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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549



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FORM 10-Q



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(Mark One)

|x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|- | ---------------------------------------------------------------------------------------

For the quarterly period ended MARCH 31, 2007

or



| ̈ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|- | ----------------------------------------------------------------------------------------

For the transition period from  to

Commission File Number: 000-52585



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APPLE REIT SEVEN, INC.

(Exact name of registrant as specified in its charter)



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|                                                               |  |                                     
|-------------------------------------------------------------- |  | ------------------------------------
|VIRGINIA                                                       |  | 20-2879175                          
|(State or other jurisdiction of incorporation or organization) |  | (I.R.S. Employer Identification No.)
|                                                               | 
|814 EAST MAIN STREET, RICHMOND, VA                             |  | 23219                               
|(Address of principal executive offices)                       |  | (Zip Code)                          

(804) 344-8121

(Registrants telephone number, including area code)



(Former name, former address and former fiscal year, if changed since last report)



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Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    x  Yes ̈No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of accelerated filer
and large accelerated filer in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer ̈Accelerated filer ̈Non-accelerated filer  x



Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act) ̈Yes    x  No

As of May 1, 2007 there
were 52,092,320 outstanding shares of common stock, no par value, of the registrant.



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APPLE REIT SEVEN, INC.

FORM 10-Q



|                              |  |                                                                                            |  |   
|----------------------------- |  | ------------------------------------------------------------------------------------------ |  | --
|INDEX                        
|                              |  | Page Number                                                                               
|PART I. FINANCIAL INFORMATION |  |                                                                                           
|                              |  |                                                                                           
|Item 1.                       |  | Financial Statements (Unaudited)                                                           |  |   
|                              |  |                                                                                           
|                              |  | Consolidated Balance Sheets - March 31, 2007 and December 31, 2006                         |  | 3 
|                              |  |                                                                                           
|                              |  | Consolidated Statement of Operations - For the three months ended March 31, 2007 and 2006  |  | 4 
|                              |  |                                                                                           
|                              |  | Consolidated Statements of Cash Flows - For the three months ended March 31, 2007 and 2006 |  | 5 
|                              |  |                                                                                           
|                              |  | Notes to Consolidated Financial Statements                                                 |  | 6 
|                              |  |                                                                                           
|Item 2.                       |  | Managements Discussion and Analysis of Financial Condition and Results of Operations      |  | 13
|Item 3.                       |  | Quantitative and Qualitative Disclosures about Market Risk                                 |  | 21
|Item 4.                       |  | Controls and Procedures                                                                    |  | 21
|                              | 
|PART II. OTHER INFORMATION:   |  |                                                                                           
|                              |  |                                                                                           
|Item 1.                       |  | Legal Proceedings (not applicable)                                                         |  |   
|Item 1a.                      |  | Risk Factors (not applicable)                                                              |  |   
|Item 2.                       |  | Unregistered Sales of Equity Securities and Use of Proceeds                                |  | 22
|Item 3.                       |  | Defaults Upon Senior Securities (not applicable)                                           |  |   
|Item 4.                       |  | Submission of Matters to a Vote of Security Holders (not applicable)                       |  |   
|Item 5.                       |  | Other Information (not applicable)                                                         |  |   
|Item 6.                       |  | Exhibits                                                                                   |  | 23
|                              | 
|Signatures                    |  | 24                                                                                        
|                              | 
|Certifications                |  | 25                                                                                        

This Form 10-Q includes references to certain trademarks or service marks. The Springhill
Suites® by Marriott, TownePlace Suites® by Marriott, Fairfield Inn® by Marriott, Courtyard® by Marriott and Residence Inn® by Marriott trademarks are the property of Marriott International, Inc. or one of its affiliates. The
Homewood Suites® by Hilton, Hilton Garden Inn®, Hampton Inn® and Hampton Inn & Suites® trademarks are the property of Hilton Hotels Corporation or one or more of its affiliates. For convenience, the applicable trademark or
servicemark symbol has been omitted but will be deemed to be included wherever the above referenced terms are used.



2



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Apple REIT Seven, Inc.

Consolidated Balance Sheets

(Unaudited)

(In thousands, except
share data)



|                                                                                                                                              |  |               |         |   |                  |   |         |  
|--------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------- | ------- | - | ---------------- | - | ------- | -
|                                                                                                                                              |  | March 31,2007 |         |   | December 31,2006 |  
|ASSETS                                                                                                                                        |  |               |         |   |                  |   |         |  
|Investment in real estate, net of accumulated depreciation of $5,831 and $3,073, respectively                                                 |  | $             | 449,975 |   |                  | $ | 347,092 |  
|Cash and cash equivalents                                                                                                                     |  |               | 48,558  |   |                  |   | 44,604  |  
|Restricted cash-furniture, fixtures and other escrows                                                                                         |  |               | 4,517   |   |                  |   | 2,809   |  
|Due from third party managers                                                                                                                 |  |               | 5,707   |   |                  |   | 2,434   |  
|Other assets, net                                                                                                                             |  |               | 10,782  |   |                  |   | 12,947  |  
|                                                                                                                                              |  |               |         |   |                  |   |         |  
|TOTAL ASSETS                                                                                                                                  |  | $             | 519,539 |   |                  | $ | 409,886 |  
|                                                                                                                                              |  |               |         |   |                  |   |         |  
|LIABILITIES                                                                                                                                   |  |               |         |   |                  |   |         |  
|Notes payable                                                                                                                                 |  | $             | 57,086  |   |                  | $ | 49,292  |  
|Accounts payable and accrued expenses                                                                                                         |  |               | 4,386   |   |                  |   | 6,472   |  
|                                                                                                                                              |  |               |         |   |                  |   |         |  
|TOTAL LIABILITIES                                                                                                                             |  |               | 61,472  |   |                  |   | 55,764  |  
|                                                                                                                                              |  |               |         |   |                  |   |         |  
|SHAREHOLDERS EQUITY                                                                                                                          |  |               |         |   |                  |   |         |  
|Preferred stock, authorized 15,000,000 shares; none issued and outstanding                                                                    |  |               |        |   |                  |   |        |  
|Series A preferred shares, no par value, authorized 200,000,000 shares; issued and outstanding 47,965,726 and 37,045,297 shares,
respectively |  |               |        |   |                  |   |        |  
|Series B convertible preferred stock, no par value, authorized 240,000 shares; issued and outstanding 240,000 shares                          |  |               | 24      |   |                  |   | 24      |  
|Common stock, no par value, authorized 200,000,000 shares; issued and outstanding 47,965,726 and 37,045,297 shares,
respectively              |  |               | 471,188 |   |                  |   | 363,239 |  
|Distributions greater than net income                                                                                                         |  |               | (13,145 | ) |                  |   | (9,141  | )
|                                                                                                                                              |  |               |         |   |                  |   |         |  
|TOTAL SHAREHOLDERS EQUITY                                                                                                                    |  |               | 458,067 |   |                  |   | 354,122 |  
|                                                                                                                                              |  |               |         |   |                  |   |         |  
|TOTAL LIABILITIES AND SHAREHOLDERS EQUITY                                                                                                    |  | $             | 519,539 |   |                  | $ | 409,886 |  
|                                                                                                                                              |  |               |         |   |                  |   |         |  

See notes to consolidated financial statements.

Note: The Company was initially capitalized on May 26, 2005 and commenced operations on April 27, 2006.



3



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Apple REIT Seven, Inc.

Consolidated Statements of Operations

(Unaudited)

(In thousands, except
share data)



|                                                       |  |                                 |        |   |                                 |   |      |  
|------------------------------------------------------ |  | ------------------------------- | ------ | - | ------------------------------- | - | ---- | -
|                                                       |  | Three monthsendedMarch 31, 2007 |        |   | Three monthsendedMarch 31, 2006 |  
|Revenues:                                              |  |                                 |        |   |                                 |   |      |  
|Room revenue                                           |  | $                               | 20,804 |   |                                 | $ |     |  
|Other revenue                                          |  |                                 | 1,651  |   |                                 |   |     |  
|                                                       |  |                                 |        |   |                                 |   |      |  
|Total revenue                                          |  |                                 | 22,455 |   |                                 |   |     |  
|                                                       |  |                                 |        |   |                                 |   |      |  
|Expenses:                                              |  |                                 |        |   |                                 |   |      |  
|Operating expense                                      |  |                                 | 5,344  |   |                                 |   |     |  
|Hotel administrative expense                           |  |                                 | 1,602  |   |                                 |   |     |  
|Sales and marketing                                    |  |                                 | 1,790  |   |                                 |   |     |  
|Utilities                                              |  |                                 | 995    |   |                                 |   |     |  
|Repair and maintenance                                 |  |                                 | 916    |   |                                 |   |     |  
|Franchise fees                                         |  |                                 | 848    |   |                                 |   |     |  
|Management fees                                        |  |                                 | 720    |   |                                 |   |     |  
|Taxes, insurance and other                             |  |                                 | 1,568  |   |                                 |   |     |  
|General and administrative                             |  |                                 | 675    |   |                                 |   | 65   |  
|Depreciation expense                                   |  |                                 | 2,758  |   |                                 |   |     |  
|                                                       |  |                                 |        |   |                                 |   |      |  
|Total expenses                                         |  |                                 | 17,216 |   |                                 |   | 65   |  
|                                                       |  |                                 |        |   |                                 |   |      |  
|Operating income (loss)                                |  |                                 | 5,239  |   |                                 |   | (65  | )
|                                                       |  |                                
|Interest income                                        |  |                                 | 425    |   |                                 |   | 82   |  
|Interest expense                                       |  |                                 | (861   | ) |                                 |   | (6   | )
|                                                       |  |                                 |        |   |                                 |   |      |  
|Net income                                             |  | $                               | 4,803  |   |                                 | $ | 11   |  
|                                                       |  |                                 |        |   |                                 |   |      |  
|Basic and diluted earnings per common share            |  | $                               | 0.12   |   |                                 | $ | 0.01 |  
|                                                       |  |                                 |        |   |                                 |   |      |  
|Weighted average shares outstanding; basic and diluted |  |                                 | 40,848 |   |                                 |   | 955  |  
|                                                       |  |                                
|Distributions declared and paid per per common share   |  | $                               | 0.22   |   |                                 | $ |     |  
|                                                       |  |                                 |        |   |                                 |   |      |  

See notes to consolidated financial statements.

Note: The Company was initially capitalized on May 26, 2005 and commenced operations on April 27, 2006.



4



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Apple REIT Seven, Inc.

Consolidated Statements of Cash Flows

(Unaudited)

(In thousands)



|                                                                               |  |                                   |         |   |                                   |   |        |  
|------------------------------------------------------------------------------ |  | --------------------------------- | ------- | - | --------------------------------- | - | ------ | -
|                                                                               |  | Three months ended March 31, 2007 |         |   | Three months ended March 31, 2006 |  
|                                                                               | 
|                                                                               | 
|Cash flow from operating activities:                                           |  |                                   |         |   |                                   |   |        |  
|Net income                                                                     |  | $                                 | 4,803   |   |                                   | $ | 11     |  
|Adjustments to reconcile net income to cash provided by operating activities:  |  |                                   |         |   |                                   |   |        |  
|Depreciation of real estate owned                                              |  |                                   | 2,758   |   |                                   |   |       |  
|Amortization of deferred financing costs and fair value adjustments            |  |                                   | 182     |   |                                   |   |       |  
|Changes in operating assets and liabilities:                                   |  |                                   |         |   |                                   |   |        |  
|Increase in funds due from third party managers                                |  |                                   | (3,221  | ) |                                   |   |       |  
|Increase in other operating assets                                             |  |                                   | (144    | ) |                                   |   | (53    | )
|Increase in accrued operating expenses and accounts payable                    |  |                                   | 41      |   |                                   |   | 2      |  
|                                                                               |  |                                   |         |   |                                   |   |        |  
|Net cash provided (used) by operating activities                               |  |                                   | 4,419   |   |                                   |   | (40    | )
|                                                                               |  |                                  
|Cash flow from investing activities:                                           |  |                                   |         |   |                                   |   |        |  
|Cash paid for the acquistion of hotel properties                               |  |                                   | (79,986 | ) |                                   |   |       |  
|Deposits and other disbursements for potential acquisition of hotel properties |  |                                   | (762    | ) |                                   |   |       |  
|Capital improvements                                                           |  |                                   | (297    | ) |                                   |   |       |  
|                                                                               |  |                                   |         |   |                                   |   |        |  
|Net cash used in investing activities                                          |  |                                   | (81,045 | ) |                                   |   |       |  
|                                                                               |  |                                  
|Cash flow from financing activities:                                           |  |                                   |         |   |                                   |   |        |  
|Net proceeds related to issuance of common and preferred stock                 |  |                                   | 107,938 |   |                                   |   | 57,440 |  
|Cash distributions paid to shareholders                                        |  |                                   | (8,808  | ) |                                   |   |       |  
|Payment of financing costs related to loan assumptions                         |  |                                   | (365    | ) |                                   |   |       |  
|Payment of notes payable                                                       |  |                                   | (18,185 | ) |                                   |   | (400   | )
|                                                                               |  |                                   |         |   |                                   |   |        |  
|Net cash provided by financing activities                                      |  |                                   | 80,580  |   |                                   |   | 57,040 |  
|                                                                               |  |                                   |         |   |                                   |   |        |  
|Net increase in cash and cash equivalents                                      |  |                                   | 3,954   |   |                                   |   | 57,000 |  
|                                                                               |  |                                  
|Cash and cash equivalents, beginning of period                                 |  |                                   | 44,604  |   |                                   |   | 50     |  
|                                                                               |  |                                   |         |   |                                   |   |        |  
|Cash and cash equivalents, end of period                                       |  | $                                 | 48,558  |   |                                   | $ | 57,050 |  
|                                                                               |  |                                   |         |   |                                   |   |        |  
|Non-cash transactions: notes payable assumed in acquisitions                   |  | $                                 | 26,006  |   |                                   | $ |       |  

See notes to consolidated financial statements.

Note: The Company was initially capitalized on May 26, 2005 and commenced operations on April 27, 2006.



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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 1

Basis of Presentation

The accompanying unaudited consolidated financial statements have been prepared in
accordance with the instructions for Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information required by accounting principles generally accepted in the United States. In the opinion of management, all
adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. These unaudited financial statements should be read in conjunction with the Companys audited financial statements included
in its 2006 Annual Report on Form 10-K. Operating results for the three month period ended March 31, 2007 are not necessarily indicative of the results that may be expected for the twelve month period ending December 31, 2007.

General Information and Summary of Significant Accounting Policies

Organization

Apple REIT Seven, Inc. together with its wholly owned subsidiaries (Apple REIT Seven or the Company)
is a Virginia corporation that intends to qualify as a real estate investment trust (REIT) for federal income tax purposes. The Company was formed to invest in hotels, residential apartment communities and other selected real estate. The
Companys initial investment in and purchase of commercial real estate property occurred on April 27, 2006. Apple REIT Sevens initial capitalization occurred on May 26, 2005, when 10 Units (each Unit consisting of one common
stock and one Series A preferred share) were purchased by Apple Seven Advisors, Inc. and 240,000 Series B convertible preferred shares were purchased by Mr. Glade M. Knight, Chairman, Chief Executive Officer and President of the Company.
The Companys fiscal year end is December 31. The consolidated financial statements include the accounts of the Company and its subsidiaries. All intercompany accounts and transactions have been eliminated upon consolidation.

Earnings per Common Share

Basic earnings per common share is
computed based upon the weighted average number of shares outstanding during the period. Diluted earnings per share is calculated after giving effect to all potential common shares that were dilutive and outstanding for the period. There were no
potential common shares with a dilutive effect during the three months ended March 31, 2007 and 2006. Series B convertible preferred shares are not included in earnings per common share until such time the Series B convertible preferred shares
are converted to common shares.

Use of Estimates

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

Offering Costs

The Company is raising capital through a best-efforts offering of Units by David Lerner Associates, Inc., (the Managing Dealer), which receives a selling commission and a marketing expense
allowance based on proceeds of the Units sold. Additionally, the Company has incurred other offering costs including costs for legal, accounting and reporting services. These offering costs are recorded by the Company as a reduction of
shareholders equity. As of March 31, 2007, the Company had sold 48.0 million Units for gross proceeds of $525.2 million and proceeds net of offering costs of $471.2 million.



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Recently Adopted Accounting Pronouncements

Effective January 1, 2007, the Company adopted Financial Accounting Standards Board (FASB) Interpretation (FIN) No. 48, Accounting for Uncertainty in Income Taxes  an interpretation of FASB
Statement No. 109. This interpretation requires that income tax positions recognized in an entitys tax returns have a more-likely-than-not chance of being sustained prior to recording the related tax benefit in the financial statements.
Tax benefits would be derecognized if information became available which indicated that it was more-likely-than-not that the position would not be sustained. The adoption of this interpretation did not have a material impact on the Companys
results of operations or financial position.

Note 2

Investments in Real Estate

The Company has purchased six hotels in 2007. The following table sets forth the location, brand, manager, gross
purchase price, number of hotel rooms and date of purchase by the Company for each hotel acquired. All dollar amounts are in thousands.



|                    |  |                   |  |           |  |                    |         |       |     |                 |         
|------------------- |  | ----------------- |  | --------- |  | ------------------ | ------- | ----- | --- | --------------- | --------
|Location            |  | Brand             |  | Manager   |  | GrossPurchasePrice |         | Rooms |     | Date ofPurchase
|Tupelo, MS          |  | Hampton Inn       |  | LBA       |  | $                  | 5,245   |       | 96  |                 | 01/23/07
|                    |  |                   |  |           | 
|Miami, FL           |  | Homewood Suites   |  | Dimension |  |                    | 24,300  |       | 159 |                 | 02/21/07
|                    |  |                   |  |           | 
|Highlands Ranch, CO |  | Residence Inn     |  | Dimension |  |                    | 19,000  |       | 117 |                 | 02/22/07
|                    |  |                   |  |           | 
|Cranford, NJ        |  | Homewood Suites   |  | Dimension |  |                    | 13,500  |       | 108 |                 | 03/07/07
|                    |  |                   |  |           | 
|Mahwah, NJ          |  | Homewood Suites   |  | Dimension |  |                    | 19,500  |       | 110 |                 | 03/07/07
|                    |  |                   |  |           | 
|Highlands Ranch, CO |  | Hilton Garden Inn |  | Dimension |  |                    | 20,500  |       | 128 |                 | 03/09/07
|                    |  |                   |  |           |  |                    |         |       |     |                 |         
|                    |  |                   |  |           |  | $                  | 102,045 |       | 718 |                 |         
|                    |  |                   |  |           |  |                    |         |       |     |                 |         

The Company assumed approximately $25.5 million of mortgage indebtedness during the first quarter of 2007,
associated with three of its hotel acquisitions. The following table summarizes the interest rate, maturity date and principal amount assumed associated with each mortgage. All dollar amounts are in thousands.



|                    |  |                 |  |              |   |  |              |  |                  |       
|------------------- |  | --------------- |  | ------------ | - |  | ------------ |  | ---------------- | ------
|Location            |  | Brand           |  | InterestRate |   |  | MaturityDate |  | PrincipalAssumed
|Tupelo, MS          |  | Hampton Inn     |  | 5.90         | % |  | 3/1/2016     |  | $                | 4,110 
|                    |  |                 |  |             
|Miami, FL           |  | Homewood Suites |  | 6.50         | % |  | 7/1/2013     |  |                  | 9,820 
|                    |  |                 |  |             
|Highlands Ranch, CO |  | Residence Inn   |  | 5.94         | % |  | 6/1/2016     |  |                  | 11,550
|                    |  |                 |  |              |   |  |              |  |                  |       
|                    |  |                 |  |              |   |  |              |  | $                | 25,480
|                    |  |                 |  |              |   |  |              |  |                  |       

The purchase price net of debt assumed was funded by the Companys ongoing offering of Units. Additionally,
the Company used proceeds from its ongoing offering of Units to pay 2% of the aggregate gross purchase price for the six hotels purchased in the first three months of 2007, totaling $2.0 million, as a brokerage commission to Apple Suites Realty
Group, Inc. (ASRG). This entity is owned by Glade M. Knight, who is one of the Companys directors and its Chief Executive Officer. These costs have been capitalized to investment in real estate properties.



7



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Fair value adjustments were recorded upon the acquisition of two above market rate mortgage loans in the first quarter of
2007. The premium will be amortized into interest expense over the remaining term of the related indebtedness using a method approximating the effective interest rate method. The unamortized balance of the fair value adjustments for the two loans
totaled approximately $520 thousand at March 31, 2007.

At March 31, 2007, the Companys investment in real estate consisted of the
following (in thousands):



|                                  |  |   |         |  
|--------------------------------- |  | - | ------- | -
|Land                              |  | $ | 45,515  |  
|Building and Improvements         |  |   | 395,013 |  
|Furniture, Fixtures and Equipment |  |   | 15,278  |  
|                                  |  |   |         |  
|                                  |  |   | 455,806 |  
|Less Accumulated Depreciation     |  |   | (5,831  | )
|                                  |  |   |         |  
|Investment in Real Estate, net    |  | $ | 449,975 |  
|                                  |  |   |         |  

As of March 31, 2007, the Company has entered into purchase contracts for 17 additional hotels. Nine of the
hotels were under construction as of March 31, 2007, with completion expected within the next nine months. Although the Company believes there is a reasonable probability that it will acquire these hotels, there can be no assurance that all of
the conditions to closing will be satisfied. Contract deposits for these hotels are included in other assets in the Companys consolidated balance sheet as of March 31, 2007, and in deposits and other disbursements for potential
acquisition of hotel properties in the consolidated statement of cash flows. The following table summarizes the location, brand, gross purchase price, refundable contract deposits, and number of rooms for each hotel. All dollar amounts are in
thousands.



|                 |  |                   |  |                     |         |              |   |                |  |      
|---------------- |  | ----------------- |  | ------------------- | ------- | ------------ | - | -------------- |  | -----
|Location         |  | Franchise/Brand   |  | Gross PurchasePrice |         | DepositsPaid |   | NumberOf Rooms
|Agoura Hills, CA |  | Homewood Suites   |  | $                   | 25,250  |              | $ | 500            |  | 125  
|San Diego, CA    |  | Hampton Inn       |  |                     | 42,000  |              |   | 500            |  | 177  
|San Diego, CA    |  | Residence Inn     |  |                     | 32,500  |              |   | 500            |  | 121  
|Provo, UT        |  | Residence Inn     |  |                     | 11,250  |              |   | 500            |  | 114  
|Prattville, AL   |  | Courtyard         |  |                     | 9,304   |              |   | 250            |  | 84   
|Trussville, AL   |  | Courtyard         |  |                     | 9,510   |              |   | 250            |  | 84   
|Miami, FL        |  | Courtyard         |  |                     | 15,000  |              |   | 300            |  | 118  
|Vancouver, WA    |  | SpringHill Suites |  |                     | 15,750  |              |   | 500            |  | 119  
|Macon, GA        |  | Hilton Garden Inn |  |                     | 10,660  |              |   | 200            |  | 101  
|Tucson, AZ       |  | Residence Inn     |  |                     | 16,640  |              |   | 832            |  | 124  
|El Paso, TX      |  | Homewood Suites   |  |                     | 15,390  |              |   | 770            |  | 114  
|San Antonio, TX  |  | TownePlace Suites |  |                     | 11,925  |              |   | 596            |  | 106  
|San Antonio, TX  |  | TownePlace Suites |  |                     | 13,838  |              |   | 692            |  | 123  
|Columbus, GA     |  | Fairfield Inn     |  |                     | 7,333   |              |   | 100            |  | 79   
|Dothan, AL       |  | Fairfield Inn     |  |                     | 4,584   |              |   | 100            |  | 63   
|Lakeland, FL     |  | Courtyard         |  |                     | 9,805   |              |   | 100            |  | 78   
|Tallahassee, FL  |  | Fairfield Inn     |  |                     | 6,647   |              |   | 100            |  | 79   
|                 |  |                   |  |                     |         |              |   |                |  |      
|Total            |  |                   |  | $                   | 257,386 |              | $ | 6,790          |  | 1,809
|                 |  |                   |  |                     |         |              |   |                |  |      

Note 3

Related Parties

The Company has, and is expected to continue to engage in, significant transactions with related parties. These
transactions cannot be construed to be at arms length, and the results of the Companys operations may be different than if conducted with non-related parties.



8



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The Company has entered into a Property Acquisition and Disposition Agreement with ASRG, to acquire and dispose of real
estate assets for the Company. A fee of 2% of the gross purchase price or gross sale price, in addition to certain reimbursable expenses, is payable for these services. Through March 31, 2007, the Company has paid ASRG $8.8 million. Fees paid
to ASRG for property acquisitions are capitalized as part of the purchase price of the properties. Additionally, the Company has entered into an advisory agreement with Apple Seven Advisors, Inc. (ASA), to provide management of the
Company and its assets. An annual fee ranging from .1% to .25% of total gross equity proceeds received by the Company, in addition to certain reimbursable expenses, is payable for these services. ASA utilizes Apple Hospitality Two, Inc.
(AHT) to provide these services. Advisory fees and other reimbursable expenses incurred by the Company under the ASA advisory agreement during the three month period ended March 31, 2007 were $377 thousand, and are included in
general and administrative expenses in the Companys consolidated statement of operations. ASRG and ASA are owned by Glade M. Knight, Chairman, Chief Executive Officer and President of the Company. Mr. Knight also serves as the Chairman
and Chief Executive Officer of AHT and of other real estate investment trusts. Members of the Companys Board of Directors are also on the Board of Directors of AHT and/or Apple Hospitality Five, Inc.

Note 4

Line of Credit

The Company entered into an unsecured line of credit facility for working capital and short-term acquisition funding in December 2006. The credit facility provides for a
maximum aggregate commitment by the lender, a commercial bank, totaling $150 million, and has a scheduled maturity in December 2007. The applicable interest rate under the line of credit is equal to LIBOR (the London Interbank Offered Rate) plus
2.0%. In conjunction with the acquisition of two hotels in December 2006, the Company utilized the line of credit by borrowing $18.0 million to fund a portion of the aggregate purchase price. The principal amount borrowed under the line of credit
was repaid in full in January 2007; there was no balance outstanding under the line of credit at March 31, 2007.

Note 5

Series B Convertible Preferred Stock

The Company has issued 240,000
Series B convertible preferred shares to Glade M. Knight, Chairman, Chief Executive Officer and President of the Company, in exchange for the payment by him of $0.10 per Series B convertible preferred share, or an aggregate of $24,000. The Series B
convertible preferred shares are convertible into common shares pursuant to the formula and on the terms and conditions set forth below.

There are no
dividends payable on the Series B convertible preferred shares. Holders of more than two-thirds of the Series B convertible preferred shares must approve any proposed amendment to the articles of incorporation that would adversely affect the Series
B convertible preferred shares.

Upon the Companys liquidation, the holder of the Series B convertible preferred shares is entitled to a priority
liquidation payment before any distribution of liquidation proceeds to the holders of the common shares. However, the priority liquidation payment of the holder of the Series B convertible preferred shares is junior to the holders of the Series A
preferred shares distribution rights. The holder of a Series B convertible preferred share is entitled to a liquidation payment of $11 per number of common shares each Series B convertible preferred share would be convertible into according to the
formula described below. In the event that the liquidation of the Companys assets results in proceeds that exceed the distribution rights of the Series A preferred shares and the Series B convertible preferred shares, the remaining proceeds
will be distributed between the common shares and the Series B convertible preferred shares, on an as converted basis.



9



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Each holder of outstanding Series B convertible preferred shares shall have the right to convert any of such shares into
Common Shares of the Company upon and for 180 days following the occurrence of any of the following events:

(1)
substantially all of the Companys assets, stock or business is sold or transferred through exchange, merger, consolidation, lease, share exchange, sale or otherwise, other than a sale of assets in liquidation, dissolution or winding up of the
Company;

(2) the termination or expiration without renewal of the advisory agreement, or if the Company ceases to use ASRG
to provide property acquisition and disposition services; or

(3) the Companys common shares are listed on any
securities exchange or quotation system or in any established market.

Upon the occurrence of any conversion event, each Series B convertible preferred
share may be converted into a number of common shares based upon the gross proceeds raised through the date of conversion in the $1 billion offering according to the following table:



|                                                                     |  |                                                                                      
|-------------------------------------------------------------------- |  | -------------------------------------------------------------------------------------
|Gross Proceeds Raised from Sales of Units
through Date of Conversion |  | Number of Common Shares through Conversion ofOne Series B Convertible Preferred Share
|$    500 million                                                     |  | 12.11423                                                                             
|$    550 million                                                     |  | 13.31991                                                                             
|$    600 million                                                     |  | 14.52559                                                                             
|$    650 million                                                     |  | 15.73128                                                                             
|$    700 million                                                     |  | 16.93696                                                                             
|$    750 million                                                     |  | 18.14264                                                                             
|$    800 million                                                     |  | 19.34832                                                                             
|$    850 million                                                     |  | 20.55400                                                                             
|$    900 million                                                     |  | 21.75968                                                                             
|$    950 million                                                     |  | 22.96537                                                                             
|$        1 billion                                                   |  | 24.17104                                                                             

In the event that after raising gross proceeds of $1 billion, the Company raises additional gross proceeds in a
subsequent public offering, each Series B convertible preferred share may be converted into an additional number of common shares based on the additional gross proceeds raised through the date of conversion in a subsequent public offering according
to the following formula: (X/50 million) x 1.20568, where X is the additional gross proceeds rounded down to the nearest 50 million.

No additional
consideration is due upon the conversion of the Series B convertible preferred shares. The conversion into common shares of the Series B convertible preferred shares will result in dilution of the shareholders interests.

Compensation expense related to issuance of 240,000 Series B convertible preferred shares to Mr. Knight will be recognized at such time when the number of common
shares to be issued for conversion of the Series B shares can be reasonably estimated and the event triggering the conversion of the Series B shares to common shares occurs. The expense will be measured as the difference between the fair value of
the common stock for which the Series B shares can be converted and the amount paid for the Series B shares. Although the fair market value cannot be determined at this time, compensation expense if the maximum offering is achieved could range from
$0 to in excess of $63 million (assumes $11 per unit fair market value).



10



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Note 6

Pro Forma
Information

The following unaudited pro forma information for the three months ended March 31, 2007, is presented as if the acquisitions of the
six hotels acquired during the three months ended March 31, 2007 had occurred on the latter of January 1, 2007 or the opening date of the hotel. The pro forma information does not purport to represent what the Companys results of
operations would actually have been if such transactions, in fact, had occurred on these applicable dates, nor does it purport to represent the results of operations for future periods. The Hilton Garden Inn hotel in Highlands Ranch, Colorado, which
was purchased on March 9, 2007, is a newly constructed hotel and opened in March 2007.



|                                         |  |                                         |       
|---------------------------------------- |  | --------------------------------------- | ------
|(in thousands, except per share data)    |  | For the three monthsended March 31,2007
|Hotel revenues                           |  | $                                       | 25,499
|Net income                               |  | $                                       | 4,827 
|Net income per share - basic and diluted |  | $                                       | 0.12  

The pro forma information reflects adjustments for actual revenues and expenses of the hotels acquired as of
March 31, 2007 for the respective period in operation during the three month period ended March 31, 2007 prior to acquisition by the Company. Net income has been adjusted as follows: (1) depreciation has been adjusted based on the
Companys basis in the hotels; (2) interest expense has been adjusted to reflect additional borrowings under its line of credit to fund acquisitions, as needed, in addition to eliminating prior owners debt not assumed by the Company,
and (3) interest income has been reduced to reflect the use of cash balances to fund property purchases.

Note 7

Subsequent Events

On April 4, 2007, the Company entered into a
purchase contract for the potential purchase of a Homewood Suites hotel in Memphis, Tennessee. The gross purchase price for the 140 room hotel is $11.1 million, and a refundable deposit of $100 thousand was paid by the Company in connection with the
contract.

On April 16, 2007, the Company paid $.073334 per outstanding common share, totaling $3.5 million, in a dividend distribution to its common
shareholders.

During April 2007, the Company closed on the issuance of 4.1 million Units, representing gross proceeds to the Company of $45.6 million
and proceeds net of selling and marketing costs of $41.1 million. In addition, during April the Company redeemed 21,689 Units for $215 thousand, under the guidelines established by the Companys Unit Redemption Program.

On April 24, 2007, the Company completed the purchase of a Courtyard hotel in Prattville, Alabama. The gross purchase price was $9.3 million for this newly opened
hotel with 84 rooms.

On April 24, 2007, the Company completed the purchase of a Courtyard hotel in Lakeland, Florida. The gross purchase price was
$9.8 million for this 78 room hotel. In connection with the purchase, the Company assumed an existing mortgage loan of $4.2 million. The mortgage loan has a maturity date of January 2013, and an interest rate of 6.8%.



11



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On April 24, 2007, the Company completed the purchase of a Fairfield Inn hotel in Tallahassee, Florida. The gross
purchase price was $6.6 million for this 79 room hotel. In connection with the purchase, the Company assumed an existing mortgage loan of $3.5 million. The mortgage loan has a maturity date of January 2013, and an interest rate of 6.8%.

On April 24, 2007, the Company completed the purchase of a Fairfield Inn hotel in Columbus, Georgia. The gross purchase price was $7.3 million for this 79 room
hotel.



12



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|Item 2. | Managements Discussion And Analysis Of Financial Condition And Results Of Operation
|------- | ------------------------------------------------------------------------------------

This quarterly report contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as
amended. Such statements involve known and unknown risks, uncertainties, and other factors which may cause the actual results, performance, or achievements of the Company to be materially different from future results, performance or
achievements expressed or implied by such forward-looking statements. Such factors include the ability of the Company to implement its acquisition strategy and operating strategy; the Companys ability to manage planned growth; changes in
economic cycles and competition within the hotel industry. Although the Company believes that the assumptions underlying the forward-looking statements contained herein are reasonable, any of the assumptions could be inaccurate, and therefore
there can be no assurance that such statements included in the quarterly report will prove to be accurate. In light of the significant uncertainties inherent in the forward-looking statements included herein, the inclusion of such information
should not be regarded as a representation by the Company or any other person that the results or conditions described in such statements or the objectives and plans of the Company will be achieved. In addition, the Companys qualification
as a real estate investment trust involves the application of highly technical and complex provisions of the Internal Revenue Code. Readers should carefully review the Companys financial statements and the notes thereto, as well as the
risk factors described in the Companys filings with the Securities and Exchange Commission.

Overview

Apple REIT Seven, Inc. together with its wholly owned subsidiaries (the Company) is a Virginia corporation that intends to qualify as a real estate investment
trust (REIT) for federal income tax purposes. The Company, which owned 24 hotel properties as of March 31, 2007 and has a limited operating history, was formed to invest in hotels, residential apartment communities and other
selected real estate. Initial capitalization occurred on May 26, 2005, when 10 Units (each Unit consisting of one common share and one Series A preferred share) were purchased by Apple Seven Advisors, Inc. and 240,000 shares of Series B
convertible preferred shares were purchased by Mr. Glade M. Knight, the Companys Chairman, Chief Executive Officer and President. The consolidated financial statements include the accounts of the Company and its subsidiaries. All
intercompany accounts and transactions have been eliminated.

Although hotel performance can be influenced by many factors including local competition,
local and general economic conditions in the United States and the performance of individual managers assigned to each hotel, performance of the hotels, in general, has met the Companys expectations for the period owned. In evaluating
financial condition and operating performance, the most important matters on which the Company focuses are revenue measurements, such as average occupancy, average daily rate and revenue per available room, and expenses, such as hotel operating
expenses, general and administrative and other expenses described below. The following is a summary of results for the three months ended March 31, 2007.



|                                       |  |                                   |        |                    |     |  
|-------------------------------------- |  | --------------------------------- | ------ | ------------------ | --- | -
|(in thousands except statistical data) |  | Three months ended March 31, 2007 |        | Percent of Revenue |    
|                                       | 
|                                       | 
|Total revenues                         |  | $                                 | 22,455 |                    | 100 | %
|Hotel direct expenses                  |  |                                   | 12,215 |                    | 54  | %
|Taxes, insurance and other expense     |  |                                   | 1,568  |                    | 7   | %
|General and administrative expense     |  |                                   | 675    |                    | 3   | %
|                                       |  |                                  
|Depreciation                           |  |                                   | 2,758  |                    |     |  



13



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|                         |  |   |     |  
|------------------------ |  | - | --- | -
|Interest income          |  |   | 425 |  
|Interest expense         |  |   | 861 |  
|Number of hotels         |  |   | 24  |  
|Average Daily Rate (ADR) |  | $ | 122 |  
|Occupancy                |  |   | 73  | %
|RevPAR                   |  | $ | 89  |  

Hotels Owned

The following table summarizes the location, brand, manager, date acquired, number of rooms and gross purchase price for each of the 24 hotels the Company owned at March 31, 2007:



|                    |  |                   |  |               |  |                            |         |       |       |                 |         
|------------------- |  | ----------------- |  | ------------- |  | -------------------------- | ------- | ----- | ----- | --------------- | --------
|Location            |  | Brand             |  | Manager       |  | GrossPurchasePrice (000s) |         | Rooms |       | Date ofPurchase
|Houston, TX         |  | Residence Inn     |  | Western       |  | $                          | 13,600  |       | 129   |                 | 04/27/06
|San Diego, CA       |  | Hilton Garden Inn |  | Inn Ventures  |  |                            | 34,500  |       | 200   |                 | 05/09/06
|Brownsville, TX     |  | Courtyard         |  | Western       |  |                            | 8,550   |       | 90    |                 | 06/19/06
|Stafford, TX        |  | Homewood Suites   |  | Western       |  |                            | 7,800   |       | 78    |                 | 08/15/06
|Montgomery, AL      |  | Homewood Suites   |  | LBA           |  |                            | 10,660  |       | 91    |                 | 08/17/06
|Montgomery, AL      |  | Hilton Garden Inn |  | LBA           |  |                            | 10,385  |       | 97    |                 | 08/17/06
|Troy, AL            |  | Hampton Inn       |  | LBA           |  |                            | 6,130   |       | 82    |                 | 08/17/06
|Auburn, AL          |  | Hilton Garden Inn |  | LBA           |  |                            | 10,185  |       | 101   |                 | 08/17/06
|Huntsville, AL      |  | Hilton Garden Inn |  | LBA           |  |                            | 10,285  |       | 101   |                 | 08/17/06
|Seattle, WA         |  | Residence Inn     |  | Inn Ventures  |  |                            | 56,173  |       | 234   |                 | 09/01/06
|Sarasota, FL        |  | Homewood Suites   |  | Promus Hotels |  |                            | 13,800  |       | 100   |                 | 09/15/06
|Hattiesburg, MS     |  | Courtyard         |  | LBA           |  |                            | 9,455   |       | 84    |                 | 10/05/06
|Huntsville, AL      |  | Homewood Suites   |  | LBA           |  |                            | 11,606  |       | 107   |                 | 10/27/06
|Omaha, NE           |  | Courtyard         |  | Marriott      |  |                            | 23,100  |       | 181   |                 | 11/04/06
|Cincinnati, OH      |  | Homewood Suites   |  | White         |  |                            | 7,100   |       | 76    |                 | 12/01/06
|Rancho Bernardo, CA |  | Courtyard         |  | Dimension     |  |                            | 36,000  |       | 210   |                 | 12/12/06
|New Orleans, LA     |  | Homewood Suites   |  | Dimension     |  |                            | 43,000  |       | 166   |                 | 12/15/06
|Ronkonkoma, NY      |  | Hilton Garden Inn |  | White         |  |                            | 27,000  |       | 164   |                 | 12/15/06
|Tupelo, MS          |  | Hampton Inn       |  | LBA           |  |                            | 5,245   |       | 96    |                 | 01/23/07
|Miami, FL           |  | Homewood Suites   |  | Dimension     |  |                            | 24,300  |       | 159   |                 | 02/21/07
|Highlands Ranch, CO |  | Residence Inn     |  | Dimension     |  |                            | 19,000  |       | 117   |                 | 02/22/07
|Cranford, NJ        |  | Homewood Suites   |  | Dimension     |  |                            | 13,500  |       | 108   |                 | 03/07/07
|Mahwah, NJ          |  | Homewood Suites   |  | Dimension     |  |                            | 19,500  |       | 110   |                 | 03/07/07
|Highlands Ranch, CO |  | Hilton Garden Inn |  | Dimension     |  |                            | 20,500  |       | 128   |                 | 03/09/07
|                    |  |                   |  |               |  |                            |         |       |       |                 |         
|                    |  |                   |  |               |  | $                          | 441,374 |       | 3,009 |                 |         
|                    |  |                   |  |               |  |                            |         |       |       |                 |         

The total gross purchase price for all 24 hotels of $441.4 million was funded primarily by the Companys
ongoing best efforts offering of Units. The Company also assumed existing mortgage loans on five of the hotel properties purchased. The Company leases all of its hotels to its wholly-owned taxable REIT subsidiary (or a subsidiary thereof) under
hotel lease agreements. The Company also used the proceeds of its offering to pay $8.8 million, representing 2% of the gross purchase price for these hotels, as a commission to Apple Suites Realty Group, Inc. (ASRG), 100% owned by Glade
M. Knight, the Companys Chairman and Chief Executive Officer.



14



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Of the Companys 24 hotels owned at March 31, 2007, six were purchased during the first quarter of 2007. The
total gross purchase price for these six hotels, with a total of 718 rooms, was $102.0 million.

Results of Operations

During the period from the Companys initial formation on May 26, 2005 to April 26, 2006, the company owned no properties, had no revenue exclusive of
interest income, and was primarily engaged in capital formation activities. Operations commenced on April 27, 2006 with the Companys first property acquisition. A comparison of operations for the three month period ended March 31,
2007 to prior year results is therefore not meaningful. In general, the performance of the Companys hotels during their initial period of ownership has met expectations. Hotel performance is impacted by many factors including local hotel
competition, and local and national economic conditions in the United States. As a result of these factors, there can be no assurance that the Companys operating performance will continue to meet expectations.

Revenues

The Companys principal source of revenue is hotel
room revenue and related other revenue related to hotel operations. Hotel operations included in the consolidated statement of operations are for the Companys 24 hotels acquired through March 31, 2007, for the respective period of
ownership for each property. For the three month period ended March 31, 2007, the Company had total revenue of $22.5 million. For this three month period the hotels achieved combined average occupancy of approximately 73%, average daily rate
(ADR) of $122 and revenue per available room (RevPAR) of $89. These rates are comparable with industry and brand averages, given the Companys portfolio of hotel properties at March 31, 2007. ADR, or average daily
rate, is calculated as room revenue divided by the number of rooms sold, and RevPAR, or revenue per available room, is calculated as ADR multiplied by the occupancy percentage.

Expenses

For the three month period ended March 31, 2007, hotel direct expenses of the Companys hotels
totaled $12.2 million. As a percentage of total revenue, hotel direct expenses were 54% of total revenue for the three month period ended March 31, 2007. Hotel direct expenses consist of operating expense, hotel administrative expense, sales
and marketing expense, utilities expense, repair and maintenance expense, franchise fees and management fees.

Taxes, insurance, and other expense for the
three months ended March 31, 2007 totaled $1.6 million, representing 7% of total revenue for the period. General and administrative expense for the three months ended March 31, 2007 totaled $675 thousand. For the first quarter of 2007,
general and administrative expenses represented 3% of total revenues.

Depreciation expense was $2.8 million for the first quarter of 2007. This amount
represents depreciation expense of the Companys hotel buildings and related improvements, and associated furniture, fixtures and equipment, for the respective periods owned.

For the three month period ended March 31, 2007, the Company recognized interest income of $425 thousand. Interest income represents earnings on excess cash invested in short term money market instruments.
Interest expense during the three month period ended March 31, 2007 totaled $861 thousand, and primarily represents interest expense incurred on mortgage loans assumed on five hotel properties as of March 31, 2007.

Liquidity and Capital Resources

The Company is raising capital
through a best-efforts offering of Units by David Lerner Associates, Inc. (the Managing Dealer), which receives selling commissions and a marketing expense allowance based on



15



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proceeds of the shares sold. Each Unit consists of one common share and one Series A preferred share. The Series A preferred shares will have no voting
rights, no conversion rights and no distribution rights. The only right associated with the Series A preferred shares will be a priority distribution upon the sale of the Companys assets. The priority would be equal to $11.00 per Series A
preferred share, and no more, before any distributions are made to the holders of any other shares. The Series A preferred shares will not be separately tradable from the common shares to which they relate.

From the Companys initial capitalization on May 26, 2005 through March 31, 2007, the Company incurred costs of approximately $54.0 million related to its
offering. These costs are reflected as a reduction to shareholders equity. As of March 31, 2007, the Company has closed on a total of 48.0 million Units, representing gross proceeds and proceeds net of offering costs of approximately
$525.2 million and $471.2 million, respectively.

To maintain its REIT status the Company is required to distribute at least 90% of its ordinary income.
Distributions during the first three months of 2007 totaled $8.8 million and were paid monthly at a rate of $0.073334 per common share, and included a return of capital. For the same period the Companys cash generated from operations was
approximately $4.4 million. Due to the inherent delay between raising capital and investing that same capital in income producing real estate, the Company has had significant amounts of cash earning interest at short term money market rates. As a
result, the difference between distributions paid and cash generated from operations has been funded from proceeds from our offering of Units, and this portion of distributions is expected to be treated as a return of capital for federal income tax
purposes. The Company intends to continue paying dividends on a monthly basis, at an annualized dividend rate of $0.88 per common share. Since a portion of distributions has to date been funded with proceeds from the offering of Units, the
Companys ability to maintain its current intended rate of distribution will be based on its ability to fully invest its offering proceeds and thereby increase its cash generated from operations. Since there can be no assurance of the
Companys ability to acquire properties that provide income at this level, or that the properties already acquired will provide income at this level, there can be no assurance as to the classification or duration of distributions at the current
rate. Proceeds of the offering which are distributed are not available for investment in properties.

The Company has on-going capital commitments to fund
its capital improvements. The Company is required, under all of the hotel management agreements, to make available for the repair, replacement or refurbishing of furniture, fixtures, and equipment, an amount between 2% to 5% of gross revenues of the
applicable hotel, provided that such amount may be used for the Companys capital expenditures with respect to the applicable hotel. The Company expects that this amount will be adequate to fund required repair, replacement, and refurbishments
and to maintain the Companys hotels in a competitive condition. As of March 31, 2007, the Company held $4.3 million in restricted cash accounts for capital improvement purposes.

The Company intends to acquire real estate properties with its available cash. Although the Company is currently performing due diligence on several possible
acquisitions, the timing of finding suitable properties is dependant upon many external factors and there can be no assurances as to the length of time to utilize all proceeds of its best-efforts offering for investment in real estate.
The Companys proceeds raised and not invested in real estate are held as cash or cash equivalents.

As of March 31, 2007, the Company had
entered into purchase contracts for 17 additional hotels. Nine of these hotels were under construction as of March 31, 2007, with completion expected within the next nine months. Although the Company believes there is a reasonable probability
that it will acquire these hotels, there can be no assurance that all of the conditions to closing will be satisfied. Contract deposits for these hotels are included in other assets in the Companys consolidated balance sheet as of
March 31, 2007. The following table summarizes the location, brand, gross purchase price, refundable contract deposits, and number of rooms for each hotel. All dollar amounts are in thousands.



16



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|                 |  |                   |  |                      |         |               |   |                 |  |      
|---------------- |  | ----------------- |  | -------------------- | ------- | ------------- | - | --------------- |  | -----
|Location         |  | Franchise/Brand   |  | Gross Purchase Price |         | Deposits Paid |   | Number Of Rooms
|                 |  |                   | 
|Agoura Hills, CA |  | Homewood Suites   |  | $                    | 25,250  |               | $ | 500             |  | 125  
|San Diego, CA    |  | Hampton Inn       |  |                      | 42,000  |               |   | 500             |  | 177  
|San Diego, CA    |  | Residence Inn     |  |                      | 32,500  |               |   | 500             |  | 121  
|Provo, UT        |  | Residence Inn     |  |                      | 11,250  |               |   | 500             |  | 114  
|Prattville, AL   |  | Courtyard         |  |                      | 9,304   |               |   | 250             |  | 84   
|Trussville, AL   |  | Courtyard         |  |                      | 9,510   |               |   | 250             |  | 84   
|Miami, FL        |  | Courtyard         |  |                      | 15,000  |               |   | 300             |  | 118  
|Vancouver, WA    |  | SpringHill Suites |  |                      | 15,750  |               |   | 500             |  | 119  
|Macon, GA        |  | Hilton Garden Inn |  |                      | 10,660  |               |   | 200             |  | 101  
|Tucson, AZ       |  | Residence Inn     |  |                      | 16,640  |               |   | 832             |  | 124  
|El Paso, TX      |  | Homewood Suites   |  |                      | 15,390  |               |   | 770             |  | 114  
|San Antonio, TX  |  | TownePlace Suites |  |                      | 11,925  |               |   | 596             |  | 106  
|San Antonio, TX  |  | TownePlace Suites |  |                      | 13,838  |               |   | 692             |  | 123  
|Columbus, GA     |  | Fairfield Inn     |  |                      | 7,333   |               |   | 100             |  | 79   
|Dothan, AL       |  | Fairfield Inn     |  |                      | 4,584   |               |   | 100             |  | 63   
|Lakeland, FL     |  | Courtyard         |  |                      | 9,805   |               |   | 100             |  | 78   
|Tallahassee, FL  |  | Fairfield Inn     |  |                      | 6,647   |               |   | 100             |  | 79   
|                 |  |                   |  |                      |         |               |   |                 |  |      
|Total            |  |                   |  | $                    | 257,386 |               | $ | 6,790           |  | 1,809
|                 |  |                   |  |                      |         |               |   |                 |  |      

Related Party Transactions

The Company has, and is expected to continue to engage in, significant transactions with related parties. These transactions cannot be construed to be at arms length, and the results of the Companys operations
may be different than if conducted with non-related parties.

The Company has entered into a Property Acquisition and Disposition Agreement with ASRG, to
acquire and dispose of real estate assets for the Company. A fee of 2% of the gross purchase price or gross sale price, in addition to certain reimbursable expenses, is payable for these services. Through March 31, 2007, the Company has paid
ASRG $8.8 million. Fees paid to ASRG for property acquisitions are capitalized as part of the purchase price of the properties. Additionally, the Company has entered into an advisory agreement with Apple Seven Advisors, Inc. (ASA), to
provide management of the Company and its assets. An annual fee ranging from .1% to .25% of total gross equity proceeds received by the Company, in addition to certain reimbursable expenses, is payable for these services. ASA utilizes Apple
Hospitality Two, Inc. (AHT) to provide these services. Advisory fees and other reimbursable expenses incurred by the Company under the ASA advisory agreement during the three months ended March 31, 2007 were $377 thousand, and are
included in general and administrative expenses in the Companys consolidated statement of operations. ASRG and ASA are owned by Glade M. Knight, Chairman, Chief Executive Officer and President of the Company. Mr. Knight also serves as the
Chairman and Chief Executive Officer of AHT and of other real estate investment trusts. Members of the Companys Board of Directors are also on the Board of Directors of AHT and/or Apple Hospitality Five, Inc.

Series B Convertible Preferred Stock

The Company has authorized
240,000 shares of Series B convertible preferred stock. The Company has issued 240,000 Series B convertible preferred shares to Glade M. Knight, Chairman, Chief Executive Officer and President of the Company, in exchange for the payment by him of
$0.10 per Series B convertible preferred share, or an aggregate of $24,000. The Series B convertible preferred shares are convertible into common shares pursuant to the formula and on the terms and conditions set forth below.



17



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There are no dividends payable on the Series B convertible preferred shares. Holders of more than two-thirds of the
Series B convertible preferred shares must approve any proposed amendment to the articles of incorporation that would adversely affect the Series B convertible preferred shares.

Upon the Companys liquidation, the holder of the Series B convertible preferred shares is entitled to a priority liquidation payment before any distribution of liquidation proceeds to the holders of the common
shares. However, the priority liquidation payment of the holder of the Series B convertible preferred shares is junior to the holders of the Series A preferred shares distribution rights. The holder of a Series B convertible preferred share is
entitled to a liquidation payment of $11 per number of common shares each Series B convertible preferred share would be convertible into according to the formula described below. In the event that the liquidation of the Companys assets results
in proceeds that exceed the distribution rights of the Series A preferred shares and the Series B convertible preferred shares, the remaining proceeds will be distributed between the common shares and the Series B convertible preferred shares, on an
as converted basis.

Each holder of outstanding Series B convertible preferred shares shall have the right to convert any of such shares into Common Shares
of the Company upon and for 180 days following the occurrence of any of the following events:

(1) substantially all of the
Companys assets, stock or business is sold or transferred through exchange, merger, consolidation, lease, share exchange, sale or otherwise, other than a sale of assets in liquidation, dissolution or winding up of the Company;

(2) the termination or expiration without renewal of the advisory agreement, or if the Company ceases to use ASRG to provide property
acquisition and disposition services; or

(3) the Companys common shares are listed on any securities exchange or
quotation system or in any established market.

Upon the occurrence of any conversion event, each Series B convertible preferred share may be converted
into a number of common shares based upon the gross proceeds raised through the date of conversion in the $1 billion offering made by this prospectus according to the following table:



|                                                                     |  |                                                                                      
|-------------------------------------------------------------------- |  | -------------------------------------------------------------------------------------
|Gross Proceeds Raised from Sales of Units through Date of Conversion |  | Number of Common Shares through Conversion
ofOne Series B Convertible Preferred Share
|$    500 million                                                     |  | 12.11423                                                                             
|$    550 million                                                     |  | 13.31991                                                                             
|$    600 million                                                     |  | 14.52559                                                                             
|$    650 million                                                     |  | 15.73128                                                                             
|$    700 million                                                     |  | 16.93696                                                                             
|$    750 million                                                     |  | 18.14264                                                                             
|$    800 million                                                     |  | 19.34832                                                                             
|$    850 million                                                     |  | 20.55400                                                                             
|$    900 million                                                     |  | 21.75968                                                                             
|$    950 million                                                     |  | 22.96537                                                                             
|$        1 billion                                                   |  | 24.17104                                                                             

In the event that after raising gross proceeds of $1 billion, the Company raises additional gross proceeds in a
subsequent public offering, each Series B convertible preferred share may be converted into an additional number of common shares based on the additional gross proceeds raised through the date of conversion in a subsequent public offering according
to the following formula: (X/50 million) x 1.20568, where X is the additional gross proceeds rounded down to the nearest 50 million.



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No additional consideration is due upon the conversion of the Series B convertible preferred shares. The conversion into
common shares of the Series B convertible preferred shares will result in dilution of the shareholders interests.

Compensation expense related to
issuance of 240,000 Series B convertible preferred shares to Mr. Knight will be recognized at such time when the number of common shares to be issued for conversion of the Series B shares can be reasonably estimated and the event triggering the
conversion of the Series B shares to common shares occurs. The expense will be measured as the difference between the fair value of the common stock for which the Series B shares can be converted and the amounts paid for the Series B shares.
Although the fair market value cannot be determined at this time, compensation expense if the maximum offering is achieved could range from $0 to in excess of $63 million (assumes $11 per unit fair market value).

Subsequent Events

On April 4, 2007, the Company entered into a
purchase contract for the potential purchase of a Homewood Suites hotel in Memphis, Tennessee. The gross purchase price for the 140 room hotel is $11.1 million, and a refundable deposit of $100 thousand was paid by the Company in connection with the
contract.

On April 16, 2007, the Company paid $.073334 per outstanding common share, totaling $3.5 million, in a dividend distribution to its common
shareholders.

During April 2007, the Company closed on the issuance of 4.1 million Units, representing gross proceeds to the Company of $45.6 million
and proceeds net of selling and marketing costs of $41.1 million. In addition, during April the Company redeemed 21,689 Units for $215 thousand, under the guidelines established by the Companys Unit Redemption Program.

On April 24, 2007, the Company completed the purchase of a Courtyard hotel in Prattville, Alabama. The gross purchase price was $9.3 million for this newly opened
hotel with 84 rooms.

On April 24, 2007, the Company completed the purchase of a Courtyard hotel in Lakeland, Florida. The gross purchase price was
$9.8 million for this 78 room hotel. In connection with the purchase, the Company assumed an existing mortgage loan of $4.2 million. The mortgage loan has a maturity date of January 2013, and an interest rate of 6.8%.

On April 24, 2007, the Company completed the purchase of a Fairfield Inn hotel in Tallahassee, Florida. The gross purchase price was $6.6 million for this 79 room
hotel. In connection with the purchase, the Company assumed an existing mortgage loan of $3.5 million. The mortgage loan has a maturity date of January 2013, and an interest rate of 6.8%.

On April 24, 2007, the Company completed the purchase of a Fairfield Inn hotel in Columbus, Georgia. The gross purchase price was $7.3 million for this 79 room
hotel.

Impact of Inflation

Operators of hotels, in
general, possess the ability to adjust room rates daily to reflect the effects of inflation. Competitive pressures may, however, limit the operators ability to raise room rates. Currently the Company is not experiencing any material impact
from inflation.

Business Interruption

Being in the
real estate industry, the Company is exposed to natural disasters on both a local and national



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scale. Although management believes there is adequate insurance to cover this exposure, there can be no assurance that such events will not have a material
adverse effect on the Companys financial position or results of operations.

Seasonality

The hotel industry historically has been seasonal in nature. Seasonal variations in occupancy at its hotels may cause quarterly fluctuations in its revenues. To the
extent that cash flow from operations is insufficient during any quarter, due to temporary or seasonal fluctuations in revenue, the Company expects to utilize cash on hand to make distributions.

Recently Adopted Accounting Pronouncements

Effective January 1,
2007, the Company adopted Financial Accounting Standards Board (FASB) Interpretation (FIN) No. 48, Accounting for Uncertainty in Income Taxes  an interpretation of FASB Statement No. 109. This interpretation requires that
income tax positions recognized in an entitys tax returns have a more-likely-than-not chance of being sustained prior to recording the related tax benefit in the financial statements. Tax benefits would be derecognized if information became
available which indicated that it was more-likely-than-not that the position would not be sustained. The adoption of this interpretation did not have a material impact on the Companys results of operations or financial position.



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|Item 3. | Quantitative and Qualitative Disclosure About Market Risk
|------- | ---------------------------------------------------------

The
Company does not engage in transactions in derivative financial instruments or derivative commodity instruments. As of March 31, 2007, the Companys financial instruments were not exposed to significant market risk due to interest rate
risk, foreign currency exchange risk, commodity price risk or equity price risk. The Company will be exposed to changes in short term money market rates as it invests the proceeds from its sale of Units pending use in acquisitions. Based on the
Companys cash and cash equivalent balances at March 31, 2007 of $48.6 million, every 100 basis points change in interest rates will impact the Companys annual net income by approximately $486 thousand, all other factors remaining
the same. Cash invested pending acquisitions will vary substantially during the current year based on the amount of proceeds raised and the timing and purchase price, net of any debt assumed, of property acquisitions. Additionally, the Company may
be exposed to changes in short term money market rates should it have outstanding borrowings under its line of credit debt facility, which has an interest rate tied to the London Inter-Bank Offered Rate (LIBOR). The Company had no outstanding
balance under this borrowing facility at March 31, 2007.



|Item 4. | Controls and Procedures
|------- | -----------------------

Senior management, including the Chief
Executive Officer and Chief Financial Officer, evaluated the effectiveness of the Companys disclosure controls and procedures as of the end of the period covered by this report. Based on this evaluation process, the Chief Executive Officer and
Chief Financial Officer have concluded that the Companys disclosure controls and procedures are effective and that there have been no changes in the Companys internal control over financial reporting that occurred during the last fiscal
quarter that have materially affected, or are reasonably likely to materially affect, the Companys internal control over financial reporting.



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PART II. OTHER INFORMATION



|Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds
|------- | -----------------------------------------------------------

The
following tables set forth information concerning the Offering and the use of proceeds from the Offering as of March 31, 2007:

Units Registered:



|            |  |            |  |       |  |   |                |  |   |              
|----------- |  | ---------- |  | ----- |  | - | -------------- |  | - | -------------
|            |  | 4,761,905  |  | Units |  | $ | 10.50 per Unit |  | $ | 50,000,000   
|            |  | 86,363,636 |  | Units |  | $ | 11 per Unit    |  |   | 950,000,000  
|            |  |            |  |       |  |   |                |  |   |              
|Totals:     |  | 91,125,541 |  | Units |  |   |                |  | $ | 1,000,000,000
|            |  |            |  |      
|Units Sold: |  |            |  |       |  |   |                |  |   |              
|            |  | 4,761,905  |  | Units |  | $ | 10.50 per Unit |  | $ | 50,000,000   
|            |  | 43,203,811 |  | Units |  | $ | 11 per Unit    |  |   | 475,241,924  
|            |  |            |  |       |  |   |                |  |   |              
|Totals:     |  | 47,965,716 |  | Units |  |   |                |  | $ | 525,241,924  

Expenses of Issuance and Distribution of Units



|                                                             |  |                                                     |             |                                                                                                                                                       |             |   |             |  |  |  | 
|------------------------------------------------------------ |  | --------------------------------------------------- | ----------- | ----------------------------------------------------------------------------------------------------------------------------------------------------- | ----------- | - | ----------- |  |  |  | 
|                                                             |  | 1.                                                  |             | Underwriting discounts and commission                                                                                                                 |             | $ | 52,524,192 
|                                                             |  | 2.                                                  |             | Expenses of underwriters                                                                                                                              |             |   |           
|                                                             |  | 3.                                                  |             | Direct or indirect payments to directors or officers of the Company or their associates, to ten percent shareholders, or to
affiliates of the Company |             |   |           
|                                                             |  | 4.                                                  |             | Fees and expenses of third parties                                                                                                                    |             |   | 1,529,640  
|                                                             |  |                                                     |             |                                                                                                                                                       |             |   |             |  |  |  | 
|Total Expenses of Issuance and Distribution of Common Shares |  |                                                     | 54,053,832 
|                                                             |  |                                                     |             |                                                                                                                                                       |             |   |             |  |  |  | 
|Net Proceeds to the Company                                  |  | $                                                   | 471,188,092
|                                                             |  |                                                     |             |                                                                                                                                                       |             |   |             |  |  |  | 
|                                                             |  | 1.                                                  |             | Purchase of real estate (including repayment of indebtedness incurred to purchase real estate)                                                        |             | $ | 389,233,878
|                                                             |  |                                                     |            
|                                                             |  | 2.                                                  |             | Repayment of other indebtedness, including interest expense paid                                                                                      |             |   | 1,359,157  
|                                                             |  | 3.                                                  |             | Working capital                                                                                                                                       |             |   | 71,492,390 
|                                                             |  | 4.                                                  |             | Fees to the following (all affiliates of officers of the Company):                                                                                    |             |   |            
|                                                             |  |                                                     |             | a. Apple Seven Advisors, Inc.                                                                                                                         |             |   | 275,190    
|                                                             |  |                                                     |             | a. Apple Suites Realty Group, Inc.                                                                                                                    |             |   | 8,827,477  
|                                                             |  | 5.                                                  |             | Fees and expenses of third parties                                                                                                                    |             |   |           
|                                                             |  | 6.                                                  |             | Other                                                                                                                                                 |             |   |           
|                                                             |  |                                                     |             |                                                                                                                                                       |             |   |             |  |  |  | 
|                                                             |  | Total of Application of Net Proceeds to the Company |             | $                                                                                                                                                     | 471,188,092
|                                                             |  |                                                     |             |                                                                                                                                                       |             |   |             |  |  |  | 



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|Item 6. | Exhibits
|------- | --------

EXHIBIT INDEX



|               |  |                                                                                                                                                                                                                                                                                             
|-------------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit Number |  | Description of Documents                                                                                                                                                                                                                                                                    
|1.2            |  | Escrow Agreement. (Incorporated by reference to Exhibit 1.2 to the registrants registration statement on Form S-11 (SEC File No. 333-125546) effective March 3, 2006)                                                                                                                      
|               | 
|3.1            |  | Articles of Incorporation of the Registrant. (Incorporated by reference to Exhibit 3.1 to the registrants registration statement on Form S-11 (SEC File No. 333-125546) effective March 3,
2006)                                                                                           
|               | 
|3.2            |  | Bylaws of the Registrant. (Incorporated by reference to Exhibit 3.2 to the registrants registration statement on Form S-11 (SEC File No. 333-125546) effective March 3,
2006)                                                                                                              
|               | 
|3.3            |  | Amended and Restated Articles of Incorporation of the Registrant. (Incorporated by reference to Exhibit 3.3 to amendment no. 3 to the registrants registration statement on Form S-11 (SEC
File No. 333-125546) effective March 3, 2006)                                                   
|               | 
|10.53          |  | Agreement of Purchase and Sale dated April 4, 2007 by and between Hampton Inns, Inc. and Apple Seven Hospitality Ownership, Inc. (Incorporated by reference to Exhibit 10.53 to the
registrants Post-Effective Amendment No. 4 to Form S-11 (SEC File No. 333-125546) filed April 26, 2007)
|31.1           |  | Certification of the registrants Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (FILED HEREWITH)                                                                                                                                                        
|31.2           |  | Certification of the registrants Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (FILED HEREWITH)                                                                                                                                                        
|32.1           |  | Certification of the registrants Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
2002 (FILED HEREWITH)                                                                              



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SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has
duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.



Apple REIT Seven, Inc.By:

/s/ Glade M. Knight

Date:

May 3, 2007Glade M. Knight,Chairman of the Board,Chief Executive Officer,and President(Principal Executive Officer)By:

/s/ Bryan Peery

Date:

May 3, 2007Bryan Peery,Chief Financial Officer(Principal Financial and Principal Accounting Officer)




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