property on
monies  advanced to fund the  construction  costs.  The interest costs have been
capitalized and  depreciated in accordance with the Hotels' normal  depreciation
policy.  During 1998, interest capitalized and included in the cost basis of the
Richmond-West End hotel totaled $445,782.

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

NOTE 4 -- CONCENTRATIONS AND CONTINGENCIES

Approximately  sixty percent of the  Richmond-West End hotel's revenues are from
Capital One Financial Corporation, a non affiliated entity.

The  Hotels'   depository  bank  accounts  are  maintained  with  two  financial
institutions;  Bank of America and First Union. A  concentration  of credit risk
exists to the extent that cash deposits exceed amounts insured by FDIC; $100,000
per financial  institution.  At December 31, 1998,  cash deposits  exceeded FDIC
insurable amounts by $150,132 and $170,079, respectively.



(Continued)



                                      37

<PAGE>
                       HOMEWOOD SUITES ACQUISITION HOTELS

                   NOTES TO THE COMBINED FINANCIAL STATEMENTS

                           DECEMBER 31, 1998 AND 1997

NOTE 4 -- CONCENTRATIONS AND CONTINGENCIES, Continued

The general  contractor who constructed the  Richmond-West End hotel has filed a
$3,800,000  lien  against the  property.  Management  believes  that the general
contractor's   case  is  grossly   exaggerated  and  that  the  matter  will  be
satisfactorily resolved in a prompt manner. Management also believes that in the
event they are unable to prevail  entirely,  any aspect of the claim  should not
have a material adverse affect on the Hotels'  financial  position or results of
operations.









                                      38

<PAGE>

                       HOMEWOOD SUITES ACQUISITION HOTELS

                       COMBINED BALANCE SHEET (UNAUDITED)

                                 JUNE 30, 1999


                                     ASSETS

CURRENT ASSETS
  Cash                                          $   326,301
  Accounts Receivable, Net                          727,247
  Prepaid and Other                                   6,050
                                                -----------

         TOTAL CURRENT ASSETS                     1,059,598
                                                -----------

INVESTMENT IN HOTEL PROPERTIES
  Land and Improvements                           8,044,305
  Buildings and Improvements                     29,188,026
  Furniture, Fixtures and Equipment              11,401,756
                                                -----------

         TOTAL                                   48,634,087
  Less Accumulated Depreciation                 (12,435,726)
                                                -----------

         NET INVESTMENT IN HOTEL PROPERTIES      36,198,361
                                                -----------

         TOTAL ASSETS                           $37,257,959
                                                ===========








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


                                      39
<PAGE>


                LIABILITIES AND SHAREHOLDERS' EQUITY (UNAUDITED)

<TABLE>
<CAPTION>
<S>                                                                  <C>
CURRENT LIABILITIES
  Accounts Payable                                                     $   283,849
  Accrued Taxes                                                            673,966
  Accrued Expenses--Other                                                  298,719
                                                                     -------------
      TOTAL CURRENT LIABILITIES                                          1,256,534
                                                                     -------------
SHAREHOLDERS' EQUITY
  Contributed Capital                                                    9,074,634
  Retained Earnings                                                     26,926,791
                                                                     -------------
      TOTAL SHAREHOLDERS' EQUITY                                        36,001,425
                                                                     -------------


      TOTAL LIABILITIES AND SHAREHOLDERS'
       EQUITY                                                          $37,257,959
                                                                     =============
</TABLE>



                                      40



<PAGE>

                       HOMEWOOD SUITES ACQUISITION HOTELS

             COMBINED STATEMENT OF SHAREHOLDERS' EQUITY (UNAUDITED)

              FOR THE PERIOD JANUARY 1, 1999 THROUGH JUNE 30, 1999


<TABLE>
<CAPTION>
                                                                                                  Total
                                                      Contributed          Retained            Shareholders'
                                                        Capital            Earnings               Equity
                                                      -----------          --------            -------------
<S>                                                <C>                <C>                      <C>
Balances, January 1, 1999                          $   11,000,030     $  25,253,075            $  36,253,105

Net Income                                                     --         1,673,716                1,673,716

Capital Distributions, Net                             (1,925,396)               --               (1,925,396)
                                                   --------------     -------------            -------------
Balances, June 30, 1999                            $    9,074,634     $  26,926,791            $  36,001,425
                                                   ==============     =============            =============
</TABLE>

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


                                      41

<PAGE>

                       HOMEWOOD SUITES ACQUISITION HOTELS

                      COMBINED INCOME STATEMENT (UNAUDITED)

              FOR THE PERIOD JANUARY 1, 1999 THROUGH JUNE 30, 1999


<TABLE>
<CAPTION>
<S>                                                                      <C>
GROSS OPERATING REVENUE
  Suite Revenue                                                          $  7,364,098
  Other Customer Revenue                                                      420,072
                                                                         ------------

         TOTAL REVENUE                                                      7,784,170
                                                                         ------------
EXPENSES
  Property and Operating                                                    2,845,653
  General and Administrative                                                  187,738
  Advertising and Promotion                                                   329,239
  Utilities                                                                   265,585
  Real Estate and Personal Property, Taxes,
   and Property Insurance                                                     616,949
  Depreciation Expense                                                      1,337,266
  Franchise and Management Fees                                               528,024
                                                                         ------------
         TOTAL EXPENSES                                                     6,110,454
                                                                         ------------
         NET INCOME                                                      $  1,673,716
                                                                         ============
</TABLE>


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


                                      42

<PAGE>

                       HOMEWOOD SUITES ACQUISITION HOTELS

                  COMBINED STATEMENTS OF CASH FLOWS (UNAUDITED)

              FOR THE PERIOD JANUARY 1, 1999 THROUGH JUNE 30, 1999

CASH FLOWS FROM (TO) OPERATING ACTIVITIES
  Net Income                                              $ 1,673,716
                                                          -----------
  Adjustments to Reconcile Net Income to Net Cash
   Provided by Operating Activities:
     Depreciation                                           1,337,266
  Change in:
   Accounts Receivable                                        (12,529)
   Prepaids and Other Current Assets                            2,305
   Accounts Payable                                          (156,227)
   Accrued Taxes                                             (323,931)
   Accrued Expenses - Other                                    45,958
                                                          -----------

  Net Adjustments                                             892,842
                                                          -----------

           NET CASH FLOWS FROM OPERATING
            ACTIVITIES                                      2,566,558

CASH FLOWS FROM (TO) FINANCING ACTIVITIES
 Net Equity Distributions                                  (2,614,349)
                                                          -----------

           NET DECREASE IN CASH                               (47,791)

           CASH, JANUARY 1, 1999                              374,092
                                                          -----------

           CASH, JUNE 30, 1999                            $   326,301
                                                          -----------

SUPPLEMENTAL DISCLOSURES
 NONCASH FINANCING AND INVESTING ACTIVITIES

   During the  period  January  1, 1999  through  June 30,  1999,  additions  to
   Investment in Hotel Properties  totaling  $688,953 were financed with capital
   contributions.

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



                                      43

<PAGE>

                       HOMEWOOD SUITES ACQUISITION HOTELS

               NOTES TO COMBINED FINANCIAL STATEMENTS (UNAUDITED)

              FOR THE PERIOD JANUARY 1, 1999 THROUGH JUNE 30, 1999

NOTE 1 -- ORGANIZATION AND BASIS OF PRESENTATION

The Homewood Suites Acquisition Hotels (the Hotels) consist of the following:

  Property                 Hotel Location         Date Opened      # of Suites
  --------                 --------------         -----------      -----------

  Atlanta -- Galleria/
    Cumberland             Atlanta, Georgia           1990             124
  Dallas -- Addison        Addison, Texas             1990             120
  Dallas -- Los Colina     Irving, Texas              1990             136
  North Dallas -- Plano    Plano, Texas            April, 1997          99
  Richmond -- West End     Glen Allen, Virginia     May, 1998          123

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

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

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

NOTE 2 -- SIGNIFICANT ACCOUNTING POLICIES

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

                                                      Life
                                                  ------------
   Land Improvements                              12-15 Years
   Buildings and Improvements                     30-35 Years
   Furniture, Fixtures and Equipment              3-10 Years



(Continued)


                                      44


<PAGE>

                       HOMEWOOD SUITES ACQUISITION HOTELS

             NOTES TO THE COMBINED FINANCIAL STATEMENTS (UNAUDITED)

              FOR THE PERIOD JANUARY 1, 1999 THROUGH JUNE 30, 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 hotels  reviews the carrying  value and  remaining
depreciable  lives of the Hotel  properties and related assets.  Management does
not believe there are any current  indications  of  impairment.  However,  it is
possible that  estimates of the  remaining  useful lives will change in the near
term.

Accounts receivable are recorded net of an allowance for doubtful accounts based
on  management's  historical  experience in  estimating  credit  losses.  Actual
uncollectible  balances  written  off may be more or  less  than  the  allowance
recorded.

Cash -- Cash  includes all highly  liquid  investments  with a maturity  date of
three months or less when purchased.

Advertising -- Advertising costs are expensed in the period incurred.

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



(Continued)


                                      45
<PAGE>


                       HOMEWOOD SUITES ACQUISITION HOTELS

             NOTES TO THE COMBINED FINANCIAL STATEMENTS (UNAUDITED)

              FOR THE PERIOD JANUARY 1, 1999 THROUGH JUNE 30, 1999


NOTE 3 -- RELATED PARTY TRANSACTIONS

During the period January 1, 1999 through June 30, 1999, the following fees were
expensed to the owner.

<TABLE>
<CAPTION>
    Fee Type                          Basis for Determination       Total Expense
    --------                          -----------------------       -------------
<S>                                   <C>                               <C>
Accounting Fees                       $1,000 per hotel per month        $ 30,000
Corporate Advertising, Training
  and Reservations                    4% of net suite revenue            294,568
Franchise Fees                        4% of net suite revenue            294,568
Management Fees                       3% of net suite revenue            233,456
</TABLE>

The  acquisition  costs of the properties and related  furnishings and equipment
was financed by the owner.  For all properties,  excluding  North  Dallas--Plano
which was a purchased project,  the owner allocated interest to each property on
monies  advanced to fund the  construction  costs.  The interest costs have been
capitalized and  depreciated in accordance with the Hotels' normal  depreciation
policy.

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

NOTE 4 -- CONCENTRATIONS AND CONTINGENCIES

Approximately  sixty percent of the  Richmond-West End hotel's revenues are from
Capital One Financial Corporation, a non affiliated entity.

The  Hotels'   depository  bank  accounts  are  maintained  with  two  financial
institutions;  Bank of America and First Union. A  concentration  of credit risk
exists to the extent that cash deposits exceed amounts insured by FDIC; $100,000
per  financial  institution.  At June 30,  1999,  cash  deposits  exceeded  FDIC
insurable amounts by $108,909.

(Continued)


                                      46
<PAGE>

                       HOMEWOOD SUITES ACQUISITION HOTELS

             NOTES TO THE COMBINED FINANCIAL STATEMENTS (UNAUDITED)

              FOR THE PERIOD JANUARY 1, 1999 THROUGH JUNE 30, 1999


NOTE 4 -- CONCENTRATIONS AND CONTINGENCIES, Continued

The general  contractor who constructed the  Richmond-West End hotel has filed a
$3,800,000  lien  against the  property.  Management  believes  that the general
contractor's   case  is  grossly   exaggerated  and  that  the  matter  will  be
satisfactorily resolved in a prompt manner. Management also believes that in the
event that they are unable to prevail  entirely,  any aspect of the claim should
not have a material adverse affect on the Hotels' financial  position or results
of operations.


                                      47




<PAGE>



APPLE SUITES, INC.
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET AS OF JUNE 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 five
Homewood Suites hotels from Promus Hotels,  Inc. ("Promus") had occurred on June
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 June 30, 1999, nor does it
purport to represent the future financial position of the Company.



<TABLE>
<CAPTION>

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

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

ASSETS
Investment in hotels                                                             -              $46,206,000(A)       $ 46,206,000
Cash and cash equivalents                                               $     35,208                    -                  35,208
Due from lessee                                                                  -                      -                     -
Prepaid expenses                                                                 -                      -                     -
Other assets                                                                 162,449               (155,361)(D)             7,088
                                                                        ------------            -----------          ------------
     TOTAL ASSETS                                                       $    197,657            $46,050,639          $ 45,248,296
                                                                        ============            -----------          ------------
LIABILITIES AND SHAREHOLDERS' EQUITY

Mortgage notes payable                                                            -             $33,975,000 (B)      $ 33,975,000
Line of credit indebtedness                                                  200,000                    -            $    200,000
Accounts payable                                                                  -                     -                     -
Accrued expenses                                                                  -                     -                     -
                                                                         ------------            -----------          ------------

     TOTAL LIABILITIES                                                       200,000             33,975,000            34,175,000


SHAREHOLDERS' EQUITY

Common stock                                                            $        100             12,231,000 (C)              -
                                                                                  -                (155,361)(D)        12,075,739
Net income less than distributions                                            (2,443)                   -                  (2,443)
                                                                        ------------            -----------          ------------
TOTAL SHAREHOLDERS' EQUITY                                                    (2,343)            12,075,639            12,073,296
                                                                        ------------            -----------          ------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY                              $    197,657            $46,050,639          $ 46,248,296
                                                                        ============            ===========          ============
</TABLE>

                                       48
<PAGE>


Notes to Pro Forma Condensed  Consolidated Balance Sheet

(A) Increase  represents the purchase of 5 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
         Property                             Operations            Acquired               Price                 Fee
------------------------------------------------------------------------------------------------------------------------------
<S>                                        <C>                   <C>                    <C>                 <C>

        Homewood Suites-Dallas, TX               1990            July 20, 1999            9,500,000         190,000
        Homewood Suites-Las Colinas, TX          1990            July 20, 1999           11,200,000         224,000
        Homewood Suites-Plano, TX                1997            July 20, 1999            5,400,000         108,000
        Homewood Suites-Richmond, VA           May 1998          July 20, 1999            9,400,000         188,000
        Homewood Suites-Atlanta, GA              1990            July 23, 1999            9,800,000         196,000
                                                                                  --------------------------------------------
                            Total                                                        45,300,000         906,000

</TABLE>
<TABLE>
<CAPTION>




                                                                                              Debt
                                                                         Total               Assumed
        Property                                                  ----------------------------------------
----------------------------------------                              <C>                  <C>
<S>
                                                                      9,690,000             7,125,000
       Homewood Suites-Dallas, TX                                    11,424,000             8,400,000
       Homewood Suites-Las Colinas, TX                                5,508,000             4,050,000
       Homewood Suites-Plano, TX                                      9,588,000             7,050,000
       Homewood Suites-Richmond, VA                                   9,996,000             7,350,000
       Homewood Suites-Atlanta, GA                               ----------------------------------------
                                                                     46,206,000            33,975,000
</TABLE>

(B)  Represents the debt assumed at acquisition. The notes bear interest of 8.5%
     per annum.  The maturity date for all notes is October 1, 2000. The Company
     is required to make monthly principal  payments in the amount of the equity
     proceeds  received during a month in excess of offering  expenses.

(C)  Increase  to common  stock to  reflect  the net  proceeds  from the sale of
     common stock from the Company's continuous offering representing  1,517,494
     shares at a $9  purchase  price  per  share  (net  $8.06  per  share).

(D)  Represents  the  reclassification  of offering  costs upon the  issuance of
     common stock.

                                       49

<PAGE>

APPLE SUITES, INC.
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED  DECEMBER  31,  1998 AND THE SIX MONTHS  ENDED JUNE 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  five  Homewood  Suites  hotels  from  Promus  Hotels,  Inc.
("Promus") had occurred at the beginning of the periods presented and all of the
hotels had been leased to Apple Suites Management,  Inc. (the "Lessee") pursuant
to the Percentage  Leases.  Such pro forma information is based in part upon the
Consolidated  Statements of Operations of the Company,  the Pro Forma Statements
of Operations of the Lessee and the  historical  Statements of Operations of the
acquired hotels. In management's  opinion, all adjustments  necessary to reflect
the effects of these transactions have been made.

The  following  unaudited  Pro  Forma  Condensed   Consolidated   Statements  of
Operations  for the periods  presented  are not  necessarily  indicative of what
actual  results of  operations  of the  Company  would have been  assuming  such
transactions  had been  completed as of the beginning of the periods  presented,
nor does it purport to represent the results of operations  for future  periods.
The most significant assumption which may not be indicative of future operations
is the amount of financial leverage employed.  These Pro Forma statements assume
75% of the purchase price was funded with debt for the entire periods presented.
The Company intends to repay this debt with the proceeds from its "best efforts"
offering.  This repayment of debt would result in lower interest expense, higher
net income, but lower earnings per share.

FOR THE YEAR ENDED DECEMBER 31, 1998

<TABLE>
<CAPTION>


                                                     HISTORICAL
                                                    CONSOLIDATED             HOMEWOOD
                                                    STATEMENT OF              SUITES                          TOTAL
                                                     OPERATIONS           ACQUISITION (A)                   PRO FORMA

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

Revenue:

  Percentage lease revenue                      $      -                 $ 6,261,616(B)                    $ 6,261,618


Expenses:

   Taxes and insurance                                 -                   1,040,638(C)                      1,040,638
   General and administrative                          -                     120,195(D)                        120,195
   Depreciation                                        -                   1,176,103(E)                      1,176,103
                                              ---------------             ----------                       ------------
Total expenses                                         -                   2,336,936                         2,336,935
                                              ---------------             ----------                       ------------
Income before interest income (expense)                -                   3,924,682                         3,924,682

Interest income                                        -                       -                               -
Interest expense                                       -                   2,688,125(F)                      2,688,125
                                              ---------------             ----------                       ------------
Net income                                     $       -                 $ 1,236,557                       $  1,236,557
                                              ===============             ==========                       ============
Earnings per common share:

   Basic and Diluted                           $       -                                                   $       0.88
                                              ===============             ==========                       ============

Basic and diluted weighted average
 common shares outstanding                     $       -                   1,412,531(G)                       1,412,531
                                              ===============             ==========                       ============

</TABLE>
                                       50


<PAGE>


FOR THE SIX MONTHS ENDED JUNE 30, 1999
<TABLE>
<CAPTION>

                                                           HISTORICAL                HOMEWOOD
                                                          STATEMENT OF                SUITES                     TOTAL
                                                           OPERATIONS              ACQUISITION (A)             PRO FORMA

                                                          ------------------------------------------------------------------
<S>                                                       <C>                    <C>                         <C>
Revenue:

   Percentage lease revenue                               $      -               $ 3,317,994(B)               $3,317,994

Expenses:
   Taxes and insurance                                           -                   616,949(C)                  616,949
   General and administrative                                    -                    61,155(D)                   61,155
   Depreciation                                                  -                   640,931(E)                  640,931
                                                          ------------           -----------                  ----------
Total expenses                                                   -                 1,319,035                   1,319,035
                                                          ------------           -----------                  ----------
Income before interest income (expense)                          -                 1,998,959                   1,998,959

Interest income                                                  -                      -                          -
Interest expense                                                 -                 1,443,938(F)                1,443,938
                                                          ------------           -----------                  ----------
Net income                                                 $     -               $   555,021                  $  555,021
                                                          ============           ===========                  ==========
Earnings per common share:
   Basic and Diluted                                       $      -                                           $     0.37
                                                          ============                                        ==========
Basic and diluted weighted average common shares
  outstanding                                              $      -                1,517,494(G)               $1,517.494
                                                          ============                                        ==========

</TABLE>


                                      51

<PAGE>

Notes to Pro Forma Condensed Consolidated Statements of Operations

(A)  Represents  results of  operations  for the five  hotels  acquired on a pro
     forma  basis  as if the  five  hotels  were  owned  by the  Company  at the
     beginning  of the  periods  presented.  Since one of the  hotels  was under
     construction  in 1998 and full  operations did not commence until May 1998,
     no pro forma adjustments were made for the periods prior to completion. See
     Note A to Pro Forma  Consolidated  Balance  Sheet for a list of  individual
     hotels acquired.

(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  prospectus  supplement  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 were derived from 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  five  hotels  acquired  based on the
     purchase price,  excluding amounts  allocated to land, of $35,251,200,  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 $8,725,080  did not commence  depreciation
     until May 1998.

(F)  Represents  the interest  expense for the five 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 million that was assumed
     at acquisition. Interest expense on $7.125 million was not recorded for the
     first  four  months in 1998 as this  amount  was  attributable  to the debt
     assumed.  See Note B to the Pro Forma  Consolidated  Balance Sheet for more
     detail.

(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).



                                       52


<PAGE>

APPLE SUITES MANAGEMENT, INC.
PRO FORMA  CONDENSED  CONSOLIDATED  STATEMENT OF  OPERATIONS  FOR THE YEAR ENDED
DECEMBER 31, 1998 AND THE SIX MONTHS ENDED JUNE 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 five 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.  Further,  the results of operations reflect
the Management  Agreement and License  Agreement entered into between Promus and
the  Lessee  or  affiliate  to  operate  the  acquired  hotels.  Such pro  forma
information is based in part upon the  Consolidated  Statements of Operations of
the Lessee,  and the Homewood  Suites  Hotels and should be read in  conjunction
with the financials  statement  contained herein. In management's  opinion,  all
adjustments  necessary  to reflect the effects of these  transactions  have been
made.

The  following  unaudited  Pro  Forma  Condensed   Consolidated   Statements  of
Operations  for the periods are not  necessarily  indicative  of what the actual
results of operations  of the Lessee would have been assuming such  transactions
had been  completed as of the  beginning of the periods  presented,  nor does it
purport to represent the results of operations for the future periods.

FOR THE YEAR-ENDED DECEMBER 31, 1998

<TABLE>
<CAPTION>
                                                     HISTORICAL          HOMEWOOD
                                                    STATEMENT OF          SUITES             PRO FORMA        TOTAL
                                                     OPERATIONS        ACQUISITIONS (A)      ADJUSTMENTS    PRO FORMA
                                                   -------------------------------------------------------------------
<S>                                                 <C>                   <C>                             <C>
REVENUES:
   Suite revenue                                   $        -             $ 14,075,852          -         $ 14,075,852
   Other income                                             -                  811,817          -              811,817

EXPENSES:
   Property and operating costs and expenses                -                5,586,712          -            5,586,712
    General and administrative                              -                  348,088       $(56,000)(B)
                                                            -                     -           (50,000)(C)      342,088
   Advertising and promotion                                -                  648,273       (566,569)(D)
                                                            -                     -           563,034 (E)      644,738
   Utilities                                                -                  626,269          -              626,269
   Taxes and insurance                                                       1,040,638     (1,040,638)(F)          -
   Depreciation expense                                                      2,394,294     (2,394,294)(G)          -
   Franchise fees                                           -                  563,035       (563,035)(H)          -
                                                            -                     -           563,035 (I)      563,035
   Management fees                                          -                     -           619,034 (K)      619,034
   Percentage of rent lease payment                         -                     -        (6,261,618)(L)    6,261,618
   Other                                                    -                  226,964          -              226,964
                                                   --------------         ------------    -----------     ------------
Total expenses                                              -               11,434,273      3,436,185       14,870,458

Income before income taxes                                  -                3,453,396     (3,436,185)          17,211

   Income tax expense                                       -                     -             6,884 (M)        6,884
                                                   --------------         ------------    -----------     ------------
Net income                                         $        -             $  3,453,396    $(3,443,069)    $     10,327
                                                   ==============         ============    ===========     ============
</TABLE>
                                       53
<PAGE>


FOR THE SIX MONTHS ENDED JUNE 30, 1999

<TABLE>
<CAPTION>

                                                  HISTORICAL          HISTORICAL          HOMEWOOD
                                                 STATEMENT OF          SUITES             PRO FORMA        TOTAL
                                                  OPERATIONS        ACQUISITIONS (A)      ADJUSTMENTS    PRO FORMA

                                                -------------------------------------------------------------------
<S>                                              <C>                   <C>                             <C>
REVENUES:
   Suite revenue                                 $       -             $  7,364,098          -         $  7,364,098
   Other income                                          -                  420,072          -              420,072

EXPENSES:
   Property and operating costs and expenses             -                2,845,653          -            2,845,653
   General and administrative                            -                  187,738   $   (30,000)(B)
                                                         -                    -           (25,000)(C)       182,738
   Advertising and promotion                             -                  329,239      (294,568)(D)
                                                         -                    -           294,568 (E)       329,239
   Utilities                                             -                  265,585          -              265,585
   Taxes and insurance                                                      616,949   $  (616,949)(F)          -
   Depreciation expense                                                   1,337,266    (1,337,266)(G)          -
   Franchise fees                                        -                  294,568      (294,568)(H)          -
                                                         -                    -           294,568 (I)       294,568
   Management fees                                       -                  233,456      (233,456)(J)          -
                                                         -                    -           324,564 (K)       324,564
   Percentage of rent lease payment                      -                    -         3,317,994 (L)     3,317,994
                                                 --------------        ------------   -----------      ------------
Total expenses                                           -                6,110,454     1,449,887         7,560,341

Income before income taxes                               -                1,673,716    (1,449,887)          223,829

   Income tax expense                                    -                    -            89,531 (M)        89,531
                                                 --------------        ------------   -----------      ------------
Net income                                       $       -             $  1,673,716   $(1,539,420)     $    134,296
                                                 ==============        ============   ===========      ============
</TABLE>



                                       54

<PAGE>


Notes to Pro Forma Condensed Consolidated Statements of Operations

(A)  Represents  results  of  operations  for the  five  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.  The
     hotels acquired are as follows:

<TABLE>
<CAPTION>

                                                                 Date Commenced                                       Date
         Property                                                   Operations                                       Acquired

--------------------------------------------------------------------------------------------------------------------------------
<S>                                                                    <C>                                        <C>
        Homewood Suites-Dallas, TX                                     1990                                       July 20, 1999
        Homewood Suites-Las Colinas, TX                                1990                                       July 20, 1999
        Homewood Suites-Plano, TX                                      1997                                       July 20, 1999
        Homewood Suites-Richmond. VA                                 May 1998                                     July 20, 1999
        Homewood Suites-Atlanta, GA                                    1990                                       July 23, 1999

</TABLE>

Since the Richmond hotel was under  construction in 1998 and full operations did
not commence  until May 1998,  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 market  reservation fee to be incurred under
     the new management  agreements.  The market  reservation  fee is calculated
     based  on the  terms  of the  management  agreements  which  is 4% of gross
     revenue.

(F)  Represents the  elimination of the taxes and insurance.  Under the terms of
     the lease these expenses will be incurred 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
     management agreements. The franchise fees are calculated based on the terms
     of the agreement which is 4% of gross revenue.

(J)  Represents the  elimination of the historical  management  fees for the six
     months ended June 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 year ended  December 31, 1998 and six month
     period ended June 30, 1999.

(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 Form 8-K Report for
     details.

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


                                       55


<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: October 5, 1999           By:/s/ Glade M. Knight
                                ------------------------------------------------
                                   Glade M. Knight,
                                   Chief Executive Officer of Apple Suites, Inc.














                                       56
[{"type": "8-K", "sequence": "1", "description": "FORM 8-K", "secsgml_size_bytes": 171704}]
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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): September 20, 1999

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

    VIRGINIA                       333-77055                    54-1938865
   (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
                                                                                     -----
Item 2.        Acquisition or Disposition of Assets                                     1

Item 7.        Financial Statements and Exhibits

         a.    Financial Statements

         Atlanta - Galleria/Cumberland; Dallas - Addison; Dallas - Irving/
         Las Colinas; North Dallas - Plano; Richmond - West End

           Independent Auditors Report                                                 29

           Combined Balance Sheets - December 31, 1998 and December 31, 1997           30

           Combined  Statements of  Shareholders'  Equity - Years ended December       32
           31, 1997 and December 31, 1998

           Combined Income Statements - Years ended December 31, 1998 and              33
           December 31, 1997

           Combined Statements of Cash Flows - Years ended December 31, 1998 and       34
           December 31, 1997

           Notes to the Combined Financial Statements - December 31, 1998 and          35
           December 31, 1997

                                      * * *

           Combined Balance Sheet - June 30, 1999 (unaudited)                          39

           Combined  Statement of Shareholders'  Equity - For the Period January       41
           1, 1999 through June 30, 1999 (unaudited)

           Combined  Income  Statement - For the Period  January 1, 1999 through       42
           June 30, 1999 (unaudited)

           Combined  Statement  of Cash Flows - For the  Period  January 1, 1999       43
           through June 30, 1999 (unaudited)

           Notes to the Combined  Financial  Statements - For the Period January       44
           1, 1999 through June 30, 1999 (unaudited)

                                      * * *

           Apple Suites, Inc. -  Pro Forma Condensed  Consolidated Balance Sheet       48
           as of June 30, 1999 (unaudited)

           Apple  Suites, Inc. - Pro Form  Condensed  Consolidated  Statement of       50
           Operations  for the Year Ended  December 31,  1998 and the Six Months
           Ended June 30, 1999 (unaudited)

           Apple  Suites  Management, Inc.  - Pro Forma  Condensed  Consolidated       53
           Statement of Operations for the Year Ended  December 31, 1998 and the
           Six Months Ended June 30, 1999 (unaudited)
(i)
b.       Exhibits

                  4.1      Note dated September 20, 1999 in the principal amount
                           of $ 26,625,000 made payable by Apple Suites, Inc. to
                           the order of Promus Hotels, Inc.

                  4.2      Fee and Leasehold Deed of Trust, Assignment of Lease
                           and Rents and Security Agreement dated September 20,
                           1999 from Apple Suites, Inc. and Apple Suites
                           Management, Inc. for the benefit of Promus Hotels,
                           Inc. pertaining to the Richmond-West End hotel.

                  4.3      Fee and Leasehold Deed of Trust, Assignment of Leases
                           and Rents and Security  Agreement dated September 20,
                           1999 from Apple Suites REIT Limited  Partnership  and
                           Apple Suites  Services  Limited  Partnership  for the
                           benefit  of Promus  Hotels,  Inc.  pertaining  to the
                           Dallas-Addison hotel.

                  4.4      Fee and Leasehold Deed of Trust, Assignment of Leases
                           and Rents and Security  Agreement dated September 20,
                           1999 from Apple Suites REIT Limited  Partnership  and
                           Apple Suites  Services  Limited  Partnership  for the
                           benefit  of Promus  Hotels,  Inc.  pertaining  to the
                           Dallas-Irving/Las Colinas hotel.

                  4.5      Fee and Leasehold Deed of Trust, Assignment of Leases
                           and Rents and Security  Agreement dated September 20,
                           1999 from Apple Suites REIT Limited  Partnership  and
                           Apple Suites  Services  Limited  Partnership  for the
                           benefit  of Promus  Hotels,  Inc.  pertaining  to the
                           North Dallas-Plano hotel.

                  10.1     Indemnity dated September 20, 1999 from Apple Suites,
                           Inc. to Promus Hotels, Inc. pertaining to the
                           Richmond-West End hotel.

                  10.2     Indemnity dated September 20, 1999 from Apple Suites,
                           Inc. to Promus Hotels, Inc. pertaining to the
                           Dallas-Addison hotel.

                  10.3     Indemnity dated September 20, 1999 from Apple Suites,
                           Inc. to Promus Hotels, Inc. pertaining to the
                           Dallas-Irving/Las Colinas hotel.

                  10.4     Indemnity dated September 20, 1999 from Apple Suites,
                           Inc. to Promus Hotels, Inc. pertaining to the to the
                           North Dallas-Plano hotel.

                  10.5     Master Hotel Lease Agreement dated September 20, 1999
                           between Apple Suites, Inc. (as lessor) and Apple
                           Suites Management, Inc. (as lessee).

                  10.6     Master Hotel Lease Agreement dated September 20, 1999
                           between  Apple  Suites REIT Limited  Partnership  (as
                           lessor) and Apple Suites Services Limited Partnership
                           (as lessee).

                  10.7     Homewood Suites License Agreement dated September 20,
                           1999 between Promus Hotels, Inc. and Apple Suites
                           Management, Inc. pertaining to the Richmond-West
                           End hotel.

                  10.8     Homewood Suites License Agreement dated September 20,
                           1999 between Promus Hotels, Inc. and Apple Suites
                           Services Limited Partnership pertaining to the
                           Dallas-Addison hotel.

                                      (ii)
10.9     Homewood Suites License Agreement dated September 20,
                           1999  between  Promus  Hotels,  Inc. and Apple Suites
                           Services  Limited   Partnership   pertaining  to  the
                           Dallas-Irving/Las Colinas hotel.

                  10.10    Homewood Suites License Agreement dated September 20,
                           1999 between Promus Hotels, Inc. and Apple Suites
                           Services Limited Partnership pertaining to the North
                           Dallas-Plano hotel.

                  10.11    Management Agreement dated September 20, 1999 between
                           Apple Suites Management, Inc. and Promus Hotels, Inc.
                           pertaining to the Richmond-West End hotel.

                  10.12    Management Agreement dated September 20, 1999 between
                           Apple Suites Services Limited  Partnership and Promus
                           Hotels, Inc. pertaining to the Dallas-Addison hotel.

                  10.13    Management Agreement dated September 20, 1999 between
                           Apple Suites Services Limited  Partnership and Promus
                           Hotels,  Inc.  pertaining  to  the  Dallas-Irving/Las
                           Colinas hotel.

                  10.14    Management Agreement dated September 20, 1999 between
                           Apple Suites Services Limited  Partnership and Promus
                           Hotels,  Inc.  pertaining  to the North  Dallas-Plano
                           hotel.

                  10.15    Comfort Letter dated September 20, 1999 among  Promus
                           Hotels, Inc., Apple Suites, Inc. and Apple Suites
                           Management, Inc. pertaining to the Richmond-West
                           End hotel.

                  10.16    Comfort Letter dated  September 20, 1999 among Promus
                           Hotels,  Inc., Apple Suites REIT Limited  Partnership
                           and  Apple  Suites   Services   Limited   Partnership
                           pertaining to the Dallas-Addison hotel.

                  10.17    Comfort Letter dated  September 20, 1999 among Promus
                           Hotels,  Inc., Apple Suites REIT Limited  Partnership
                           and  Apple  Suites   Services   Limited   Partnership
                           pertaining to the Dallas-Irving/Las Colinas hotel.

                  10.18    Comfort Letter dated  September 20, 1999 among Promus
                           Hotels,  Inc., Apple Suites REIT Limited  Partnership
                           and  Apple  Suites   Services   Limited   Partnership
                           pertaining to the North Dallas-Plano hotel.

                  10.19    Promissory  Note  dated  September  17,  1999  in the
                           amount  of  $215,550  made  payable  by Apple  Suites
                           Management,  Inc. and Apple Suites  Services  Limited
                           Partnership to the order of Apple Suites, Inc.

                  10.20    Promissory  Note  dated  September  17,  1999  in the
                           amount  of  $47,800  made  payable  by  Apple  Suites
                           Management,  Inc. and Apple Suites  Services  Limited
                           Partnership to the order of Apple Suites, Inc.

                  10.21    Articles of Incorporation of Apple Suites General,
                           Inc.

                  10.22    Bylaws of Apple Suites General, Inc.

                                     (iii)
10.23    Articles of Incorporation of Apple Suites LP, Inc.

                  10.24    Bylaws of Apple Suites LP, Inc.

                  10.25    Certificate of Limited Partnership  of  Apple  Suites
                           REIT Limited Partnership.

                  10.26    Agreement of Limited Partnership of Apple Suites REIT
                           Limited Partnership.

                  24       Consent of Independent Auditors

                                      (iv)
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS

        We (Apple  Suites,  Inc.) have purchased, either directly or through our
subsidiaries,  five existing Homewood Suites(R) hotels.  Homewood Suites(R) is a
registered  service mark of Promus  Hotels,  Inc. The five hotels were purchased
from Promus  Hotels,  Inc. or its  affiliates.  The total purchase price for the
five hotels was $45,300,000. We used proceeds from our offering of common shares
to pay twenty-five  percent of this total,  or $11,325,000,  at closing in cash.
The balance of 75%, or $33,975,000,  is being financed by Promus Hotels, Inc. as
short-term or "bridge financing," as described below.

         We have paid a real  estate  commission  of  $906,000  to Apple  Suites
Realty Group,  Inc., as our real estate  broker.  This amount equals two percent
(2%) of the total purchase price for the hotels.

OVERVIEW OF HOTELS

         We have closed on our purchases of the following hotels:
Name and                                Total          Date of       Purchase          Financed
Location of Hotel                       Suites         Purchase      Price             Portion
-----------------                       ------         --------      -----             -------
Atlanta-Galleria/Cumberland               124          10/5/99       $  9,800,000      $ 7,350,000
Atlanta, Georgia

Dallas-Addison                            120          9/20/99       $  9,500,000      $ 7,125,000
Addison, Texas

Dallas-Irving/Las Colinas                 136          9/20/99       $ 11,200,000      $ 8,400,000
Irving, Texas

North Dallas-Plano                         99          9/20/99       $  5,400,000      $ 4,050,000
Plano, Texas

Richmond-West End                         123          9/20/99       $  9,400,000      $ 7,050,000
Glen Allen, Virginia
We directly  acquired  the hotels in  Atlanta,  Georgia and Glen Allen,
Virginia.  Those two hotels have been leased to Apple  Suites  Management,  Inc.
under a master  hotel lease  agreement  dated as of  September  20,  1999.  This
agreement is among the material contracts described below.

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

                                       1
Under a master hotel lease  agreement  dated as of September  20, 1999,
the three  hotels in Texas have been  leased to Apple  Suites  Services  Limited
Partnership,  a Virginia  limited  partnership.  This limited  partnership  is a
subsidiary of Apple Suites Management, Inc. Two direct wholly-owned subsidiaries
of Apple Suites  Management,  Inc.  serve as the sole  general  partner and sole
limited  partner of the limited  partnership.  The sole general partner is Apple
Suites Services General,  Inc., a Virginia  corporation.  It holds a one percent
partnership interest. The sole limited partner is Apple Suites Services Limited,
Inc.,  a  Virginia  corporation.  It  holds a  ninety-nine  percent  partnership
interest. Glade M. Knight is the sole director of these two corporate partners.
The ownership and leasing structure is depicted in the chart below:

                                [Graphic Omitted]

                                       2
HOTEL SUPPLIES AND FRANCHISE FEES

         We have provided the lessees of the hotels  (Apple  Suites  Management,
Inc. and Apple Suites Services Limited  Partnership) with funds for the purchase
of certain hotel supplies,  such as sheets, towels and so forth. The lessees are
obligated to repay us under two promissory  notes made in the principal  amounts
of $47,800 (for the hotels in Texas and Virginia, as a group)  and  $12,400 (for
the hotel in Atlanta).  These promissory notes are substantially  similar.  Each
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 respective due dates for the first installment,  subject to a five-day
grace  period,  are  October  1,  1999  and  November  1,  1999.  The  remaining
installments  consist of principal and interest on an amortized basis. The final
maturity dates are October 1, 2004 and November 1, 2004, respectively.

         We have also  provided  the  lessees of the  hotels  with funds for the
payment of hotel franchise fees to Promus Hotels, Inc. The lessees are obligated
to repay us under two promissory notes made in the principal amounts of $215,550
(for the hotels in Texas and Virginia,  as a group)  and  $55,800 (for the hotel
in  Atlanta).  These  promissory  notes are  substantially  similar  to the ones
described above, except that these promissory notes provide for repayment in one
hundred  twenty-one (121) monthly  installments and have final maturity dates of
October 1, 2009 and November 1, 2009, respectively.

DESCRIPTION OF FINANCING

         As  indicated  above,  Promus  Hotels,  Inc.  is  financing  75% of the
purchase price of the five hotels. We have executed two promissory notes payable
to Promus Hotels,  Inc. to evidence our debt. To secure the debt,  each hotel is
subject to a mortgage  created by a deed of trust.  The deeds of trust are among
the material contracts described below.

         The  principal  amounts  of the two  promissory  notes are  $26,625,000
(which represents the aggregate  financing for the hotels in Texas and Virginia)
and $7,350,000  (which  represents  the financing for the hotel in Atlanta).  In
other  respects,  the  two  promissory  notes  are  substantially  similar.  The
promissory notes provide for, among other things, the following:

         o   monthly  interest  payments,  based on an annual  interest  rate of
             eight and one-half percent (8.5%)

         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  10 days  of its due  date

         o   initial payment dates, subject to a 10-day grace period, of October
             1, 1999 (for the  $26,625,000  note) and  November 1, 1999 (for the
             $7,350,000 note)

         o   final maturity dates of October 1, 2000 (for the $26,625,000  note)
             and November 1, 2000 (for the $7,350,000 note)

                                       3
Revenue from the  operation of the hotels will be used to pay interest.
As indicated above, 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,  etc.),  a working  capital  reserve and a reserve for  renovations,
repairs and replacements of capital improvements.

         We  expect  to make  monthly  payments  of  principal.  There can be no
assurance,  however,  that the net equity  proceeds  from our offering of common
shares will be sufficient to pay the principal under the promissory  notes on or
before the required due dates. If no payments of principal are made prior to the
maturity of the promissory  notes, a principal  payment of $33,975,000  would be
due at maturity, together with a monthly interest payment of $240,656.25. In the
event of default under the promissory  notes,  various remedies are available to
Promus Hotels, Inc. under the deeds of trust, as described below.

         We  consider  the  financing  from  Promus  Hotels,  Inc. to be "bridge
financing"  because of its short-term nature (i.e., one year). Thus, 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.

LICENSING AND MANAGEMENT

         We expect  that all five of the  hotels  will  continue  to  operate as
Homewood Suites(R) franchises, which are licensed by Promus Hotels, Inc. To help
achieve  that  result,   Promus  Hotels,  Inc.  has  executed  separate  license
agreements,  dated as of  September  20,  1999 with the respect to the hotels in
Texas and Virginia, and dated as of October 5, 1999 with respect to the hotel in
Atlanta.  Promus  Hotels,  Inc.  is  managing  each  of the  five  hotels  under
management  agreements dated as of September 20, 1999 with respect to the hotels
in Texas and Virginia, and dated as of October 5, 1999 with respect to the hotel
in Atlanta.  These  license and  management  agreements  are among the  material
contracts described below.

POTENTIAL ECONOMIC RISK AND BENEFIT TO GLADE M. KNIGHT

         Because  we  are  prohibited  under  federal  tax  laws  from  directly
operating  our  extended-stay  hotels,  we have entered into leases for the five
hotels we have purchased. The hotels are leased to Apple Suites Management, Inc.
or  its  indirectly  wholly-owned  subsidiary,  Apple  Suites  Services  Limited
Partnership.  Our president and chief executive officer, Glade M. Knight, is the
sole shareholder of Apple Suites Management, Inc. and, as a result, the indirect
owner of Apple Suites Services Limited Partnership.

         The master hotel lease agreements have been structured to minimize,  to
the extent possible,  the economic benefit to Apple Suites Management,  Inc. and
to maximize the rental income we receive from the hotels. However, revenues from
operating  the hotels may exceed  payment  obligations  of the lessees under the
master hotel lease agreements and the license and management agreements.  To the
extent that Apple Suites  Management,  Inc. has any remaining income after those
payment  obligations are met, it will realize an economic benefit.  Because this

                                       4
potential  economic  benefit  depends,  in part, on future hotel  revenues,  the
extent of this potential economic benefit cannot be determined at this time.

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

         If the cash flow from the  operations  of the hotels  and the  retained
earnings of Apple Suites  Management,  Inc. are  insufficient to make the rental
payments due under the master lease agreements,  Apple Suites  Management,  Inc.
can receive  additional  funding from two funding  commitments  in the aggregate
amount of $2 million.  The funding commitments have been made by Glade M. Knight
and Apple Suites Realty Group, Inc., which is wholly-owned by Mr. Knight.  These
funding commitments are payable on demand by Apple Suites Management, Inc. Under
each  funding  commitment,  Apple Suites  Management,  Inc. can make one or more
demands for funding,  subject to the following: (1) the aggregate payments under
the funding commitments shall not exceed $2 million; (2) the demands for payment
shall be limited, in amount and frequency,  to those demands that are reasonably
necessary  to satisfy  any  capitalization  or net worth  requirements  of Apple
Suites  Management,  Inc., or payment  obligations  under the master hotel lease
agreements.  Apple Suites Management, Inc. is not required to repay the funds it
receives under the funding commitments.

                          SUMMARY OF MATERIAL CONTRACTS

                                 DEEDS OF TRUST

         Each hotel is  encumbered  by a mortgage  on its real  property,  and a
security interest in its personal property, together with an assignment of hotel
rents and  revenues,  all in favor of Promus  Hotels,  Inc.  These  encumbrances
secure the payment of principal and interest under the promissory  notes we have
made to Promus Hotels, Inc.

         These encumbrances are created by five separate deeds of trust. For the
four  hotels in Texas and  Virginia,  these deeds of trust are each named a "Fee
and  Leasehold  Deed of  Trust,  Assignment  of Leases  and  Rents and  Security
Agreement."  For the  hotel  in  Atlanta,  the deed of trust is named a "Fee and
Leasehold  Deed to Secure  Debt,  Assignment  of Leases  and Rents and  Security
Agreement."

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

         Each deed of trust defines certain events of default.  For each deed of
trust,  those events  include,  among others,  any default under the  promissory
notes,  any  default  under any other 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

                                       5
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.

         In  addition,  our hotels in Texas and  Virginia  are each subject to a
second  mortgage  and security  interest,  under terms and  conditions  that are
substantially similar to the ones described above. These additional encumbrances
provide  further  security for the payment of principal  and interest  under our
promissory note to Promus Hotels, Inc. with respect to the hotel in Atlanta.

                            ENVIRONMENTAL INDEMNITIES

         Each hotel is subject to a separate indemnity.  The indemnities protect
Promus Hotels, Inc. in the event that we undertake any corrective work to remove
or eliminate hazardous materials from the hotel properties.  Hazardous materials
are defined in the indemnities to include, for example, asbestos and other toxic
materials.  We are not aware of any hazardous materials at the hotel properties,
but there can be no assurance that such materials are not present.

         Under the  indemnities,  we have agreed to indemnify and protect Promus
Hotels, Inc. from any losses that it may incur because of (1) the nonperformance
or delayed performance and completion of corrective work; or (2) the enforcement
of the  indemnities.  Our  indemnities  with  respect to the hotels in Texas and
Virginia generally will terminate upon payment in full under the promissory note
we have made to Promus Hotels, Inc. in the principal amount of $26,625,000.  Our
indemnity  with respect to the hotel in Atlanta  generally  will  terminate upon
payment in full under the promissory note we have made to Promus Hotels, Inc. in
the principal amount of $7,350,000.  However, in each case, our indemnities will
continue with respect to those litigation or administrative claims, if any, that
involve  indemnified losses and that are pending at the date of full payment. In
addition,  for a period of 4 years after the date of such full payment,  we will
be  obligated  to  pay  any  enforcement  costs  for  subsequent  litigation  or
administrative claims.

                          MASTER HOTEL LEASE AGREEMENTS

         We have leased our hotels in Atlanta, Georgia and Richmond, Virginia to
Apple Suites  Management,  Inc. under a master hotel lease agreement dated as of
September 20, 1999. We have leased our hotels in Texas to Apple Suites  Services
Limited  Partnership,  a subsidiary  of Apple  Suites  Management,  Inc.,  under
another master hotel lease agreement  dated as of September 20, 1999.  These two
master  hotel lease  agreements  are  substantially  similar.  To  simplify  the
following  discussion,  the term "Apple Suites Management" will mean the lessee,
whether it is Apple Suites  Management,  Inc. or Apple Suites  Services  Limited
Partnership.

         The master hotel lease agreements have an initial term of ten years and
an optional five-year extension, provided that Apple Suites Management is not in
default  either at the time of the  exercise  of the option or at the end of the
original term of the lease. The first five-year extension would be upon the same
terms,  conditions and rentals as in the initial term.  Apple Suites

                                       6
Management  has the  option to extend  the lease for an  additional  five  years
following  the  end of the  first  five-year  extension,  provided  it is not in
default  either at the time of the  exercise  of the option or at the end of the
original  term of the  first  five-year  extension.  If this  second  option  is
exercised, we and Apple Suites Management must negotiate in good faith to adjust
the rental  payments  for the  additional  five-year  term to a market  rate for
similar hotel  properties at that time. If no agreement can be reached on rental
terms for this second  five-year  extension,  a panel of three  persons who have
generally  recognized  expertise in evaluating hotel REIT leases and who are not
affiliates of us or Apple Suites Management will determine such rental terms.

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

         Each master hotel lease agreement provides that Apple Suites Management
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 will pay
percentage  rent based on a percentage  of gross  revenues  (less sales and room
taxes), referred to as "suite revenue," derived in connection with the rental of
suites  at  the  hotels.  The  percentage  rent  is  equal  to  (a)  17%  of all
year-to-date  suite  revenue,  up to  the  applicable  quarterly  suite  revenue
breakpoint (as shown below);  plus (b) 55% of the year-to-date  suite revenue in
excess of the  applicable  quarterly  suite revenue  breakpoint,  less both base
rents  and the  percentage  rent  paid  year to  date.  The  base  rent  and the
percentage  rent will be adjusted each year beginning on January 1, 2001,  based
on the  most  recently  published  Consumer  Price  Index.  The base  rents  and
quarterly  suite revenue  breakpoints  for each of the five hotels over the next
ten years are describe in the following table:

                  Name of Hotel                     Base Rent
                  -------------                     ---------

                  Atlanta-Galleria/Cumberland       $661,320

                  Dallas-Addison                    $638,220

                  Dallas-Irving/Las Colinas         $824,340

                  North Dallas-Plano                $501,930

                  Richmond-West End                 $674,190

                                       7
QUARTERLY SUITE REVENUE BREAKPOINTS

                HOMEWOOD SUITES(R) ATLANTA - GALLERIA/CUMBERLAND
                                ATLANTA, GEORGIA

---------------- ---------------- --------------- ------------- ---------------
  QUARTERS            1999             2000           2001           2002
  --------            ----             ----           ----           ----

1st Quarter         $285,570         $265,530       $270,540       $275,550

2nd Quarter         $571,140         $531,060       $541,080       $551,100

3rd Quarter         $856,710         $796,590       $811,620       $826,650

4th Quarter        $1,142,280       $1,062,120     $1,082,160     $1,102,200

---------------- ---------------- --------------- ------------- ---------------
---------------- ------------ ------------- -------------- ------------- ----------- ------------
  QUARTERS           2003        2004           2005           2006          2007        2008
  --------           ----        ----           ----           ----          ----        ----
1st Quarter        $280,560    $285,570       $290,580       $295,590      $300,600    $305,610

2nd Quarter        $561,120    $571,140       $581,160       $591,180      $601,200    $611,220

3rd Quarter        $841,680    $856,710       $871,740       $886,770      $901,800    $916,830

4th Quarter       $1,122,240  $1,142,280     $1,162,320     $1,182,360    $1,202,400  $1,222,440

---------------- ----------- -------------- -------------- ------------- ----------- ------------
HOMEWOOD SUITES(R) DALLAS - ADDISON
                                 ADDISON, TEXAS

------------------- -------------- -------------- --------------- --------------
  QUARTERS              1999           2000            2001            2002
  --------              ----           ----            ----            ----

1st Quarter           $275,595       $256,255        $261,090        $265,925

2nd Quarter           $551,190       $512,510        $522,180        $531,850

3rd Quarter           $826,785       $768,765        $783,270        $797,775

4th Quarter          $1,102,380     $1,025,020      $1,044,360      $1,063,700

------------------- -------------- -------------- --------------- --------------
---------------- ------------- ------------- -------------- ------------- ----------- -----------
  QUARTERS           2003          2004          2005           2006          2007        2008
  --------           ----          ----          ----           ----          ----        ----
1st Quarter        $270,760      $275,595      $280,430       $285,265      $290,100    $294,935

2nd Quarter        $541,520      $551,190      $560,860       $570,530      $580,200    $589,870

3rd Quarter        $812,280      $826,785      $841,290       $855,795      $870,300    $884,805

4th Quarter       $1,083,040    $1,102,380    $1,121,720     $1,141,060    $1,160,400  $1,179,740

---------------- ------------- ------------- -------------- ------------- ----------- -----------
8
HOMEWOOD SUITES(R) DALLAS - IRVING/LAS COLINAS
                                  IRVING, TEXAS

------------------- -------------- -------------- --------------- --------------
  QUARTERS              1999           2000            2001            2002
  --------              ----           ----            ----            ----

1st Quarter           $355,965       $330,985        $337,230        $343,475

2nd Quarter           $711,930       $661,970        $674,460        $686,950

3rd Quarter          $1,067,895      $992,955       $1,011,690      $1,030,425

4th Quarter          $1,423,860     $1,323,940      $1,348,920      $1,373,900

------------------- -------------- -------------- --------------- --------------
---------------- ----------- ------------- -------------- ------------- -------------------------
  QUARTERS          2003          2004          2005           2006          2007        2008
  --------          ----          ----          ----           ----          ----        ----
1st Quarter       $349,720      $355,965      $362,210       $368,455      $374,700    $380,945

2nd Quarter       $699,440      $711,930      $724,420       $736,910      $749,400    $761,890

3rd Quarter      $1,049,160    $1,067,895    $1,086,630     $1,105,365    $1,124,100  $1,142,835

4th Quarter      $1,398,880    $1,423,860    $1,448,840     $1,473,820    $1,498,800  $1,523,780

---------------- ----------- ------------- -------------- ------------- -------------------------
HOMEWOOD SUITES(R) NORTH DALLAS - PLANO
                                  PLANO, TEXAS

------------------- -------------- -------------- --------------- --------------
  QUARTERS              1999           2000            2001            2002
  --------              ----           ----            ----            ----

1st Quarter           $216,742       $201,533        $205,335        $209,138

2nd Quarter           $433,485       $403,065        $410,670        $418,275

3rd Quarter           $650,228       $604,598        $616,005        $627,413

4th Quarter           $866,970       $806,130        $821,340        $836,550

------------------- -------------- -------------- --------------- --------------
---------------- ------------ ------------- -------------- ------------- ------------- ----------
  QUARTERS          2003          2004          2005           2006          2007          2008
  --------          ----          ----          ----           ----          ----          ----
1st Quarter       $212,940      $216,742      $220,545       $224,348      $228,150      $231,953

2nd Quarter       $425,880      $433,485      $441,090       $448,695      $456,300      $463,905

3rd Quarter       $638,820      $650,228      $661,635       $673,043      $684,450      $695,858

4th Quarter       $851,760      $866,970      $882,180       $897,390      $912,600      $927,810

---------------- ------------ ------------- -------------- ------------- ------------- ----------
9
HOMEWOOD SUITES(R) RICHMOND - WEST END
                              GLEN ALLEN, VIRGINIA

------------------- ---------------- --------------- ------------- -------------
  QUARTERS               1999             2000           2001           2002
  --------               ----             ----           ----           ----

1st Quarter            $291,128         $270,698       $275,805       $280,913

2nd Quarter            $582,255         $541,395       $551,610       $561,825

3rd Quarter            $873,383         $812,093       $872,415       $842,738

4th Quarter           $1,164,510       $1,082,790     $1,103,220     $1,123,650

------------------- ---------------- --------------- ------------- -------------
--------------- --------------- -------------- -------------- ------------- ------------- ---------
  QUARTERS            2003          2004           2005           2006          2007        2008
  --------            ----          ----           ----           ----          ----        ----
1st Quarter         $286,020      $291,128       $296,235       $301,343      $306,450    $311,558

2nd Quarter         $572,040      $582,255       $592,470       $602,685      $612,900    $623,115

3rd Quarter         $858,060      $873,383       $888,705       $904,028      $919,350    $934,673

4th Quarter        $1,144,080    $1,164,510     $1,184,940     $1,205,370    $1,225,800  $1,246,230

--------------- --------------- -------------- -------------- ------------- ------------ ----------
10
Under the master hotel lease  agreements,  Apple Suites  Management  is
responsible for paying all taxes,  other than real estate and personal  property
taxes, imposed with respect to the hotels or any business conducted by it at the
hotels.  In addition,  Apple Suites  Management is responsible for obtaining and
maintaining   utility  services  to  the  hotels  and  paying  all  charges  for
electricity,  gas,  oil,  water,  sewer and other  utilities  used in the hotels
during the term of the master  hotel  lease.  Apple  Suites  Management  is also
responsible   for  paying  all  premiums  for   personal   property   insurance,
comprehensive  general liability  insurance,  worker's  compensation  insurance,
vehicle  liability  insurance,  hazard insurance and any other insurance that we
may reasonably  request for the hotels and their operations.  We are required to
maintain  building  insurance   (including   earthquake  and  flood  insurance),
insurance for loss or damage to the steam boilers and similar apparatus and loss
of income insurance.

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

                            HOTEL LICENSE AGREEMENTS

         Each hotel is licensed to operate as a Homewood Suites(R) hotel under a
separate  Homewood  Suites(R)  "License  Agreement." The license  agreements are
substantially  similar.  Under each  license  agreement,  the licensor is Promus
Hotels,  Inc.  and the  licensee  is the lessee of the hotel.  To  simplify  the
following  discussion,   the  term  "Apple  Suites  Management"  will  mean  the
licensee/lessee,  whether it is Apple  Suites  Management,  Inc. or its indirect
wholly-owned subsidiary, Apple Suites Services Limited Partnership.

         Under the license  agreements,  Promus Hotels, Inc. grants Apple Suites
Management 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 agrees to numerous requirements and restrictions applicable to
its  operation of the hotel.  Apple Suites  Management  is also  required to pay
royalties and other fees, also described below.

                                       11
Apple  Suites  Management  will  be  subject  to  various   operational
requirements  pursuant to the license  agreements and a "Standards  Manual." The
Standards Manual may be changed at any time by Promus Hotels,  Inc. As described
below,  Promus Hotels, Inc. will act as the manager of the hotels under separate
management  agreements.  As a practical matter,  many of the requirements in the
license  agreements and Standards  Manual will be the  responsibility  of Promus
Hotels,   Inc.   However,   certain   requirements  will  remain  the  practical
responsibility of Apple Suites  Management.  Furthermore,  the failure of Promus
Hotels,  Inc.  to comply  with the  management  agreements  will not, of itself,
relieve Apple Suites  Management from the obligations  imposed upon it under the
license agreements.  In such event, Apple Suites Management's only remedy may be
to seek damages for breach of the management agreements.

         The hotels must be operated  24 hours a day in strict  compliance  with
detailed  policies,  procedures and  requirements  established by Promus Hotels,
Inc. These requirements cover matters such as the types of services and products
that may be offered at the hotel, the style and type of signage,  the appearance
and  condition  of the hotel,  the use of the  reservations  system for  guests,
adherence to a 100% Satisfaction Guarantee rule of operation, required insurance
coverage and other  requirements.  The  requirements are designed to insure that
each hotel meets uniform guidelines for all Homewood Suites(R) Hotels,  wherever
located.

         Under the license  agreements,  Apple Suites  Management is granted the
right to use the Homewood  Suites(R)  System only during the term of the license
agreements,  and it obtains  no other  ownership  interest  in or rights to such
System.  The term of each license  agreement is 20 years,  but the  agreement is
subject to early  termination for various  reasons,  including  default by Apple
Suites  Management  or  its  seeking  of  bankruptcy  protection.  If a  license
agreement is  terminated  for any reason,  the hotel must  immediately  cease to
identify itself as a Homewood Suites(R) Hotel.

         Apple Suites  Management 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;  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  is required to prepare and deliver to Promus
Hotels, Inc. daily, monthly and other reports which, among other things, certify
gross revenues from  operation of the hotel.  The 4% marketing  contribution  is
subject to change by Promus Hotels, Inc. from time to time.  Furthermore,  there
is no assurance  that the  marketing  contribution  from a hotel will be used to
fund  advertising  or marketing  with respect to the hotel  actually  making the
contribution.

         Under the license agreements, Promus Hotels, Inc. may from time to time
require Apple Suites  Management  to upgrade  hotel  facilities to meet the then
current standards  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.

                                       12
HOTEL MANAGEMENT AGREEMENTS

         Apple Suites  Management,  Inc. has agreed to have Promus Hotels,  Inc.
manage our hotel in Richmond, Virginia, under a management agreement dated as of
September  20,  1999,  and our hotel in  Atlanta,  under a  separate  management
agreement  dated  as  of  October  5,  1999.   Apple  Suites  Services   Limited
Partnership,  a subsidiary of Apple Suites Management,  Inc., has agreed to have
Promus Hotels,  Inc. manage our three hotels in Texas under separate  management
agreements  dated as of  September  20,  1999.  The  management  agreements  are
substantially  similar.  To simplify the following  discussion,  the term "Apple
Suites Management" will mean the lessee of the hotel, whether it is Apple Suites
Management, Inc. or Apple Suites Services Limited Partnership.

         Under the management  agreements,  Promus Hotels,  Inc. will direct the
operation of the hotels in conformity with the management  agreements  described
herein and the hotel license  agreements  described above.  Promus Hotels,  Inc.
will be responsible  for directing the  day-to-day  activities of the hotels and
establishing policies and procedures relating to the management and operation of
the hotels.

         As part of its responsibilities for directing the day-to-day activities
of the hotels,  Promus  Hotels,  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  hotels.  Promus  Hotels,  Inc.  will be  responsible  for (1)
advertising  and promoting the hotels in coordination  with the  requirements of
the license  agreements  described  above; and (2) obtaining and maintaining any
permits and licenses required to operate the hotels.

         Each year Promus Hotels,  Inc. will submit a proposed  operating budget
for each hotel to Apple Suites  Management  for its  approval.  Each budget will
include a business plan  describing  the business  objectives and strategies for
each hotel for the period  covered by the budget.  In addition,  Promus  Hotels,
Inc. will submit a recommended capital budget to Apple Suites Management for its
approval.  The capital budget will apply to furnishings,  equipment and ordinary
hotel capital  replacements  needed to operate the hotels in accordance with the
hotel  license  agreements.  At  a  minimum,  each  year's  budget  for  capital
improvements will provide for capital expenditures that are required to meet the
minimum  standards  of the hotel  license  agreement,  subject to the  following
limits:  (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 be
equal to 4% of adjusted  gross  revenues.  Adjusted  gross  revenues are defined
generally  as all revenues  derived from the hotels,  as reduced by (1) refunds;
(2)  sales  and  other  similar  taxes;  (3)  proceeds  from  the  sale or other
disposition of the hotels,  furnishings and other capital  assets;  (4) fire and
extended coverage insurance proceeds;  (5) credits or refunds made to customers;

                                       13
(6) condemnation awards; (7) proceeds of financing or refinancing of the hotels;
(8) interest on bank accounts;  and (9) gratuities or service charges added to a
customer's bill.

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

         Each  management  agreement has a 15-year term.  However,  Apple Suites
Management may terminate the agreement after its tenth  anniversary.  If it does
so Promus Hotels,  Inc. will be entitled to a termination  fee. The  termination
fee if Apple Suites  Management  terminates the management  agreement  after the
tenth  anniversary  is  based on a  formula  generally  equal  to the  aggregate
management  fees  earned  during the  preceding  24 months  divided  by two.  In
addition,  if the hotel license  agreement with respect to a particular hotel is
terminated,  Promus  Hotels,  Inc. may  terminate the  corresponding  management
agreement. If Promus Hotels, Inc. terminates the management agreement it will be
entitled to a termination  fee equal to (1) $733,000 if the  termination  occurs
within two years of the effective  date of the management  agreement;  or (2) an
amount  based on a formula that takes into  account the  management  fees earned
over the preceding 24 month period.

         Beginning in the first full calendar year of  operations,  Apple Suites
Management may terminate a 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.  Promas
Hotels,  Inc.  can avoid  termination  by making a cash  payment to Apple Suites
Management  that  equals  the  shortfall  for the  second  such  year  (with the
shortfall being the difference  between the gross operating profits achieved and
85% of the budgeted gross operating profit for the second such year). Generally,
gross operating profit is defined as the amount by which adjusted gross revenues
exceed operating costs.

                                 COMFORT LETTERS

         In the master hotel lease  agreements,  the use of a separate  "lessee"
(Apple Suites  Management,  Inc. or Apple Suites Services  Limited  Partnership,
depending  upon the state in which the hotel is located)  is based upon  certain
technical tax considerations  applicable to real estate investment trusts. In an
effort to minimize operational  complexities or problems that may arise from the
lease  structure  or from the fact that the lessee,  rather  than Apple  Suites,
Inc., is the party to the license agreements and management agreements,  we have
entered into a "Comfort  Letter" with Promus  Hotels,  Inc. with respect to each
hotel.  The comfort  letters grant us certain rights if problems arise under the
license  agreements or leases,  or if the lease structure is no longer necessary
for tax  purposes.  The chief  provisions  of the comfort  letters are described
below.

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

         Second, if there is a default under the lease and we elect to terminate
the lease, we have the right, which may be exercised within 90 days after giving
notice  of  termination  to  Promus  Hotels,  Inc.,  to enter  into a new  lease
agreement with a successor lessee. In general, any such successor lessee must be
majority  owned and  controlled  by us or our  affiliates  (which  includes

                                       14
our directors  and  executive  officers) and must be a person or entity that has
adequate  financial  resources to perform under the lease, is not the franchisor
or operator of a competing  chain of hotels,  and enjoys a favorable  reputation
for integrity.  If we enter into a new lease,  the successor  lessee will have a
right to enter into a new license  agreement and new  management  agreement with
Promus Hotels,  Inc. for the balance of the original terms of those  agreements.
However,  if we are unable to provide a qualified  successor  lessee within such
90-day period,  the license  agreement may be terminated at the option of Promus
Hotels,  Inc.  and we will be  obligated  to pay  liquidated  damages  to Promus
Hotels,  Inc. In general,  liquidated  damages are an amount  equal to the total
fees  payable  under  the  license  agreement  for  the  three  years  prior  to
termination. If the hotel has been open for less than three years, the amount is
equal to the greater of: (1) 36 times the  monthly  average of fees  payable for
the  period  during  which the hotel has been  open;  or (2) 36 times the amount
payable for the last full month of operation prior to termination.  If the hotel
is open but has not been in operation for a full month, liquidated damages equal
$3,000 per suite in the hotel.  Other liquidated  damage provisions apply in the
case of termination of the license agreement before commencement of construction
of the hotel or if construction is complete but the hotel is not yet opened.

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

                            DESCRIPTION OF PROPERTIES

         All five of the hotels are  extended-stay  hotels,  and are part of the
Homewood Suites(R) franchise.  We believe that the majority of the guests at the
hotels  during the past 12 months have been business  travelers.  We expect that
this pattern will continue.

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

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

         The hotels are marketed,  in part,  through the Homewood  Suites(R) web
site  (http://www.homewood-suites.com),  which is generally available 24 hours a
day,  seven days a

                                       15
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  hotels  franchises  include
Hampton   Inns(R),    Doubletree   Hotels(R)   and   Embassy   Suites(R).   Such
cross-marketing  may affect  occupancy at the Homewood  Suites(R)  properties by
directing travelers toward, or away from, Homewood Suites(R).

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

                          ATLANTA - GALLERIA/CUMBERLAND
                                ATLANTA, GEORGIA

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

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

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

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

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

         We believe that the hotel has been  generally  well  maintained  and is
generally  in very good  condition.  Over the next 12  months,  we plan to spend
approximately  $397,000  on  renovations  or  improvements.  We expect  that the
principal  renovations and improvements will involve exterior  painting,  carpet
replacement and furniture  acquisitions (sofas,  recliners and

                                       16
televisions).  We  expect  to  pay  for  the  costs  of  these  renovations  and
improvements with proceeds from our ongoing offering of common shares.

         During 1999, the average stay at the hotel has been  approximately  3.5
nights, and approximately 66% of the guests have stayed for five nights or more.
Occupancy at the hotel is not seasonal.  The following table shows average daily
occupancy rates, expressed as a percentage, for each of the last five years:

                     Average Daily Occupancy Rate (calendar year)

         1995          1996         1997         1998        1999 (through July)
         ----          ----         ----         ----       -------------------

         76.7%         71.7%        77.2%        77.4%             80.8%

         For January 1, 1999 through  September 21, 1999, the average daily rate
per suite was $90.83, and the average daily net revenue per suite was $70.86. As
explained  above,  revenue  from  the  hotel's  operations  will  be used to pay
interest due under the promissory notes payable to Promus Hotels, Inc. We expect
to make monthly  payments of principal to reduce the accrual of interest.  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 notes, and that the hotel continues to have
the level of net revenue  specified above,  approximately  19.48% of the hotel's
revenue would be needed to cover its portion of the interest payments.

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

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

     1 to   4                     $119                 $129              $179
     5 to  11                      109                  119               169
     12 to 29                       92                   99               159
     30 or more                     79                   89               149

         The hotel offers a weekend  discount.  This discount  varies by type of
suite and generally reduces the basic rate by 25 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 80% of the
hotel's guests received a corporate discount.

         The chief  corporate  accounts (as  designated in the hotel's  records)
include Sprint,  SITA Group, JD Edwards,  Worldspan and Boeing.  From January 1,
1999 through July 26, 1999, the

                                       17
ten biggest  corporate  accounts  were  responsible  for over 65% of the hotel's
occupancy.  There can be no assurance,  however, that the hotel will continue to
receive  significant  occupancy,  or any occupancy,  from the corporate accounts
identified above. In particular,  one of the largest  corporate  accounts during
1999 was with Boeing,  which is scheduled to eliminate its operations in Atlanta
during 2000.

         The  average  effective  annual  rental per square foot for each of the
last five years is shown in the table below:

                                                       1999
       1995       1996       1997       1998       (annualized)
       ----       ----       ----       ----       ------------

      $34.44     $34.16     $36.45     $36.57        $37.66

         The  depreciable  real property  component of the hotel has a currently
estimated Federal tax basis of $5,355,919 and will be depreciated over a life of
27.5 years using the  straight-line  method.  The basis of the personal property
component  of the hotel will be  depreciated  in  accordance  with the  modified
accelerated cost recovery system of the Internal Revenue Code.

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

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

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

         We estimate that the annual  property tax on the expected  improvements
will be approximately $5,000 or less.

         At least seven  competing  hotels are located within three miles of the
hotel.  (The  names  of  the  competing  franchises,  as  listed  below,  may be
registered as service  marks or trade names.) Three of the competing  hotels are
newer than the hotel.  The newer competing hotels have franchises with Homestead
Village,  Sheraton  Suites and Summer Suites.  The other  competing  hotels have
franchises  with Courtyard by Marriott,  Embassy  Suites,  Hawthorne  Suites and
Residence  Inn.  We believe  that the rates  charged by the hotel are  generally
competitive  with the rates charged by these other  hotels.  We are aware of one
proposed   construction   project  to  build  an   extended-stay   hotel  within
approximately  one mile of the hotel. We expect this hotel to be franchised with
Hampton Inn Suites.

                                DALLAS - ADDISON
                                 ADDISON, TEXAS

         The Homewood  Suites(R) Dallas - Addison is located on a 3.34 acre site
in Addison,  Texas. Its address is 4451 Beltline Road, Addison, Texas 75244. The
hotel is located within  approximately  15 miles of downtown Dallas and 25 miles
of the Dallas/Fort Worth International Airport.

                                       18
The hotel opened in July 1990. It has wood frame construction,  with an
exterior of brick veneer and stucco. The hotel consists of four buildings,  each
with two or three stories.  The hotel contains 120 suites, which have a combined
area of 61,440 square feet. The following types of suites are available:

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

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

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

         We believe that the hotel has been  generally  well  maintained  and is
generally  in very good  condition.  Over the next 12  months,  we plan to spend
approximately  $360,000  on  renovations  or  improvements.  We expect  that the
principal  renovations and  improvements  will involve  upgrading  bathrooms and
kitchens,  providing  additional signage and replacing exterior doors. We expect
to pay for the costs of these  renovations and  improvements  with proceeds from
our ongoing offering of common shares.

         During 1999, the average stay at the hotel has been  approximately  3.5
nights, and approximately 55% of the guests have stayed for five nights or more.
Occupancy at the hotel is not seasonal.  The following table shows average daily
occupancy rates, expressed as a percentage, for each of the last five years:

                  Average Daily Occupancy Rate (calendar year)

         1995        1996       1997      1998           1999 (through July)
         ----        ----       ----      ----           -------------------

         83.9%       78.4%      78.1%     76.9%                  68.3%

         For January 1, 1999 through  September 21, 1999, the average daily rate
per suite was $99.29, and the average daily net revenue per suite was $80.01. As
explained  above,  revenue  from  the  hotel's  operations  will  be used to pay
interest due under the promissory notes payable to Promus Hotels, Inc. We expect
to make monthly  payments of principal to reduce the accrual of interest.  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

                                       19
maturity of the promissory notes, and that the hotel continues to have the level
of net revenue  specified  above,  approximately  17.28% of the hotel's  revenue
would be needed to cover its portion of the interest payments.

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

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

     1  to  4                $139        $149            $154          $181
     5  to 11                 109         119             129           169
     12 to 29                  89          99             119           149
     30 or more                79          89              99           139

         The hotel offers a weekend  discount.  This discount  varies by type of
suite and generally reduces the basic rate by 25 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 75% of the
hotel's guests received a corporate discount.

         The chief  corporate  accounts (as  designated in the hotel's  records)
include the  Internal  Revenue  Service,  MBNA,  Mobil/Exxon,  Computer  Science
Corporation,  Lucent  Technologies and People Soft. From January 1, 1999 through
August 2, 1999, the ten biggest corporate accounts were responsible for over 22%
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  average  effective  annual  rental per square foot for each of the
last five years is shown in the table below:

                                                    1999
       1995      1996       1997     1998       (annualized)
       ----      ----       ----     ----       ------------

      $56.35    $55.18     $54.05   $54.25        $46.87

         The  depreciable  real property  component of the hotel has a currently
estimated Federal tax basis of $7,363,796 and will be depreciated over a life of
27.5 years using the  straight-line  method.  The basis of the personal property
component  of the hotel will be  depreciated  in  accordance  with the  modified
accelerated cost recovery system of the Internal Revenue Code.

                                       20
The following table sets forth the 1999 real estate tax information for
the hotel:

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

         County of Dallas    $8,100,000        0.43307          $  35,078.67
         City of Dallas       8,100,000        1.46053            118,302.93
         Town of Addison      8,100,000        0.40000             32,400.00

                                                        TOTAL   $ 185,781.60

         We  estimate   that  the  annual  real  estate  tax  on  the   expected
improvements will be approximately $8,000 or less.

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

                           DALLAS - IRVING/LAS COLINAS
                                  IRVING, TEXAS

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

         The hotel opened in January 1990. It has wood frame construction,  with
an exterior of brick veneer, stucco, and wood siding. The hotel consists of five
buildings,  each with two or three stories. The hotel contains 136 suites, which
have a combined  area of 80,144 square feet.  The following  types of suites are
available:

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

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

         The hotel offers a meeting room that accommodates 25 to 30 people,  and
a  business  center  that  offers  guests  the  use of a  personal  computer,  a
photocopier  and an  electric  typewriter.  Recreational  facilities  include an
outdoor pool, a whirlpool,  a basketball  court and an exercise

                                       21
room. The hotel also contains a guest convenience  store and laundry.  The hotel
has its own  parking  lot with 181  spaces.  The  hotel  provides  complimentary
shuttle service within a 3 mile radius.

         We believe that the hotel has been  generally  well  maintained  and is
generally  in very good  condition.  Over the next 12  months,  we plan to spend
approximately  $440,000  on  renovations  or  improvements.  We expect  that the
principal   renovations  and  improvements  will  involve  upgrading  bathrooms,
repairing  the parking lot and  improving the meeting room. We expect to pay for
the costs of these  renovations and improvements  with proceeds from our ongoing
offering of common shares.

         During 1999,  the average stay at the hotel has been  approximately  10
nights, and approximately 60% of the guests have stayed for five nights or more.
Occupancy at the hotel is not seasonal.  The following table shows average daily
occupancy rates, expressed as a percentage, for each of the last five years:

                  Average Daily Occupancy Rate (calendar year)

         1995        1996      1997     1998        1999 (through July)
         ----        ----      ----     ----        -------------------

         75.2%       75.2%     77.8%    75.8 %             76.0%

         For January 1, 1999 through  September 21, 1999, the average daily rate
per suite was $99.08, and the average daily net revenue per suite was $79.94. As
explained  above,  revenue  from  the  hotel's  operations  will  be used to pay
interest due under the promissory notes payable to Promus Hotels, Inc. We expect
to make monthly  payments of principal to reduce the accrual of interest.  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 notes, and that the hotel continues to have
the level of net revenue  specified above,  approximately  17.99% of the hotel's
revenue would be needed to cover its portion of the interest payments.

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

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

      1 to   4                     $129                 $139              $189
      5 to  12                      109                  119               169
      13 to 29                       99                  114               159
      30 or more                     89                   99               149

         The hotel offers a weekend  discount.  This discount  varies by type of
suite and generally reduces the basic rate by 25 to 33%. The weekend discount is
not available to guests who stay

                                       22
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  75% of the hotel's guests  received a corporate
discount.

         The chief  corporate  accounts (as  designated in the hotel's  records)
include  GTE/Bell  Atlantic,  Sprint,  SAP  America,  Ernst & Young,  Oracle and
Associates of America (a financial  services group of Ford Motor Company).  From
January 1, 1999 through July 19, 1999, the ten biggest  corporate  accounts were
responsible  for over 47% 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  average  effective  annual  rental per square foot for each of the
last five years is shown in the table below:

                                                  1999
       1995      1996      1997     1998      (annualized)
       ----      ----      ----     ----      ------------

      $42.17    $44.42    $46.85   $47.48        $46.56

         The  depreciable  real property  component of the hotel has a currently
estimated Federal tax basis of $8,348,973 and will be depreciated over a life of
27.5 years using the  straight-line  method.  The basis of the personal property
component  of the hotel will be  depreciated  in  accordance  with the  modified
accelerated cost recovery system of the Internal Revenue Code.

         The following table sets forth the 1998 real estate tax information for
the hotel:

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

   County of Dallas                 $9,519,990       0.43307     $ 41,228.22
   City of Irving                    9,519,990       0.49300       46,933.55
   Irving School District            9,519,990       1.67840      159,783.51
   Dallas County Utility District    9,519,990       1.59480      151,824.80

                                                         TOTAL   $399,770.08

         We  estimate   that  the  annual  real  estate  tax  on  the   expected
improvements will be approximately $18,000 or less.

         At least five  competing  hotels are located  within three miles of the
hotel.  (The  names  of  the  competing  franchises,  as  listed  below,  may be
registered as service  marks or trade names.) Three of the competing  hotels are
newer  than the  hotel.  The newer  hotels  have  franchises  with  AmeriSuites,
StudioPlus and Summerfield  Suites.  The other competing  hotels have franchises
with Harvey Hotel Suites and Residence Inn. We believe that the rates charged by
the hotel  are

                                       23
generally competitive with the rates charged by these other hotels. We are aware
of two  proposed  construction  projects to build  extended-stay  hotels  within
approximately  five  miles  of  the  hotel.  We  have  no  definite  franchising
information for these hotels.

                              NORTH DALLAS - PLANO
                                  PLANO, TEXAS

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

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

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

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

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

         We believe that the hotel has been  generally  well  maintained  and is
generally  in  very  good  condition.  We do not  have  any  current  plans  for
significant   renovations  or  improvements  at  the  hotel,   although  routine
maintenance and upkeep will be required.

         During 1999, the average stay at the hotel has been  approximately  6.3
nights, and approximately 55% of the guests have stayed for five nights or more.
Occupancy at the hotel is not seasonal.  The following table shows average daily
occupancy rates, expressed as a percentage, since the opening of the hotel:

                  Average Daily Occupancy Rate (calendar year)

                  1997             1998              1999 (through July)
                  ----             ----              -------------------

                  64.4%            70.9%                  69.3%

                                       24
For January 1, 1999 through  September 21, 1999, the average daily rate
per suite was $88.07, and the average daily net revenue per suite was $65.33. As
explained  above,  revenue  from  the  hotel's  operations  will  be used to pay
interest due under the promissory notes payable to Promus Hotels, Inc. We expect
to make monthly  payments of principal to reduce the accrual of interest.  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 notes, and that the hotel continues to have
the level of net revenue  specified above,  approximately  14.58% of the hotel's
revenue would be needed to cover its portion of the interest payments.

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

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

                  1  to  6                     $114                $159
                  7  to 29                       79                 129
                  30 or more                     59                 119

         The hotel offers a weekend  discount.  This discount  varies by type of
suite and generally reduces the basic rate by 25 to 33%. The weekend discount is
not available to guests who stay for five nights or more.  The hotel also offers
discounts to guests who stay under certain corporate  accounts.  These discounts
are often  negotiated  with the  corporate  customer  and vary from  account  to
account.  During the past 12 months,  we estimate that  approximately 85% of the
hotel's guests received a corporate discount.

         The chief accounts (as designated in the hotel's  records)  include Dr.
Pepper/7-Up,  Arco,  Raytheon/E-Systems,  Alcatel Netowork  Systems,  State Farm
Insurance,  USA Cycling,  Sterling Software, J.C. Penney, Rug Doctor and Eastman
Kodak.  From January 1, 1999 through August 12, 1999, the ten biggest  corporate
accounts have been responsible for over 39% 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 average  effective  annual rental per square foot since the opening
of the hotel is shown in the table below:

         1997                                     1999
    (annualized)              1998            (annualized)
    --------------          -----------        ------------

        $38.87                $43.99              $41.60

         The  depreciable  real property  component of the hotel has a currently
estimated Federal tax basis of $4,762,151 and will be depreciated over a life of
27.5 years using the straight-line method. The

                                       25
basis of the personal  property  component of the hotel will be  depreciated  in
accordance  with the modified  accelerated  cost recovery system of the Internal
Revenue Code.

         The following table sets forth the 1998 real estate tax information for
the hotel:

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

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

         At least nine  competing  hotels are  located  within five miles of the
hotel.  (The  names  of  the  competing  franchises,  as  listed  below,  may be
registered as service  marks or trade  names.) Five of the competing  hotels are
newer  than the  hotel.  The newer  hotels  have  franchises  with  AmeriSuites,
Candlewood  Suites,  Homegate  Suites,  Hawthorne  Suites and Residence Inn. The
other  competing  hotels have  franchises  with  Courtyard  by Marriott  (in two
cases),  Hampton  Inn  Suites and  Mainstay  Suites.  We believe  that the rates
charged by the hotel are generally  competitive  with the rates charged by these
other  hotels.  We are aware of three  proposed  construction  projects to build
extended-stay hotels within  approximately five miles of the hotel.  Although we
do not have complete  franchising  information for these hotels, we expect three
of them to be franchised with Doubletree  Suites,  Marriott Townplace and Weston
Suites.

                               RICHMOND - WEST END
                              GLEN ALLEN, VIRGINIA

         The  Homewood  Suites(R)  Richmond - West End is located on a 3.75 acre
site on Innslake Drive in Richmond's  Innsbrook Corporate Center. Its address is
4100 Innslake Drive,  Glen Allen,  Virginia  23060.  The hotel is located within
approximately  14  miles of  downtown  Richmond  and 20  miles  of the  Richmond
International Airport.

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

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

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

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

                                       26
We believe that the hotel has been  generally  well  maintained  and is
generally  in  very  good  condition.  We do not  have  any  current  plans  for
significant   renovations  or  improvements  at  the  hotel,   although  routine
maintenance and upkeep will be required.

         During  1999,  the average stay at the hotel has been  approximately  4
nights, and approximately 50% 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 hotel opened:

                  Average Daily Occupancy Rate (calendar year)

                        1998             1999 (through July)
                        ----             -------------------

                        61.7%                    77.1%

         For January 1, 1999 through  September 21, 1999, the average daily rate
per suite was $92.34, and the average daily net revenue per suite was $66.48. As
explained  above,  revenue  from  the  hotel's  operations  will  be used to pay
interest due under the promissory notes payable to Promus Hotels, Inc. We expect
to make monthly  payments of principal to reduce the accrual of interest.  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 notes, and that the hotel continues to have
the level of net revenue  specified above,  approximately  20.08% of the hotel's
revenue would be needed to cover its portion of the interest payments.

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

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

       1  to  4               $109             $119           $149 - 179
       5  to 29                 89               99               119
       30 to 89                 79               89               119
       90 or more               69               79               119

         The hotel offers a weekend  discount.  This discount  varies by type of
suite and generally reduces the basic rate by 25 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 50% of the
hotel's guests received a corporate discount.

         The chief  accounts  (as  designated  in the hotel's  records)  include
Capital One, Circuit City Stores, First Union Bank,  Compulink,  Saxon Mortgage,
Virginia Power, Owens & Minor, Target Stores and Richfood Holdings. From January
1,  1999  through  July  31,  1999,  the ten  biggest

                                       27
corporate  accounts  were  responsible  for over 44% of the  hotel's  occupancy.
Capital  One,  in  particular,  was  responsible  for more than 5,200  nights of
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 average  effective  annual rental per square foot since the opening
of the hotel is shown in the table below:

                       1998                 1999
                  (annualized)          (annualized)
                  -------------         ------------

                      $37.80               $44.88

         The  depreciable  real property  component of the hotel has a currently
estimated Federal tax basis of $8,523,055 and will be depreciated over a life of
27.5 years using the  straight-line  method.  The basis of the personal property
component  of the hotel will be  depreciated  in  accordance  with the  modified
accelerated cost recovery system of the Internal Revenue Code.

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

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

         County of Henrico     $5,806,300           0.94000         $54,579.22

         At least  seven  competing  hotels are  located  within one mile of the
hotel.  (The  names  of  the  competing  franchises,  as  listed  below,  may be
registered as service  marks or trade names.) Three of the competing  hotels are
newer than the hotel.  The newer hotels have franchises  with Candlewood  Suites
(scheduled to open in October  1999),  Comfort Suites and Courtyard by Marriott.
The other  competing  hotels have  franchises  with  AmeriSuites,  Hampton  Inn,
Homestead  Village and  Residence  Inn. We believe that the rates charged by the
hotel are generally competitive with the rates charged by these other hotels. We
are aware of three proposed  construction projects to build extended-stay hotels
within  approximately  three miles of the hotel.  We expect  these  hotels to be
franchised with Holiday Inn Express, Hilton Garden Inn and Marriott.

                                       28
L.P. MARTIN & COMPANY
                                                A PROFESSIONAL CORPORATION
               MEMBERS                          CERTIFIED PUBLIC ACCOUNTANTS                        MEMBERS
         VIRGINIA SOCIETY OF                        4132 INNSLAKE DRIVE                      AMERICAN INSTITUTE OF
     CERTIFIED PUBLIC ACCOUNTANTS                GLEN ALLEN, VIRGINIA 23060              CERTIFIED PUBLIC ACCOUNTANTS

LEE P. MARTIN, JR., C.P.A.                         PHONE: (804) 346-2626                        ROBERT C. JOHNSON, C.P.A.
WILLIAM L. GRAHAM, C.P.A.                           FAX: (804) 346-9311                   LEE P. MARTIN, C.P.A. (1948-76)
BERNARD G. KINZIE, C.P.A.
W. BARCLAY BRADSHAW, C.P.A.
Independent Auditors' Report

Apple Suites, Inc.
Richmond, Virginia

         We  have  audited  the  accompanying  combined  balance  sheets  of the
Homewood Suites Acquisition Hotels (described in Note 1) as of December 31, 1998
and 1997, and the related combined  statements of income,  shareholders'  equity
and cash flows for the years then  ended.  These  financial  statements  are the
responsibility of the management of the hotels. Our responsibility is to express
an opinion on these financial statements based on our audits.

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

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

August 23, 1999                         /s/ L.P. Martin & Company, P.C.

                                      29
HOMEWOOD SUITES ACQUISITION HOTELS

                            COMBINED BALANCE SHEETS

                                     ASSETS
December 31,
                                                                               1998            1997
                                                                            ----------      ----------
CURRENT ASSETS
   Cash                                                                   $    374,092    $    393,079
   Accounts Receivable, Net                                                    714,718         330,540
   Prepaids and Other                                                            8,355          15,904
                                                                          ------------    ------------
          TOTAL CURRENT ASSETS                                               1,097,165         739,523
                                                                          ------------    ------------
INVESTMENT IN HOTEL PROPERTIES
   Land and Improvements                                                     8,031,122       7,454,360
   Buildings and Improvements                                               29,091,731      22,188,107
   Furniture, Fixtures and Equipment                                        10,822,281       8,417,814
                                                                          ------------    ------------
          TOTAL                                                             47,945,134      38,060,281
   Less: Accumulated Depreciation                                          (11,098,460)     (8,704,166)
                                                                          ------------    ------------

          NET INVESTMENT IN HOTEL PROPERTIES                                36,846,674      29,356,115
                                                                          ------------    ------------
OTHER ASSETS
   Construction in Progress                                                         --       5,994,799
                                                                          ------------    ------------
          TOTAL ASSETS                                                    $ 37,943,839    $ 36,090,437
                                                                          ============    ============
The accompanying notes are an integral part of these financial statements.

                                      30
LIABILITIES AND SHAREHOLDERS' EQUITY
December 31,
                                                                            ---------------------------------
                                                                                  1997             1998
                                                                            ----------------- ---------------
CURRENT LIABILITIES
  Accounts Payable                                                               $   440,076     $   845,173
  Accrued Taxes                                                                      997,897         787,680
  Accrued Expenses--Other                                                            252,761         158,670
                                                                            ----------------- ---------------
      TOTAL CURRENT LIABILITIES                                                    1,690,734       1,791,523
                                                                            ----------------- ---------------
SHAREHOLDERS' EQUITY
  Contributed Capital                                                             11,000,030      12,499,235
  Retained Earnings                                                               25,253,075      21,799,679
                                                                            ----------------- ---------------
      TOTAL SHAREHOLDERS' EQUITY                                                  36,253,105      34,298,914
                                                                            ----------------- ---------------
      TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY                                 $37,943,839     $36,090,437
                                                                            ----------------- ---------------
31
HOMEWOOD SUITES ACQUISITION HOTELS
                   COMBINED STATEMENTS OF SHAREHOLDERS' EQUITY
Total
                                                              Contributed       Retained      Shareholders'
                                                                Capital         Earnings         Equity
                                                             --------------- --------------- ----------------
Balances, January 1, 1997                                       $ 5,966,169     $17,961,115      $23,927,284
Net Income                                                               --       3,838,564        3,838,564
Capital Contributions, Net                                        6,533,066              --        6,533,066
                                                             --------------- --------------- ----------------
Balances, December 31, 1997                                      12,499,235      21,799,679       34,298,914
Net Income                                                               --       3,453,396        3,453,396
Capital Distributions, Net                                       (1,499,205)             --       (1,499,205)
                                                             --------------- --------------- ----------------
Balances, December 31, 1998                                     $11,000,030     $25,253,075      $36,253,105
                                                             =============== =============== ================
The accompanying notes are an integral part of these financial statements.

                                      32
HOMEWOOD SUITES ACQUISITION HOTELS

                           COMBINED INCOME STATEMENTS
Years Ended December 31,
                                                                            ---------------------------------
                                                                                  1998             1997
                                                                            ------------------ --------------
GROSS OPERATING REVENUE
  Suite Revenue                                                                   $14,075,852    $10,683,420
  Other Customer Revenue                                                              811,817        555,232
                                                                            ------------------ --------------
      TOTAL REVENUE                                                                14,887,669     11,238,652
                                                                            ------------------ --------------
EXPENSES
  Property and Operating                                                            5,586,712      3,843,073
  General and Administrative                                                          348,088        208,174
  Advertising and Promotion                                                           648,273        476,762
  Utilities                                                                           626,269        473,887
  Real Estate and Personal Property Taxes, and Property Insurance                   1,040,638        789,462
  Depreciation Expense                                                              2,394,294      1,487,077
  Franchise Fees                                                                      563,035             --
  Pre-Opening Expenses                                                                226,964        121,653
                                                                            ------------------ --------------
      TOTAL EXPENSES                                                               11,434,273      7,400,088
                                                                            ------------------ --------------
      NET INCOME                                                                  $ 3,453,396    $ 3,838,564
                                                                            ------------------ --------------
The accompanying notes are an integral part of these financial statements.

                                      33
HOMEWOOD SUITES ACQUISITION HOTELS

                        COMBINED STATEMENTS OF CASH FLOWS
Years Ended December 31,
                                                                         ------------------------------------
                                                                               1998               1997
                                                                         ------------------ -----------------
CASH FLOWS FROM (TO) OPERATING ACTIVITIES
  Net Income                                                                    $3,453,396        $3,838,564
  Adjustments to Reconcile Net Income to Net Cash
    Provided by Operating Activities
    Depreciation                                                                 2,394,294         1,487,077
  Change In:
    Accounts Receivable                                                           (384,178)         (138,055)
    Prepaids and Other Current Assets                                                7,549            (7,691)
    Accounts Payable                                                              (405,097)           38,368
    Accrued Taxes                                                                  210,217           195,246
    Accrued Expenses--Other                                                         94,091            (1,058)
                                                                         ------------------ -----------------
    Net Adjustments                                                              1,916,876         1,573,887
                                                                         ------------------ -----------------
      NET CASH FLOWS FROM OPERATING ACTIVITIES                                   5,370,373         5,412,451
                                                                         ------------------ -----------------
CASH FLOWS TO FINANCING ACTIVITIES
  Capital Distributions, Net                                                    (5,389,259)       (5,266,712)
                                                                         ------------------ -----------------
      NET INCREASE (DECREASE) IN CASH                                              (18,987)          145,739

      CASH, BEGINNING OF YEAR                                                      393,079           247,340
                                                                         ------------------ -----------------
      CASH, END OF YEAR                                                         $  374,092        $  393,079
                                                                         ================== =================
SUPPLEMENTAL DISCLOSURES:

     NONCASH FINANCING AND INVESTING ACTIVITIES:

     December  31,  1997  construction  in  progress  totaling   $5,994,799  was
     reclassified to investment in hotel properties during 1998.

     Investment in hotel properties  totaling $3,890,054 in 1998 and $11,799,781
     in 1997 was financed with capital contributions.

     During 1997, the hotels disposed of fully depreciated  furniture,  fixtures
     and equipment in the amount of $503,106.

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

                                      34
HOMEWOOD SUITES ACQUISITION HOTELS

                   NOTES TO THE COMBINED FINANCIAL STATEMENTS

                           DECEMBER 31, 1998 AND 1997

NOTE 1 -- ORGANIZATION AND BASIS OF PRESENTATION

The Homewood Suites Acquisition Hotels (the Hotels) consist of the following:

  Property                 Hotel Location         Date Opened      # of Suites
  --------                 --------------         -----------      -----------

  Atlanta -- Galleria/
    Cumberland             Atlanta, Georgia           1990             124
  Dallas -- Addison        Addison, Texas             1990             120
  Dallas -- Los Colina     Irving, Texas              1990             136
  North Dallas -- Plano    Plano, Texas            April, 1997          99
  Richmond -- West End     Glen Allen, Virginia     May, 1998          123

The Owner purchased the North  Dallas-Plano hotel October 1, 1997. The financial
statements include the results of the operations from this date forward.

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

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

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

NOTE 2 -- SIGNIFICANT ACCOUNTING POLICIES

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

                                                      Life
                                                  ------------
   Land Improvements                              12-15 Years
   Buildings and Improvements                     30-35 Years
   Furniture, Fixtures and Equipment              3-10 Years

(Continued)

                                      35
HOMEWOOD SUITES ACQUISITION HOTELS

                   NOTES TO THE COMBINED 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 properties under  construction.  At the point  construction is
completed  and the  Hotels  are  ready to be placed  in  service,  the costs are
reclassified  to  investment  in  Hotel   properties  for  financial   statement
presentation.

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

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

Accounts receivable are recorded net of an allowance for doubtful accounts based
on  management's  historical  experience in  estimating  credit  losses.  Actual
uncollectible  balances  written  off may be more or  less  than  the  allowance
recorded.

Cash - Cash includes all highly liquid investments with a maturity date of three
months or less when purchased.

Advertising - Advertising costs are expensed in the period incurred.

Pre-Opening  Costs - Pre-opening  costs represent  operating  expenses  incurred
prior to  initial  opening  of the  hotels.  In 1998,  pre-opening  expenses  of
$226,964 for the  Richmond-West  End hotel were  expensed as incurred.  In 1997,
pre-opening  expenses  of  $66,045  for  the  North  Dallas  - Plano  hotel  and
pre-opening  expenses of $55,608 for the Richmond - West End hotel were expensed
as incurred.

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

(Continued)

                                      36
HOMEWOOD SUITES ACQUISITION HOTELS

                   NOTES TO THE COMBINED FINANCIAL STATEMENTS

                           DECEMBER 31, 1998 AND 1997

NOTE 3 -- RELATED PARTY TRANSACTIONS

The Owner allocates a monthly accounting fee of $1,000 to each hotel. These fees
totaled  $56,000 in 1998 and $39,000 in 1997. The Owner also chargers each Hotel
a fee for corporate advertising, training and reservations equal to four percent
of net suite revenue.  These fees totaled $566,569 in 1998 and $427,337 in 1997.
In 1998,  the Owner charged a franchise  fee of $563,035 to these  hotels,  also
computed at four percent of suite revenue. No franchise fee was charged in 1997.
Effective in 1999, the Owner will be charging a "base  management  fee" of three
percent of suite revenue to each hotel.

The  acquisition  costs of the properties and related  furnishings and equipment
was financed by the owner.  For all properties,  excluding North Dallas -- Plano
which was a purchased project,  the owner allocated interest to each property on
monies  advanced to fund the  construction  costs.  The interest costs have been
capitalized and  depreciated in accordance with the Hotels' normal  depreciation
policy.  During 1998, interest capitalized and included in the cost basis of the
Richmond-West End hotel totaled $445,782.

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

NOTE 4 -- CONCENTRATIONS AND CONTINGENCIES

Approximately  sixty percent of the  Richmond-West End hotel's revenues are from
Capital One Financial Corporation, a non affiliated entity.

The  Hotels'   depository  bank  accounts  are  maintained  with  two  financial
institutions;  Bank of America and First Union. A  concentration  of credit risk
exists to the extent that cash deposits exceed amounts insured by FDIC; $100,000
per financial  institution.  At December 31, 1998,  cash deposits  exceeded FDIC
insurable amounts by $150,132 and $170,079, respectively.

(Continued)

                                      37
HOMEWOOD SUITES ACQUISITION HOTELS

                   NOTES TO THE COMBINED FINANCIAL STATEMENTS

                           DECEMBER 31, 1998 AND 1997

NOTE 4 -- CONCENTRATIONS AND CONTINGENCIES, Continued

The general  contractor who constructed the  Richmond-West End hotel has filed a
$3,800,000  lien  against the  property.  Management  believes  that the general
contractor's   case  is  grossly   exaggerated  and  that  the  matter  will  be
satisfactorily resolved in a prompt manner. Management also believes that in the
event they are unable to prevail  entirely,  any aspect of the claim  should not
have a material adverse affect on the Hotels'  financial  position or results of
operations.

                                      38
HOMEWOOD SUITES ACQUISITION HOTELS

                       COMBINED BALANCE SHEET (UNAUDITED)

                                 JUNE 30, 1999

                                     ASSETS

CURRENT ASSETS
  Cash                                          $   326,301
  Accounts Receivable, Net                          727,247
  Prepaid and Other                                   6,050
                                                -----------

         TOTAL CURRENT ASSETS                     1,059,598
                                                -----------

INVESTMENT IN HOTEL PROPERTIES
  Land and Improvements                           8,044,305
  Buildings and Improvements                     29,188,026
  Furniture, Fixtures and Equipment              11,401,756
                                                -----------

         TOTAL                                   48,634,087
  Less Accumulated Depreciation                 (12,435,726)
                                                -----------

         NET INVESTMENT IN HOTEL PROPERTIES      36,198,361
                                                -----------

         TOTAL ASSETS                           $37,257,959
                                                ===========

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

                                      39
LIABILITIES AND SHAREHOLDERS' EQUITY (UNAUDITED)
CURRENT LIABILITIES
  Accounts Payable                                                     $   283,849
  Accrued Taxes                                                            673,966
  Accrued Expenses--Other                                                  298,719
                                                                     -------------
      TOTAL CURRENT LIABILITIES                                          1,256,534
                                                                     -------------
SHAREHOLDERS' EQUITY
  Contributed Capital                                                    9,074,634
  Retained Earnings                                                     26,926,791
                                                                     -------------
      TOTAL SHAREHOLDERS' EQUITY                                        36,001,425
                                                                     -------------

      TOTAL LIABILITIES AND SHAREHOLDERS'
       EQUITY                                                          $37,257,959
                                                                     =============
40
HOMEWOOD SUITES ACQUISITION HOTELS

             COMBINED STATEMENT OF SHAREHOLDERS' EQUITY (UNAUDITED)

              FOR THE PERIOD JANUARY 1, 1999 THROUGH JUNE 30, 1999
Total
                                                      Contributed          Retained            Shareholders'
                                                        Capital            Earnings               Equity
                                                      -----------          --------            -------------
Balances, January 1, 1999                          $   11,000,030     $  25,253,075            $  36,253,105

Net Income                                                     --         1,673,716                1,673,716

Capital Distributions, Net                             (1,925,396)               --               (1,925,396)
                                                   --------------     -------------            -------------
Balances, June 30, 1999                            $    9,074,634     $  26,926,791            $  36,001,425
                                                   ==============     =============            =============
The accompanying notes are an integral part of these financial statements.

                                      41
HOMEWOOD SUITES ACQUISITION HOTELS

                      COMBINED INCOME STATEMENT (UNAUDITED)

              FOR THE PERIOD JANUARY 1, 1999 THROUGH JUNE 30, 1999
GROSS OPERATING REVENUE
  Suite Revenue                                                          $  7,364,098
  Other Customer Revenue                                                      420,072
                                                                         ------------

         TOTAL REVENUE                                                      7,784,170
                                                                         ------------
EXPENSES
  Property and Operating                                                    2,845,653
  General and Administrative                                                  187,738
  Advertising and Promotion                                                   329,239
  Utilities                                                                   265,585
  Real Estate and Personal Property, Taxes,
   and Property Insurance                                                     616,949
  Depreciation Expense                                                      1,337,266
  Franchise and Management Fees                                               528,024
                                                                         ------------
         TOTAL EXPENSES                                                     6,110,454
                                                                         ------------
         NET INCOME                                                      $  1,673,716
                                                                         ============
The accompanying notes are an integral part of these financial statements.

                                      42
HOMEWOOD SUITES ACQUISITION HOTELS

                  COMBINED STATEMENTS OF CASH FLOWS (UNAUDITED)

              FOR THE PERIOD JANUARY 1, 1999 THROUGH JUNE 30, 1999

CASH FLOWS FROM (TO) OPERATING ACTIVITIES
  Net Income                                              $ 1,673,716
                                                          -----------
  Adjustments to Reconcile Net Income to Net Cash
   Provided by Operating Activities:
     Depreciation                                           1,337,266
  Change in:
   Accounts Receivable                                        (12,529)
   Prepaids and Other Current Assets                            2,305
   Accounts Payable                                          (156,227)
   Accrued Taxes                                             (323,931)
   Accrued Expenses - Other                                    45,958
                                                          -----------

  Net Adjustments                                             892,842
                                                          -----------

           NET CASH FLOWS FROM OPERATING
            ACTIVITIES                                      2,566,558

CASH FLOWS FROM (TO) FINANCING ACTIVITIES
 Net Equity Distributions                                  (2,614,349)
                                                          -----------

           NET DECREASE IN CASH                               (47,791)

           CASH, JANUARY 1, 1999                              374,092
                                                          -----------

           CASH, JUNE 30, 1999                            $   326,301
                                                          -----------

SUPPLEMENTAL DISCLOSURES
 NONCASH FINANCING AND INVESTING ACTIVITIES

   During the  period  January  1, 1999  through  June 30,  1999,  additions  to
   Investment in Hotel Properties  totaling  $688,953 were financed with capital
   contributions.

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

                                      43
HOMEWOOD SUITES ACQUISITION HOTELS

               NOTES TO COMBINED FINANCIAL STATEMENTS (UNAUDITED)

              FOR THE PERIOD JANUARY 1, 1999 THROUGH JUNE 30, 1999

NOTE 1 -- ORGANIZATION AND BASIS OF PRESENTATION

The Homewood Suites Acquisition Hotels (the Hotels) consist of the following:

  Property                 Hotel Location         Date Opened      # of Suites
  --------                 --------------         -----------      -----------

  Atlanta -- Galleria/
    Cumberland             Atlanta, Georgia           1990             124
  Dallas -- Addison        Addison, Texas             1990             120
  Dallas -- Los Colina     Irving, Texas              1990             136
  North Dallas -- Plano    Plano, Texas            April, 1997          99
  Richmond -- West End     Glen Allen, Virginia     May, 1998          123

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

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

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

NOTE 2 -- SIGNIFICANT ACCOUNTING POLICIES

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

                                                      Life
                                                  ------------
   Land Improvements                              12-15 Years
   Buildings and Improvements                     30-35 Years
   Furniture, Fixtures and Equipment              3-10 Years

(Continued)

                                      44
HOMEWOOD SUITES ACQUISITION HOTELS

             NOTES TO THE COMBINED FINANCIAL STATEMENTS (UNAUDITED)

              FOR THE PERIOD JANUARY 1, 1999 THROUGH JUNE 30, 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 hotels  reviews the carrying  value and  remaining
depreciable  lives of the Hotel  properties and related assets.  Management does
not believe there are any current  indications  of  impairment.  However,  it is
possible that  estimates of the  remaining  useful lives will change in the near
term.

Accounts receivable are recorded net of an allowance for doubtful accounts based
on  management's  historical  experience in  estimating  credit  losses.  Actual
uncollectible  balances  written  off may be more or  less  than  the  allowance
recorded.

Cash -- Cash  includes all highly  liquid  investments  with a maturity  date of
three months or less when purchased.

Advertising -- Advertising costs are expensed in the period incurred.

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

(Continued)

                                      45
HOMEWOOD SUITES ACQUISITION HOTELS

             NOTES TO THE COMBINED FINANCIAL STATEMENTS (UNAUDITED)

              FOR THE PERIOD JANUARY 1, 1999 THROUGH JUNE 30, 1999

NOTE 3 -- RELATED PARTY TRANSACTIONS

During the period January 1, 1999 through June 30, 1999, the following fees were
expensed to the owner.
Fee Type                          Basis for Determination       Total Expense
    --------                          -----------------------       -------------
Accounting Fees                       $1,000 per hotel per month        $ 30,000
Corporate Advertising, Training
  and Reservations                    4% of net suite revenue            294,568
Franchise Fees                        4% of net suite revenue            294,568
Management Fees                       3% of net suite revenue            233,456
The  acquisition  costs of the properties and related  furnishings and equipment
was financed by the owner.  For all properties,  excluding  North  Dallas--Plano
which was a purchased project,  the owner allocated interest to each property on
monies  advanced to fund the  construction  costs.  The interest costs have been
capitalized and  depreciated in accordance with the Hotels' normal  depreciation
policy.

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

NOTE 4 -- CONCENTRATIONS AND CONTINGENCIES

Approximately  sixty percent of the  Richmond-West End hotel's revenues are from
Capital One Financial Corporation, a non affiliated entity.

The  Hotels'   depository  bank  accounts  are  maintained  with  two  financial
institutions;  Bank of America and First Union. A  concentration  of credit risk
exists to the extent that cash deposits exceed amounts insured by FDIC; $100,000
per  financial  institution.  At June 30,  1999,  cash  deposits  exceeded  FDIC
insurable amounts by $108,909.

(Continued)

                                      46
HOMEWOOD SUITES ACQUISITION HOTELS

             NOTES TO THE COMBINED FINANCIAL STATEMENTS (UNAUDITED)

              FOR THE PERIOD JANUARY 1, 1999 THROUGH JUNE 30, 1999

NOTE 4 -- CONCENTRATIONS AND CONTINGENCIES, Continued

The general  contractor who constructed the  Richmond-West End hotel has filed a
$3,800,000  lien  against the  property.  Management  believes  that the general
contractor's   case  is  grossly   exaggerated  and  that  the  matter  will  be
satisfactorily resolved in a prompt manner. Management also believes that in the
event that they are unable to prevail  entirely,  any aspect of the claim should
not have a material adverse affect on the Hotels' financial  position or results
of operations.

                                      47
APPLE SUITES, INC.
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET AS OF JUNE 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 five
Homewood Suites hotels from Promus Hotels,  Inc. ("Promus") had occurred on June
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 June 30, 1999, nor does it
purport to represent the future financial position of the Company.
HOMEWOOD
                                                                           HISTORICAL            SUITES
                                                                             BALANCE         ACQUISITION (A)          TOTAL
                                                                              SHEET           ADJUSTMENTS            PRO FORMA

                                                               -------------------------------------------------------------------
ASSETS
Investment in hotels                                                             -              $46,206,000(A)       $ 46,206,000
Cash and cash equivalents                                               $     35,208                    -                  35,208
Due from lessee                                                                  -                      -                     -
Prepaid expenses                                                                 -                      -                     -
Other assets                                                                 162,449               (155,361)(D)             7,088
                                                                        ------------            -----------          ------------
     TOTAL ASSETS                                                       $    197,657            $46,050,639          $ 45,248,296
                                                                        ============            -----------          ------------
LIABILITIES AND SHAREHOLDERS' EQUITY

Mortgage notes payable                                                            -             $33,975,000 (B)      $ 33,975,000
Line of credit indebtedness                                                  200,000                    -            $    200,000
Accounts payable                                                                  -                     -                     -
Accrued expenses                                                                  -                     -                     -
                                                                         ------------            -----------          ------------

     TOTAL LIABILITIES                                                       200,000             33,975,000            34,175,000

SHAREHOLDERS' EQUITY

Common stock                                                            $        100             12,231,000 (C)              -
                                                                                  -                (155,361)(D)        12,075,739
Net income less than distributions                                            (2,443)                   -                  (2,443)
                                                                        ------------            -----------          ------------
TOTAL SHAREHOLDERS' EQUITY                                                    (2,343)            12,075,639            12,073,296
                                                                        ------------            -----------          ------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY                              $    197,657            $46,050,639          $ 46,248,296
                                                                        ============            ===========          ============
48
Notes to Pro Forma Condensed  Consolidated Balance Sheet

(A) Increase  represents the purchase of 5 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
         Property                             Operations            Acquired               Price                 Fee
------------------------------------------------------------------------------------------------------------------------------
Homewood Suites-Dallas, TX               1990            July 20, 1999            9,500,000         190,000
        Homewood Suites-Las Colinas, TX          1990            July 20, 1999           11,200,000         224,000
        Homewood Suites-Plano, TX                1997            July 20, 1999            5,400,000         108,000
        Homewood Suites-Richmond, VA           May 1998          July 20, 1999            9,400,000         188,000
        Homewood Suites-Atlanta, GA              1990            July 23, 1999            9,800,000         196,000
                                                                                  --------------------------------------------
                            Total                                                        45,300,000         906,000
Debt
                                                                         Total               Assumed
        Property                                                  ----------------------------------------
----------------------------------------
9,690,000             7,125,000
       Homewood Suites-Dallas, TX                                    11,424,000             8,400,000
       Homewood Suites-Las Colinas, TX                                5,508,000             4,050,000
       Homewood Suites-Plano, TX                                      9,588,000             7,050,000
       Homewood Suites-Richmond, VA                                   9,996,000             7,350,000
       Homewood Suites-Atlanta, GA                               ----------------------------------------
                                                                     46,206,000            33,975,000
(B)  Represents the debt assumed at acquisition. The notes bear interest of 8.5%
     per annum.  The maturity date for all notes is October 1, 2000. The Company
     is required to make monthly principal  payments in the amount of the equity
     proceeds  received during a month in excess of offering  expenses.

(C)  Increase  to common  stock to  reflect  the net  proceeds  from the sale of
     common stock from the Company's continuous offering representing  1,517,494
     shares at a $9  purchase  price  per  share  (net  $8.06  per  share).

(D)  Represents  the  reclassification  of offering  costs upon the  issuance of
     common stock.

                                       49
APPLE SUITES, INC.
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED  DECEMBER  31,  1998 AND THE SIX MONTHS  ENDED JUNE 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  five  Homewood  Suites  hotels  from  Promus  Hotels,  Inc.
("Promus") had occurred at the beginning of the periods presented and all of the
hotels had been leased to Apple Suites Management,  Inc. (the "Lessee") pursuant
to the Percentage  Leases.  Such pro forma information is based in part upon the
Consolidated  Statements of Operations of the Company,  the Pro Forma Statements
of Operations of the Lessee and the  historical  Statements of Operations of the
acquired hotels. In management's  opinion, all adjustments  necessary to reflect
the effects of these transactions have been made.

The  following  unaudited  Pro  Forma  Condensed   Consolidated   Statements  of
Operations  for the periods  presented  are not  necessarily  indicative of what
actual  results of  operations  of the  Company  would have been  assuming  such
transactions  had been  completed as of the beginning of the periods  presented,
nor does it purport to represent the results of operations  for future  periods.
The most significant assumption which may not be indicative of future operations
is the amount of financial leverage employed.  These Pro Forma statements assume
75% of the purchase price was funded with debt for the entire periods presented.
The Company intends to repay this debt with the proceeds from its "best efforts"
offering.  This repayment of debt would result in lower interest expense, higher
net income, but lower earnings per share.

FOR THE YEAR ENDED DECEMBER 31, 1998
HISTORICAL
                                                    CONSOLIDATED             HOMEWOOD
                                                    STATEMENT OF              SUITES                          TOTAL
                                                     OPERATIONS           ACQUISITION (A)                   PRO FORMA

                                           -----------------------------------------------------------------------------------
Revenue:

  Percentage lease revenue                      $      -                 $ 6,261,616(B)                    $ 6,261,618

Expenses:

   Taxes and insurance                                 -                   1,040,638(C)                      1,040,638
   General and administrative                          -                     120,195(D)                        120,195
   Depreciation                                        -                   1,176,103(E)                      1,176,103
                                              ---------------             ----------                       ------------
Total expenses                                         -                   2,336,936                         2,336,935
                                              ---------------             ----------                       ------------
Income before interest income (expense)                -                   3,924,682                         3,924,682

Interest income                                        -                       -                               -
Interest expense                                       -                   2,688,125(F)                      2,688,125
                                              ---------------             ----------                       ------------
Net income                                     $       -                 $ 1,236,557                       $  1,236,557
                                              ===============             ==========                       ============
Earnings per common share:

   Basic and Diluted                           $       -                                                   $       0.88
                                              ===============             ==========                       ============

Basic and diluted weighted average
 common shares outstanding                     $       -                   1,412,531(G)                       1,412,531
                                              ===============             ==========                       ============
50
FOR THE SIX MONTHS ENDED JUNE 30, 1999
HISTORICAL                HOMEWOOD
                                                          STATEMENT OF                SUITES                     TOTAL
                                                           OPERATIONS              ACQUISITION (A)             PRO FORMA

                                                          ------------------------------------------------------------------
Revenue:

   Percentage lease revenue                               $      -               $ 3,317,994(B)               $3,317,994

Expenses:
   Taxes and insurance                                           -                   616,949(C)                  616,949
   General and administrative                                    -                    61,155(D)                   61,155
   Depreciation                                                  -                   640,931(E)                  640,931
                                                          ------------           -----------                  ----------
Total expenses                                                   -                 1,319,035                   1,319,035
                                                          ------------           -----------                  ----------
Income before interest income (expense)                          -                 1,998,959                   1,998,959

Interest income                                                  -                      -                          -
Interest expense                                                 -                 1,443,938(F)                1,443,938
                                                          ------------           -----------                  ----------
Net income                                                 $     -               $   555,021                  $  555,021
                                                          ============           ===========                  ==========
Earnings per common share:
   Basic and Diluted                                       $      -                                           $     0.37
                                                          ============                                        ==========
Basic and diluted weighted average common shares
  outstanding                                              $      -                1,517,494(G)               $1,517.494
                                                          ============                                        ==========
51
Notes to Pro Forma Condensed Consolidated Statements of Operations

(A)  Represents  results of  operations  for the five  hotels  acquired on a pro
     forma  basis  as if the  five  hotels  were  owned  by the  Company  at the
     beginning  of the  periods  presented.  Since one of the  hotels  was under
     construction  in 1998 and full  operations did not commence until May 1998,
     no pro forma adjustments were made for the periods prior to completion. See
     Note A to Pro Forma  Consolidated  Balance  Sheet for a list of  individual
     hotels acquired.

(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  prospectus  supplement  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 were derived from 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  five  hotels  acquired  based on the
     purchase price,  excluding amounts  allocated to land, of $35,251,200,  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 $8,725,080  did not commence  depreciation
     until May 1998.

(F)  Represents  the interest  expense for the five 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 million that was assumed
     at acquisition. Interest expense on $7.125 million was not recorded for the
     first  four  months in 1998 as this  amount  was  attributable  to the debt
     assumed.  See Note B to the Pro Forma  Consolidated  Balance Sheet for more
     detail.

(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).

                                       52
APPLE SUITES MANAGEMENT, INC.
PRO FORMA  CONDENSED  CONSOLIDATED  STATEMENT OF  OPERATIONS  FOR THE YEAR ENDED
DECEMBER 31, 1998 AND THE SIX MONTHS ENDED JUNE 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 five 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.  Further,  the results of operations reflect
the Management  Agreement and License  Agreement entered into between Promus and
the  Lessee  or  affiliate  to  operate  the  acquired  hotels.  Such pro  forma
information is based in part upon the  Consolidated  Statements of Operations of
the Lessee,  and the Homewood  Suites  Hotels and should be read in  conjunction
with the financials  statement  contained herein. In management's  opinion,  all
adjustments  necessary  to reflect the effects of these  transactions  have been
made.

The  following  unaudited  Pro  Forma  Condensed   Consolidated   Statements  of
Operations  for the periods are not  necessarily  indicative  of what the actual
results of operations  of the Lessee would have been assuming such  transactions
had been  completed as of the  beginning of the periods  presented,  nor does it
purport to represent the results of operations for the future periods.

FOR THE YEAR-ENDED DECEMBER 31, 1998
HISTORICAL          HOMEWOOD
                                                    STATEMENT OF          SUITES             PRO FORMA        TOTAL
                                                     OPERATIONS        ACQUISITIONS (A)      ADJUSTMENTS    PRO FORMA
                                                   -------------------------------------------------------------------
REVENUES:
   Suite revenue                                   $        -             $ 14,075,852          -         $ 14,075,852
   Other income                                             -                  811,817          -              811,817

EXPENSES:
   Property and operating costs and expenses                -                5,586,712          -            5,586,712
    General and administrative                              -                  348,088       $(56,000)(B)
                                                            -                     -           (50,000)(C)      342,088
   Advertising and promotion                                -                  648,273       (566,569)(D)
                                                            -                     -           563,034 (E)      644,738
   Utilities                                                -                  626,269          -              626,269
   Taxes and insurance                                                       1,040,638     (1,040,638)(F)          -
   Depreciation expense                                                      2,394,294     (2,394,294)(G)          -
   Franchise fees                                           -                  563,035       (563,035)(H)          -
                                                            -                     -           563,035 (I)      563,035
   Management fees                                          -                     -           619,034 (K)      619,034
   Percentage of rent lease payment                         -                     -        (6,261,618)(L)    6,261,618
   Other                                                    -                  226,964          -              226,964
                                                   --------------         ------------    -----------     ------------
Total expenses                                              -               11,434,273      3,436,185       14,870,458

Income before income taxes                                  -                3,453,396     (3,436,185)          17,211

   Income tax expense                                       -                     -             6,884 (M)        6,884
                                                   --------------         ------------    -----------     ------------
Net income                                         $        -             $  3,453,396    $(3,443,069)    $     10,327
                                                   ==============         ============    ===========     ============
53
FOR THE SIX MONTHS ENDED JUNE 30, 1999
HISTORICAL          HISTORICAL          HOMEWOOD
                                                 STATEMENT OF          SUITES             PRO FORMA        TOTAL
                                                  OPERATIONS        ACQUISITIONS (A)      ADJUSTMENTS    PRO FORMA

                                                -------------------------------------------------------------------
REVENUES:
   Suite revenue                                 $       -             $  7,364,098          -         $  7,364,098
   Other income                                          -                  420,072          -              420,072

EXPENSES:
   Property and operating costs and expenses             -                2,845,653          -            2,845,653
   General and administrative                            -                  187,738   $   (30,000)(B)
                                                         -                    -           (25,000)(C)       182,738
   Advertising and promotion                             -                  329,239      (294,568)(D)
                                                         -                    -           294,568 (E)       329,239
   Utilities                                             -                  265,585          -              265,585
   Taxes and insurance                                                      616,949   $  (616,949)(F)          -
   Depreciation expense                                                   1,337,266    (1,337,266)(G)          -
   Franchise fees                                        -                  294,568      (294,568)(H)          -
                                                         -                    -           294,568 (I)       294,568
   Management fees                                       -                  233,456      (233,456)(J)          -
                                                         -                    -           324,564 (K)       324,564
   Percentage of rent lease payment                      -                    -         3,317,994 (L)     3,317,994
                                                 --------------        ------------   -----------      ------------
Total expenses                                           -                6,110,454     1,449,887         7,560,341

Income before income taxes                               -                1,673,716    (1,449,887)          223,829

   Income tax expense                                    -                    -            89,531 (M)        89,531
                                                 --------------        ------------   -----------      ------------
Net income                                       $       -             $  1,673,716   $(1,539,420)     $    134,296
                                                 ==============        ============   ===========      ============
54
Notes to Pro Forma Condensed Consolidated Statements of Operations

(A)  Represents  results  of  operations  for the  five  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.  The
     hotels acquired are as follows:
Date Commenced                                       Date
         Property                                                   Operations                                       Acquired

--------------------------------------------------------------------------------------------------------------------------------
Homewood Suites-Dallas, TX                                     1990                                       July 20, 1999
        Homewood Suites-Las Colinas, TX                                1990                                       July 20, 1999
        Homewood Suites-Plano, TX                                      1997                                       July 20, 1999
        Homewood Suites-Richmond. VA                                 May 1998                                     July 20, 1999
        Homewood Suites-Atlanta, GA                                    1990                                       July 23, 1999
Since the Richmond hotel was under  construction in 1998 and full operations did
not commence  until May 1998,  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 market  reservation fee to be incurred under
     the new management  agreements.  The market  reservation  fee is calculated
     based  on the  terms  of the  management  agreements  which  is 4% of gross
     revenue.

(F)  Represents the  elimination of the taxes and insurance.  Under the terms of
     the lease these expenses will be incurred 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
     management agreements. The franchise fees are calculated based on the terms
     of the agreement which is 4% of gross revenue.

(J)  Represents the  elimination of the historical  management  fees for the six
     months ended June 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 year ended  December 31, 1998 and six month
     period ended June 30, 1999.

(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 Form 8-K Report for
     details.

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

                                       55
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: October 5, 1999           By:/s/ Glade M. Knight
                                ------------------------------------------------
                                   Glade M. Knight,
                                   Chief Executive Officer of Apple Suites, Inc.

                                       56