EXHIBIT 99.2

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

SUPPLEMENT NO. 5 DATED MARCH 21, 2000 TO BE USED WITH PROSPECTUS DATED AUGUST 3,
1999.




                      SUPPLEMENT NO. 5 DATED MARCH 21, 2000

                       TO PROSPECTUS DATED AUGUST 3, 1999

                               APPLE SUITES, INC.


     The following information  supplements the prospectus of Apple Suites, Inc.
dated  August  3,  1999 and is part of the  prospectus.  THIS  SUPPLEMENT  NO. 5
INCORPORATES   AND  THEREFORE   REPLACES  ALL  SUPPLEMENTS   PREVIOUSLY  IN  USE
(SUPPLEMENTS 1, 2, 3 AND 4).  PROSPECTIVE  INVESTORS SHOULD CAREFULLY REVIEW THE
PROSPECTUS AND THIS SUPPLEMENT.


                     TABLE OF CONTENTS FOR SUPPLEMENT NO. 5

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

      Status of the Offering..............................................................................S - 2
      Recent Developments.................................................................................S - 2
      Company Management..................................................................................S - 3
      Our Properties......................................................................................S - 3
      Property Acquisitions...............................................................................S - 4
               Overview...................................................................................S - 4
               Ownership and Leasing of Hotels............................................................S - 5
               Hotel Supplies and Franchise Fees..........................................................S - 6
               Description of Financing...................................................................S - 7
               Licensing And Management...................................................................S - 9
               Potential Economic Risk and Benefit Involving Apple Suites Management......................S - 9
      Summary of Material Contracts.......................................................................S - 10
      Description of Properties...........................................................................S - 17
      Management's Discussion and Analysis................................................................S - 46
      Selected Financial Data.............................................................................S - 51
      Update Concerning Prior Programs....................................................................S - 52
      Experts.............................................................................................S - 57
      Index to Financial Statements.......................................................................F - 1
</TABLE>


     The  prospectus  and this  supplement  contain  forward-looking  statements
within the  meaning of the  federal  securities  laws which are  intended  to be
covered by the safe harbors created by those laws. These statements  include our
plans and  objectives  for future  operations,  including  plans and  objectives
relating  to future  growth and  availability  of funds.  These  forward-looking
statements  are based on current  expectations  that involve  numerous risks and
uncertainties.  Assumptions  relating to these statements involve judgments with
respect to,  among other  things,  the  continuation  of our  offering of common
shares,  future economic,  competitive and market conditions and future business
decisions.  All  of  these  matters  are  difficult  or  impossible  to  predict
accurately  and many of them are beyond our  control.  Although  we believe  the
assumptions underlying the forward-looking  statements,  and the forward-looking
statements  themselves,   are  reasonable,  any  of  the  assumptions  could  be
inaccurate and, therefore,  there can be no assurance that these forward-looking
statements will prove to be accurate. In light of the significant  uncertainties
inherent in these forward-looking  statements, the inclusion of this information
should not be regarded as a  representation  by us or any other  person that our
objectives and plans, which we consider to be reasonable, will be achieved.

                                      S-1

<PAGE>
                             STATUS OF THE OFFERING

     We  completed  the  minimum  offering  of common  shares at $9 per share on
August 23, 1999. We are  continuing  the offering at $10 per share in accordance
with the prospectus.


     As of March 17, 2000,  we had closed on the  following  sales of our common
shares:


<TABLE>
<CAPTION>
                                                                                      Proceeds Net of Selling
              Price Per                 Number of                   Gross            Commissions and Marketing
            Common Share            Common Shares Sold             Proceeds              Expense Allowance
            ------------            ------------------           ------------        --------------------------
<S>                                 <C>                          <C>                 <C>

                 $ 9                    1,666,666.67             $15,000,000                 $13,500,000
                 $10                    2,256,256.00              22,562,560                  20,306,304
                                        ------------              ----------                  ----------
                        TOTAL           3,922,922.67             $37,562,560                 $33,806,304
                                        ============              ==========                  ==========


</TABLE>

     We have purchased, either directly or through our subsidiaries,  a total of
11 extended-stay hotels with the net proceeds of our offering. All of our hotels
are licensed with Homewood  Suites(R) by Hilton,  which is a registered  service
mark of Hilton Hotels Corporation. A summary of our hotels appears below.

                               RECENT DEVELOPMENTS

     As discussed  in detail  below,  we have a total of $68.6  million in notes
payable in connection with the purchase of our hotels.  Final principal payments
are due as  follows:  (a) $34 million on October 1, 2000,  (b) $30.2  million on
November 1, 2000,  and (c) $4.4 million on January 1, 2001. We plan to pay these
notes with the proceeds from our continuous  "best  efforts"  offering of common
shares.  However,  based on the current  rate at which equity is being raised by
the  offering,  we may need to seek other  measures  to repay  these  loans.  We
currently are holding  discussions  with several lenders to obtain financing for
the hotels and are exploring both unsecured and secured financing arrangements.

     Although no firm  financing  commitments  have been  received,  we believe,
based on  discussions  with  lenders and other  market  indicators,  that we can
obtain  sufficient   financing  prior  to  maturity  of  the  notes.   Obtaining
refinancing  is dependent  upon a number of factors,  including:  (a)  continued
operation of the hotels at or near current  occupancy  and room rate levels,  as
the hotel  leases  are based on a  percentage  of hotel  suite  income,  (b) the
general level of interest rates,  including credit spreads for real estate based
lending, and (c) general economic conditions.

     There is no assurance that we will be able to obtain financing to repay our
current  outstanding  debt. If we are unable to obtain such financing and if our
offering proceeds are  insufficient,  we would be subject to a number of default
remedies,  including possible loss of the hotels through foreclosure.  Depending
on the terms of any  financing


                                      S-2

<PAGE>

we obtain,  we may need to modify our  borrowing  policy,  as  described  in the
prospectus, of holding our properties on an all-cash basis over the long-term.

                               COMPANY MANAGEMENT

     On August 16, 1999,  we added four  individuals  to our board of directors.
Those four individuals are Lisa B. Kern, Bruce H. Matson,  Michael S. Waters and
Robert M. Wily (all of whom are described in the prospectus).

     On the same date,  Glade M. Knight,  who is our Chairman,  Chief  Executive
Officer and  President,  was  authorized  by the board of directors to close the
purchase of hotels on our behalf as he deems in our best interests.  He also was
authorized to cause us to borrow,  on either a secured or an unsecured basis, up
to 75% of the  purchase  price  for such  hotels.  We  expect  to repay any such
borrowing  from the proceeds of our ongoing  offering and sale of common shares.
There can be no  assurance,  however,  that we will  actually  receive  proceeds
sufficient for that purpose.


     From August 1999  through  March 2000,  C. Douglas  Schepker  served as our
Senior Vice President and Chief  Operating  Officer.  His duties were assumed by
Glade M. Knight in March 2000.


                                 OUR PROPERTIES

            (Map of United States shows general location of hotels)


                               [GRAPHICS OMITTED]


                                      S-3

<PAGE>

<TABLE>
<CAPTION>

Date of              Name                                Total      Date of          Name                               Total
Purchase             of Hotel                            Suites     Purchase         of Hotel                           Suites
--------             --------                            ------     --------         --------                           ------
<S>                  <C>                                 <C>        <C>              <C>                                <C>
September 1999       Dallas - Addison                     120       November 1999    Atlanta - Peachtree                   92
September 1999       Dallas - Irving/Las Colinas          136       November 1999    Baltimore - BWI Airport              147
September 1999       North Dallas - Plano                  99       November 1999    Clearwater                           112
September 1999       Richmond - West End                  123       November 1999    Detroit - Warren                      76
October 1999         Atlanta - Galleria/Cumberland        124       November 1999    Salt Lake City - Midvale              98
                                                                    December 1999    Jackson-Ridgeland                     91
</TABLE>


                              PROPERTY ACQUISITIONS

OVERVIEW

     We used the proceeds  from our offering of common  shares to pay 25% of the
purchase  price for each hotel to Promus Hotels,  Inc., or an affiliate,  as the
seller.  Promus  Hotels,  Inc.  is a  wholly-owned  subsidiary  of Hilton Hotels
Corporation.  The balance, or 75% of the purchase price for each hotel, is being
financed by Promus Hotels,  Inc. as short-term or "bridge financing"  (described
in further  detail  below).  We paid a 2% real  estate  commission  on the total
purchase  price for each hotel to Apple Suites Realty  Group,  Inc., as our real
estate  broker.  This  corporation  is  owned by  Glade  M.  Knight,  who is our
president and chief  executive  officer.  The  following  table  summarizes  the
purchase information for our hotels:

<TABLE>
<CAPTION>

Hotel                                            Purchase           Amount      Real Estate
Name                                                Price    Financed (75%)       Commission
-----                                          ----------    -------------      -----------
<S>                                            <C>              <C>             <C>
Dallas - Addison                               $9,500,000       $7,125,000         $190,000
Dallas - Irving/Las Colinas                    11,200,000        8,400,000          224,000
North Dallas - Plano                            5,400,000        4,050,000          108,000
Richmond - West End                             9,400,000        7,050,000          188,000
Atlanta - Galleria/Cumberland                   9,800,000        7,350,000          196,000
Atlanta - Peachtree                             4,033,000        3,024,750           80,660
Baltimore - BWI Airport                        16,348,000       12,261,000          326,960
Clearwater                                     10,416,000        7,812,000          208,320
Detroit - Warren                                4,330,000        3,247,500           86,600
Salt Lake City - Midvale                        5,153,000        3,864,750          103,060
Jackson - Ridgeland                             5,846,000        4,384,500          116,920
                                              -----------      -----------       ----------

                                  TOTAL       $91,426,000      $68,569,500       $1,828,520
                                              ===========      ===========       ==========
</TABLE>


                                       S-4

<PAGE>


OWNERSHIP AND LEASING OF HOTELS

     We directly  purchased the hotels  located in states other than Texas.  The
hotels that we own directly  have been leased to Apple Suites  Management,  Inc.
under a master  hotel lease  agreement  dated as of  September  20,  1999.  This
agreement is among the material contracts described below.

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

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

     The  following  chart shows the  ownership  and leasing  structure  for our
hotels in Texas:


                                      S-5

<PAGE>

           (All entities shown below are organized under Virginia law)

                               [GRAPHICS OMITTED]

     For  simplicity,  the general term "Apple Suites  Management"  will be used
where appropriate as a combined  reference to the entities that lease our hotels
(Apple Suites Management, Inc. and its subsidiary, Apple Suites Services Limited
Partnership).

HOTEL SUPPLIES AND FRANCHISE FEES

     We have  provided  Apple Suites  Management  with funds for the purchase of
certain hotel supplies (such as sheets, towels and so forth), and with funds for
the  payment  of hotel  franchise  fees to  Promus  Hotels,  Inc.  Apple  Suites
Management is obligated to repay us under the promissory notes described below:


                                      S-6

<PAGE>

<TABLE>
<CAPTION>
         Month of                Principal Amount          Principal Amount
      Promissory Note               (Supplies)             (Franchise Fees)
      ---------------               ----------             ----------------
<S>                               <C>                      <C>
September 1999                        $ 47,800                    $215,550
October 1999                            12,400                      55,800
November 1999                           52,500                     251,550
December 1999                            9,100                      45,000
                                        ------                     -------
                      TOTAL           $121,800                    $567,900
                                       =======                     =======
</TABLE>

     Each  promissory  note provides for an annual interest rate of nine percent
(9%),  which would increase to twelve percent (12%) if a default  occurs.  After
the initial  payment of interest  only,  amortized  payments  of  principal  and
interest are due in monthly  installments.  The promissory notes with respect to
hotel  supplies are payable to us in sixty-one  (61) monthly  installments.  The
promissory notes with respect to franchise fees are payable to us in one hundred
twenty-one (121) monthly installments.

DESCRIPTION OF FINANCING

     As indicated  above,  Promus Hotels,  Inc. is financing 75% of the purchase
price of our hotels. The amounts we owe to Promus Hotels,  Inc. are evidenced by
the following promissory notes:

<TABLE>
<CAPTION>
                                    Original                Remaining
         Month of                  Principal             Principal as of        Annual Rate            Date of
      Promissory Note                Amount               March 1, 2000         of Interest            Maturity
      ---------------                ------               -------------         -----------            --------
<S>                                <C>                    <C>                   <C>            <C>
September 1999                      $26,625,000              $26,625,000            8.5%        October 1, 2000
October 1999                        $ 7,350,000              $ 7,350,000            8.5%        October 1, 2000
November 1999                       $30,210,000              $30,210,000            8.5%        December 1, 2000
December 1999                       $ 4,384,500              $ 4,384,500            8.5%        January 1, 2001
                                    -----------              -----------
                      TOTAL         $68,569,500              $68,569,500
                                     ==========               ==========
</TABLE>

     We consider the financing from Promus Hotels, Inc. to be "bridge financing"
because of its short-term nature (that is, each promissory note reaches maturity
within  approximately one year of its date of execution).  Despite the temporary
use of bridge financing,  over the long-term we will seek to hold our properties
on an all-cash basis, as indicated in the prospectus.

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

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


                                      S-7

<PAGE>

     Revenue from the operation of the hotels will be used to pay interest under
the  promissory  notes we have  made to  Promus  Hotels,  Inc.  The "net  equity
proceeds" from our offering of common shares will be the source of our principal
payments.  The phrase "net equity  proceeds"  means the total  proceeds from our
offering  of common  shares,  as  reduced by selling  commissions,  a  marketing
expense allowance,  closing costs, various fees and charges (legal,  accounting,
and so forth), a working capital reserve and a reserve for renovations,  repairs
and replacements of capital improvements.


     Under an October 1999 letter  agreement,  we were permitted to use such net
equity  proceeds  to pay  25% of  the  purchase  price  for  additional  hotels,
including the hotels we purchased in November and December of 1999. Furthermore,
Hilton Hotels Corporation, the parent company of Promus Hotels,  Inc. has agreed
to defer principal  payments until the earlier of April 28, 2000 or our purchase
of two  additional  extended-stay  hotels  licensed with  Homewood  Suites(R) by
Hilton.  Otherwise,  to the extent that we have such net equity proceeds, we are
obligated to make monthly principal payments under the promissory notes dated as
of September 20, 1999 and October 5, 1999. Once those  promissory notes are paid
in full, we will have a similar  obligation to make monthly  principal  payments
under the other promissory notes.  Assuming the September and October promissory
notes  are  paid in full by their  common  maturity  date of  October  1,  2000,
principal  under  the  November  promissory  note  will  be due  in two  monthly
installments  ending on  December 1, 2000,  and  principal  under the  remaining
promissory  note will be due in a single  installment  on its  maturity  date of
January 1, 2001.


     To date, we have made all scheduled  interest payments under the promissory
notes.  The  aggregate  amount of our interest  payments  through  March 2000 is
$2,508,767.

     There can be no assurance that the net equity proceeds from our offering of
common shares will be sufficient to pay principal under the promissory  notes on
or before the  required due dates.  The  following  amounts  would be due on the
maturity dates of the promissory notes, assuming that interest payments continue
to be made on schedule and that no payments of  principal  are made before those
maturity dates:

<TABLE>
<CAPTION>
          Month of                    Date of              If Principal Due            Then Total Due
       Promissory Note                Maturity            at Maturity Equals         at Maturity Equals
       ---------------                --------            ------------------         ------------------
<S>                            <C>                        <C>                        <C>
September 1999                 October 1, 2000                  $26,625,000               $26,811,010
October 1999                   October 1, 2000                  $ 7,350,000               $ 7,401,349
November 1999                  December 1, 2000                 $30,210,000               $30,421,056
December 1999                  January 1, 2001                  $ 4,384,500               $ 4,415,131
                                                                -----------                ----------
                                                TOTAL           $68,569,500               $69,048,546
                                                                 ==========                ==========
</TABLE>


     In the event of a default under the promissory notes,  various remedies are
available  to Promus  Hotels,  Inc.  under  certain  deeds of  trust,  which are
described below in the Summary of Material Contracts.



                                      S-8

<PAGE>

LICENSING AND MANAGEMENT

     We expect  that our hotels  will  continue  to be  licensed  with  Homewood
Suites(R) by Hilton.  To help achieve that result,  Apple Suites  Management has
executed  separate license  agreements with Promus Hotels,  Inc. for each of our
hotels.  Promus  Hotels,  Inc. is  managing  each of the hotels  under  separate
management agreements with Apple Suites Management. These license and management
agreements are among the material contracts described below.

POTENTIAL ECONOMIC RISK AND BENEFIT INVOLVING APPLE SUITES MANAGEMENT

     Because federal tax laws prohibit us from directly operating our hotels, we
have leased them to Apple  Suites  Management,  Inc.  or its  subsidiary  (Apple
Suites Services Limited Partnership). Our president and chief executive officer,
Glade M. Knight, is the sole shareholder of Apple Suites Management, Inc.

     The master hotel lease agreements have been structured to minimize,  to the
extent possible,  the economic benefit to Apple Suites  Management,  Inc. and to
maximize the rental  income we receive from the hotels.  However,  revenues from
operating the hotels may exceed payment obligations under the master hotel lease
agreements,  the license agreements and the management agreements. To the extent
that  operating  income remains after those payment  obligations  are met, Apple
Suites  Management,  Inc. will realize an economic  benefit.  The extent of this
potential economic benefit cannot be determined at this time because it depends,
in part, on future hotel revenues.

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

     If the cash  flow  from  the  operations  of the  hotels  and the  retained
earnings of Apple Suites  Management,  Inc. are  insufficient to make the rental
payments due under the master lease agreements,  Apple Suites  Management,  Inc.
can  receive  additional  funding  under two  funding  commitments.  The funding
commitments  are dated as of September 17, 1999,  and have been made by Glade M.
Knight and Apple Suites Realty Group, Inc., which is wholly-owned by Mr. Knight.
These funding commitments are payable on demand by Apple Suites Management, Inc.
Under each funding  commitment,  Apple Suites  Management,  Inc. can make one or
more demands for funding,  subject to two  qualifications.  First, the aggregate
payments under the funding commitments shall not exceed $2 million.  Second, the
demands for payment shall be limited, in amount and frequency,  to those demands
that are  reasonably  necessary  to  satisfy  any  capitalization  or net  worth
requirements of Apple Suites Management,  Inc., or payment obligations under the
master hotel lease agreements for our hotels.  Apple Suites Management,  Inc. is
not required to repay the funds it receives under the funding commitments.


                                      S-9

<PAGE>

                          SUMMARY OF MATERIAL CONTRACTS

DEEDS OF TRUST AND RELATED DOCUMENTS

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

     Each deed of trust  corresponds to one of the  promissory  notes we made to
Promus  Hotels,  Inc.,  and secures the payment of principal and interest  under
that promissory note. The encumbrance  created by a deed of trust will terminate
when its corresponding promissory note is paid in full.

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

     Each deed of trust contains a substantially similar definition of events of
default.  In each case, the events of default include  (without  limitation) any
default that occurs under any of the  promissory  notes or under another deed of
trust,  and any sale of the secured property without the prior consent of Promus
Hotels, Inc. Upon any event of default, various remedies are available to Promus
Hotels,  Inc.  Those  remedies  include,  for example (a)  declaring  the entire
principal  balance  under the  promissory  notes,  and all  accrued  and  unpaid
interest,  to be due and  payable  immediately;  (b)  taking  possession  of the
secured  property,  including  the hotels;  and (c)  collecting  hotel rents and
revenues,  or  foreclosing  on the hotels,  to satisfy  unpaid amounts under the
promissory  notes.  Each deed of trust  requires us to pay any costs that may be
incurred in exercising such remedies.

     At each closing on our  purchase of a hotel or group of hotels,  we further
encumbered  the hotels we already owned with  additional  deeds of trust or with
negative pledges.  The negative pledges apply to three of our hotels (Richmond -
West End, Clearwater and Baltimore - BWI Airport). The negative pledges prohibit
any transfer or further  encumbrance of the hotels, in whole or in part, without
the prior  written  consent of Promus  Hotels,  Inc.  Each  negative  pledge was
executed concurrently with a particular promissory note, and will terminate when
its corresponding promissory note is paid in full.

ENVIRONMENTAL INDEMNITIES

     A  separate  environmental  indemnity  applies to each of our  hotels.  The
indemnities  are  substantially  similar and protect Promus Hotels,  Inc. in the
event that we undertake  any  corrective  work to remove or eliminate  hazardous
materials from the hotels. Hazardous materials are defined in the indemnities to
include,  for example,  asbestos and other toxic materials.  We are not aware of
any hazardous  materials at the hotels,  but there can be no assurance that such
materials are not present.


                                      S-10

<PAGE>

     Under the  indemnities,  we have agreed to  indemnify  and  protect  Promus
Hotels,   Inc.   from  any  losses  that  it  may  incur   because  of  (a)  the
nonperformance,  or delayed  performance and completion,  of corrective work; or
(b) the  enforcement of the  indemnities.  The indemnity for a particular  hotel
corresponds to the promissory  note that was executed at closing on the purchase
of that hotel. In general,  each indemnity will terminate when its corresponding
promissory note is paid in full.  However,  the  indemnities  will continue with
respect to those  litigation  or  administrative  claims,  if any,  that involve
indemnified  losses  and  that  are  pending  at the  date of full  payment.  In
addition,  for a period of four years  after the date of such full  payment,  we
will be obligated to pay any  enforcement  costs for  subsequent  litigation  or
administrative claims.

MASTER HOTEL LEASE AGREEMENTS

     All of our  hotels,  except the hotels in Texas,  have been leased to Apple
Suites  Management,  Inc.  These  leases  were  created by a master  hotel lease
agreement dated September 20, 1999,  which has been  supplemented to include the
hotels we  purchased  after that date.  The hotels in Texas have been  leased to
Apple Suites Services  Limited  Partnership  under a separate and  substantially
similar master hotel lease agreement dated September 20, 1999.

     Each master hotel lease  agreement has an initial term of ten years.  Apple
Suites  Management  has the option to extend  the lease term for two  additional
five-year  periods,  provided that Apple Suites  Management is not in default at
the end of the prior term or at the time the option is  exercised.  If the first
option is exercised,  rental  payments would continue to be adjusted as provided
in the master  lease  agreement.  If the  second  option is  exercised,  we must
negotiate  in good  faith  with  Apple  Suites  Management  to adjust the rental
payments to a market rate for similar  hotels.  If no agreement  can be reached,
rental  terms  would  be  determined  by an  independent  panel  of  experts  in
evaluating hotel REIT leases.


     We may terminate a master hotel lease  agreement if we sell the hotels to a
third  party,  if there is a change of control of Apple  Suites  Management,  or
based on any  amendments  to the  Internal  Revenue  Code that would  permit our
direct  operation of the hotels or would make the lease  structure  unnecessary.
Upon any termination,  we must compensate Apple Suites  Management by paying the
fair market value of the lease as of such  termination,  or by offering to lease
one or more substitute hotels.


     The master  hotel  lease  agreements  provide  for an annual  base rent,  a
quarterly  percentage rent and a quarterly  sundry rent. Base rent is payable in
advance in equal monthly installments.  Beginning in 2001, the base rent will be
adjusted annually in proportion to the Consumer Price Index. The following table
shows the initial base rents for each hotel:


                                      S-11

<PAGE>

<TABLE>
<CAPTION>
                                                       Base Rent
Name of Hotel                                       (1999 and 2000)
------------                                        ---------------
<S>                                                 <C>
Dallas - Addison                                        $638,220
Dallas - Irving/Las Colinas                              824,340
North Dallas - Plano                                     501,930
Richmond - West End                                      674,190
Atlanta - Galleria/Cumberland                            661,320
Atlanta - Peachtree                                      414,150
Baltimore - BWI Airport                                  895,750
Clearwater                                               664,150
Detroit - Warren                                         408,450
Salt Lake City - Midvale                                 438,150
Jackson - Ridgeland                                      462,750
</TABLE>

     Percentage rent is payable quarterly.  The percentage rent for a particular
hotel depends on a formula that compares fixed "suite revenue  breakpoints" with
a portion of "suite revenue," which is equal to gross revenue from suite rentals
(less sales and room taxes).  Specifically,  the percentage rent is equal to the
sum of (a) 17% of all  year-to-date  suite revenue,  up to the applicable  suite
revenue breakpoint;  plus (b) 55% of the year-to-date suite revenue in excess of
the applicable suite revenue breakpoint,  as reduced by base rent and percentage
rent paid year-to-date. Beginning in 2001, the suite revenue breakpoints will be
adjusted in proportion to the Consumer  Price Index.  Suite revenue  breakpoints
have been  determined for the first quarter of each year during the initial term
of the  master  hotel  lease  agreements.  The  suite  revenue  breakpoints  for
subsequent  quarters are determined by  multiplying  the first quarter values by
two, three or four,  respectively.  The following  table shows the initial suite
revenue  breakpoints  for each hotel,  before any adjustment due to the Consumer
Price Index:

                            Suite Revenue Breakpoints
                  for the First Quarter of the Indicated Years

<TABLE>
<CAPTION>
Name of Hotel                                    2000          2001          2002          2003
-------------                                    ----          ----          ----          ----
<S>                                          <C>           <C>           <C>           <C>

Dallas - Addison                             $256,255      $261,090      $265,925      $270,760
Dallas - Irving/Las Colinas                   330,985       337,230       343,475       349,720
North Dallas - Plano                          201,533       205,335       209,138       212,940
Richmond - West End                           270,698       275,805       280,913       286,020
Atlanta - Galleria/Cumberland                 265,530       270,540       275,550       280,560
Atlanta - Peachtree                           134,599       138,740       144,953       149,094
Baltimore - BWI Airport                       291,119       300,076       313,513       322,470
Clearwater                                    215,849       222,490       232,453       239,094
Detroit - Warren                              132,746       136,831       142,958       147,042
Salt Lake City - Midvale                      142,399       146,780       153,353       157,734
Jackson - Ridgeland                           150,394       155,021       161,963       166,590
</TABLE>



                                      S-12

<PAGE>

<TABLE>
<CAPTION>
Name of Hotel                                    2004          2005          2006          2007          2008
-------------                                    ----          ----          ----          ----          ----
<S>                                          <C>           <C>           <C>           <C>           <C>
Dallas - Addison                             $275,595      $280,430      $285,265      $290,100      $294,935
Dallas - Irving/Las Colinas                   355,965       362,210       368,455       374,700       380,945
North Dallas - Plano                          216,742       220,545       224,348       228,150       231,953
Richmond - West End                           291,128       296,235       301,343       306,450       311,558
Atlanta - Galleria/Cumberland                 285,570       290,580       295,590       300,600       305,610
Atlanta - Peachtree                           153,236       157,377       161,519       165,660       169,802
Baltimore - BWI Airport                       331,428       340,385       349,343       358,300       367,258
Clearwater                                    245,736       252,377       259,019       265,660       272,302
Detroit - Warren                              151,127       155,211       159,296       163,380       167,465
Salt Lake City - Midvale                      162,116       166,497       170,879       175,260       179,642
Jackson - Ridgeland                           171,218       175,845       180,473       185,100       189,728
</TABLE>

     The sundry rent is payable  quarterly and equals 99% of all sundry revenue,
which  consists of revenue  other than suite  revenue  less the amount of sundry
rent paid year-to-date.

     Under the master hotel lease  agreements,  Apple Suites Management must pay
all taxes,  other than real estate and personal  property taxes,  imposed on the
hotels.  In  addition,  Apple Suites  Management  must provide and pay for hotel
utilities, such as electricity,  gas, oil, water and sewer service. Apple Suites
Management  also must maintain and pay for insurance with respect to the hotels,
including  building  insurance (with earthquake and flood insurance),  equipment
insurance  (against loss or damage to steam boilers and similar  apparatus)  and
loss of income insurance.

     The master  hotel lease  agreements  require  Apple  Suites  Management  to
maintain the hotels in good order and repair, except for ordinary wear and tear.
This  requirement  applies  to any  underground  utilities  and  the  structural
elements of the hotels, including the exterior walls and roofs. We are obligated
to maintain a reserve fund for periodic  repair,  replacement or refurbishing of
furniture,  fixtures and equipment.  Our payments to this reserve fund may equal
up to 5% of suite revenue.

HOTEL LICENSE AGREEMENTS

     Each of our hotels is licensed  with  Homewood  Suites(R)  by Hilton  under
separate and substantially  similar license agreements with Promus Hotels, Inc..
Under the license  agreements,  Apple Suites Management has the right to operate
the hotels using the  "System"  established  for all  properties  licensed  with
Homewood  Suites(R) by Hilton.  The "System"  includes  access to a  reservation
system, to advertising  methods, to a "Standards Manual," and to other training,
information, programs and policies.

     In exchange,  Apple Suites  Management has agreed to numerous  requirements
and  restrictions  applicable  to its  operation  of  the  hotel.  Apple  Suites
Management is also required to pay royalties and other fees, as described below.

     Apple Suites Management will be subject to various operational requirements
pursuant to the license  agreements  and the  Standards  Manual.  The  Standards
Manual is subject to change at


                                      S-13

<PAGE>

any time. (As described  below,  Promus Hotels,  Inc. will act as the manager of
the hotels under separate management agreements.) As a practical matter, many of
the  requirements  in the license  agreements  and Standards  Manual will be the
responsibility of Promus Hotels, Inc. However,  certain requirements will remain
the  practical  responsibility  of Apple  Suites  Management.  Furthermore,  the
failure of Promus  Hotels,  Inc. to comply with the management  agreements  will
not, by itself,  relieve Apple Suites  Management from its obligations under the
license  agreements.  In such event,  the  remedies  available  to Apple  Suites
Management may be limited to monetary damages for breach of the hotel management
agreements.

     The hotels must be operated in accordance with the requirements established
by Promus  Hotels,  Inc. These  requirements  cover matters such as the types of
services  and products  that may be offered at the hotel,  the style and type of
signage,  the appearance and condition of the hotel, the use of the reservations
system for guests, adherence to a 100% Satisfaction Guarantee rule of operation,
required insurance coverage and other requirements.

     Under the license  agreements,  Apple Suites  Management may use the System
only during the 20-year term of the license  agreements.  The license agreements
are subject to early termination for various reasons, including default by Apple
Suites Managemen or its efforts to obtain  bankruptcy  protection.  If a license
agreement is  terminated  for any reason,  the hotel must  immediately  cease to
identify itself as having a license with Homewood Suites(R) by Hilton.

     Apple Suites  Management  must pay the following  monthly amounts to Promus
Hotels, Inc. in accordance with the license agreements:  (a) A royalty fee equal
to 4% of the gross suites  revenues  (less sales and room taxes)  received  from
rental of suites at the  hotels;  (b) a  marketing  contribution  equal to 4% of
gross  suites  revenues;  (c) any amounts due Promus  Hotels,  Inc. for goods or
services provided by Promus Hotels, Inc. to Apple Suites Management; and (d) the
amount of sales, gross receipts or similar taxes imposed on Promus Hotels,  Inc.
as a result of each payment  described above.  The 4% marketing  contribution is
subject to change by Promus Hotels, Inc. from time to time.  Furthermore,  there
is no assurance  that the  marketing  contribution  from a hotel will be used to
fund  advertising  or marketing  with respect to the hotel  actually  making the
contribution.

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

HOTEL MANAGEMENT AGREEMENTS

     Each of our hotels is being managed by Promus Hotels, Inc. or an affiliate.
To simplify the following discussion, the manager will be referred to as "Promus
Hotels." The management of our hotels is governed by separate and  substantially
similar management agreements with Apple Suites Management.


                                      S-14

<PAGE>

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

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

     Each year,  Promus Hotels will submit a proposed  operating budget for each
hotel to Apple Suites  Management  for its approval.  Each budget will include a
business plan  describing the business  objectives and strategies for each hotel
for the period covered by the budget.  In addition,  Promus Hotels will submit a
recommended  capital  budget to Apple Suites  Management  for its approval.  The
capital budget will apply to  furnishings,  equipment and ordinary hotel capital
replacements  needed to operate the hotels in accordance  with the hotel license
agreements.  At a minimum,  each  year's  budget for capital  improvements  will
provide for capital expenditures that are required to meet the minimum standards
of the hotel  license  agreement,  subject to the  following  limits:  (a) 3% of
adjusted  gross revenues for the first full year after the  commencement  of the
management agreement; (b) 4% of adjusted gross revenues for the second full year
after the commencement of the management agreement; and (c) 5% of adjusted gross
revenues for each year thereafter.

     In exchange for performing the services described above, Promus Hotels will
receive a management fee, payable  monthly.  The management fee will equal 4% of
adjusted gross  revenues.  Adjusted gross revenues are defined  generally as all
revenues derived from the hotels, as reduced by (a) refunds; (b) sales and other
similar  taxes;  (c) proceeds from the sale or other  disposition of the hotels,
furnishings and other capital assets;  (d) fire and extended coverage  insurance
proceeds; (e) credits or refunds made to customers; (f) condemnation awards; (g)
proceeds  of  financing  or  refinancing  of the  hotels;  (h)  interest on bank
accounts; and (i) gratuities or service charges added to a customer's bill.

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

     Each  management  agreement  has a  15-year  term.  However,  Apple  Suites
Management may terminate any management  agreement after its tenth  anniversary.
If it does  so,  Promus  Hotels  will be  entitled  to a  termination  fee.  The
termination  fee generally is equal to (a) the aggregate  management fees earned
during  the  preceding  24 months,  if the  termination  occurs  after the tenth
anniversary  but on or before the 14th  anniversary of the effective date of the
management  agreement;  or (b) the average monthly  management fee earned during
the preceding


                                      S-15

<PAGE>

24 months times the number of full calendar months remaining in the term, if the
termination  occurs  after the 14th  anniversary  of the  effective  date of the
management agreement.

     In addition,  if the hotel  license  agreement  for a  particular  hotel is
terminated,  Promus Hotels may terminate the corresponding management agreement.
If Promus Hotels  terminates the  management  agreement it will be entitled to a
termination  fee equal to (a) an amount that  ranges  from  $426,690 to $899,000
(depending on the hotel involved) if the termination  occurs within two years of
the  effective  date of the  management  agreement;  (b)  150% of the  aggregate
monthly   management  fees  earned  during  the  preceding  24  months,  if  the
termination  occurs  after the  second  anniversary  but on or before  the tenth
anniversary of the effective date of the  management  agreement;  (c) 75% of the
aggregate monthly  management fees earned during the preceding 24 months, if the
termination  occurs  after  the  tenth  anniversary  but on or  before  the 14th
anniversary  of the  effective  date  of the  management  agreement;  or (d) the
average  monthly  management fee earned during the preceding 24 months times the
number of full calendar months remaining in the term, if the termination  occurs
after the 14th anniversary of the effective date of the management agreement.

     Beginning  in the first full  calendar  year of  operations,  Apple  Suites
Management  may  terminate a  management  agreement  if Promus  Hotels  fails to
achieve,  in any two consecutive  calendar years, a gross operating profit which
is at least equal to 85% of the annual budgeted gross operating  profit.  Promus
Hotels can avoid termination by making a cash payment to Apple Suites Management
that equals the difference  between the gross operating profits achieved and 85%
of the budgeted  gross  operating  profits for the second such year.  Generally,
gross operating profit is defined as the amount by which adjusted gross revenues
exceed operating costs.

COMFORT LETTERS

     Our decision to lease our hotels to Apple Suites  Management  is based upon
certain  technical  tax  considerations  that apply to us as a REIT for  federal
income tax purposes.  To address  operational  complexities  and other potential
problems that may arise from using Apple Suites  Management as the lessee of our
hotels and the party to the license  agreements  and management  agreements,  we
have entered into  separate and  substantially  similar  "Comfort  Letters" with
Promus  Hotels,  Inc. with respect to each hotel.  The comfort  letters grant us
certain  rights  if  problems  arise  under  such  agreements,  or if the  lease
structure is no longer  necessary for tax purposes.  The chief provisions of the
comfort letters are described below.

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

     Second, if there is a default under the lease and we elect to terminate the
lease,  we have the right,  which may be  exercised  within 90 days after giving
notice  of  termination  to  Promus


                                      S-16

<PAGE>

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

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

                            DESCRIPTION OF PROPERTIES

     Each of our hotels is an extended-stay hotel, and is licensed with Homewood
Suites(R)  by Hilton.  We believe  that the majority of the guests at the hotels
during the past 12 months  have been  business  travelers.  We expect  that this
pattern will continue.

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

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

     The hotel are marketed, in part, through the website for Homewood Suites(R)
by Hilton  (http://www.homewood-suites.com),  which is  generally  available  24
hours a day,  seven  days a week,  around the  world.  Reservations  may be made
directly through the web site. The


                                      S-17

<PAGE>

reservation system and the web site are linked to, and cross-marketed  with, the
reservation  systems and web sites for other hotel franchises that are owned and
operated by Hilton Hotel Corporation.  Such cross-marketing may affect occupancy
at our hotels by directing  travelers or potential guests toward,  or away from,
our hotels.

     The hotels were actively  conducting  business on the date of purchase.  We
believe that the purchases  were  conducted  without  materially  disrupting any
daily hotel operations.  During the past 12 months, the hotels have been covered
with  property and  liability  insurance,  and we have arranged to continue such
coverage. We believe the hotels are adequately covered by insurance.

                                DALLAS - ADDISON

     The  Homewood  Suites(R)  Dallas - Addison is located on a 3.3 acre site at
4451 Beltline Road,  Addison,  Texas 75244.  The hotel is approximately 15 miles
from  downtown  Dallas and 25 miles  from the  Dallas/Fort  Worth  International
Airport.

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

<TABLE>
<CAPTION>
      Type of  Suite                     Number Available  Square Feet/per Suite
      --------------                     ----------------  ---------------------
      <S>                                <C>               <C>
      Master Suite                                24                590
      Homewood Suite                              88                460
      Two-Bedroom Suite                            8                850
</TABLE>

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

     We  believe  that the  hotel  has been  generally  well  maintained  and is
generally  in very good  condition.  Over the next 12  months,  we plan to spend
approximately  $400,000  on  renovations  or  improvements.  We expect  that the
principal  renovations and improvements  will include:  upgrading  bathrooms and
kitchens,  providing  additional signage and replacing exterior doors. We expect
to pay for the costs of these  renovations and  improvements  with proceeds from
our ongoing offering of common shares.

     During 1999,  the average stay at the hotel was  approximately  6.2 nights,
and  approximately  64.3% of the guests have stayed for five nights or more.  In
general, occupancy at


                                      S-18

<PAGE>

the hotel is not  seasonal.  The following  table shows average daily  occupancy
rates, expressed as a percentage, for the last five years:

                  Average Daily Occupancy Rate (calendar year)
<TABLE>
<CAPTION>
     1995              1996             1997              1998             1999
     ----              ----             ----              ----             ----
<S>                   <C>              <C>               <C>              <C>
    83.9%             78.4%            78.1%             76.9 %           73.8%
</TABLE>


     During 1999,  the average daily rate per suite was $89.87,  and the average
daily revenue per available suite was $66.30.  As explained above,  revenue from
the hotel's  operations  will be used to pay interest  due under the  promissory
note we executed in connection  with our purchase of the hotel.  There can be no
assurance,  however,  the proceeds of the offering  will be sufficient to permit
such payments of principal.  Assuming that no principal  payments are made until
the maturity of the promissory  note,  and that the hotel  continues to have the
level of revenue  specified  above,  approximately  20.9% of the hotel's revenue
would be needed to cover its portion of the interest payments.


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

<TABLE>
<CAPTION>
Length of Stay                                        Master               Master
(number of nights)              Homewood              (king)              (double)            Two Bedroom
------------------              --------              ------              --------            -----------
<S>                             <C>                  <C>                  <C>                   <C>
1   to   4                         $139                 $139                 $139                  $179
5   to 11                           109                  109                  109                   149
12 to 29                             89                   89                   89                   129
30 or more                           79                   79                   79                   119
</TABLE>

     The hotel offers a weekend discount,  which varies by type of suite and may
equal up to 33% off the basic rate.  The discount is not available to guests who
stay for five nights or more. The hotel also offers discounts to guests who stay
under certain corporate accounts.  These discounts are often negotiated with the
corporate  customer and vary from account to account.  During 1999,  we estimate
that approximately 36.7% of the hotel's guests received a corporate discount.

     The  chief  corporate  accounts  (as  designated  in the  hotel's  records)
include:  MBNA,  CSC,  Santa  Fe  International,   Lucent  Technologies,  Lawson
Software, People Soft, Business Jet, Stonebridge Technology and Acclivus. During
1999, the 10 largest corporate  accounts were responsible for approximately 6.8%
of the hotel's  occupancy.  There can be no assurance,  however,  that the hotel
will  continue to receive  significant  occupancy,  or any  occupancy,  from the
corporate accounts identified above.

     The table below shows the average  effective  annual rental per square foot
for the last five years:


                                      S-19

<PAGE>

<TABLE>
<CAPTION>
    1995               1996             1997              1998              1999
    ----               ----             ----              ----              ----
<S>                  <C>              <C>               <C>               <C>
  $56.35             $55.18           $54.05            $54.25            $47.26
</TABLE>

     The  depreciable  real  property  component  of the hotel  has a  currently
estimated Federal tax basis of $7,312,316 and will be depreciated over a life of
39 years  (or  less,  as  permitted  by the  Internal  Revenue  Code)  using the
straight-line  method. The basis of the personal property component of the hotel
will be depreciated in accordance  with the modified  accelerated  cost recovery
system of the Internal Revenue Code.

     The following table  summarizes the hotel's real estate tax information for
1999:

<TABLE>
<CAPTION>
Tax                                Assessed             Tax Rate              Amount
Jurisdiction                         Value             (per $100)             of Tax
------------                         -----             ----------             ------
<S>                                 <C>                   <C>                  <C>
County of Dallas                    $8,100,000            0.447699            $ 36,263.62
City of Dallas                      $8,100,000            1.460530            $118,302.93
Town of Addison                     $8,100,000            0.384600            $ 31,152.60
                                                                                ---------

                                                                TOTAL         $185,719.15
                                                                               ==========
</TABLE>

     We estimate that the annual property tax on the expected  improvements will
be approximately $4,500 or less.

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

                           DALLAS - IRVING/LAS COLINAS

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

     The hotel opened in January 1990. It has wood frame  construction,  with an
exterior of brick veneer,  stucco,  and wood siding.  The hotel consists of five
buildings,  each with two or


                                      S-20

<PAGE>

three  stories.  The hotel contains 136 suites,  which have a combined  rentable
area of 80,144 square feet. The following types of suites are available:

<TABLE>
<CAPTION>
      Type of  Suite                     Number Available  Square Feet/per Suite
      --------------                     ----------------  ---------------------
<S>                                      <C>                <C>
         Master Suite                           20                     620
         Homewood Suite                        108                     560
         Two-Bedroom Suite                       8                     908
</TABLE>

     The hotel offers a meeting room that  accommodates  25 to 30 people,  and a
business center that offers guests the use of a personal computer, a photocopier
and an electric typewriter.  Recreational  facilities include an outdoor pool, a
whirlpool,  a basketball  court and an exercise  room. The hotel also contains a
guest convenience store and laundry.  The hotel has its own parking lot with 181
spaces. The hotel provides complimentary shuttle service within a 3 mile radius.

     We  believe  that the  hotel  has been  generally  well  maintained  and is
generally  in very good  condition.  Over the next 12  months,  we plan to spend
approximately  $450,000  on  renovations  or  improvements.  We expect  that the
principal   renovations  and  improvements  will  include  upgrading  bathrooms,
repairing  the parking lot and  improving the meeting room. We expect to pay for
the costs of these  renovations and improvements  with proceeds from our ongoing
offering of common shares.

     During 1999,  the average stay at the hotel was  approximately  4.5 nights,
and  approximately  69.3% of the guests have stayed for five nights or more.  In
general,  occupancy  at the hotel is not  seasonal.  The  following  table shows
average daily  occupancy  rates,  expressed as a  percentage,  for the last five
years:

                  Average Daily Occupancy Rate (calendar year)

<TABLE>
<CAPTION>
     1995              1996             1997              1998             1999
     ----              ----             ----              ----             ----
<S>                    <C>              <C>               <C>              <C>
     75.2%             75.2%            77.8%             75.8 %           76.4%
</TABLE>


     During 1999,  the average daily rate per suite was $94.71,  and the average
daily revenue per available suite was $72.35.  As explained above,  revenue from
the hotel's  operations  will be used to pay interest  due under the  promissory
note we executed in connection  with our purchase of the hotel.  There can be no
assurance,  however,  the proceeds of the offering  will be sufficient to permit
such payments of principal.  Assuming that no principal  payments are made until
the maturity of the promissory  note,  and that the hotel  continues to have the
level of revenue  specified  above,  approximately  19.9% of the hotel's revenue
would be needed to cover its portion of the interest payments.


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


                                      S-21

<PAGE>

<TABLE>
<CAPTION>
Length of Stay
(number of nights)              Homewood              Master             Two Bedroom
------------------              --------              ------             -----------
<S>                             <C>                   <C>                <C>
1   to   4                          $134                $134                 $174
5   to 12                            119                 119                  159
13 to 29                             109                 109                  149
30 or more                            89                  89                  129
</TABLE>

     The hotel offers a weekend discount,  which varies by type of suite and may
equal up to 33% off the basic rate.  The discount is not available to guests who
stay for five nights or more. The hotel also offers discounts to guests who stay
under certain corporate accounts.  These discounts are often negotiated with the
corporate  customer and vary from account to account.  During 1999,  we estimate
that approximately 65.4% of the hotel's guests received a corporate discount.

     The  chief  corporate  accounts  (as  designated  in the  hotel's  records)
include:  GTE, SAP America,  Amdocs,  Ernst & Young,  Sprint,  Oracle Corp., The
Associates,  Caltex,  Associates Corp. of North America and Olympus America Inc.
During  1999,  the  10  largest   corporate   accounts  were   responsible   for
approximately 25% of the hotel's occupancy. There can be no assurance,  however,
that the hotel will continue to receive significant occupancy, or any occupancy,
from the corporate accounts identified above.

     The table below shows the average  effective  annual rental per square foot
for the last five years:

<TABLE>
<CAPTION>
    1995               1996             1997              1998              1999
    ----               ----             ----              ----              ----
<S>                  <C>              <C>               <C>               <C>
  $42.17             $44.42           $46.85            $47.48            $44.81
</TABLE>

     The  depreciable  real  property  component  of the hotel  has a  currently
estimated Federal tax basis of $8,292,872 and will be depreciated over a life of
39 years  (or  less,  as  permitted  by the  Internal  Revenue  Code)  using the
straight-line  method. The basis of the personal property component of the hotel
will be depreciated in accordance  with the modified  accelerated  cost recovery
system of the Internal Revenue Code.


                                      S-22

<PAGE>

     The following table  summarizes the hotel's real estate tax information for
1999:

<TABLE>
<CAPTION>
Tax                                            Assessed             Tax Rate              Amount
Jurisdiction                                     Value             (per $100)             of Tax
------------                                     -----             ----------             ------
<S>                                             <C>                  <C>                   <C>
County of Dallas                                $9,519,990           0.447699             $ 42,620.90
City of Irving                                  $9,519,990           0.488000             $ 46,457.55
Irving School District                          $9,519,990           1.668400             $158,831.51
Dallas County Utility District                  $9,519,990           1.189800             $113,268.84
                                                                                           ----------

                                                                            TOTAL         $361,178.80
                                                                                           ==========
</TABLE>

     We estimate  that the annual real estate tax on the  expected  improvements
will be approximately $8,500 or less.

     At least five competing hotels are located within three miles of the hotel.
(The names of the competing  franchises,  as listed below,  may be registered as
service marks or trade names.) Three of the competing  hotels are newer than the
hotel. The newer competing hotels have franchises with  AmeriSuites,  StudioPlus
and Summerfield  Suites.  The other competing hotels have franchises with Harvey
Hotel Suites and  Residence  Inn. We believe that the rates charged by the hotel
are generally  competitive with the rates charged by these other hotels.  We are
aware of ongoing or proposed  construction for two  extended-stay  hotels within
approximately  five  miles  of  the  hotel.  We  have  no  definite  franchising
information for these hotels.

                              NORTH DALLAS - PLANO

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

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

<TABLE>
<CAPTION>
      Type of  Suite                     Number Available  Square Feet/per Suite
      --------------                     ----------------  ---------------------
<S>                                      <C>               <C>
      Extended Double Suite                     37                  510
      Homewood Suite                            55                  460
      Two-Bedroom Suite                          7                  850
</TABLE>


                                      S-23

<PAGE>

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

     We  believe  that the  hotel  has been  generally  well  maintained  and is
generally  in very good  condition.  Over the next 12  months,  we plan to spend
approximately  $28,000  on  renovations  or  improvements.  We  expect  that the
principal  renovations  and  improvements  will  include  interior  upgrades and
landscaping.   We  expect  to  pay  for  the  costs  of  these  renovations  and
improvements with proceeds from our ongoing offering of common shares.

     During 1999,  the average stay at the hotel was  approximately  7.5 nights,
and  approximately  63.7% of the guests have stayed for five nights or more.  In
general,  occupancy  at the hotel is not  seasonal.  The  following  table shows
average daily occupancy rates,  expressed as a percentage,  since the opening of
the hotel:

                  Average Daily Occupancy Rate (calendar year)

<TABLE>
<CAPTION>
                           1997             1998              1999
                           ----             ----              ----
<S>                        <C>              <C>               <C>
                           64.4%            70.9%             71.9%
</TABLE>


     During 1999,  the average daily rate per suite was $79.86,  and the average
daily revenue per available suite was $57.43.  As explained above,  revenue from
the hotel's  operations  will be used to pay interest  due under the  promissory
note we executed in connection  with our purchase of the hotel.  There can be no
assurance,  however,  the proceeds of the offering  will be sufficient to permit
such payments of principal.  Assuming that no principal  payments are made until
the maturity of the promissory  note,  and that the hotel  continues to have the
level of revenue  specified  above,  approximately  16.6% of the hotel's revenue
would be needed to cover its portion of the interest payments.


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

<TABLE>
<CAPTION>
Length of Stay                                       Extended
(number of nights)              Homewood              Double             Two Bedroom
------------------              --------             --------            -----------
<S>                             <C>                  <C>                 <C>
1   to   6                          $109                $109                 $149
7   to 29                             69                  69                  109
30 or more                            59                  59                   99
</TABLE>


                                      S-24

<PAGE>

     The hotel offers a weekend discount,  which varies by type of suite and may
equal up to 33% off the basic rate.  The discount is not available to guests who
stay for five nights or more. The hotel also offers discounts to guests who stay
under certain corporate accounts.  These discounts are often negotiated with the
corporate  customer and vary from account to account.  During 1999,  we estimate
that approximately 49.5% of the hotel's guests received a corporate discount.

     The chief corporate accounts (as designated in the hotel's records) include
J.C. Penney, Dr. Pepper/7-Up, Alcatel, Arco, Raytheon, State Farm Insurance, Rug
Doctor,  Sterling  Software,  Oracle  Corp and Frito Lay . During  1999,  the 10
largest corporate accounts were responsible for approximately 34% of the hotel's
occupancy.  There can be no assurance,  however, that the hotel will continue to
receive  significant  occupancy,  or any occupancy,  from the corporate accounts
identified above.

     The table below shows the average  effective  annual rental per square foot
since the opening of the hotel:

<TABLE>
<CAPTION>
         1997                  1998                 1999
         ----                  ----                 ----
<S>                           <C>                  <C>
        $38.87                $43.99               $41.41
</TABLE>

     The  depreciable  real  property  component  of the hotel  has a  currently
estimated Federal tax basis of $4,713,290 and will be depreciated over a life of
39 years  (or  less,  as  permitted  by the  Internal  Revenue  Code)  using the
straight-line  method. The basis of the personal property component of the hotel
will be depreciated in accordance  with the modified  accelerated  cost recovery
system of the Internal Revenue Code.

     The following table  summarizes the hotel's real estate tax information for
1999:

<TABLE>
<CAPTION>
Tax                                Assessed             Tax Rate              Amount
Jurisdiction                         Value             (per $100)             of Tax
------------                         -----             ----------             ------
<S>                               <C>                    <C>                <C>
County of Collin                  $7,124,145             2.35655            $167,884.04
</TABLE>

     We estimate that the annual property tax on the expected  improvements will
be approximately $500 or less.

     At least nine competing  hotels are located within five miles of the hotel.
(The names of the competing  franchises,  as listed below,  may be registered as
service marks or trade  names.) Five of the competing  hotels are newer than the
hotel. The newer competing hotels have franchises with  AmeriSuites,  Candlewood
Suites, Homegate Suites, Hawthorne Suites and Residence Inn. The other competing
hotels have  franchises  with Courtyard by Marriott (in two cases),  Hampton Inn
Suites and Mainstay  Suites.  We believe that the rates charged by the hotel are
generally competitive with the rates charged by these other hotels. We are aware
of ongoing


                                      S-25

<PAGE>

or proposed  construction for three  extended-stay  hotels within  approximately
five  miles  of  the  hotel.  Although  we  do  not  have  complete  franchising
information  for these  hotels,  we expect three of them to be  franchised  with
Doubletree Suites, Marriott Townplace and Weston Suites.

                               RICHMOND - WEST END

     The Homewood Suites(R) Richmond - West End is located on a 3.8 acre site in
the Innsbrook  Corporate Center. Its address is 4100 Innslake Drive, Glen Allen,
Virginia 23060. The hotel is  approximately 14 miles from downtown  Richmond and
20 miles from the Richmond International Airport.

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

<TABLE>
<CAPTION>
      Type of  Suite                     Number Available  Square Feet/per Suite
      --------------                     ----------------  ---------------------
<S>                                            <C>                  <C>
      Homewood King Suite                      98                   500
      Homewood Double Suite                    18                   500
      Two-Bedroom Suite                         7                   800
</TABLE>

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

     We  believe  that the  hotel  has been  generally  well  maintained  and is
generally  in very good  condition.  Over the next 12  months,  we plan to spend
approximately  $100,000  on  renovations  or  improvements.  We expect  that the
principal  renovations and  improvements  will include  installing new telephone
system and  purchasing  new  furniture.  We expect to pay for the costs of these
renovations and  improvements  with proceeds from our ongoing offering of common
shares.

     During 1999,  the average stay at the hotel was  approximately  3.1 nights,
and  approximately  52.1% of the guests have stayed for five nights or more.  In
general,  occupancy  at the hotel is not  seasonal.  The  following  table shows
average daily occupancy rates,  expressed as a percentage,  since the opening of
the hotel:

                  Average Daily Occupancy Rate (calendar year)

<TABLE>
<CAPTION>
                                            1998              1999
                                            ----              ----
<S>                                         <C>               <C>
                                            61.7 %            75.2%
</TABLE>


                                      S-26

<PAGE>


     During 1999,  the average daily rate per suite was $82.95,  and the average
daily revenue per available suite was $62.41.  As explained above,  revenue from
the hotel's  operations  will be used to pay interest  due under the  promissory
note we executed in connection  with our purchase of the hotel.  There can be no
assurance,  however,  the proceeds of the offering  will be sufficient to permit
such payments of principal.  Assuming that no principal  payments are made until
the maturity of the promissory  note,  and that the hotel  continues to have the
level of revenue  specified  above,  approximately  21.4% of the hotel's revenue
would be needed to cover its portion of the interest payments.


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

<TABLE>
<CAPTION>
Length of Stay                  Homewood             Homewood
(number of nights)             (king bed)          (double bed)          Two Bedroom
------------------             ----------          ------------          -----------
<S>                            <C>                  <C>                  <C>
1   to   4                        $114                 $114                 $154
5   to 29                           84                   84                  124
30 to 89                            74                   74                  114
90 or more                          74                   74                  114
</TABLE>

     The hotel offers a weekend discount,  which varies by type of suite and may
equal up to 33% off the basic rate.  The discount is not available to guests who
stay for five nights or more. The hotel also offers discounts to guests who stay
under certain corporate accounts.  These discounts are often negotiated with the
corporate  customer and vary from account to account.  During 1999,  we estimate
that approximately 79% of the hotel's guests received a corporate discount.

     The chief corporate accounts (as designated in the hotel's records) include
Target,  Capital One, Circuit City,  First Union National Bank,  Virginia Power,
Owens Minor, Saxon Mortgage Corp.,  Promus Hotels,  Inc.,  Deloitte & Touche and
Old  Dominion  Electric  Cooperative.  During  1999,  the 10  largest  corporate
accounts were responsible for approximately 55% of the hotel's occupancy.  There
can  be  no  assurance,  however,  that  the  hotel  will  continue  to  receive
significant occupancy, or any occupancy,  from the corporate accounts identified
above.

     The table below shows the average  effective  annual rental per square foot
since the opening of the hotel:

<TABLE>
<CAPTION>
         1998                  1999
         ----                  ----
<S>     <C>                   <C>
        $37.80                $44.06
</TABLE>


                                      S-27

<PAGE>

     The  depreciable  real  property  component  of the hotel  has a  currently
estimated Federal tax basis of $8,461,493 and will be depreciated over a life of
39 years  (or  less,  as  permitted  by the  Internal  Revenue  Code)  using the
straight-line  method. The basis of the personal property component of the hotel
will be depreciated in accordance  with the modified  accelerated  cost recovery
system of the Internal Revenue Code.

     The following table  summarizes the hotel's real estate tax information for
1999:

<TABLE>
<CAPTION>
Tax                                Assessed             Tax Rate              Amount
Jurisdiction                         Value             (per $100)             of Tax
------------                         -----             ----------             ------
<S>                               <C>                    <C>                <C>
County of Henrico                 $5,806,300             0.9400             $54,579.22
</TABLE>

     We estimate that the annual property tax on the expected  improvements will
be approximately $500 or less.


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


                          ATLANTA - GALLERIA/CUMBERLAND

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

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

<TABLE>
<CAPTION>
      Type of  Suite                     Number Available  Square Feet Per Suite
      --------------                     ----------------  ---------------------
<S>                                      <C>                <C>
      Master Suite                                96                     700
      Homewood Suite                              24                     600
      Two-Bedroom Suite                            4                   1,000
</TABLE>


                                      S-28

<PAGE>

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

     We  believe  that the  hotel  has been  generally  well  maintained  and is
generally  in very good  condition.  Over the next 12  months,  we plan to spend
approximately  $285,000  on  renovations  or  improvements.  We expect  that the
principal  renovations  and  improvements  will include carpet  replacement  and
furniture acquisitions (sofas, recliners and televisions).  We expect to pay for
the costs of these  renovations and improvements with proceeds obtained from our
ongoing offering of common shares.

     During 1999,  the average stay at the hotel was  approximately  4.7 nights,
and  approximately  72% of the guests have  stayed for five  nights or more.  In
general,  occupancy  at the hotel is not  seasonal.  The  following  table shows
average daily  occupancy  rates,  expressed as a  percentage,  for the last five
years:

                  Average Daily Occupancy Rate (calendar year)

<TABLE>
<CAPTION>
      1995              1996             1997              1998             1999
      ----              ----             ----              ----             ----
<S>  <C>               <C>              <C>               <C>              <C>
     76.7%             71.7%            77.2%             77.4 %           79.2%
</TABLE>


     During 1999,  the average daily rate per suite was $86.62,  and the average
daily revenue per available suite was $68.64.  As explained above,  revenue from
the hotel's  operations  will be used to pay interest  due under the  promissory
note we executed in connection  with our purchase of the hotel.  There can be no
assurance,  however,  the proceeds of the offering  will be sufficient to permit
such payments of principal.  Assuming that no principal  payments are made until
the maturity of the promissory  note,  and that the hotel  continues to have the
level of revenue  specified  above,  approximately  20.1% of the hotel's revenue
would be needed to cover its portion of the interest payments.


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

<TABLE>
<CAPTION>
Length of Stay
(number of nights)              Homewood              Master             Two Bedroom
------------------              --------              ------             ----------
<S>                             <C>                   <C>                <C>
1   to   4                          $119                $119                 $159
5   to 11                            109                 109                  149
12 to 29                              92                  92                  132
30 or more                            79                  79                  119
</TABLE>


                                      S-29

<PAGE>

     The hotel offers a weekend discount,  which varies by type of suite and may
equal up to 33% off the basic rate.  The discount is not available to guests who
stay for five nights or more. The hotel also offers discounts to guests who stay
under certain corporate accounts.  These discounts are often negotiated with the
corporate  customer and vary from account to account.  During 1999,  we estimate
that approximately 39% of the hotel's guests received a corporate discount.

     The chief corporate accounts (as designated in the hotel's records) include
Boeing, J.D. Edwards & Company,  SITA,  Worldspan,  Sprint, IBM, Lockheed Martin
Corporation, Southcorp, Atlantic Envelope Corp. and Concert. During 1999, the 10
largest  corporate  accounts were  responsible  for  approximately  12.8% of the
hotel's  occupancy.  There can be no  assurance,  however,  that the hotel  will
continue to receive significant occupancy, or any occupancy,  from the corporate
accounts identified above.

     The table below shows the average  effective  annual rental per square foot
for the last five years:

<TABLE>
<CAPTION>
    1995               1996             1997              1998              1999
    ----               ----             ----              ----              ----
<S>                  <C>              <C>               <C>               <C>
  $34.44             $34.16           $36.45            $36.57            $36.29
</TABLE>

     The  depreciable  real  property  component  of the hotel  has a  currently
estimated Federal tax basis of $7,445,773 and will be depreciated over a life of
39 years  (or  less,  as  permitted  by the  Internal  Revenue  Code)  using the
straight-line  method. The basis of the personal property component of the hotel
will be depreciated in accordance  with the modified  accelerated  cost recovery
system of the Internal Revenue Code.

     The following table  summarizes the hotel's real estate tax information for
1999:

<TABLE>
<CAPTION>
Tax                            Assessed                 Taxable                  Tax                 Amount
Jurisdiction                     Value               Portion (40%)               Rate                of Tax
------------                     -----               -------------               ----                ------
<S>                           <C>                      <C>                     <C>                 <C>
Cobb County                   $5,217,693               $2,087,077              0.03427             $71,524.14
</TABLE>

     We estimate that the annual property tax on the expected  improvements will
be approximately $3,900 or less.

     At least  seven  competing  hotels are  located  within  three miles of the
hotel.  (The  names  of  the  competing  franchises,  as  listed  below,  may be
registered as service  marks or trade names.) Three of the competing  hotels are
newer than the hotel.  The newer competing hotels have franchises with Homestead
Village,  Sheraton  Suites and Summer Suites.  The other  competing  hotels have
franchises  with Courtyard by Marriott,  Embassy  Suites,  Hawthorne  Suites and
Residence  Inn.  We believe  that the rates  charged by the hotel are  generally
competitive with the


                                      S-30

<PAGE>

rates charged by these other hotels.  We are aware of one proposed  construction
project to build an  extended-stay  hotel within  approximately  one mile of the
hotel. We expect this hotel to be franchised with Hampton Inn Suites.

                               ATLANTA - PEACHTREE

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

     The hotel opened in February 1990. It has wood frame construction,  with an
exterior of brick veneer and wood siding.  The hotel consists of four buildings,
each with one, two or three stories.  The hotel contains 92 suites, which have a
combined  rentable area of 53,920 square feet. The following types of suites are
available:

<TABLE>
<CAPTION>
         Type of  Suite                     Number Available  Square Feet Per Suite
         --------------                     ----------------  ---------------------
<S>                                         <C>               <C>
         Master Suite                               12                   650
         Homewood Suite                             76                   550
         Two-Bedroom Suite                           4                 1,080
</TABLE>

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

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

     During 1999, the average stay at the hotel was approximately 5 nights,  and
approximately 56% of the guests have stayed for five nights or more. In general,
occupancy at the hotel is not seasonal.  The following table shows average daily
occupancy rates, expressed as a percentage, for the last five years:

                  Average Daily Occupancy Rate (calendar year)

<TABLE>
<CAPTION>
      1995              1996             1997              1998             1999
      ----              ----             ----              ----             ----
<S>  <C>               <C>              <C>               <C>              <C>
     79.5%             77.4%            74.8%             72.9%            70.1%
</TABLE>


                                      S-31

<PAGE>


     During 1999,  the average daily rate per suite was $81.17,  and the average
daily revenue per available suite was $56.86.  As explained above,  revenue from
the hotel's  operations  will be used to pay interest  due under the  promissory
note we executed in connection  with our purchase of the hotel.  There can be no
assurance,  however,  the proceeds of the offering  will be sufficient to permit
such payments of principal.  Assuming that no principal  payments are made until
the maturity of the promissory  note,  and that the hotel  continues to have the
level of revenue  specified  above,  approximately  13.5% of the hotel's revenue
would be needed to cover its portion of the interest payments.


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

<TABLE>
<CAPTION>
Length of Stay
(number of nights)              Homewood              Master             Two Bedroom
------------------              --------              ------             -----------
<S>                             <C>                   <C>                <C>
1   to   4                         $99                  $99                  $139
5   to 11                           85                   85                   125
12 to 29                            75                   75                   115
30 or more                          59                   59                    99
</TABLE>

     The hotel offers a weekend discount,  which varies by type of suite and may
equal up to 33% off the basic rate.  The discount is not available to guests who
stay for five nights or more. The hotel also offers discounts to guests who stay
under certain corporate accounts.  These discounts are often negotiated with the
corporate  customer and vary from account to account.  During 1999,  we estimate
that approximately 42% of the hotel's guests received a corporate discount.

     The chief corporate accounts (as designated in the hotel's records) include
Hitachi,  Perkin Elmer  Corporation,  CIBA Vision,  Ultimate  Software,  Valmet,
Federated Systems, IBM, Sunds Defibrator, Unisys and Mizuno. During 1999, the 10
largest  corporate  accounts were  responsible  for  approximately  13.2% of the
hotel's  occupancy.  There can be no  assurance,  however,  that the hotel  will
continue to receive significant occupancy, or any occupancy,  from the corporate
accounts identified above.

     The table below shows the average  effective  annual rental per square foot
for the last five years:

<TABLE>
<CAPTION>
    1995               1996             1997              1998              1999
    ----               ----             ----              ----              ----
<S>                  <C>              <C>               <C>               <C>
  $42.53             $47.16           $45.42            $41.95            $35.41
</TABLE>

     The  depreciable  real  property  component  of the hotel  has a  currently
estimated Federal tax basis of $2,911,697 and will be depreciated over a life of
39 years (or less, as permitted by


                                      S-32

<PAGE>


the Internal  Revenue  Code) using the  straight-line  method.  The basis of the
personal property  component of the hotel will be depreciated in accordance with
the modified accelerated cost recovery system of the Internal Revenue Code.

     The following table  summarizes the hotel's real estate tax information for
1999:

<TABLE>
<CAPTION>
Tax                              Assessed                 Taxable                  Tax                 Amount
Jurisdiction                       Value               Portion (40%)               Rate                of Tax
------------                       -----               -------------               ----                ------
<S>                             <C>                      <C>                     <C>                  <C>
Gwinnett County                 $5,688,440               $2,275,380              0.03225              $73,381
</TABLE>

     We estimate that the annual property tax on the expected  improvements will
be approximately $3,300 or less.

     At least six competing  hotels are located within three miles of the hotel.
(The names of the competing  franchises,  as listed below,  may be registered as
service marks or trade names.) Three of the competing  hotels are newer than the
hotel.  The newer  competing  hotels have franchises  with  AmeriSuites,  Hilton
Garden Inn and Residence Inn. The other  competing  hotels have  franchises with
Courtyard  by  Marriott,  Marriott  and Holiday  Inn. We believe  that the rates
charged by the hotel are generally  competitive  with the rates charged by these
other hotels.  To our knowledge,  no extended-stay  hotels are being constructed
within five miles of the hotel.

                             BALTIMORE - BWI AIRPORT

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

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

<TABLE>
<CAPTION>
     Type of  Suite                     Number Available  Square Feet Per Suite
     --------------                     ----------------  ---------------------
<S>                                     <C>               <C>
      Master Suite                            20                    500
      Homewood Suite                         120                    500
      Two-Bedroom Suite                        7                    800
</TABLE>

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


                                      S-33

<PAGE>

     We  believe  that the  hotel  has been  generally  well  maintained  and is
generally  in very good  condition.  Over the next 12  months,  we plan to spend
approximately  $60,000  on  renovations  or  improvements.  We  expect  that the
principal   renovations  and  improvements  will  include  carpet   replacement,
furniture  replacement,  bathroom  upgrades  and  parking  lot  resurfacing  and
restriping  .  We  expect  to  pay  for  the  costs  of  these  renovations  and
improvements with proceeds obtained from our ongoing offering of common shares.

     During 1999,  the average stay at the hotel was  approximately  7.5 nights,
and  approximately  67.9% of the guests have stayed for five nights or more.  In
general,  occupancy  at the hotel is not  seasonal.  The  following  table shows
average daily occupancy rates,  expressed as a percentage,  since the opening of
the hotel:

                  Average Daily Occupancy Rate (calendar year)

<TABLE>
<CAPTION>
                                            1998              1999
                                            ----              ----
<S>                                         <C>               <C>
                                            67.0%             83.2%
</TABLE>


     During 1999,  the average daily rate per suite was $94.17,  and the average
daily revenue per available suite was $78.39.  As explained above,  revenue from
the hotel's  operations  will be used to pay interest  due under the  promissory
note we executed in connection  with our purchase of the hotel.  There can be no
assurance,  however,  the proceeds of the offering  will be sufficient to permit
such payments of principal.  Assuming that no principal  payments are made until
the maturity of the promissory  note,  and that the hotel  continues to have the
level of revenue  specified  above,  approximately  24.8% of the hotel's revenue
would be needed to cover its portion of the interest payments.


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

<TABLE>
<CAPTION>
Length of Stay
(number of nights)              Homewood              Master             Two Bedroom
------------------              --------              ------             -----------
<S>                             <C>                   <C>                <C>
1   to   4                          $129                $129                 $169
5   to 11                            119                 229                  159
12 to 29                             109                 109                  149
30 or more                            89                  89                  129
</TABLE>

     The hotel offers a weekend discount,  which varies by type of suite and may
equal up to 33% off the basic rate.  The discount is not available to guests who
stay for five nights or more. The hotel also offers discounts to guests who stay
under certain corporate accounts.  These discounts are often negotiated with the
corporate  customer and vary from account to account.  During 1999,  we estimate
that approximately 93% of the hotel's guests received a corporate discount.


                                      S-34

<PAGE>

     The chief corporate accounts (as designated in the hotel's records) include
Defense Security  Services,  Gap, Ciera,  Northcorp  Grumman,  National Security
Agency,  Boeing,  International  Paper,  Lockheed Martin  Corporation,  Dept. of
Defense  and  Carmax.  During  1999,  the 10  largest  corporate  accounts  were
responsible  for  approximately  13% of the hotel's  occupancy.  There can be no
assurance,  however,  that  the  hotel  will  continue  to  receive  significant
occupancy, or any occupancy, from the corporate accounts identified above.

     The table below shows the average  effective  annual rental per square foot
since the opening of the hotel:

<TABLE>
<CAPTION>
                          1998               1999
                          ----               ----
<S>                     <C>                <C>
                        $33.46             $55.64
</TABLE>

     The  depreciable  real  property  component  of the hotel  has a  currently
estimated  Federal tax basis of $14,719,686 and will be depreciated  over a life
of 39 years (or less,  as  permitted  by the  Internal  Revenue  Code) using the
straight-line  method. The basis of the personal property component of the hotel
will be depreciated in accordance  with the modified  accelerated  cost recovery
system of the Internal Revenue Code.

     The following table  summarizes the hotel's real estate tax information for
1999 (and is based on a formula  that uses the  assessed  values for the current
and prior years to determine a separate taxable amount):

<TABLE>
<CAPTION>
                               Assessed            Assessed           Taxable         Tax Rate          Amount
Tax Jurisdiction             Value (1999)        Value (1998)         Amount         (per $100)         of Tax
----------------             ------------        ------------         ------         ----------         ------
<S>                           <C>                <C>                <C>                 <C>          <C>
State of Maryland/            $11,085,900        $10,316,100        $4,229,080          2.57         $108,687.36
Anne Arundel County
</TABLE>

     We estimate that the annual property tax on the expected  improvements will
be approximately $800 or less.

     At least five  competing  hotels are located within two miles of the hotel.
(The names of the competing  franchises,  as listed below,  may be registered as
service  marks or trade  names.) One of the  competing  hotels is newer than the
hotel.  The newer competing hotel has a franchise with  Candlewood  Suites.  The
other  competing  hotels  have  franchises  with  AmeriSuites,  Comfort  Suites,
DoubleTree  Suites and  Residence  Inn. We believe that the rates charged by the
hotel are generally competitive with the rates charged by these other hotels. We
are aware of ongoing  or  proposed  construction  for two  extended-stay  hotels
within  approximately seven miles of the hotel. We expect these new hotels to be
franchised with Hilton Garden Inn and Town Place Suites.


                                      S-35

<PAGE>

                                   CLEARWATER

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

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

<TABLE>
<CAPTION>
      Type of  Suite                     Number Available  Square Feet Per Suite
      --------------                     ----------------  ---------------------
<S>                                           <C>                   <C>
      Homewood King Suite                     88                    500
      Homewood Double Suite                   16                    500
      Two-Bedroom Suite                        8                    800
</TABLE>

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

     We  believe  that the  hotel  has been  generally  well  maintained  and is
generally  in very good  condition.  Over the next 12  months,  we plan to spend
approximately  $15,000  on  renovations  or  improvements.  We  expect  that the
principal  renovations and improvements will include carpet replacement,  common
area  upgrades  and bathroom  upgrades.  We expect to pay for the costs of these
renovations and improvements with proceeds obtained from our ongoing offering of
common shares.

     During 1999,  the average stay at the hotel was  approximately  2.9 nights,
and  approximately  45% of the guests have  stayed for five  nights or more.  In
general,  occupancy  at the hotel is not  seasonal.  The  following  table shows
average daily occupancy rates,  expressed as a percentage,  since the opening of
the hotel:

                  Average Daily Occupancy Rate (calendar year)

<TABLE>
<S>                         <C>               <C>
                            1998              1999
                            ----              ----
<S>                        <C>               <C>
                           63.4%             75.8%
</TABLE>


     During 1999,  the average daily rate per suite was $89.68,  and the average
daily revenue per available suite was $67.93.  As explained above,  revenue from
the hotel's  operations  will be used to pay interest  due under the  promissory
note we executed in connection with our purchase


                                      S-36

<PAGE>


of the hotel. There can be no assurance,  however,  the proceeds of the offering
will be  sufficient  to permit such  payments  of  principal.  Assuming  that no
principal  payments are made until the maturity of the promissory note, and that
the hotel continues to have the level of revenue specified above,  approximately
24% of the hotel's  revenue would be needed to cover its portion of the interest
payments.


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

<TABLE>
<CAPTION>
Length of Stay                  Homewood             Homewood
(number of nights)                King                Double             Two Bedroom
------------------              --------             --------            -----------
<S>                             <C>                  <C>                  <C>
1   to   4                        $109                 $109                 $149
5   to 11                           99                   99                  139
12 to 29                            99                   89                  129
30+                                 69                   69                  109
</TABLE>

     The hotel offers a weekend discount,  which varies by type of suite and may
equal up to 33% off the basic rate.  The discount is not available to guests who
stay for five nights or more. The hotel also offers discounts to guests who stay
under certain corporate accounts.  These discounts are often negotiated with the
corporate  customer and vary from account to account.  During 1999,  we estimate
that approximately 78.7% of the hotel's guests received a corporate discount.

     The chief corporate accounts (as designated in the hotel's records) include
Raymond James, Home Shopping Network, Lucent Technologies, Tech Data, Honeywell,
Unisys,  Franklin Templeton Group, PSCU, Raytheon and Digital Lightwave.  During
1999, the 10 largest  corporate  accounts were responsible for approximately 31%
of the hotel's  occupancy.  There can be no assurance,  however,  that the hotel
will  continue to receive  significant  occupancy,  or any  occupancy,  from the
corporate accounts identified above.

     The table below shows the average  effective  annual rental per square foot
since the opening of the hotel:

<TABLE>
<CAPTION>
                         1998               1999
                         ----               ----
<S>                    <C>                <C>
                       $35.31             $47.55
</TABLE>

     The  depreciable  real  property  component  of the hotel  has a  currently
estimated Federal tax basis of $7,561,172 and will be depreciated over a life of
39 years  (or  less,  as  permitted  by the  Internal  Revenue  Code)  using the
straight-line  method. The basis of the personal property component of the hotel
will be depreciated in accordance  with the modified  accelerated  cost recovery
system of the Internal Revenue Code.

     The following table  summarizes the hotel's real estate tax information for
1999:


                                      S-37

<PAGE>

<TABLE>
<CAPTION>
Tax                                Assessed             Tax Rate              Amount
Jurisdiction                         Value             (per $1000)            of Tax
------------                         -----             -----------            ------
<S>                               <C>                    <C>                <C>
Pinellas County                   $4,312,200             22.9033            $98,763.61
</TABLE>

     We estimate that the annual property tax on the expected  improvements will
be approximately $180 or less.

     At least  seven  competing  hotels are  located  within  three miles of the
hotel.  (The  names  of  the  competing  franchises,  as  listed  below,  may be
registered as service  marks or trade names.) Three of the competing  hotels are
newer than the hotel. The newer competing hotels have franchises with Candlewood
Suites,  Fairfield Inn and Town Place Suites.  The other  competing  hotels have
franchises  with Courtyard by Marriott,  Holiday Inn Select,  La Quinta Inns and
Residence  Inn.  We believe  that the rates  charged by the hotel are  generally
competitive  with the  rates  charged  by these  other  hotels.  We are aware of
ongoing  or  proposed   construction  for  four   extended-stay   hotels  within
approximately  three  miles of the  hotel.  We  expect  these  new  hotels to be
franchised  with  Hawthorn  Suites,  Radisson  Suites,  Spring  Hill  Suites and
Woodbridge Suites.

                                DETROIT - WARREN

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

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

<TABLE>
<CAPTION>
         Type of  Suite                     Number Available  Square Feet Per Suite
         --------------                     ----------------  ---------------------
<S>                                         <C>               <C>
         Master Suite                             8                    540
         Homewood Suite                          60                    360
         Two-Bedroom Suite                        8                    700
</TABLE>

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

     We  believe  that the  hotel  has been  generally  well  maintained  and is
generally  in very good  condition.  Over the next 12  months,  we plan to spend
approximately $330,000


                                      S-38

<PAGE>

on renovations or  improvements.  We expect that the principal  renovations  and
improvements  will include  carpet  repairs,  sidewalk and parking area repairs,
common area upgrades and exercise equipment  upgrades.  We expect to pay for the
costs of these  renovations  and  improvements  with proceeds  obtained from our
ongoing offering of common shares.

     During 1999,  the average stay at the hotel was  approximately  6.2 nights,
and  approximately  55.9% of the guests have stayed for five nights or more.  In
general,  occupancy  at the hotel is not  seasonal.  The  following  table shows
average daily  occupancy  rates,  expressed as a  percentage,  for the last five
years:

                  Average Daily Occupancy Rate (calendar year)

<TABLE>
<CAPTION>
      1995              1996             1997              1998             1999
      ----              ----             ----              ----             ----
<S>  <C>               <C>              <C>               <C>              <C>
     71.5%             71.6%            80.3%             76.2%            74.3%
</TABLE>


     During 1999,  the average daily rate per suite was $88.11,  and the average
daily revenue per available suite was $65.46.  As explained above,  revenue from
the hotel's  operations  will be used to pay interest  due under the  promissory
note we executed in connection  with our purchase of the hotel.  There can be no
assurance,  however,  the proceeds of the offering  will be sufficient to permit
such payments of principal.  Assuming that no principal  payments are made until
the maturity of the promissory  note,  and that the hotel  continues to have the
level of revenue  specified  above,  approximately  15.2% of the hotel's revenue
would be needed to cover its portion of the interest payments.


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

<TABLE>
<CAPTION>
Length of Stay
(number of nights)              Homewood              Master             Two Bedroom
------------------             ---------              ------             -----------
<S>                            <C>                    <C>                <C>
1   to   6                          $104                $104                 $144
7   to 29                             95                  95                  135
30 to 89                              89                  89                  129
90 or more                            79                  79                  119
</TABLE>

     The hotel offers a weekend discount,  which varies by type of suite and may
equal up to 33% off the basic rate.  The discount is not available to guests who
stay for five nights or more. The hotel also offers discounts to guests who stay
under certain corporate accounts.  These discounts are often negotiated with the
corporate  customer and vary from account to account.  During 1999,  we estimate
that approximately 59% of the hotel's guests received a corporate discount.

     The chief corporate accounts (as designated in the hotel's records) include
General Motors,  Raytheon,  Chrysler,  Ernst &Young, Optima Package,  Electronic
Systems, Boeing,


                                      S-39

<PAGE>

Chrysler  First,  IBM, PBS and J.  Liebherr  Machine Tool.  During 1999,  the 10
largest  corporate  accounts were  responsible  for  approximately  19.6% of the
hotel's  occupancy.  There can be no  assurance,  however,  that the hotel  will
continue to receive significant occupancy, or any occupancy,  from the corporate
accounts identified above.

     The table below shows the average  effective  annual rental per square foot
since for the last five years:

<TABLE>
<CAPTION>
    1995               1996             1997              1998              1999
    ----               ----             ----              ----              ----
<S>                  <C>              <C>               <C>               <C>
  $45.37             $49.68           $57.14            $58.75            $57.61
</TABLE>

     The  depreciable  real  property  component  of the hotel  has a  currently
estimated Federal tax basis of $3,755,879 and will be depreciated over a life of
39 years  (or  less,  as  permitted  by the  Internal  Revenue  Code)  using the
straight-line  method. The basis of the personal property component of the hotel
will be depreciated in accordance  with the modified  accelerated  cost recovery
system of the Internal Revenue Code.

     The following table  summarizes the hotel's real estate tax information for
1999:

<TABLE>
<CAPTION>
Tax                                Assessed             Tax Rate              Amount
Jurisdiction                         Value             (per $100)             of Tax
------------                         -----             ----------             ------
<S>                                 <C>                <C>                    <C>
County of Macomb                    $1,131,410              5.0171            $ 5,676.40
City of Warren                      $1,131,410             16.0468            $18,155.51
School District                     $1,131,410             28.6050            $32,363.98
                                                                               ---------

                                                                TOTAL         $56,195.89
                                                                               =========
</TABLE>

     We estimate that the annual property tax on the expected  improvements will
be approximately $8,200 or less.

     At least five competing hotels are located within three miles of the hotel.
(The names of the competing  franchises,  as listed below,  may be registered as
service marks or trade names.) Three of the competing  hotels are newer than the
hotel.  The newer  competing  hotels have franchises with Extended Stay America,
Residence Inn and Studio Plus. The other  competing  hotels have franchises with
Best Western and Courtyard by Marriott. We believe that the rates charged by the
hotel are generally competitive with the rates charged by these other hotels. We
are aware of ongoing  or  proposed  construction  for two  extended-stay  hotels
within  approximately  five miles of the hotel. We expect these new hotels to be
franchised with Red Roof Inn and Sleep Inn.


                                      S-40

<PAGE>

                            SALT LAKE CITY - MIDVALE

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

     The hotel opened in November  1996. It has concrete  masonry  construction,
with an aluminum siding exterior. The hotel consists of one buildings with three
stories.  The hotel contains 98 suites,  which have a combined  rentable area of
60,070 square feet. The following types of suites are available:

<TABLE>
<CAPTION>
      Type of  Suite                     Number Available  Square Feet Per Suite
      --------------                     ----------------  ---------------------
<S>                                      <C>               <C>
      Master Suite                            21                    590
      Homewood Suite                          71                    590
      Two-Bedroom Suite                        6                    965
</TABLE>

     The  hotel  offers a 40-seat  breakfast/lounge  area,  a meeting  room that
accommodates  25 to 30 people,  and a business center that offers guests the use
of a personal computer, a photocopier and an electric  typewriter.  Recreational
facilities  include an outdoor pool, a whirlpool and an exercise room. The hotel
also  contains  a guest  convenience  store and  laundry.  The hotel has its own
parking lot with 110 spaces.  The hotel provides  complimentary  shuttle service
within a five mile radius.

     We  believe  that the  hotel  has been  generally  well  maintained  and is
generally  in very good  condition.  Over the next 12  months,  we plan to spend
approximately  $72,000  on  renovations  or  improvements.  We  expect  that the
principal   renovations  and  improvements  will  include  carpet   replacement,
landscaping,  parking lot restriping and common area upgrades.  We expect to pay
for the costs of these  renovations and improvements with proceeds obtained from
our ongoing offering of common shares.

     During 1999,  the average stay at the hotel was  approximately  3.5 nights,
and  approximately  47.7% of the guests have stayed for five nights or more.  In
general,  occupancy  at the hotel is not  seasonal.  The  following  table shows
average daily occupancy rates,  expressed as a percentage,  since the opening of
the hotel:

                  Average Daily Occupancy Rate (calendar year)

<TABLE>
<CAPTION>
                    1997             1998              1999
                    ----             ----              ----
<S>                 <C>              <C>               <C>
                    51.1%            63.8%             63.5%
</TABLE>

     During 1999,  the average daily rate per suite was $89.03,  and the average
daily revenue per available suite was $56.55.  As explained above,  revenue from
the hotel's  operations  will be used to pay interest  due under the  promissory
note we executed in connection with our purchase


                                      S-41

<PAGE>


of the hotel. There can be no assurance,  however,  the proceeds of the offering
will be  sufficient  to permit such  payments  of  principal.  Assuming  that no
principal  payments are made until the maturity of the promissory note, and that
the hotel continues to have the level of revenue specified above,  approximately
16.2% of the  hotel's  revenue  would be  needed  to cover  its  portion  of the
interest payments.


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

<TABLE>
<CAPTION>
Length of Stay                  Homewood             Homewood
(number of nights)               (King)              (Double)              Master             Two Bedroom
------------------               ------              --------              ------             -----------
<S>                             <C>                  <C>                   <C>                <C>
1   to   4                         $99                  $99                  $99                 $139
5   to 12                           89                   89                   89                  129
13 to 29                            79                   79                   99                  119
30 or more                          69                   69                   69                  109
</TABLE>

     The hotel offers a weekend discount,  which varies by type of suite and may
equal up to 33% off the basic rate.  The discount is not available to guests who
stay for five nights or more. The hotel also offers discounts to guests who stay
under certain corporate accounts.  These discounts are often negotiated with the
corporate  customer and vary from account to account.  During 1999,  we estimate
that approximately 49% of the hotel's guests received a corporate discount.

     The chief corporate accounts (as designated in the hotel's records) include
American  Express,  The Associates,  Meridian  Diagnostics,  Regency Blue Cross,
Cimetrix, Baxter Healthcare,  Fed-Ex, Onyx Acceptance, 3M and United Healthcare.
During  1999,  the  10  largest   corporate   accounts  were   responsible   for
approximately 10% of the hotel's occupancy. There can be no assurance,  however,
that the hotel will continue to receive significant occupancy, or any occupancy,
from the corporate accounts identified above.

     The table below shows the average  effective  annual rental per square foot
since the opening of the hotel:

<TABLE>
<CAPTION>
                  1997               1998              1999
                  ----               ----              ----
<S>             <C>                <C>               <C>
                $27.30             $35.09            $33.67
</TABLE>

     The  depreciable  real  property  component  of the hotel  has a  currently
estimated Federal tax basis of $4,657,834 and will be depreciated over a life of
39 years  (or  less,  as  permitted  by the  Internal  Revenue  Code)  using the
straight-line  method. The basis of the personal property component of the hotel
will be depreciated in accordance  with the modified  accelerated  cost recovery
system of the Internal Revenue Code.


                                      S-42

<PAGE>

         The following table  summarizes the hotel's real estate tax information
for 1999:

<TABLE>
<CAPTION>
Tax                                Assessed             Tax Rate              Amount
Jurisdiction                         Value             (per $1000)            of Tax
------------                         -----             -----------            ------
<S>                               <C>                   <C>                 <C>
County of Salt Lake               $5,632,000            0.013595            $76,567.04
</TABLE>

     We estimate that the annual property tax on the expected  improvements will
be approximately $500 or less.

     At least five competing  hotels are located within five miles of the hotel.
(The names of the competing  franchises,  as listed below,  may be registered as
service marks or trade  names.) None of the competing  hotels are newer than the
hotel.  The other  competing  hotels have  franchises  with  Candlewood  Suites,
Courtyard by Marriott,  Crystal Inn and Residence Inn (in two cases). We believe
that the rates  charged by the hotel are  generally  competitive  with the rates
charged by these other hotels.  We are aware of proposed  construction  to build
one extended-stay hotel within approximately three miles of the hotel. We expect
this hotel to be franchised with Microtel.

                               JACKSON - RIDGELAND

     The Homewood Suites(R) Jackson - Ridgeland is located on a 3.9 acre site at
853 Centre Street,  Ridgeland,  Mississippi 39157. The hotel is approximately 10
miles from downtown Jackson and 15 miles from the Jackson Municipal Airport.

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

<TABLE>
<CAPTION>
      Type of  Suite                     Number Available  Square Feet Per Suite
      --------------                     ----------------  ---------------------
<S>                                      <C>               <C>
      Master Suite                             56               406 to 510
      Homewood Suite                           29               458 to 557
      Two-Bedroom Suite                         6                  690
</TABLE>

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

     We  believe  that the  hotel  has been  generally  well  maintained  and is
generally  in very good  condition.  Over the next 12  months,  we plan to spend
approximately $58,000 on


                                      S-43

<PAGE>

renovations  or  improvements.  We expect  that the  principal  renovations  and
improvements will include carpet replacement,  furniture  replacement,  bathroom
upgrades and parking lot resurfacing  and  restriping.  We expect to pay for the
costs of these  renovations  and  improvements  with proceeds  obtained from our
ongoing offering of common shares.

         During  1999,  the  average  stay at the  hotel was  approximately  3.2
nights,  and  approximately  47.4% of the guests  have stayed for five nights or
more. In general,  occupancy at the hotel is not seasonal.  The following  table
shows  average  daily  occupancy  rates,  expressed as a  percentage,  since the
opening of the hotel:

                  Average Daily Occupancy Rate (calendar year)

<TABLE>
<CAPTION>
                    1997             1998              1999
                    ----             ----              ----
<S>                <C>              <C>               <C>
                   63.8%            80.6%             77.6%
</TABLE>


     During 1999,  the average daily rate per suite was $81.96,  and the average
daily revenue per available suite was $63.63.  As explained above,  revenue from
the hotel's  operations  will be used to pay interest  due under the  promissory
note we executed in connection  with our purchase of the hotel.  There can be no
assurance,  however,  the proceeds of the offering  will be sufficient to permit
such payments of principal.  Assuming that no principal  payments are made until
the maturity of the promissory  note,  and that the hotel  continues to have the
level of revenue  specified  above,  approximately  17.6% of the hotel's revenue
would be needed to cover its portion of the interest payments.


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

<TABLE>
<CAPTION>
Length of Stay
(number of nights)              Homewood              Master             Two Bedroom
------------------              --------              ------             -----------
<S>                             <C>                   <C>                 <C>
1   to   4                         $92                  $92                  $132
5   to 11                           82                   82                   122
12 to 28                            74                   74                   114
29 or more                          69                   69                   109
</TABLE>

     The hotel offers a weekend discount,  which varies by type of suite and may
equal up to 33% off the basic rate.  The discount is not available to guests who
stay for five nights or more. The hotel also offers discounts to guests who stay
under certain corporate accounts.  These discounts are often negotiated with the
corporate  customer and vary from account to account.  During 1999,  we estimate
that approximately 65% of the hotel's guests received a corporate discount.

     The chief corporate accounts (as designated in the hotel's records) include
Fire Victims,  Entergy,  Baptist  Healthcare,  Mississippi  Diversified,  Copac,
Athena Computer  Learning,  Ergon,  International  Paper,  Illinois  Central and
Nissan. During 1999, the 10 largest corporate accounts


                                      S-44

<PAGE>

were responsible for approximately 16% of the hotel's occupancy. There can be no
assurance,  however,  that  the  hotel  will  continue  to  receive  significant
occupancy, or any occupancy, from the corporate accounts identified above.

     The table below shows the average  effective  annual rental per square foot
since the opening of the hotel:

<TABLE>
<CAPTION>
       1997               1998              1999
       ----               ----              ----
<S>   <C>                <C>               <C>
      $33.32             $50.70            $50.65
</TABLE>

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

     The following table  summarizes the hotel's real estate tax information for
1999:

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

     We estimate that the annual property tax on the expected  improvements will
be approximately $500 or less.

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


                                      S-45

<PAGE>

                      MANAGEMENT'S DISCUSSION AND ANALYSIS

GENERAL

     Apple Suites, Inc. (the "company") owns extended-stay  hotels. During 1999,
the company acquired 11 hotels with 1,218 suites from Promus Hotels,  Inc. or an
affiliate.  Promus  Hotels,  Inc.  was  subsequently  acquired by Hilton  Hotels
Corporation  ("Hilton")  and is now a  wholly-owned  subsidiary  of Hilton.  The
hotels were  acquired  for an aggregate  purchase  price of  $91,426,000.  Since
current  federal  income tax laws prohibit a real estate  investment  trust from
actively  operating  hotels,  all of the  company's  hotels  are leased to Apple
Suites  Management,  Inc. or its subsidiary  (the  "lessee")  pursuant to master
hotel lease agreements  ("Percentage  Leases").  Each Percentage Lease obligates
the  lessee to pay rent  equal to the sum of a base rent and a  percentage  rent
based on suite  revenues and sundry other  revenues of each hotel.  The lessee's
ability to make  payments to the company  pursuant to the  Percentage  Leases is
dependent  primarily  upon  the  operations  of the  hotels.  See  Note 9 to the
consolidated financial statements for further lease information.

     The lessee holds the franchise and market reservation agreement for each of
the  hotels,  which are  operated as Homewood  Suites(R)  by Hilton.  The lessee
engages a third-party manager,  Promus Hotels, Inc.  ("Promus"),  to operate the
hotels.  The company is externally  advised and has contracted with Apple Suites
Advisors,  Inc. (the  "Advisor") to manage its  day-to-day  operations  and make
investment decisions. The company has contracted with Apple Suites Realty Group,
Inc. ("ASRG") to provide  brokerage and acquisition  services in connection with
its hotel  acquisitions.  The lessee,  the Advisor and ASRG are all owned by Mr.
Glade Knight, the company's Chairman and Chief Executive Officer.  See Note 6 to
the consolidated  financial  statements for further information on related party
transactions.

RESULTS OF OPERATIONS

Apple Suites, Inc. (The Company)

     REVENUES:  As operations of the company  commenced  effective  September 1,
1999 with the purchase of four hotels,  a  comparison  to 1998 is not  possible.
During the  period  ended  December  31,  1999,  the  company  had  revenues  of
$2,518,031.  All of the company's  lease revenue is derived from the  Percentage
Leases covering the hotels in operations with the lessee.

     The company's  other income  consists of $158,171 of interest income earned
from the  investments  of its cash and cash  reserves  and  $10,915 of  interest
earned  from the  promissory  notes  with the  lessee  for  franchise  and hotel
supplies.

     EXPENSES: The expenses of the company consist of property taxes, insurance,
general and administrative expenses, interest on notes payable, and depreciation
on the hotels. Total expenses,  exclusive of interest and depreciation,  for the
period ended December 31, 1999 were $580,399 or 22% of total revenue.

     Interest  expense was $1,245,044 for the period ended December 31, 1999 and
represented  interest on short-term  notes payable to Hilton at an interest rate
of 8.5%.


                                      S-46

<PAGE>

     Depreciation expense was $496,209 for the period ended December 31, 1999.

     Taxes, insurance,  and other was $426,592 for the period ended December 31,
1999 or 16% of total revenue.

     General and  administrative  expense  totaled 6% of total  revenues.  These
expenses represent the administrative  expenses of the company.  This percentage
is expected to decrease as the company's asset base grows.

Apple Suites Management, Inc. (The Lessee)

     The lessee  incurred an operating  loss for the period ending  December 31,
1999 of $141,104  primarily due to the timing of the hotel  acquisitions and the
seasonality of the hotel industry. Historically, the hotel industry has seasonal
variations in occupancy that can be expected to cause quarterly  fluctuations in
the company's lease revenues, particularly in the fourth quarter.

     REVENUES: As operations commenced effective September 1, 1999, a comparison
to 1998 is not possible.  Total revenues were $5,671,075 consisting primarily of
suite revenue, which was $5,335,925 for the period ended December 31, 1999.

     For the period ended December 31, 1999 the average  occupancy rate was 71%,
average  daily rate ("ADR") was $83, and revenue per available  room  ("REVPAR")
was $59.

     EXPENSES:  Total  expenses  for the period  ended  December  31,  1999 were
$5,812,179.  Rent expense  represents  $2,518,031 or 44% of total  revenue.  The
lessee contracts with Promus to manage the day-to-day  operations of the hotels.
The lessee  pays Promus fees of 4% of suite  revenue  for these  functions.  The
lessee also pays Promus a fee of 4% of suite revenue for  franchise  licenses to
operate as a Homewood Suites (R) by Hilton and to participate in its reservation
system. Total expense for these services was $653,010 during the period.

LIQUIDITY AND CAPITAL RESOURCES

     EQUITY: The company commenced  operations  effective September 1, 1999 with
the  acquisition  of four  hotels  using a  combination  of  proceeds  from  the
company's  ongoing "best efforts"  offering and notes.  During 1999, the company
sold 3,429,414 shares  (1,666,667 shares at $9 per share and 1,762,747 shares at
$10 per share) of its common stock to its  investors.  Included in the 1,762,747
shares sold is 9,294 common shares sold through the company's  additional  share
option.  The total gross proceeds from the shares sold were  $32,627,476,  which
netted  $28,591,260 to the company after the payment of selling  commissions and
other offering costs.

     During 1999, the company  acquired 11 hotels with a total purchase price of
$91,426,000. In conjunction with these acquisitions,  the company executed notes
in the aggregate of $68,569,500.


                                      S-47

<PAGE>

     The lessee's  obligations  under the Percentage  Leases are unsecured.  The
lessee has limited capital resources, and, accordingly its ability to make lease
payments under the Percentage  Leases is substantially  dependent on the ability
of the lessee to generate  sufficient  cash flow from  operations of the hotels.
The  company has  certain  abilities  to cancel the lease with the lessee if the
lessee does not perform under the terms of the lease.

     To support the lessee's obligations, the lessee has two funding commitments
of $1 million each from Mr. Knight and ASRG,  respectively  (together  "Payor").
The funding commitments are contractual obligations of the Payor to pay funds to
the lessee.  Funds paid to the lessee  under the  commitments  are to be used to
satisfy any capitalization or net worth requirements applicable to the lessee or
the lessee's payment  obligations under the lease  agreements,  do not represent
indebtedness, and are not subject to interest. The funding commitments terminate
upon the  expiration  of the Master Hotel Lease  agreements,  written  agreement
between the Payor and the lessee,  or payment of all  commitment  amounts by the
Payor to the lessee. As of December 31, 1999, no contributions have been made by
the Payor to the lessee under the funding commitments.

     NOTES PAYABLE:  On April 20, 1999, the company obtained a line of credit in
a  principal  amount of $1 million  with a  commercial  bank  guaranteed  by Mr.
Knight.  The line  required  interest at LIBOR plus 1.50%.  Interest was payable
monthly and the principal  balance and all accrued interest were paid in full by
September 30, 1999.

     In conjunction  with purchase of the 11 hotels,  notes were executed by the
company  made payable to the order of Hilton in the amount of  $68,569,500.  The
notes bear an effective  interest rate of 8.5% per annum.  Interest payments are
due  monthly.  Principal  payments  are to be made  from net  proceeds  from the
offering  of common  shares.  Hilton,  which  controls  Promus,  agreed to defer
principal  payments  until the  earlier  of April  29,  1999 or such time as two
additional hotels have been purchased by the company.  At December 31, 1999, the
company's borrowings were $68,569,500.

     The company has $68.6 million in notes  payable with Hilton have  principal
payments of $34 million due on October 1, 2000, $30.2 million due on November 1,
2000 and $4.4  million due on January 1, 2001.  The  company  plans to pay these
notes with the proceeds from its continuous  "best  efforts"  offering of common
shares.  However,  based on the current  rate at which equity is being raised by
the offering,  the company may have to seek other measures to repay these loans.
The company is currently  holding  discussions  with  several  lenders to obtain
financing for its hotels and is exploring both  unsecured and secured  financing
arrangements.  Although no firm financing  commitments  have been received,  the
company  believes  that  based on  discussions  with  lenders  and other  market
indicators it can obtain  sufficient  financing  prior to maturity of the notes.
Obtaining  refinancing  is dependent  upon a number of factors,  including:  (1)
continued  operation  of the hotels at or near current  occupancy  and room rate
levels as the company's  leases are based on a percentage of hotel suite income,
(2) general level of interest  rates  including  credit  spreads for real estate
based  lending,  and (3)  general  economic  conditions.  For each of the  notes
payable, all of the Company's 11 hotels serve as collateral.

     CASH AND CASH  EQUIVALENTS:  Cash and cash equivalents  totaled $581,344 at
December


                                      S-48

<PAGE>

31, 1999.

     CAPITAL REQUIREMENTS: The company has an ongoing capital commitment to fund
its capital improvements. The company is required under the Percentage Leases to
make available to the lessee for the repair,  replacement,  or  refurbishing  of
furniture,  fixtures,  and  equipment  an  amount  equal to 5% of suite  revenue
monthly on a cumulative basis, provided that such amount may be used for capital
expenditures made by the company with respect to the hotels. The company expects
that this amount will be adequate to fund the required repair, replacement,  and
refurbishments  and to  maintain  its  hotels in a  competitive  condition.  The
company  capitalized  improvements  of $290,741 in 1999.  At December  31, 1999,
$753,926 was held by Hilton, restricted for funding of these improvements.

     The company expects to acquire  additional  hotels during 2000. The company
plans to have  monthly  equity  closings  in 2000,  until the  offering is fully
funded,  or until such time as the company may opt to discontinue  the offering.
During  January and February  2000,  the company closed the sale to investors of
335,487  shares at $10 per share  representing  net  proceeds  to the company of
$3,019,377.  It is  anticipated  that  the  equity  funds  will be  invested  in
additional  hotels and principal  payments on the notes  incurred in conjunction
with the existing acquisitions.

     Capital  resources are expected to grow with the future sale of its shares.
Approximately  10% of the 1999 common stock dividend  distribution,  or $83,646,
was reinvested in additional common shares. In general,  the company's liquidity
and capital  resources  are  believed to be more than  adequate to meet its cash
requirements during 2000, given current and anticipated financing arrangements.

     The company is operated as, and will annually  elect to be taxed as, a real
estate  investment  trust under the  Internal  Revenue  Code.  As a result,  the
company has no provision for taxes, and thus there is no effect on the company's
liquidity from taxes.

     INFLATION:  All of the company's  Percentage  Leases provide,  on an annual
basis, for adjustments in the rent payable  thereunder,  and thus may enable the
company to obtain  increased base rents,  which generally serves to minimize the
risk to the company of adverse  effects 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 operator's ability
to raise room rates.

     SEASONALITY:  The hotel industry  historically has been seasonal in nature,
reflecting  higher  occupancy rates primarily during the first three quarters of
the year.  Seasonal  variations in occupancy at the  company's  hotels may cause
quarterly fluctuations in the company's lease revenues,  particularly during the
fourth quarter,  to the extent that it receives  percentage  rent. To the extent
the cash flow  from  operations  is  insufficient  during  any  quarter,  due to
temporary or seasonal  fluctuations  in lease  revenue,  the company  expects to
utilize  cash on hand or funds from equity  raised  through  its "best  efforts"
offering to make distributions.

     IMPACT OF YEAR 2000: The company and lessee completed the year 2000 project
as planned.  The company and lessee have not  experienced any year 2000 problems
company-wide


                                      S-49

<PAGE>

or from external  sources and do not anticipate  any. The company's  total costs
incurred to meet year 2000 compliance were not significant.

         MARKET RISK  DISCLOSURES:  In connection with the acquisition of the 11
hotels,  the company  incurred  $68,569,500 of short-term  borrowings at a fixed
interest  rate of 8.5%.  The  company has  repricing  risk  associated  with any
refinancing of these debt obligations  which have various maturity dates through
January 2001.

         REIT  MODERNIZATION  ACT: In December 1999, the REIT  Modernization Act
("RMA")  was signed into law  legislation.  The most  important  feature of this
legislation  to the company is the ability under  certain  conditions to operate
our hotels through a taxable REIT subsidiary without using a third party lessee.
This  provision of the RMA is not effective  until after  December 31, 2000. Our
current lease  agreements  provide for  termination of the lease  agreements for
changes in tax law such as the RMA.  Currently,  we are evaluating the impact of
the RMA on our operating structure.



                                      S-50


<PAGE>
                            SELECTED FINANCIAL DATA

March 26, 1999 to December 31, 1999 (b)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
<S>                                                                 <C>
Revenues:

Lease revenue                                                       $  2,518,031
Interest income and other revenue                                        169,086
                                                                     -----------
Total revenue                                                          2,687,117

Expenses:

Taxes, insurance, and other                                              426,592
General and administrative                                               153,807
Depreciation                                                             496,209
Interest                                                               1,245,044
                                                                    ------------
Total expenses                                                         2,321,652

Net income                                                          $    365,465
                                                                    ============

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

Per Share

Earnings per share - basic and diluted                              $       0.14
Distributions to common shareholders                                $       0.33
Weighted-average common shares outstanding                             2,648,196

Balance Sheet Data at December 31, 1999:

   Cash and cash equivalents                                        $    581,344
   Investment in hotels, net                                        $ 93,719,632
   Total assets                                                     $ 99,489,008
   Notes payable - secured                                          $ 68,569,500
   Shareholders Equity                                              $ 28,098,000

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

Other Data

Cash flow from:
   Operating activities                                             $    548,015
   Investing activities                                             $(28,411,941)
   Financing activities                                             $ 28,445,170
Number of hotels owned at December 31, 1999                                   11

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

Funds From Operations Calculation

Net income                                                          $    365,465
   Depreciation of real estate owned                                     496,209
   Start-up costs                                                         22,002
                                                                    ------------
Funds from Operations (a)                                           $    883,676
                                                                    ============
</TABLE>

(a) "Funds  from  operations"  is defined as income  before  gains  (losses)  on
investments  and  extraordinary  items  (computed in accordance  with  generally
accepted  accounting   principles)  plus  real  estate  depreciation  and  after
adjustment for significant  nonrecurring items, if any. This definition conforms
to the  recommendations  set  forth in a White  Paper  adopted  by the  National
Association of Real Estate  Investment  Trusts (NAREIT).  The company  considers
funds from  operations in  evaluating  property  acquisitions  and its operating
performance,  and believes that funds from operations should be considered along
with,  but not as an  alternative  to, net income and cash flows as a measure of
the company's operating performance and liquidity. Funds from operations,  which
may not be comparable to other similarly  titled  measures of other REITs,  does
not represent  cash  generated  from  operating  activities  in accordance  with
generally accepted  accounting  principles and is not necessarily  indicative of
cash available to fund cash needs.

(b) The company was initially capitalized on March 26, 1999; however, operations
did not commence until September 1, 1999.

                                      S-51
<PAGE>

                        UPDATE CONCERNING PRIOR PROGRAMS

     The prospectus contains information on prior programs sponsored by Glade M.
Knight to invest in real estate.  The information in the prospectus on the prior
programs is generally  current as of June 15, 1999 except where a different date
is specified.  The following information describes recent developments affecting
these prior programs and is generally  current through  December 31, 1999 except
where a different date is specified.

     As indicated in the  prospectus,  the  information on prior programs should
not be  considered to be indicative  of our  operations,  and  purchasers of our
common  shares will not have any  interest in these other  programs or in any of
the properties owned by them.

     On July 23, 1999, Apple  Residential  Income Trust,  Inc. was merged into a
subsidiary of  Cornerstone  Realty Income Trust,  Inc. Thus, as a result of that
merger,  Apple Residential Income Trust, Inc. ceased to exist and its properties
became properties of Cornerstone Realty Income Trust, Inc.

     As of February 29, 2000,  Cornerstone had  approximately  18,000 holders of
its common shares and approximately  10,000 holders of its preferred shares. Its
common  shares are listed  and traded on the New York Stock  Exchange  under the
symbol  "TCR," but its  preferred  shares are not listed.  At December 31, 1999,
Cornerstone  owned  a  total  of 87  apartment  communities  in  Georgia,  North
Carolina,  South Carolina and Virginia.  On March 10, 2000,  Cornerstone sold 16
apartment  communities  and now owns 71 apartment  communities as of the date of
this supplement.

     As indicated in the prospectus,  on June 15, 1999, Mr. Knight had ceased to
hold  an  interest  in all  but  one of  the 40  privately-offered  partnerships
sponsored by him.  Mr.  Knight  disposed of his  interest in that one  remaining
partnership during 1999.

     For more  information,  prospective  investors  should refer to the updated
tabular  information  on prior  programs  sponsored  by Mr.  Knight that appears
immediately  after this  paragraph.  In  addition,  Part II of our  Registration
Statement (which is not included in the prospectus or this supplement)  contains
a more  detailed  summary of the property  acquisitions  by  Cornerstone  Realty
Income Trust, Inc. and Apple Residential  Income Trust, Inc. that occurred on or
before  December 31, 1999.  Also included is information  on the  acquisition by
Cornerstone  Realty  Income  Trust,  Inc.  of  the  properties  owned  by  Apple
Residential  Income Trust,  Inc. as a result of the merger  described  above. We
will provide a copy of the summary of property  acquisitions without charge upon
request of any investor or prospective investor.


                                      S-52

<PAGE>

TABLE I:  EXPERIENCE IN RAISING AND INVESTING FUNDS

     Table I presents a summary of the funds  raised and the use of those  funds
by Cornerstone and Apple,  whose  investment  objectives are similar to those of
the Company and whose offering closed within the three years ending December 31,
1999.

<TABLE>
<CAPTION>
                                                                                  Cornerstone                   Apple
                                                                  ---------------------------- -----------------------
<S>                                                               <C>                          <C>
Dollar amount offered                                                            $409,409,897            $300,000,000
Dollar amount raised                                                             $409,409,897            $302,867,348*

LESS OFFERING EXPENSES:

         Selling commissions and discounts                                               6.79%                  10.00%
         Organizational expenses                                                         2.82%                   1.00%
         Other                                                                           0.00%                   0.00%
Reserves                                                                                 3.00%                   0.50%
Percent available from investment                                                       87.39%                  88.50%

ACQUISITION COSTS:

         Prepaid items and fees to purchase property                                    86.27%                  86.50%
         Cash down payment                                                               0.00%                   0.00%
         Acquisition fees                                                                1.12%                   2.00%
         Other                                                                           0.00%                   0.00%
Total Acquisition Costs                                                                 87.39%                  88.50%
Percentage leverage (excluding unsecured debt)                                          11.43%                  10.84%
Date offering began                                                                  May 1993            January 1997
Length of offering (in months)                                                             66                      31
Months to invest amount available for investment                                           66                      31
</TABLE>

* Amount includes shares purchased by Cornerstone Realty Income Trust, Inc.
  exclusive of the offering.


                                      S-53

<PAGE>

TABLE II:  COMPENSATION TO SPONSOR AND ITS AFFILIATES

         Table II summarizes the compensation  paid to the Prior Program Sponsor
and its Affiliates  (i) by programs  organized by it and closed within the three
years ended December 31, 1999,  and (ii) by all other programs  during the three
years ended December 31, 1999

<TABLE>
<CAPTION>
                                                         Cornerstone             Apple             Other Programs
                                                     -------------------- --------------------- ---------------------
<S>                                                  <C>                  <C>                    <C>
Date offering commenced                                         May 1993          January 1997               Various
Dollar Amount raised                                        $409,409,897          $302,867,348            $9,868,220

AMOUNTS PAID TO PRIOR PROGRAM SPONSOR FROM
 PROCEEDS OF OFFERING:
         Acquisition fees

         Real estate commission                             $  4,075,337          $  4,882,032            $       --
         Advisory fees                                      $    515,689          $  1,140,874            $       --
         Other                                              $         --          $         --            $       --
Cash generated from operations before deducting

AGGREGATE COMPENSATION TO PRIOR PROGRAM SPONSOR:

         Management and accounting fees                     $  3,088,348            $3,859,448            $2,828,330
         Reimbursements                                     $  2,717,655            $      --             $       --
         Leasing fees                                       $         --            $      --             $       --
         Other fees                                         $         --            $      --             $       --
There have been no fees from property sales or
refinancings
</TABLE>


                                      S-54

<PAGE>




TABLE III: OPERATING RESULTS OF PRIOR PROGRAMS

         Table III  presents  a summary  of the  annual  operating  results  for
Cornerstone  and Apple,  the offerings  closed in the five years ending December
31,  1999.  Table  III is  shown  on  both an  income  tax  basis  as well as in
accordance with generally accepted accounting  principles,  the only significant
difference being the methods of calculating depreciation.

<TABLE>
<CAPTION>

                                  1999          1999        1998          1998       1997          1997        1996        1995
                               Cornerstone     Apple     Cornerstone     Apple    Cornerstone     Apple     Cornerstone Cornerstone
                               -----------------------------------------------------------------------------------------------------
<S>                             <C>          <C>         <C>         <C>          <C>         <C>          <C>          <C>
Capital contributions by year    $9,168,728  $32,497,218 $38,905,636 $142,800,094 $63,485,868 $109,090,359 $144,798,035 $71,771,027
Gross revenue                   125,041,524   26,243,431  93,637,948   30,764,904  71,970,624   12,005,968   40,261,674  16,266,610
Operating expenses               46,940,388   15,307,051  33,797,439   14,958,699  27,339,955    5,993,492   17,198,882   7,457,574
Interest income (expense)       (14,953,613)    (302,919)(12,175,940)     900,669  (7,230,205)    (235,708)  (1,140,667)    (68,061)
Depreciation                     29,310,325    5,893,349  20,741,130    5,788,476  15,163,593    1,898,003    8,068,063   2,788,818
Net income (loss) GAAP basis     30,037,102  (16,328,050) 23,210,642   10,079,908  19,225,553    3,499,194   (4,169,849)  5,229,715
Taxable income                           --           --          --           --          --           --           --          --
Cash generated from operations   62,310,895   10,680,641  45,027,655   17,122,276  34,973,533    7,075,025   20,162,776   9,618,956

Less cash distributions to       42,050,415   19,346,455  38,317,602   13,040,936  31,324,870    3,249,098   15,934,901   6,316,185
Cash generated after cash        20,260,480   (8,665,814)  6,710,053    4,081,340   3,648,663    3,825,927    4,227,875   3,302,771
Special items

   Capital contributions, net     9,168,728   32,497,218  38,905,636  142,800,094  63,485,868  109,090,359  144,798,035  71,771,027
   Fixed asset additions        332,558,553   44,755,816  97,863,162  125,017,627 157,859,343   88,753,814  194,519,406  75,589,089
   Line of credit               (44,392,999)          --  50,323,852           --  96,166,147           --   41,603,000   3,300,000
Cash generated                   13,677,972  (21,366,155) (1,923,622)  15,910,626   1,331,335   24,162,472   (3,890,496)  2,784,709
End of period cash              $16,268,336  $18,707,044  $2,590,364  $40,073,198  $4,513,986  $24,162,572   $3,182,651  $7,073,147
Tax and distribution data
Cash distributions to investors
      Investment income                  95           46          82           --          77           --           85          80
      Return of capital                  12           21          21           82          23           60           14          16
   Source (on Cash basis)
      Sales                              --                       --           --          --           --           --          --
      Refinancings                       --                       --           --          --           --           --          --
      Operations                        107           67         103           82         100           60           99          96
      Other                              --                       --           --          --           --           --          --
</TABLE>



                                      S-55

<PAGE>

TABLE IV:  RESULTS OF COMPLETED PROGRAMS

     Table IV shows the results of programs sponsored by affiliates of ASA which
completed  operations in the five years ending  December 31, 1999.  All of these
programs had investment objectives dissimilar to those of the Company.

<TABLE>
<CAPTION>
                                            Mountain                                    Teal
Program Name                                  View        Westfield     Sunstone        Point          Apple
                                          ------------------------------------------------------------------------
<S>                                          <C>           <C>           <C>           <C>           <C>
         Dollar amount raised                $2,605,800    $1,825,600    $1,890,000    $3,310,620    $302,867,348
         Number of properties                         1             1             1             1              29
         Date of closing of offering           Oct 1984      Nov 1984     July 1984      Dec 1989        Jan 1997
         Date of first sale of property        Aug 1995      Apr 1996      Nov 1995      Dec 1997       July 1999
         Date of final sale of property        Aug 1995      Apr 1996      Nov 1995      Dec 1997       July 1999

Tax and Distribution data per $1,000
         investment through-
         Federal income tax results:
         Ordinary income
              From Operations                       $68           $80          $122          $(4)             $46
              From recapture                     $1,200        $1,302          $526           $--             $21
         Capital gain                               $--           $--           $--        $2,126             $--
         Deferred gain
              Capital                               $--           $--           $--           $--             $--
              Ordinary                              $--           $--           $--           $--             $--

Cash distributions to investors
         Source(On GAAP basis)
              Investment income                     $68           $80          $122          $(4)             $46
              Return of capital                     $38          $233           $--           $--             $21
         Source (On cash basis)
              Sales                                 $38          $233          $122        $2,126             $--
              Refinancing                           $--           $--           $--           $--             $--
              Operations                            $68           $80           $--          $(4)             $67
              Other                                 $--           $--           $--           $--             $--

Receivable on net purchase money
         financing                                  $--           $--           $--           $--             $--
</TABLE>


                                      S-56

<PAGE>

TABLE V:  SALES OR DISPOSALS OF PROPERTIES


     On July 23,  1999,  Apple  Residential  Income  Trust,  Inc.  merged with a
wholly-owned  subsidiary of Cornerstone  Realty Income Trust,  Inc. Prior to the
merger, Apple owned 29 apartment  communities  containing 7,503 apartment homes.
The aggregate  acquisition  price in the merger was $311  million.  In addition,
Apple's debt of approximately $32 million was assumed by Cornerstone.


                                     EXPERTS

         The following financial  statements for our hotels are set forth below:
(a)   combined    financial    statements    pertaining   to   the   Atlanta   -
Galleria/Cumberland; Dallas - Addison; Dallas - Irving/Las Colinas; North Dallas
- Plano;  and  Richmond - West End hotels;  (b)  combined  financial  statements
pertaining  to the Atlanta -  Peachtree,  Baltimore - BWI  Airport,  Clearwater,
Detroit - Warren,  and Salt Lake City - Midvale  hotels;  and (c) the  financial
statements for the Jackson - Ridgeland  hotel.  These financial  statements have
been included herein in reliance on the report of L. P. Martin & Company,  P.C.,
independent  certified public  accountants,  which is also included herein,  and
upon the authority of that firm as an expert in accounting and auditing.

         Ernst & Young LLP,  independent  auditors,  have audited  Apple Suites,
Inc.'s consolidated  financial  statements and schedule at December 31, 1999 and
March 26, 1999, and for the period March 26, 1999 through  December 31, 1999, as
set forth in their report.  We've included our financial statements and schedule
in the  prospectus  supplement  and elsewhere in the  registration  statement in
reliance on Ernst & Young LLP's report,  given on their  authority as experts in
accounting and auditing.

         Ernst & Young LLP,  independent  auditors,  have  audited  Apple Suites
Management,  Inc.'s consolidated  financial  statements at December 31, 1999 and
for the period March 11, 1999 through  December 31, 1999,  as set forth in their
report. We've included those financial  statements in the prospectus  supplement
and elsewhere in the  registration  statement in reliance on Ernst & Young LLP's
report, given on their authority as experts in accounting and auditing.


                                      S-57

<PAGE>



                               APPLE SUITES, INC.

                          INDEX TO FINANCIAL STATEMENTS


<TABLE>
<CAPTION>
                                                                                                          Page
                                                                                                          ----
<S>                                                                                                       <C>
PROPERTY FINANCIAL STATEMENTS

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

         Independent Auditors' Report.....................................................................F-4

         Combined Balance Sheets - December 31, 1998 and December 31, 1997................................F-5

         Combined Statements of Shareholders' Equity - Years ended
         December 31, 1997 and December 31, 1998..........................................................F-6

         Combined Income Statements - Years ended
         December 31, 1998 and December 31, 1997..........................................................F-7

         Combined Statements of Cash Flows - Years ended
         December 31, 1998 and December 31, 1997..........................................................F-8

         Notes to the Combined Financial Statements - December 31, 1998
         and December 31, 1997............................................................................F-9

         Combined Balance Sheet - June 30, 1999 (unaudited)...............................................F-12

         Combined Statement of Shareholders' Equity - For the Period
         January 1, 1999 through June 30, 1999 (unaudited)................................................F-13

         Combined Income Statement - For the Period
         January 1, 1999 through June 30, 1999 (unaudited)................................................F-14

         Combined Statement of Cash Flows - For the Period
         January 1, 1999 through June 30, 1999 (unaudited)................................................F-15

         Notes to the Combined Financial Statements - For the Period
         January 1, 1999 through June 30, 1999 (unaudited)................................................F-16

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

         Independent Auditors' Report.....................................................................F-18

         Combined Balance Sheets - December 31, 1998 and December 31, 1997................................F-19

         Combined Statements of Shareholders' Equity - Years ended
         December 31, 1997 and December 31, 1998..........................................................F-20

         Combined Income Statements - Years ended
         December 31, 1998 and December 31, 1997..........................................................F-21
</TABLE>


                                      F-1

<PAGE>

<TABLE>
<CAPTION>
<S>                                                                                                       <C>
         Combined Statements of Cash Flows - Years ended
         December 31, 1998 and December 31, 1997..........................................................F-22

         Notes to the Combined Financial Statements - December 31, 1998
         and December 31, 1997............................................................................F-23

         Combined Balance Sheet - August 31, 1999 (unaudited).............................................F-25

         Combined Statement of Shareholders' Equity - For the Period
         January 1, 1999 through August 31, 1999 (unaudited)..............................................F-26

         Combined Income Statement - For the Period
         January 1, 1999 through August 31, 1999 (unaudited)..............................................F-27

         Combined Statement of Cash Flows - For the Period
         January 1, 1999 through August 31, 1999 (unaudited)..............................................F-28

         Notes to the Combined Financial Statements - For the Period
         January 1, 1999 through August 31, 1999 (unaudited)..............................................F-29

Jackson - Ridgeland

         Independent Auditors' Report.....................................................................F-31

         Balance Sheets - December 31, 1998 and December 31, 1997.........................................F-32

         Statements of Shareholders' Equity - Years ended
         December 31, 1997 and December 31, 1998..........................................................F-33

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

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

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

         Balance Sheet - August 31, 1999 (unaudited)......................................................F-37

         Statement of Shareholders' Equity - For the Period
         January 1, 1999 through August 31, 1999 (unaudited)..............................................F-38

         Income Statement - For the Period
         January 1, 1999 through August 31, 1999 (unaudited)..............................................F-38

         Statement of Cash Flows - For the Period
         January 1, 1999 through August 31, 1999 (unaudited)..............................................F-39
</TABLE>


                                      F-2

<PAGE>

<TABLE>
<CAPTION>
<S>                                                                                                       <C>
         Notes to the Financial Statements - For the Period
         January 1, 1999 through August 31, 1999 (unaudited)..............................................F-40

APPLE SUITES, INC.

         Report of Independent Auditors...................................................................F-42

         Consolidated Balance Sheets as of December 31, 1999 and March 26, 1999...........................F-43

         Consolidated Statement of Operations for the Period March 26, 1999
         through December 31, 1999........................................................................F-44

         Consolidated Statement of Shareholders Equity for the Period March 26, 1999
         through December 31, 1999........................................................................F-45

         Consolidated Statement of Cash Flows for the Period March 26, 1999
         through December 31, 1999........................................................................F-46

         Notes to the Consolidated Financial Statements...................................................F-47

Schedule III -- Real Estate and Accumulated Depreciation (as of December 31, 1999)........................F-59

APPLE SUITES MANAGEMENT, INC.

         Report of Independent Auditors...................................................................F-60

         Consolidated Balance Sheet as of December 31, 1999...............................................F-61

         Consolidated Statement of Operations and Retained Deficit for the Period
         March 11, 1999 through December 31, 1999.........................................................F-62

         Consolidated Statement of Cash Flows for the Period March 11, 1999
         through December 31, 1999........................................................................F-63

         Notes to Consolidated Financial Statements.......................................................F-64


PRO FORMA FINANCIAL STATEMENTS (UNAUDITED)

         Apple Suites, Inc. Pro Forma Condensed Consolidated Statement of Operations
         for the Years Ended December 31, 1999............................................................F-68

         Apple Suites Management, Inc. Pro Forma Condensed Consolidated Statement
         of Operations for the Years Ended December 31, 1999..............................................F-71
</TABLE>


                                      F-3

<PAGE>

<TABLE>
<CAPTION>
<S>                               <C>                                 <C>
                                     L.P. MARTIN & COMPANY
                                   A PROFESSIONAL CORPORATION
         MEMBERS                  CERTIFIED PUBLIC ACCOUNTANTS                 MEMBERS
    VIRGINIA SOCIETY OF               4132 INNSLAKE DRIVE                AMERICAN INSTITUTE OF
CERTIFIED PUBLIC ACCOUNTANTS       GLEN ALLEN, VIRGINIA 23060         CERTIFIED PUBLIC ACCOUNTANTS
LEE P. MARTIN, JR., C.P.A.            PHONE: (804) 346-2626             ROBERT C. JOHNSON, C.P.A.
WILLIAM L. GRAHAM, C.P.A.                                             LEE P. MARTIN, C.P.A. (1948-78)
BERNARD G. KINZIE, C.P.A.              FAX (804) 346-9311
W. BARCLAY BRADSHAW, C.P.A.
</TABLE>

                          INDEPENDENT AUDITORS' REPORT

Apple Suites, Inc.
Richmond, Virginia

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

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

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


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


August 23, 1999

                                      F-4

<PAGE>

                       HOMEWOOD SUITES ACQUISITION HOTELS

                             COMBINED BALANCE SHEETS


<TABLE>
<CAPTION>
                                                                      DECEMBER 31,
                                                           ----------------------------------
                                                                 1998               1997
                                                           ----------------   ---------------
<S>                                                        <C>                <C>
ASSETS
CURRENT ASSETS
 Cash ..................................................    $     374,092      $    393,079
 Accounts Receivable, Net ..............................          714,718           330,540
 Prepaids and Other ....................................            8,355            15,904
                                                            -------------      ------------
    Total Current Assets ...............................        1,097,165           739,523
                                                            -------------      ------------
INVESTMENT IN HOTEL PROPERTIES
 Land and Improvements .................................        8,031,122         7,454,360
 Buildings and Improvements ............................       29,091,731        22,188,107
 Furniture, Fixtures and Equipment .....................       10,822,281         8,417,814
                                                            -------------      ------------
    Total ..............................................       47,945,134        38,060,281
                                                            =============      ============
 Less: Accumulated Depreciation ........................      (11,098,460)       (8,704,166)
                                                            -------------      ------------
    Net Investment in Hotel Properties .................       36,846,674        29,356,115
                                                            -------------      ------------
OTHER ASSETS
 Construction in Progress ..............................               --         5,994,799
                                                            -------------      ------------
    Total Assets .......................................    $  37,943,839      $ 36,090,437
                                                            =============      ============
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
 Accounts Payable ......................................    $     440,076      $    845,173
 Accrued Taxes .........................................          997,897           787,680
 Accrued Expenses -- Other .............................          252,761           158,670
                                                            -------------      ------------
    Total Current Liabilities ..........................        1,690,734         1,791,523
                                                            -------------      ------------
SHAREHOLDERS' EQUITY
 Contributed Capital ...................................       11,000,030        12,499,235
 Retained Earnings .....................................       25,253,075        21,799,679
                                                            -------------      ------------
    Total Shareholders' Equity .........................       36,253,105        34,298,914
                                                            -------------      ------------
    Total Liabilities and Shareholders' Equity .........    $  37,943,839      $ 36,090,437
                                                            =============      ============

</TABLE>

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


                                      F-5

<PAGE>

                       HOMEWOOD SUITES ACQUISITION HOTELS

                   COMBINED STATEMENTS OF SHAREHOLDERS' EQUITY


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

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

                                      F-6

<PAGE>


                       HOMEWOOD SUITES ACQUISITION HOTELS

                           COMBINED INCOME STATEMENTS


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

</TABLE>

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

                                      F-7

<PAGE>


                       HOMEWOOD SUITES ACQUISITION HOTELS

                        COMBINED STATEMENTS OF CASH FLOWS


<TABLE>
<CAPTION>
                                                                   YEARS ENDED DECEMBER 31,
                                                               ---------------------------------
                                                                     1998              1997
                                                               ---------------   ---------------
<S>                                                            <C>               <C>
CASH FLOWS FROM (TO) OPERATING ACTIVITIES
 Net Income ................................................    $  3,453,396      $  3,838,564
                                                                ------------      ------------
 Adjustments to Reconcile Net Income to Net Cash Provided by
   Operating Activities:
   Depreciation ............................................       2,394,294         1,487,077
 Change In:
   Accounts Receivable .....................................        (384,178)         (138,055)
   Prepaids and Other Current Assets .......................           7,549            (7,691)
   Accounts Payable ........................................        (405,097)           38,368
   Accrued Taxes ...........................................         210,217           195,246
   Accrued Expenses -- Other ...............................          94,091            (1,058)
                                                                ------------      ------------
   Net Adjustments .........................................       1,916,876         1,573,887
                                                                ------------      ------------
    Net Cash Flows from Operating Activities ...............       5,370,272         5,412,451

CASH FLOWS TO FINANCING ACTIVITIES
 Capital Distributions, Net ................................      (5,389,259)       (5,266,712)
                                                                ------------      ------------
    Net Increase (Decrease) in Cash ........................         (18,987)          145,739
    Cash, Beginning of Year ................................         393,079           247,340
                                                                ------------      ------------
    Cash, End of Year ......................................    $    374,092      $    393,079
                                                                ============      ============
SUPPLEMENTAL DISCLOSURES:
 Noncash Financing and Investing Activities ................

</TABLE>

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

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

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

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

                                      F-8

<PAGE>


                       HOMEWOOD SUITES ACQUISITION HOTELS
                   NOTES TO THE COMBINED FINANCIAL STATEMENTS
                           DECEMBER 31, 1998 AND 1997


NOTE 1 -- ORGANIZATION AND BASIS OF PRESENTATION

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


<TABLE>
<CAPTION>
            PROPERTY                   HOTEL LOCATION        DATE OPENED     # OF SUITES
--------------------------------   ----------------------   -------------   ------------
<S>                                <C>                      <C>             <C>
Atlanta - Galleria/ Cumberland     Atlanta, Georgia             1990             124
Dallas - Addison                   Addison, Texas               1990             120
Dallas - Los Colinas               Irving, Texas                1990             136
North Dallas - Plano               Plano, Texas             April, 1997           99
Richmond - West End                Glen Allen, Virginia      May, 1998           123
</TABLE>

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

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

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

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

NOTE 2 -- SIGNIFICANT ACCOUNTING POLICIES

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


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

     Major renewals,  betterments and improvements are capitalized while ongoing
maintenance  and  repairs are  expensed  as  incurred.  Building  costs  include
interest  capitalized during the construction  period.  Construction in progress
represents  Hotel properties under  construction.  At the point  construction is
completed  and the  Hotels  are  ready to be placed  in  service,  the costs are
reclassified  to  investment  in  Hotel   properties  for  financial   statement
presentation.

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

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

                                      F-9

<PAGE>


                       HOMEWOOD SUITES ACQUISITION HOTELS

          NOTES TO THE COMBINED FINANCIAL STATEMENTS DECEMBER 31, 1998
                             AND 1997 - (CONTINUED)

NOTE 2 -- SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)

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

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

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

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

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

NOTE 3 -- RELATED PARTY TRANSACTIONS

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

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

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

NOTE 4 -- CONCENTRATIONS AND CONTINGENCIES

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

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

                                      F-10

<PAGE>

                       HOMEWOOD SUITES ACQUISITION HOTELS

          NOTES TO THE COMBINED FINANCIAL STATEMENTS DECEMBER 31, 1998
                             AND 1997 - (CONTINUED)

NOTE 4 -- CONCENTRATIONS AND CONTINGENCIES -- (CONTINUED)

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


                                      F-11

<PAGE>

                       HOMEWOOD SUITES ACQUISITION HOTELS

                       COMBINED BALANCE SHEET (UNAUDITED)
                                  JUNE 30, 1999


ASSETS
Current Assets
 Cash ..................................................    $     326,301
 Accounts Receivable, Net ..............................          727,247
 Prepaids and Other ....................................            6,050
                                                            -------------
   Total Current Assets ................................        1,059,598
                                                            -------------
Investment in Hotel Properties .........................
 Land and Improvements .................................        8,044,305
 Buildings and Improvements ............................       29,188,026
 Furniture, Fixtures and Equipment .....................       11,401,756
                                                            -------------
   Total ...............................................       48,634,087
 Less: Accumulated Depreciation ........................      (12,435,726)
                                                            -------------
   Net Investment in Hotel Properties ..................       36,198,361
                                                            -------------
   Total Assets ........................................    $  37,257,959
                                                            =============

LIABILITIES AND SHAREHOLDERS' EQUITY

Current Liabilities
 Accounts Payable .....................................     $     283,849
 Accrued Taxes ........................................           673,966
 Accrued Expenses - Other .............................           298,719
                                                            -------------
   Total Current Liabilities ..........................         1,256,534
                                                            -------------
Shareholders' Equity ..................................
 Contributed Capital ..................................         9,074,634
 Retained Earnings ....................................        26,926,791
                                                            -------------
   Total Shareholders' Equity .........................        36,001,425
                                                            -------------
   Total Liabilities and Shareholders' Equity .........     $  37,257,959
                                                            =============

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


                                      F-12


<PAGE>


                       HOMEWOOD SUITES ACQUISITION HOTELS

             COMBINED STATEMENT OF SHAREHOLDERS' EQUITY (UNAUDITED)
              FOR THE PERIOD JANUARY 1, 1999 THROUGH JUNE 30, 1999



<TABLE>
<CAPTION>
                                                                               TOTAL
                                         CONTRIBUTED        RETAINED       SHAREHOLDERS'
                                           CAPITAL          EARNINGS          EQUITY
                                       ---------------   --------------   --------------
<S>                                    <C>               <C>              <C>
Balances, January 1, 1999 ..........    $ 11,000,030      $25,253,075      $ 36,253,105
Net Income .........................              --        1,673,716         1,673,716
Capital Distributions, Net .........      (1,925,396)              --        (1,925,396)
                                        ------------      -----------      ------------
Balances, June 30, 1999 ............    $  9,074,634      $26,926,791      $ 36,001,425
                                        ============      ===========      ============
</TABLE>

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

                                      F-13

<PAGE>

                       HOMEWOOD SUITES ACQUISITION HOTELS

                      COMBINED INCOME STATEMENT (UNAUDITED)
              FOR THE PERIOD JANUARY 1, 1999 THROUGH JUNE 30, 1999





<TABLE>
<S>                                                                          <C>
GROSS OPERATING REVENUE
 Suit Revenue ............................................................    $ 7,364,098
 Other Customer Revenue ..................................................        420,072
                                                                              -----------
   Total Revenue .........................................................      7,784,170
                                                                              -----------
EXPENSES
 Property and Operating ..................................................      2,845,653
 General and Administrative ..............................................        187,738
 Advertising and Promotion ...............................................        329,239
 Utilities ...............................................................        265,585
 Real Estate and Personal Property Taxes, and Property Insurance .........        616,949
 Depreciation Expense ....................................................      1,337,266
 Franchise and Management Fees ...........................................        528,024
                                                                              -----------
   Total Expenses ........................................................      6,110,454
                                                                              -----------
   Net Income ............................................................    $ 1,673,716
                                                                              ===========

</TABLE>

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

                                      F-14

<PAGE>

                       HOMEWOOD SUITES ACQUISITION HOTELS

                  COMBINED STATEMENT OF CASH FLOWS (UNAUDITED)
              FOR THE PERIOD JANUARY 1, 1999 THROUGH JUNE 30, 1999




<TABLE>
<S>                                                                      <C>
CASH FLOWS FROM (TO) OPERATING ACTIVITIES
 Net Income ..........................................................    $  1,673,716
                                                                          ------------
 Adjustments to Reconcile Net Income to Net Cash Provided by Operating
   Activities:
   Depreciation ......................................................       1,337,266
 Change in:
   Accounts Receivable ...............................................         (12,529)
   Prepaids and Other Current Assets .................................           2,305
   Accounts Payable ..................................................        (156,227)
   Accrued Taxes .....................................................        (323,931)
   Accrued Expenses - Other ..........................................          45,958
                                                                          ------------
 Net Adjustments .....................................................         892,842
                                                                          ------------
   Net Cash Flows from Operating
    Activities .......................................................       2,566,558
CASH FLOWS FROM (TO) FINANCING ACTIVITIES
 Net Equity Distributions ............................................      (2,614,349)
                                                                          ------------
   Net Decrease in Cash ..............................................         (47,791)
   Cash, January 1, 1999 .............................................         374,092
                                                                          ------------
   Cash, June 30, 1999 ...............................................    $    326,301
                                                                          ============
SUPPLEMENTAL DISCLOSURES:
 Noncash Financing and Investing Activities

</TABLE>

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

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

                                      F-15

<PAGE>


                       HOMEWOOD SUITES ACQUISITION HOTELS
             NOTES TO THE COMBINED FINANCIAL STATEMENTS (UNAUDITED)
              FOR THE PERIOD JANUARY 1, 1999 THROUGH JUNE 30, 1999


NOTE 1 -- ORGANIZATION AND BASIS OF PRESENTATION

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


<TABLE>
<CAPTION>
         PROPERTY               HOTEL LOCATION        DATE OPENED     # OF SUITES
-------------------------   ----------------------   -------------   ------------
<S>                         <C>                      <C>             <C>
   Atlanta - Galleria/
     Cumberland             Atlanta, Georgia             1990             124
   Dallas - Addison         Addison, Texas               1990             120
   Dallas - Los Colinas     Irving, Texas                1990             136
   North Dallas - Plano     Plano, Texas             April, 1997           99
   Richmond - West End      Glen Allen, Virginia      May, 1998           123

</TABLE>

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

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

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

NOTE 2 -- SIGNIFICANT ACCOUNTING POLICIES

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


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

     Major renewals,  betterments and improvements are capitalized while ongoing
maintenance  and  repairs are  expensed  as  incurred.  Building  costs  include
interest capitalized during the construction period.

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

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

                                      F-16

<PAGE>

                       HOMEWOOD SUITES ACQUISITION HOTELS

         NOTES TO THE COMBINED FINANCIAL STATEMENTS (UNAUDITED) FOR THE
           PERIOD JANUARY 1, 1999 THROUGH JUNE 30, 1999 - (CONTINUED)

NOTE 2 -- SIGNIFICANT ACCOUNTING POLICIES -- CONTINUED

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

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

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

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

NOTE 3 -- RELATED PARTY TRANSACTIONS

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


<TABLE>
<CAPTION>
              FEE TYPE                   BASIS FOR DETERMINATION      TOTAL EXPENSE
-----------------------------------   ----------------------------   --------------
<S>                                   <C>                            <C>
   Accounting Fees                    $1,000 per hotel per month        $ 30,000
   Corporate Advertising, Training
     and Reservations                 4% of net suite revenue            294,568
   Franchise Fees                     4% of net suite revenue            294,568
   Management Fees                    3% of net suite revenue            233,456

</TABLE>

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

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

NOTE 4 -- CONCENTRATIONS AND CONTINGENCIES

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

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

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



                                      F-17

<PAGE>

<TABLE>
<CAPTION>
<S>                               <C>                                 <C>
                                     L.P. MARTIN & COMPANY
                                   A PROFESSIONAL CORPORATION
         MEMBERS                  CERTIFIED PUBLIC ACCOUNTANTS                 MEMBERS
    VIRGINIA SOCIETY OF               4132 INNSLAKE DRIVE                AMERICAN INSTITUTE OF
CERTIFIED PUBLIC ACCOUNTANTS       GLEN ALLEN, VIRGINIA 23060         CERTIFIED PUBLIC ACCOUNTANTS
LEE P. MARTIN, JR., C.P.A.            PHONE: (804) 346-2626             ROBERT C. JOHNSON, C.P.A.
WILLIAM L. GRAHAM, C.P.A.                                             LEE P. MARTIN, C.P.A. (1948-78)
BERNARD G. KINZIE, C.P.A.              FAX (804) 346-9311
W. BARCLAY BRADSHAW, C.P.A.
</TABLE>


                         INDEPENDENT AUDITORS' REPORT

Apple Suites, Inc.
Richmond, Virginia

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

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

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

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

November 7, 1999

                                      F-18

<PAGE>

                      HOMEWOOD SUITES ACQUISITION HOTELS

                            COMBINED BALANCE SHEETS





<TABLE>
<CAPTION>
                                                                    DECEMBER 31,
                                                          ---------------------------------
                                                                1998              1997
                                                          ---------------   ---------------
<S>                                                       <C>               <C>
ASSETS
CURRENT ASSETS
 Cash .................................................    $    298,981      $    218,853
 Accounts Receivable, Net .............................         388,352           316,723
 Prepaids and Other ...................................          66,670                --
                                                           ------------      ------------
   Total Current Assets ...............................         754,003           535,576
                                                           ------------      ------------
INVESTMENT IN HOTEL PROPERTIES
 Land and Improvements ................................       5,363,981         3,035,089
 Buildings and Improvements ...........................      29,417,804        13,842,622
 Furniture, Fixtures and Equipment ....................       7,882,778         4,243,800
                                                           ------------      ------------
   Total ..............................................      42,664,563        21,121,511
 Less: Accumulated Depreciation .......................      (6,272,356)       (4,057,854)
                                                           ------------      ------------
   Net Investment in Hotel Properties .................      36,392,207        17,063,657
                                                           ------------      ------------
OTHER ASSETS
 Construction in Progress .............................              --         8,080,834
                                                           ------------      ------------
   Total Assets .......................................    $ 37,146,210      $ 25,680,067
                                                           ============      ============
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
 Accounts Payable .....................................    $    368,287      $    695,044
 Accrued Taxes ........................................         107,272            96,401
 Accrued Expenses - Other .............................         247,767           117,154
                                                           ------------      ------------
   Total Current Liabilities ..........................         723,326           908,599
                                                           ------------      ------------
SHAREHOLDERS' EQUITY
 Contributed Capital ..................................      30,113,336        20,467,543
 Retained Earnings ....................................       6,309,548         4,303,925
                                                           ------------      ------------
   Total Shareholders' Equity .........................      36,422,884        24,771,468
                                                           ------------      ------------
   Total Liabilities and Shareholders' Equity .........    $ 37,146,210      $ 25,680,067
                                                           ============      ============

</TABLE>

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

                                      F-19

<PAGE>

                      HOMEWOOD SUITES ACQUISITION HOTELS

                  COMBINED STATEMENTS OF SHAREHOLDERS' EQUITY





<TABLE>
<CAPTION>
                                                                             TOTAL
                                         CONTRIBUTED       RETAINED      SHAREHOLDERS'
                                           CAPITAL         EARNINGS         EQUITY
                                        -------------   -------------   --------------
<S>                                     <C>             <C>             <C>
Balances, January 1, 1997 ...........   $ 9,295,112      $3,139,210      $12,434,322
Net Income ..........................            --       1,164,715        1,164,715
Capital Contributions, Net ..........    11,172,431              --       11,172,431
                                        -----------
Balances, December 31, 1997 .........    20,467,543       4,303,925       24,771,468
Net Income ..........................            --       2,005,623        2,005,623
Capital Contributions, Net ..........     9,645,793              --        9,645,793
                                        -----------      ----------      -----------
Balances, December 31, 1998 .........   $30,113,336      $6,309,548      $36,422,884
                                        ===========      ==========      ===========
</TABLE>

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

                                      F-20

<PAGE>

                      HOMEWOOD SUITES ACQUISITION HOTELS

                          COMBINED INCOME STATEMENTS





<TABLE>
<CAPTION>
                                               YEARS ENDED DECEMBER 31,
                                            ------------------------------
                                                 1998             1997
                                            --------------   -------------
<S>                                         <C>              <C>
GROSS OPERATING REVENUE
 Suite Revenue ..........................    $10,812,372      $4,659,633
 Other Customer Revenue .................        733,318         275,311
                                             -----------      ----------
    Total Revenue .......................     11,545,690       4,934,944
                                             -----------      ----------
EXPENSES
 Property and Operating .................      4,748,240       1,910,407
 General and Administrative .............        315,165         165,060
 Advertising and Promotion ..............        502,899         209,918
 Utilities ..............................        543,828         267,938
 Real Estate and Personal Property Taxes,
   and Property Insurance ...............        432,979         200,113
 Depreciation Expense ...................      2,214,501         803,385
 Franchise Fees .........................        432,494              --
 Pre-Opening Expenses ...................        349,961         213,408
                                             -----------      ----------
    Total Expenses ......................      9,540,067       3,770,229
                                             -----------      ----------
    Net Income ..........................    $ 2,005,623      $1,164,715
                                             ===========      ==========

</TABLE>

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

                                      F-21

<PAGE>

                      HOMEWOOD SUITES ACQUISITION HOTELS

                       COMBINED STATEMENTS OF CASH FLOWS





<TABLE>
<CAPTION>
                                                                                              YEARS ENDED DECEMBER 31,
                                                                                           -------------------------------
                                                                                                 1998            1997
                                                                                           --------------- ---------------
<S>                                                                                        <C>             <C>
CASH FLOWS FROM (TO) OPERATING ACTIVITIES
 Net Income ..............................................................................  $  2,005,623    $  1,164,715
                                                                                            ------------    ------------
 Adjustments to Reconcile Net Income to Net Cash
   Provided by Operating Activities:
   Depreciation ..........................................................................     2,214,501         803,385
 Change In:
   Accounts Receivable ...................................................................       (71,629)       (274,291)
   Prepaids and Other Current Assets .....................................................       (66,670)             --
   Accounts Payable ......................................................................      (326,757)        222,328
   Accrued Taxes .........................................................................        10,871          (3,724)
   Accrued Expenses - Other ..............................................................       130,613          89,823
                                                                                            ------------    ------------
   Net Adjustments .......................................................................     1,890,929         837,521
                                                                                            ------------    ------------
    Net Cash Flows From Operating Activities                                                   3,896,552       2,002,236

CASH FLOWS TO FINANCING ACTIVITIES
 Capital Distributions, Net ..............................................................    (3,816,424)     (2,077,731)
                                                                                            ------------    ------------
   Net Increase (Decrease) in Cash .......................................................        80,128         (75,495)
   Cash, Beginning of Year ...............................................................       218,853         294,348
                                                                                            ------------    ------------
   Cash, End of Year .....................................................................  $    298,981    $    218,853
                                                                                            ============    ============
SUPPLEMENTAL DISCLOSURES:
 Noncash Financing and Investing Activities ..............................................

   YEAR ENDED DECEMBER 31, 1998

   Investments in hotel properties in the amount of $13,462,218 were financed with capital
contributions.

   Construction in progress in the amount of $8,080,834 was reclassified to investment in hotel
properties.

   YEAR ENDED DECEMBER 31, 1997

   Investments in hotel properties and construction in progress in the amounts of $8,048,540 and
$5,201,622, respectively, were financed with capital contributions.

   Fully depreciated investments in hotel properties at a cost of $654,112 were disposed of during the
year.

</TABLE>

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

                                      F-22


<PAGE>

                      HOMEWOOD SUITES ACQUISITION HOTELS

                  NOTES TO THE COMBINED FINANCIAL STATEMENTS
                          DECEMBER 31, 1998 AND 1997

NOTE 1 -- ORGANIZATION AND BASIS OF PRESENTATION

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

<TABLE>
<CAPTION>
          PROPERTY                HOTEL LOCATION         DATE OPENED      # OF SUITES
---------------------------   ---------------------   ----------------   ------------
<S>                           <C>                     <C>                <C>
Detroit/Warren                Warren, Michigan          March, 1990               76
Atlanta/Peachtree Corners     Norcross, Georgia       February, 1990              92
Clearwater                    Clearwater, Florida     February, 1998             112
Salt Lake                     Midvale, Utah           November, 1996              98
Baltimore/BWI                 Linthicum, Maryland       March, 1998              147
</TABLE>

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

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

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

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

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

NOTE 2 -- SIGNIFICANT ACCOUNTING POLICIES

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

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

     Major   renewals,  betterments  and  improvements  are  capitalized,  while
ongoing  maintenance  and  repairs  are  expensed  as  incurred.  Building costs
include  interest  capitalized  during  the construction period. Construction in
progress   represents   Hotel   properties  under  construction.  At  the  point
construction  is completed and the Hotels are ready to be placed in service, the
costs   are  reclassified  to  investment  in  Hotel  properties  for  financial
statement presentation.

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

                                      F-23

<PAGE>

                      HOMEWOOD SUITES ACQUISITION HOTELS

                  NOTES TO THE COMBINED FINANCIAL STATEMENTS
                    DECEMBER 31, 1998 AND 1997 - (CONTINUED)

NOTE 2 -- SIGNIFICANT ACCOUNTING POLICIES - (CONTINUED)

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

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

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

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

     Pre-opening  Expenses  -- Pre-opening expenses represent operating expenses
incurred  prior  to initial opening of the Hotels. In 1998, pre-opening expenses
of  $148,131  and  $201,830  were  expensed  as  incurred for the Clearwater and
Baltimore/BWI  Hotels,  respectively.  In 1997, pre-opening expenses of $64,588,
$111,225  and  $37,595  were  expensed as incurred for the Clearwater, Salt Lake
and Baltimore/BWI Hotels, respectively.

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

NOTE 3 -- RELATED PARTY TRANSACTIONS

     The  Owner  allocates  a  monthly  accounting  fee of $1,000 to each hotel.
These  fees  totaled $56,000 in 1998 and $27,000 in 1997. The Owner also charges
each  Hotel  a fee for corporate advertising, training and reservations equal to
four  percent  of  net  suite  revenue.  These fees totaled $432,749 in 1998 and
$186,386  in  1997.  In  1998,  the Owner charged a franchise fee of $432,494 to
these  Hotels,  also computed at four percent of suite revenue. No franchise fee
was  charged  in  1997.  Effective  in  1999, the Owner will be charging a "base
management fee" of three percent of suite revenue to each Hotel.

     The  acquisition  costs  of  the  properties  and  related  furnishings and
equipment  was  financed  by the Owner. For all properties, excluding Salt Lake,
which  was a purchased project, the Owner allocated interest to each property on
monies  advanced  to  fund  the construction costs. The interest costs have been
capitalized  and  depreciated in accordance with the Hotels' normal depreciation
policy.  During 1998, interest capitalized and included in the cost basis of the
hotels totaled $484,495.

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

       Purchase Fee -- 4% of Asset Cost

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

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


                                      F-24

<PAGE>

                      HOMEWOOD SUITES ACQUISITION HOTELS

                            COMBINED BALANCE SHEET
                          AUGUST 31, 1999 (UNAUDITED)


ASSETS
CURRENT ASSETS
 Cash ....................................................    $    247,392
 Accounts Receivable, Net ................................         472,340
 Prepaids and Other ......................................          25,892
                                                              ------------
      Total Current Assets ...............................         745,624
                                                              ------------
INVESTMENT IN HOTEL PROPERTIES
 Land and Improvements ...................................       5,378,751
 Buildings and Improvements ..............................      29,280,084
 Furniture, Fixtures and Equipment .......................       8,352,742
                                                              ------------
      Total ..............................................      43,011,577
Less: Accumulated Depreciation ...........................      (7,884,812)
                                                              ------------
      Net Investment in Hotel Properties .................      35,126,765
                                                              ------------
      Total Assets .......................................    $ 35,872,389
                                                              ============
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
 Accounts Payable ........................................    $    314,045
 Accrued Taxes ...........................................         433,300
 Accrued Expenses -- Other ...............................         233,596
                                                              ------------
      Total Current Liabilities ..........................         980,941
                                                              ------------
SHAREHOLDERS' EQUITY
 Contributed Capital .....................................      26,576,118
 Retained Earnings .......................................       8,315,330
                                                              ------------
      Total Shareholders' Equity .........................      34,891,448
                                                              ------------
      Total Liabilities and Shareholders' Equity .........    $ 35,872,389
                                                              ============


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

                                      F-25

<PAGE>

                      HOMEWOOD SUITES ACQUISITION HOTELS

                  COMBINED STATEMENT OF SHAREHOLDERS' EQUITY
      FOR THE PERIOD JANUARY 1, 1999 THROUGH AUGUST 31, 1999 (UNAUDITED)



<TABLE>
<CAPTION>
                                                                              TOTAL
                                         CONTRIBUTED        RETAINED      SHAREHOLDERS'
                                           CAPITAL          EARNINGS         EQUITY
                                       ---------------   -------------   --------------
<S>                                    <C>               <C>             <C>
Balances, January 1, 1999 ..........    $ 30,113,336      $6,309,548      $ 36,422,884
Net Income .........................              --       2,005,782         2,005,782
Capital Distributions, Net .........      (3,537,218)             --        (3,537,218)
                                        ------------      ----------      ------------
Balances, August 31, 1999 ..........    $ 26,576,118      $8,315,330      $ 34,891,448
                                        ============      ==========      ============
</TABLE>

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


                                      F-26

<PAGE>

                      HOMEWOOD SUITES ACQUISITION HOTELS

                           COMBINED INCOME STATEMENT
      FOR THE PERIOD JANUARY 1, 1999 THROUGH AUGUST 31, 1999 (UNAUDITED)

<TABLE>
<S>                                                                          <C>
GROSS OPERATING REVENUE
 Suite Revenue ...........................................................    $8,787,181
 Other Customer Revenue ..................................................       515,811
                                                                              ----------
      Total Revenue ......................................................     9,302,992
                                                                              ----------
EXPENSES
 Property and Operating ..................................................     3,541,888
 General and Administrative ..............................................       218,472
 Advertising and Promotion ...............................................       422,228
 Utilities ...............................................................       400,988
 Real Estate and Personal Property Taxes, and Property Insurance .........       470,709
 Depreciation Expense ....................................................     1,612,457
 Franchise and Management Fees ...........................................       630,468
                                                                              ----------
      Total Expenses .....................................................     7,297,210
                                                                              ----------
      Net Income .........................................................    $2,005,782
                                                                              ==========

</TABLE>

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


                                      F-27

<PAGE>

                      HOMEWOOD SUITES ACQUISITION HOTELS

                       COMBINED STATEMENT OF CASH FLOWS
      FOR THE PERIOD JANUARY 1, 1999 THROUGH AUGUST 31, 1999 (UNAUDITED)



<TABLE>
<S>                                                                      <C>
CASH FLOWS FROM (TO) OPERATING ACTIVITIES
 Net Income ..........................................................    $  2,005,782
                                                                          ------------
 Adjustments to Reconcile Net Income to Net Cash Provided by Operating
   Activities:
   Depreciation ......................................................       1,612,457
 Change in:
   Accounts Receivable ...............................................         (83,988)
   Prepaids and Other Current Assets .................................          40,778
   Accounts Payable ..................................................         (54,242)
   Accrued Taxes .....................................................         326,028
   Accrued Expenses - Other ..........................................         (14,171)
                                                                          ------------
 Net Adjustments .....................................................       1,826,862
                                                                          ------------
   Net Cash flows from Operating Activities ..........................       3,832,644
CASH FLOWS (TO) FINANCING ACTIVITIES
 Net Equity Distributions ............................................      (3,884,233)
                                                                          ------------
   Net Decrease in Cash ..............................................         (51,589)
   Cash, January 1, 1999 .............................................         298,981
                                                                          ------------
   Cash, August 31, 1999 .............................................    $    247,392
                                                                          ============

SUPPLEMENTAL DISCLOSURES: ............................................
 Noncash Financing and Investing Activities

</TABLE>

     During  the  period  January  1, 1999 through August 31, 1999, additions to
Investment  in  Hotel  Properties  totaling  $347,015 were financed with capital
contributions.

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

                                      F-28

<PAGE>

                      HOMEWOOD SUITES ACQUISITION HOTELS

            NOTES TO THE COMBINED FINANCIAL STATEMENTS (UNAUDITED)
             FOR THE PERIOD JANUARY 1, 1999 THROUGH AUGUST 31, 1999

NOTE 1 -- ORGANIZATION AND BASIS OF PRESENTATION

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

<TABLE>
<CAPTION>
          PROPERTY                HOTEL LOCATION         DATE OPENED      # OF SUITES
---------------------------   ---------------------   ----------------   ------------
<S>                           <C>                     <C>                <C>
Detroit/Warren                Warren, Michigan          March, 1990               76
Atlanta/Peachtree Corners     Norcross, Georgia       February, 1990              92
Clearwater                    Clearwater, Florida     February, 1998             112
Salt Lake                     Midvale, Utah           November, 1996              98
Baltimore/BWI                 Linthicum, Maryland       March, 1998              147
</TABLE>

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

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

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

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

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

NOTE 2 -- SIGNIFICANT ACCOUNTING POLICIES

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

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

     Major   renewals,  betterments  and  improvements  are  capitalized,  while
ongoing  maintenance  and  repairs  are  expensed  as  incurred.  Building costs
include interest capitalized during the construction period.

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

                                      F-29

<PAGE>

                      HOMEWOOD SUITES ACQUISITION HOTELS

            NOTES TO THE COMBINED FINANCIAL STATEMENTS (UNAUDITED)
      FOR THE PERIOD JANUARY 1, 1999 THROUGH AUGUST 31, 1999 - (CONTINUED)

NOTE 2 -- SIGNIFICANT ACCOUNTING POLICIES - (CONTINUED)

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

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

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

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

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


NOTE 3 -- RELATED PARTY TRANSACTIONS

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

<TABLE>
<CAPTION>
                FEE TYPE                     BASIS FOR DETERMINATION      TOTAL EXPENSE
---------------------------------------   ----------------------------   --------------
<S>                                       <C>                            <C>
       Accounting Fees                    $1,000 per hotel per month          $ 40,000
       Corporate Advertising, Training
        and Reservations                  4% of net suite revenue              351,487
       Franchise Fees                     4% of net suite revenue              351,487
       Management Fees                    3% of net suite revenue              278,981
</TABLE>

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

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

     Purchase Fee-4% of Asset Cost

     Project Management Fee-4.5% of labor portion of capitalized asset costs

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

                                      F-30

<PAGE>

<TABLE>
<CAPTION>
<S>                               <C>                                 <C>
                                     L.P. MARTIN & COMPANY
                                   A PROFESSIONAL CORPORATION
         MEMBERS                  CERTIFIED PUBLIC ACCOUNTANTS                 MEMBERS
    VIRGINIA SOCIETY OF               4132 INNSLAKE DRIVE                AMERICAN INSTITUTE OF
CERTIFIED PUBLIC ACCOUNTANTS       GLEN ALLEN, VIRGINIA 23060         CERTIFIED PUBLIC ACCOUNTANTS
LEE P. MARTIN, JR., C.P.A.            PHONE: (804) 346-2626             ROBERT C. JOHNSON, C.P.A.
WILLIAM L. GRAHAM, C.P.A.                                             LEE P. MARTIN, C.P.A. (1948-78)
BERNARD G. KINZIE, C.P.A.              FAX (804) 346-9311
W. BARCLAY BRADSHAW, C.P.A.
</TABLE>

                          INDEPENDENT AUDITORS' REPORT



Apple Suites, Inc.
Richmond, Virginia

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

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

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



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


November 7, 1999

                                      F-31
<PAGE>

                       HOMEWOOD SUITES HOTEL -- JACKSON

                                BALANCE SHEETS


<TABLE>
<CAPTION>
                                                                    DECEMBER 31,
                                                           -------------------------------
                                                                1998             1997
                                                           --------------   --------------
<S>                                                        <C>              <C>
ASSETS
CURRENT ASSETS
 Cash ..................................................     $   34,756       $   13,970
 Accounts Receivable, Net ..............................        148,205          104,456
 Prepaids and Other ....................................         25,350           25,350
                                                             ----------       ----------
    Total Current Assets ...............................        208,311          143,776
                                                             ----------       ----------
INVESTMENT IN HOTEL PROPERTY ...........................
 Land and Improvements .................................        749,969          749,969
 Buildings and Improvements ............................      5,284,823        5,161,652
 Furniture, Fixtures and Equipment .....................      1,197,181        1,182,151
                                                             ----------       ----------
    Total ..............................................      7,231,973        7,093,772
 Less: Accumulated Depreciation ........................       (797,849)        (380,298)
                                                             ----------       ----------
    Net Investment in Hotel Property ...................      6,434,124        6,713,474
                                                             ----------       ----------
    Total Assets .......................................     $6,642,435       $6,857,250
                                                             ==========       ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
 Accounts Payable ......................................     $   98,225       $  144,491
 Accrued Taxes .........................................         87,475           43,165
 Accrued Expenses - Other ..............................         41,034           39,523
                                                             ----------       ----------
    Total Current Liabilities ..........................        226,734          227,179
                                                             ----------       ----------
SHAREHOLDERS' EQUITY
 Contributed Capital ...................................      6,046,570        6,734,271
 Retained Earnings (Accumulated Deficit) ...............        369,131         (104,200)
                                                             ----------       ----------
    Total Shareholders' Equity .........................      6,415,701        6,630,071
                                                             ----------       ----------
    Total Liabilities and Shareholders' Equity .........     $6,642,435       $6,857,250
                                                             ==========       ==========

</TABLE>

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



                                      F-32
<PAGE>

                       HOMEWOOD SUITES HOTEL -- JACKSON

                      STATEMENTS OF SHAREHOLDERS' EQUITY

<TABLE>
<CAPTION>
                                                           RETAINED
                                                           EARNINGS           TOTAL
                                         CONTRIBUTED     (ACCUMULATED     SHAREHOLDERS'
                                           CAPITAL         DEFICIT)          EQUITY
                                        -------------   --------------   --------------
<S>                                     <C>             <C>              <C>
Balances, January 1, 1997 ...........    $4,638,129       $  (70,003)      $4,568,126
Net Loss ............................            --          (34,197)         (34,197)
Capital Contributions, Net ..........     2,096,142               --        2,096,142
                                         ----------       ----------       ----------
Balances, December 31, 1997 .........     6,734,271         (104,200)       6,630,071
Net Income ..........................            --          473,331          473,331
Capital Distributions, Net ..........      (687,701)              --         (687,701)
                                         ----------       ----------       ----------
Balances, December 31, 1998 .........    $6,046,570       $  369,131       $6,415,701
                                         ==========       ==========       ==========
</TABLE>

                               INCOME STATEMENTS


<TABLE>
<CAPTION>
                                                                               YEARS ENDED DECEMBER 31,
                                                                             -----------------------------
                                                                                  1998            1997
                                                                             -------------   -------------
<S>                                                                          <C>             <C>
GROSS OPERATING REVENUE
 Suite Revenue ...........................................................    $2,115,861      $1,390,347
 Other Customer Revenue ..................................................       161,811         130,494
                                                                              ----------      ----------
    Total Revenue ........................................................     2,277,672       1,520,841
                                                                              ----------      ----------
EXPENSES
 Property and Operating ..................................................       927,878         700,874
 General and Administrative ..............................................        69,009          56,870
 Advertising and Promotion ...............................................       128,067          87,703
 Utilities ...............................................................        87,815          73,585
 Real Estate and Personal Property Taxes, and Property Insurance .........        89,387          43,959
 Depreciation Expense ....................................................       417,551         380,298
 Franchise Fees ..........................................................        84,634              --
 Pre-Opening Expenses ....................................................            --         211,749
                                                                              ----------      ----------
    Total Expenses .......................................................     1,804,341       1,555,038
                                                                              ----------      ----------
    Net Income (Loss) ....................................................    $  473,331      $  (34,197)
                                                                              ==========      ==========

</TABLE>

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

                                      F-33
<PAGE>

                       HOMEWOOD SUITES HOTEL -- JACKSON
                           STATEMENTS OF CASH FLOWS


<TABLE>
<CAPTION>
                                                                     YEARS ENDED DECEMBER 31,
                                                                   -----------------------------
                                                                        1998            1997
<S>                                                                <C>             <C>
CASH FLOWS FROM (TO) OPERATING ACTIVITIES
 Net Income (Loss) .............................................    $  473,331      $  (34,197)
                                                                    ----------      ----------
 Adjustments to Reconcile Net Income (Loss) to Net Cash Provided
   by Operating Activities:
   Depreciation ................................................       417,551         380,298
 Change In:
   Accounts Receivable .........................................       (43,749)       (104,456)
   Prepaids and Other Current Assets ...........................            --         (25,350)
   Accounts Payable ............................................       (46,266)          7,278
   Accrued Taxes ...............................................        44,310          42,292
   Accrued Expenses - Other ....................................         1,511          36,532
                                                                    ----------      ----------
   Net Adjustments .............................................       373,357         336,594
                                                                    ----------      ----------
    Net Cash Flows from Operating Activities ...................       846,688         302,397
CASH FLOWS TO FINANCING ACTIVITIES
 Capital Distributions, Net ....................................      (825,902)       (290,927)
                                                                    ----------      ----------
    Net Increase in Cash .......................................        20,786          11,470
    Cash, Beginning of Year ....................................        13,970           2,500
                                                                    ----------      ----------
    Cash, End of Year ..........................................    $   34,756      $   13,970
                                                                    ==========      ==========
SUPPLEMENTAL DISCLOSURES:
 NONCASH FINANCING AND INVESTING ACTIVITIES

</TABLE>

YEAR ENDED DECEMBER 31, 1998

     Investments  in  hotel  properties  in the amount of $138,201 were financed
with capital contributions.

YEAR ENDED DECEMBER 31, 1997

     Investments  in hotel properties in the amount of $7,093,772, were financed
with capital contributions.

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

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




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

                                      F-34
<PAGE>

                        HOMEWOOD SUITES HOTEL -- JACKSON

                        NOTES TO THE FINANCIAL STATEMENTS
                           DECEMBER 31, 1998 AND 1997

NOTE 1 -- ORGANIZATION AND BASIS OF PRESENTATION

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

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

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

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

NOTE 2 -- SIGNIFICANT ACCOUNTING POLCIIES

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

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

</TABLE>

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

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

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

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

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


                                      F-35
<PAGE>

                       HOMEWOOD SUITES HOTEL -- JACKSON

                       NOTES TO THE FINANCIAL STATEMENTS
                   DECEMBER 31, 1998 AND 1997 -- (CONTINUED)
NOTE 2 -- SIGNIFICANT ACCOUNTING POLCIIES -- (CONTINUED)

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

     Pre-Opening  Expenses  -- Pre-opening expenses represent operating expenses
incurred  prior  to  initial opening of the Hotel. In 1997, pre-opening expenses
of $211,749, were expensed as incurred.

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

NOTE 3 -- RELATED PARTY TRANSACTIONS

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

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

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

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

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


                                      F-36
<PAGE>

                       HOMEWOOD SUITES HOTEL -- JACKSON

                           BALANCE SHEET (UNAUDITED)
                                AUGUST 31, 1999


<TABLE>
<S>                                                       <C>
ASSETS
CURRENT ASSETS
 Cash .................................................    $     43,476
 Accounts Receivable, Net .............................         227,188
 Prepaids and Other ...................................          25,350
                                                           ------------
   Total Current Assets ...............................         296,014
                                                           ------------
INVESTMENT IN HOTEL PROPERTY
 Land and Improvements ................................         754,803
 Buildings and Improvements ...........................       5,278,927
 Furniture, Fixtures and Equipment ....................       1,197,295
                                                           ------------
   Total ..............................................       7,231,025
 Less: Accumulated Depreciation .......................      (1,082,506)
                                                           ------------
   Net Investment in Hotel Property ...................       6,148,519
                                                           ------------
   Total Assets .......................................    $  6,444,533
                                                           ============
LIABILITIES AND SHAREHOLDERS' EQUITY

CURRENT LIABILITIES
 Accounts Payable .....................................    $      1,626
 Accrued Taxes ........................................          69,100
 Accrued Expenses - Other .............................          47,842
                                                           ------------
   Total Current Liabilities ..........................         118,568
                                                           ------------
SHAREHOLDERS' EQUITY
 Contributed Capital ..................................       5,625,316
 Retained Earnings ....................................         700,649
                                                           ------------
   Total Shareholders' Equity .........................       6,325,965
                                                           ------------
   Total Liabilities and Shareholders' Equity .........    $  6,444,533
                                                           ============

</TABLE>

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


                                      F-37
<PAGE>

                       HOMEWOOD SUITES HOTEL -- JACKSON

                 STATEMENT OF SHAREHOLDERS' EQUITY (UNAUDITED)
            FOR THE PERIOD JANUARY 1, 1999 THROUGH AUGUST 31, 1999

<TABLE>
<CAPTION>
                                                                         TOTAL
                                        CONTRIBUTED     RETAINED     SHAREHOLDERS'
                                          CAPITAL       EARNINGS        EQUITY
                                       -------------   ----------   --------------
<S>                                    <C>             <C>          <C>
Balances, January 1, 1999 ..........    $6,046,570      $369,131      $6,415,701
Net Income .........................            --       331,518         331,518
Capital Distributions, Net .........      (421,254)           --        (421,254)
                                        ----------      --------      ----------
Balances, August 31, 1999 ..........    $5,625,316      $700,649      $6,325,965
                                        ==========      ========      ==========
</TABLE>

                          INCOME STATEMENT (UNAUDITED)
            FOR THE PERIOD JANUARY 1, 1999 THROUGH AUGUST 31, 1999

<TABLE>
<S>                                                                          <C>
GROSS OPERATING REVENUE
 Suite Revenue ...........................................................    $1,487,301
 Other Customer Revenue ..................................................       112,292
                                                                              ----------
   Total Revenue .........................................................     1,599,593
                                                                              ----------
EXPENSES
 Property and Operating ..................................................       636,068
 General and Administrative ..............................................        51,587
 Advertising and Promotion ...............................................        75,268
 Utilities ...............................................................        50,426
 Real Estate and Personal Property Taxes, and Property Insurance .........        62,589
 Depreciation Expense ....................................................       284,657
 Franchise and Management Fees ...........................................       107,480
                                                                              ----------
   Total Expenses ........................................................     1,268,075
                                                                              ----------
   Net Income ............................................................    $  331,518
                                                                              ==========

</TABLE>

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


                                      F-38
<PAGE>

                       HOMEWOOD SUITES HOTEL -- JACKSON

                      STATEMENT OF CASH FLOWS (UNAUDITED)
            FOR THE PERIOD JANUARY 1, 1999 THROUGH AUGUST 31, 1999



<TABLE>
<S>                                                                                  <C>
CASH FLOWS FROM (TO) OPERATING ACTIVITIES
 Net Income ......................................................................    $  331,518
                                                                                      ----------
 Adjustments to Reconcile Net Income to Net Cash Provided by Operating Activities:
   Depreciation ..................................................................       284,657
 Change in:
   Accounts Receivable ...........................................................       (78,983)
   Accounts Payable ..............................................................       (96,599)
   Accrued Taxes .................................................................       (18,375)
   Accrued Expenses - Other ......................................................         6,808
                                                                                      ----------
 Net Adjustments .................................................................        97,508
                                                                                      ----------
   Net Cash Flows from Operating Activities ......................................       429,026
CASH FLOWS FROM INVESTING ACTIVITIES
 Net Disposal of Investment in Hotel Property ....................................           948
CASH FLOWS TO FINANCING ACTIVITIES
 Net Equity Distributions ........................................................      (421,254)
                                                                                      ----------
   Net Increase in Cash ..........................................................         8,720
   Cash, January 1, 1999 .........................................................        34,756
                                                                                      ----------
   Cash, August 31, 1999 .........................................................    $   43,476
                                                                                      ==========

</TABLE>

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

                                      F-39
<PAGE>

                    HOMEWOOD SUITES HOTEL -- JACKSON

                 NOTES TO THE FINANCIAL STATEMENTS (UNAUDITED)
            FOR THE PERIOD JANUARY 1, 1999 THROUGH AUGUST 31, 1999

NOTE 1 -- ORGANIZATION AND BASIS OF PRESENTATION

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

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

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

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

NOTE 2 -- SIGNIFICANT ACCOUNTING POLICIES

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

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

     Major   renewals,  betterments  and  improvements  are  capitalized,  while
ongoing  maintenance  and  repairs  are  expensed  as  incurred.  Building costs
include interest capitalized during the construction period.

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

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

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

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

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

                                      F-40
<PAGE>

                        HOMEWOOD SUITES HOTEL -- JACKSON

                  NOTES TO THE FINANCIAL STATEMENTS (UNAUDITED)
      FOR THE PERIOD JANUARY 1, 1999 THROUGH AUGUST 31, 1999 -- (CONTINUED)

NOTE 2 -- SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)

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

NOTE 3 -- RELATED PARTY TRANSACTIONS

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

<TABLE>
<CAPTION>
                          FEE TYPE                              BASIS FOR DETERMINATION     TOTAL EXPENSE
-----------------------------------------------------------   --------------------------   --------------
<S>                                                           <C>                          <C>
Accounting Fees ...........................................   $1,000 per month                 $ 8,000
Corporate Advertising, Training and Reservations ..........   4% of net suite revenue           59,492
Franchise Fees ............................................   4% of net suite revenue           59,492
Management Fees ...........................................   3% of net suite revenue           47,988
</TABLE>

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

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

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

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


                                      F-41
<PAGE>

                          Independent Auditors' Report

The Board of Directors and Shareholders
Apple Suites, Inc.

We have audited the  accompanying  consolidated  balance sheets of Apple Suites,
Inc. (the "Company") as of December 31, 1999 and March 26, 1999, and the related
consolidated statements of operations,  shareholders' equity, and cash flows for
the period  from March 26,  1999  through  December  31,  1999.  Our audits also
included the financial  statement schedule listed in the Index at Item 36. These
financial  statements  and  schedule  are the  responsibility  of the  Company's
management.  Our  responsibility  is to express  an  opinion on these  financial
statements and schedule based on our audits.

We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable  assurance about whether the financial  statements are free
of material  misstatement.  An audit also includes  examining,  on a test basis,
evidence supporting the amounts and disclosures in the financial statements.  An
audit also includes  assessing the accounting  principles  used and  significant
estimate  made by  management,  as  well as  evaluating  the  overall  financial
statement  presentation.  We believe that our audits provide a reasonable  basis
for our opinion.

In our opinion, the consolidated  financial statements referred to above present
fairly, in all material respects,  the consolidated  financial position of Apple
Suites,  Inc. at  December  31, 1999 and March 26,  1999,  and the  consolidated
results of its  operations and its cash flows for the period from March 26, 1999
through  December 31, 1999, in conformity with accounting  principles  generally
accepted in the United  States.  Also,  in our  opinion,  the related  financial
statement  schedule,   when  considered  in  relation  to  the  basic  financial
statements  taken as a whole,  presents  fairly  in all  material  respects  the
information set forth therein.

                              /s/ Ernst & Young LLP

Richmond, Virginia
February 28, 2000


                                      F-42

<PAGE>

CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>

                                                                December 31, 1999         March 26, 1999
                                                                -----------------         --------------
<S>                                                             <C>                       <C>
ASSETS

Investment in hotels
  (net of $496,209 accumulated depreciation)                    $   93,719,632                      --
Cash and cash equivalents                                              581,344            $        100
Restricted cash                                                      1,023,721                      --
Rent receivable from Apple Suites Management, Inc.                   2,123,136                      --
Notes and other receivables from Apple Suites Management, Inc.         717,019                      --
Capital improvements reserve                                           753,927                      --
Prepaid expenses                                                       270,229                      --
Other assets                                                           300,000                      --
                                                                --------------            ------------
Total Assets                                                    $   99,489,008            $        100
                                                                ==============            ============

LIABILITIES and SHAREHOLDERS' EQUITY

Liabilities

Notes payable--secured                                          $   68,569,500                      --
Interest payable                                                       466,140                      --
Accounts payable                                                        65,214                      --
Accrued expenses                                                       868,668                      --
Accounts payable--affiliates                                           708,751                      --
Distributions payable                                                  712,735                      --
                                                                --------------            ------------
Total Liabilities                                               $   71,391,008                      --
                                                                ==============            ============

Shareholders' Equity

Common Stock, no par value, authorized 200,000,000
  shares; issued and outstanding 3,429,414 shares and 10
  shares, respectively                                              28,591,260            $        100
Class B Convertible Stock, no par value, authorized
   240,000 shares; issued and outstanding 240,000 shares                24,000                      --
Distributions greater than net income                                 (517,260)                     --
                                                                --------------            ------------
Total Shareholders' Equity                                      $   28,098,000                     100
                                                                --------------            ------------
Total Liabilities and Shareholders' Equity                      $   99,489,008            $        100
                                                                ==============            ============
</TABLE>

See accompanying notes to consolidated financial statements.


                                      F-43

<PAGE>

CONSOLIDATED STATEMENT OF OPERATIONS
For the Period March 26, 1999 through December 31, 1999(a)

<TABLE>
<CAPTION>
<S>                                                                                      <C>
Revenues
Lease revenue                                                                                        $ 2,518,031
Interest income and other revenue                                                                        169,086

Expenses
Taxes, insurance, and other                                                                              426,592
General and administrative                                                                               153,807
Depreciation of real estate owned                                                                        496,209
Interest                                                                                               1,245,044
                                                                                         -----------------------
Total expenses                                                                                         2,321,652
                                                                                         -----------------------
Net income                                                                                            $  365,465
                                                                                         =======================
Basic and diluted earnings per common share                                                           $     0.14
                                                                                         =======================
</TABLE>

(a) The company was initially capitalized on March 26, 1999; however, operations
did not commence until September 1, 1999.

See accompanying notes to consolidated financial statements.


                                      F-44

<PAGE>


CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
For the Period March 26, 1999 through December 31, 1999(a)

<TABLE>
<CAPTION>
                                                                 Class B
                               Common Stock                 Convertible Stock
                      -------------------------------- ----------------------------
                                                                                     Distributions         Total
                        Number of                        Number of                   Greater than      Shareholders'
                          Shares          Amount          Shares         Amount       Net Income          Equity
--------------------- --------------- ---------------- -------------- ------------- ---------------- ------------------
<S>                        <C>            <C>                <C>           <C>            <C>             <C>
Balance at
March 26, 1999                    10      $       100             --            --               --       $        100
Issuance of Class B
Convertible Stock                 --               --        240,000       $24,000               --             24,000
Net proceeds from
the sale of common
shares                     3,420,110       28,507,514             --            --               --         28,507,514
Net income                        --               --             --            --        $ 365,465            365,465
Cash distributions
declared to shareholders
($.33 per share)                  --               --             --            --         (882,725)          (882,725)
Common stock issued
through reinvestment of
distributions                  9,294           83,646             --            --               --             83,646
--------------------- --------------- ---------------- -------------- ------------- ---------------- ------------------
Balance at December
31, 1999                   3,429,414      $28,591,260        240,000       $24,000       $(517,260)        $28,098,000
--------------------- --------------- ---------------- -------------- ------------- ---------------- ------------------
</TABLE>

(a) The Company was initially capitalized on March 26, 1999; however, operations
did not commence until September 1, 1999.

See accompanying notes to consolidated financial statements.


                                      F-45

<PAGE>

CONSOLIDATED STATEMENT OF CASH FLOWS
For the period March 26, 1999 through December 31, 1999 (a)

CASH FLOW FROM OPERATING ACTIVITIES:

<TABLE>
<CAPTION>
<S>                                                                           <C>
Net income                                                                    $   365,465
Adjustments to reconcile net income to net cash provided
   by operating activities:
Depreciation of real estate owned                                                 496,209
Changes in operating assets and liabilities:
         Prepaid expenses                                                        (270,229)
         Due from Apple Suites Management, Inc.                                (2,152,203)
         Accounts payable                                                          65,214
         Accounts payable--affiliates                                             708,751
         Accrued expenses                                                         868,668
         Interest payable                                                         466,140
                                                                       -------------------

                  Net cash provided by operating activities                       548,015

CASH FLOW FROM INVESTING ACTIVITIES:

Payments received on notes receivable                                               1,748
Cash paid for acquisitions of hotels                                          (26,045,300)
Capital improvements                                                             (290,741)
Restricted cash for property improvement plan                                  (1,023,721)
Capital improvements reserve held by third-party manager                         (753,927)
Earnest deposit money for pending acquisitions                                   (300,000)
                                                                       -------------------

                  Net cash used in investing activities                       (28,411,941)

CASH FLOW FROM FINANCING ACTIVITIES:

Payment from officer-shareholder for Class B Convertible Stock                     24,000
Net proceeds from issuance of common stock                                     28,591,160
Cash distributions paid to shareholders                                          (169,990)
                                                                       -------------------
                  Net cash provided by financing activities                    28,445,170
                  Increase in cash and cash equivalents                           581,244

Cash and cash equivalents, beginning of period                                        100
                                                                       -------------------

Cash and cash equivalents, end of period                                    $     581,344
                                                                       ====================

SUPPLEMENTAL CASH FLOW INFORMATION:

Interest paid                                                               $     550,147
Non-cash transaction:
    Notes payable--secured issued by seller
    in connection with hotel acquisitions                                   $  68,569,500
</TABLE>

(a) The company was initially capitalized on March 26, 1999; however, operations
did not commence until September 1, 1999.

See accompanying notes to consolidated financial statements.


                                      F-46

<PAGE>

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1

GENERAL INFORMATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

ORGANIZATION
Apple  Suites,  Inc.,  together  with its  subsidiaries  (the  "company"),  is a
Virginia  corporation  formed in March of 1999, which commenced  operations as a
hotel real estate  investment  trust on September 1, 1999, the effective date of
its first four  hotel  acquisitions.  The  accompanying  consolidated  financial
statements include the accounts of the company along with its subsidiaries.  All
significant intercompany transactions and balances have been eliminated.

The company operates in one defined business segment consisting of extended-stay
hotels.  The hotels are  located  throughout  the United  States and  operate as
Homewood  Suites(R) by Hilton.  The company  leased to Apple Suites  Management,
Inc. or its subsidiary (the "lessee") all of its hotels acquired during 1999.

The lessee is wholly  owned by Glade M.  Knight,  Chairman  and Chief  Executive
Officer of the company.

The lessee hired Promus Hotels,  Inc.  ("Promus"),  a wholly owned subsidiary of
Hilton Hotels  Corporation  ("Hilton") to manage the company's  hotels under the
terms of a management agreement between Promus and the lessee.


                                      F-47

<PAGE>

RELATIONSHIP WITH LESSEE
The company  must rely on the lessee to generate  sufficient  cash flow from the
operation of the hotels to enable the lessee to meet its rent  obligation to the
company  under the master  hotel  lease  agreements  ("Percentage  Leases").  At
December  31,  1999,  the  lessee's  rent  payable to the  company  amounted  to
$2,123,136.  The original terms under the  Percentage  Leases allow monthly base
rent to be paid in  arrears  and  quarterly  percentage  rent to be paid 15 days
following the quarter-end.

REFINANCING
The  company has $68.6  million in notes  payable  with  Hilton  with  principal
payments of $34 million due on October 1, 2000, $30.2 million due on November 1,
2000 and $4.4  million due on January 1, 2001.  The  company  plans to pay these
notes with the proceeds from its continuous  "best  efforts"  offering of common
shares.  However,  based on the current  rate at which equity is being raised by
the offering,  the company may have to seek other measures to repay these loans.
The company is currently  holding  discussions  with  several  lenders to obtain
financing for its hotels and is exploring both  unsecured and secured  financing
arrangements.  Although no firm financing  commitments  have been received,  the
company  believes  that  based on  discussions  with  lenders  and other  market
indicators it can obtain  sufficient  financing  prior to maturity of the notes.
Obtaining  refinancing  is dependent  upon a number of factors,  including:  (1)
continued  operation  of the hotels at or near current  occupancy  and room rate
levels as the company's  leases are based on a percentage of hotel suite income,
(2) general level of interest  rates  including  credit  spreads for real estate
based  lending,  and (3)  general  economic  conditions.  For each of the  notes
payable, all of the Company's 11 hotels serve as collateral.

CASH AND CASH EQUIVALENTS
Cash equivalents  include highly liquid investments with original  maturities of
three  months  or less.  The  fair  market  value  of cash and cash  equivalents
approximate their carrying value.

RESTRICTED CASH
Restricted cash consists of cash restricted for property improvements.

INVESTMENT IN HOTELS
The hotels are stated at cost,  net of  depreciation,  and including real estate
brokerage  commissions paid to Apple Suites Realty Group,  Inc., a related party
(see Note 6).  Repair and  maintenance  costs are  expensed  as  incurred  while
significant  improvements,   renovations,   and  replacements  are  capitalized.
Depreciation is computed using the  straight-line  method over estimated  useful
lives of the assets, which are 39 years for buildings and major improvements and
5 to 7 years for furniture and equipment.

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


                                      F-48

<PAGE>

REVENUE RECOGNITION
Lease  revenue is  reported as income over the lease term as it becomes due from
the lessee  according to the provisions of the Percentage Lease  agreements.  At
December 31, 1999, the lessee is in compliance with its rental obligations under
the Percentage Leases.

STOCK INCENTIVE PLANS
The  company  elected to follow  Accounting  Principles  Board  Opinion  No. 25,
"Accounting for Stock Issued to Employees" (APB 25) and related  Interpretations
in  accounting  for its  employee  stock  options.  As  discussed in Note 5, the
alternative  fair value  accounting  provided for under FASB  Statement No. 123,
"Accounting  for  Stock-Based  Compensation,"  (FASB 123) requires use of option
valuation  models  that were not  developed  for use in valuing  employee  stock
options.  Under APB 25,  because the exercise  price of the  company's  employee
stock  options  equals the market price of the  underlying  stock on the date of
grant, no compensation expense is recognized.

EARNINGS PER COMMON SHARE
Basic  earnings  per common share is computed  based upon the  weighted  average
number of shares  outstanding  during the year.  Diluted  earnings  per share is
calculated after giving effect to all potential common shares that were dilutive
and  outstanding  for the year.  Class B Convertible  Shares are not included in
earnings per common share  calculations until such time it becomes probable that
such shares can be converted to common shares (see Note 4).

FEDERAL INCOME TAXES
The  company  is  operated  as, and will  annually  elect to be taxed as, a real
estate investment trust under the Internal Revenue Code of 1986, as amended (the
"Code").  Generally,  a real estate  investment  trust which  complies  with the
provisions of the Code and distributes at least 95% of its taxable income to its
shareholders  does  not pay  federal  income  taxes on its  distributed  income.
Accordingly, no provision has been made for federal income taxes.

For federal income tax purposes,  distributions paid to shareholders  consist of
ordinary  income and return of capital or a combination  thereof.  Distributions
declared per share were $.33 for the period ended December 31, 1999. In 1999, of
the total  distribution,  68% was  taxable  as  ordinary  income,  and 32% was a
non-taxable return of capital.

USE OF ESTIMATES
The preparation of financial statements in accordance with accounting principles
generally  accepted in the United  States  requires  management  to make certain
estimates  and  assumptions  that  affect  amounts  reported  in  the  financial
statements  and  accompanying  notes.  Actual  results  may  differ  from  those
estimates.

COMPREHENSIVE INCOME
The company does not currently have any items of comprehensive  income requiring
separate reporting and disclosure.


                                      F-49

<PAGE>

NOTE 2
INVESTMENT IN HOTELS

At December 31, 1999,  the company  owned the  following  Homewood  Suites(R) by
Hilton:

<TABLE>
<CAPTION>

                                     Acquisition         Carrying           Accumulated        First Mortgage            Date
            Location                    Cost              Value*            Depreciation        Encumbrances           Acquired
---------------------------------- --------------- ----------------- ----------------- --------------------- -------------------
<S>                                <C>             <C>               <C>                <C>                  <C>
Dallas/Addison, Texas                 $ 9,500,000       $ 9,780,937          $ 70,349           $ 7,141,500  September 1999
Dallas/Las Colinas, Texas              11,200,000        11,555,748            80,052             8,383,500  September 1999
Dallas/Plano, Texas                     5,400,000         5,558,623            46,204             4,050,000  September 1999
Richmond, Virginia                      9,400,000         9,667,166            80,046             7,050,000  September 1999
Atlanta/Cumberland, Georgia             9,800,000        10,199,600            55,013             7,350,000  October 1999
Baltimore, Maryland                    16,348,000        16,857,511            65,349            12,261,000  November 1999
Clearwater, Florida                    10,416,000        10,712,279            34,082             7,812,000  November 1999
Detroit, Michigan                       4,330,000         4,466,485            17,209             3,247,500  November 1999
Atlanta/Peachtree, Georgia              4,033,000         4,137,785            13,728             3,024,750  November 1999
Salt Lake City, Utah                    5,153,000         5,314,389            21,546             3,864,750  November 1999
Jackson, Mississippi                    5,846,000         5,965,318            12,631             4,384,500  December 1999
                                   --------------- ----------------- ----------------- --------------------- -------------------
                                      $91,426,000       $94,215,841          $496,209           $68,569,500
                                   --------------- ----------------- ----------------- --------------------- -------------------
</TABLE>

* Includes real estate commissions (see Note 6), closing costs, and improvements
capitalized since the date of acquisition for hotels acquired to date.

Investment in hotels at December 31, 1999 consist of the following:

<TABLE>
<CAPTION>
<S>                                                     <C>
Land                                                    $15,683,084
Building and improvements                                77,165,860
Furniture and equipment                                   1,366,897
------------------------------------------------------- -----------
                                                        $94,215,841
Less accumulated depreciation                              (496,209)
------------------------------------------------------- -----------
Investments in hotels, net                              $93,719,632
------------------------------------------------------- -----------
</TABLE>




                                      F-50

<PAGE>

NOTE 3
NOTES PAYABLE

On April 20, 1999, the company  obtained a line of credit in a principal  amount
of $1 million with a commercial  bank.  The line of credit was guaranteed by Mr.
Knight,  Chairman and Chief  Executive  Officer.  The line required  interest at
LIBOR plus 1.50%.  The principal  balance and all accrued  interest were paid in
full by September 30, 1999.

In  conjunction  with the  purchase  of 11 hotels,  notes were  executed  by the
company  made payable to the order of Hilton in the amount of  $68,569,500.  The
notes bear a fixed interest rate of 8.5% per annum and are  cross-collateralized
by the 11 hotels owned by the company.  Interest payments are due monthly. Notes
amounting  to  $64,185,000  mature  during the fourth  quarter of 2000,  and the
remaining  $4,384,500 note matures in January 2001. Principal payments are to be
made to the extent of net equity  proceeds  from the offering of common  shares.
Hilton has agreed to defer  principal  payments  until the  earlier of April 29,
2000 or such time as two  additional  hotels have been purchased by the company.
The company paid  $550,147 in interest  for the period ended  December 31, 1999.
The company's  borrowings  were  $68,569,500  at December 31, 1999. The carrying
value of the notes at December 31, 1999 approximates fair value.

NOTE 4
SHAREHOLDERS' EQUITY

The  company is raising  equity  capital  through a  "best-efforts"  offering of
shares by David Lerner  Associates,  Inc. (the  "Managing  Dealer"),  which will
receive selling  commissions of 7.5% and a marketing  expense  allowance of 2.5%
based on proceeds of the shares sold.  The company  received  gross  proceeds of
$32,627,476  from the sale of  1,666,667  shares at $9 per  share and  1,762,747
shares at $10 per share during 1999.  The net  proceeds of the  offering,  after
deducting selling commissions and other offering costs were $28,591,260.

The company provides a plan which allows shareholders to reinvest  distributions
in the purchase of additional shares of the company ("Additional Share Option").
Of the total  proceeds  raised from common shares during the year ended December
31,  1999,  $92,940  (net  $83,646) was  provided  through the  reinvestment  of
distributions.

The company  issued  240,000 Class B Convertible  Shares,  consisting of 202,500
shares to Mr. Knight,  and a combined  37,500 Class B Convertible  Shares to two
other  individuals.  The Class B  Convertible  Shares were issued by the company
before the initial closing of the minimum  offering of $15,000,000,  in exchange
for payment of $.10 per Class B Convertible  Share,  or an aggregate of $24,000.
There  will be no  dividend  payable  on the  Class  B  Convertible  Shares.  On
liquidation of the company,  the holders of the Class B Convertible  Shares will
be entitled to a liquidation  payment of $.10 per share before any distributions
of liquidation  proceeds to holders of the common  shares.  Holders of more than
two-thirds of the Class B Convertible Shares must approve any proposed amendment
to the  Articles  of  Incorporation  that  would  adversely  affect  the Class B
Convertible  Shares  or create a new  class of stock  senior  to, or on a parity
with, the Class B Convertible  Shares. The Class B Convertible Shares may not be
redeemed by the company.

Each holder of  outstanding  Class B Convertible  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


                                      F-51

<PAGE>

of  either of the  following  conversion  events:  (1) the sale or  transfer  of
substantially  all of the company's assets,  stock or business,  whether through
sale, exchange,  merger,  consolidation,  lease, share exchange or otherwise, or
(2) the termination or expiration without renewal of the Advisory Agreement with
Apple  Suites  Advisors,  Inc.,  and if the company  ceases to use Apple  Suites
Realty Group, Inc. to provide  substantially all of its property acquisition and
disposition services.

Upon the occurrence of either  conversion event, each of the Class B Convertible
Shares  may be  converted  into a number of common  shares  based upon the gross
proceeds  raised  through  the date of  conversion  in the  public  offering  or
offerings  of the  company's  common  shares  made by the  company's  prospectus
according to the following formula:

<TABLE>
<CAPTION>
                                                        Number of Common Shares through Conversion of Each
Gross Proceeds Raised from Sales of Common Shares       Class B Convertible Share (the initial "Conversion
through Date of Conversion                              Ratio")
------------------------------------------------------- -----------------------------------------------------
<S>                                                     <C>
         $ 50 million                                                           1.0
         $100 million                                                           2.0
         $150 million                                                           3.5
         $200 million                                                           5.3
         $250 million                                                           6.7
         $300 million                                                           8.0
</TABLE>

No  additional  consideration  is  due  upon  the  conversion  of  the  Class  B
Convertible  Shares.  Upon the probable  occurrence of a conversion  event,  the
company will record expense for the  difference  between the market value of the
company's common stock and issue price of the Class B Convertible Shares.

The Company has authorized 15 million shares of preferred  stock.  There were no
shares issued and outstanding at December 31, 1999.

NOTE 5
STOCK INCENTIVE PLANS

In July 1999,  the Board of Directors  approved a Non-Employee  Directors  Stock
Option Plan (the "Directors Plan") whereby  Directors,  who are not employees of
the  company  or  affiliates  (see Note 6),  automatically  receive  options  to
purchase  stock for 10 years from the adoption of the plan.  Under the Directors
Plan,  the  number of  shares  to be issued is equal to 45,000  plus 1.8% of the
number of shares sold in excess of 1,666,667. This plan currently relates to the
initial public  offering of 30,166,667  shares;  therefore the maximum number of
shares to be issued under the Directors Plan  currently is 558,000.  The options
expire ten years from the date of grant.  As of December  31,  1999,  76,729 had
been reserved for issuance.

In July 1999,  the Board of Directors  approved an  Incentive  Stock Option Plan
(the  "Incentive  Plan")  whereby  incentive  awards  may be  granted to certain
employees of the company or affiliates.  Under the Incentive Plan, the number of
shares to be issued is equal to 35,000  plus 4.625% of the number of shares sold
in excess of 1,666,667.  This plan also currently  relates to the initial public
offering of 30,166,667 shares;  therefore, the maximum number of shares that can
be issued under the Incentive  Plan  currently is 1,353,125.  As of December 31,
1999, 116,527 shares had been reserved for issuance.


                                      F-52

<PAGE>


Both plans  generally  provide,  among other things,  that options be granted at
exercise  prices not lower  than the  market  value of the shares on the date of
grant. Under the Incentive Plan, at the earliest,  options become exercisable at
the date of grant.  The  optionee  has up to 10 years from the date on which the
options first become exercisable during which to exercise the options.  In 1999,
the company  granted 22,000 options to purchase  shares under the Directors Plan
and no options under the Incentive Plan.  Activity in the company's share option
plan during 1999 is summarized in the following table:

<TABLE>
<CAPTION>
                                                                                   1999
                                              --------------------------- -----------------------------------
                                                       Options             Weighted-Average Exercise Price
--------------------------------------------- --------------------------- -----------------------------------
<S>                                           <C>                         <C>
Outstanding, beginning of period                                      --                                  --
Granted                                                           22,000                               $9.00
Exercised                                                             --                                  --
Forfeited                                                             --                                  --
--------------------------------------------- --------------------------- -----------------------------------
Outstanding, end of year                                          22,000                               $9.00
Exercisable at end of year                                        22,000                               $9.00
--------------------------------------------- --------------------------- -----------------------------------
Weighted-average fair value of options
granted during the year                                                                                $ .31
--------------------------------------------- --------------------------- -----------------------------------
</TABLE>

Pro forma information regarding net income and earnings per share is required by
FASB 123,  under the fair value  method  described in that  statement.  The fair
value for these options was estimated at the date of grant using a Black-Scholes
option pricing model with the following  weighted-average  assumptions for 1999:
risk-free  interest  rates of 5.6%; a dividend  yield of 10.0%;  and  volatility
factor of the expected market price of the company's common stock of .208; and a
weighted average expected life of the options of 10 years.

The Black-Scholes option valuation model was developed for use in estimating the
fair value of traded  options which have no vesting  restrictions  and are fully
transferable.  In addition,  option valuation models require the input of highly
subjective assumptions including the expected stock price volatility.

For purposes of FASB 123 pro forma disclosures,  the estimated fair value of the
options is amortized to expense over the options' vesting period. As the options
are exercisable  within six months of the date of grant,  the full impact of the
pro forma adjustment to net income is disclosed below.


                                      F-53

<PAGE>

<TABLE>
<CAPTION>
                                                          1999
                                                        --------
<S>                                                     <C>
Net income available
to common shareholders

Pro forma                                               $358,645

As reported                                             $365,465

Earnings per common share-diluted
Pro forma                                               $.14
As reported                                             $.14
</TABLE>


NOTE 6
COMMITMENTS AND RELATED PARTIES

The company  receives rental income from the lessee under the Percentage  Leases
which expire in 2009 subject to earlier  termination by the company with 30 days
notice. The Leases contain two optional five-year extensions. The rent due under
the  Percentage  Lease is the sum of base rent and percentage  rent.  Percentage
rent is  calculated by  multiplying  fixed  percentages  by the total amounts of
suite revenues with reference to specified threshold amounts. Both the base rent
and the revenue  thresholds  used in computing  percentage  rents are subject to
annual  adjustments based on increases in the Consumer Price Index ("CPI").  The
company earned rents of $2,518,031 for the period ended December 31, 1999.

Minimum future rental income (i.e.  base rents) payable to the company under the
Percentage Leases in effect at December 31, 1999 are as follows:

<TABLE>
<CAPTION>
<S>                                                     <C>
2000                                                    $ 6,583,400
2001                                                      6,583,400
2002                                                      6,583,400
2003                                                      6,583,400
2004                                                      6,583,400
Thereafter                                               31,564,507
                                                        -----------
                                                        $64,481,507
                                                        -----------
</TABLE>

Under the Percentage  Leases,  the company is obligated to pay the costs of real
estate  and  personal  property  taxes,   property  insurance,   maintenance  of
underground  utilities  and  structural  elements of the hotels.  The company is
committed  under certain  agreements to fund 5% of suite  revenues per month for
capital  expenditures  to  include  periodic  replacement  or  refurbishment  of
furniture,  fixtures, and equipment.  At December 31, 1999, $753,927 was held by
Promus for capital  improvement  reserves.  In addition in  accordance  with the
franchise agreements, $1,023,721 was held for the property improvement plan with
a financial institution and treated as restricted cash.


                                      F-54

<PAGE>

The company loaned the lessee $567,900 for franchise fees and $121,800 for hotel
supplies for the 11 hotels.  The debt  agreements  are  evidenced by  promissory
notes  bearing  interest  at a rate  of 9% per  annum.  Principal  and  interest
payments are due monthly.  The  promissory  notes have  various  maturity  dates
through January 2010.

The company has  contracted  with Apple Suites  Realty Group,  Inc.  ("ASRG") to
acquire and dispose of real estate assets for the company.  In  accordance  with
the  contract  ASRG  is to be  paid  a fee of 2% of the  purchase  price  of any
acquisitions  or sale  price of any  dispositions  of real  estate  investments,
subject to certain  conditions.  During 1999, ASRG earned  $1,828,520  under the
agreement of which $849,628 was payable at December 31, 1999.

The company has contracted with Apple Suites  Advisors,  Inc.  ("ASA") to advise
and provide day to day management  services to the company.  In accordance  with
the  contract,  the  company  will  pay ASA a fee  equal to .1% to .25% of total
equity contributions received by the company in addition to certain reimbursable
expenses.  During 1999, ASA earned $23,574 under this agreement of which $18,513
was payable at December 31, 1999.

The lessee, ASRG and ASA are 100% owned by Mr. Knight. ASRG and ASA may purchase
in the "best  efforts"  offering up to 2.5% of the total number of shares of the
company sold in the "best efforts" offering.

Mr.  Knight  also  serves  as  the  Chairman  and  Chief  Executive  Officer  of
Cornerstone   Realty  Income  Trust,  Inc.,  an  apartment  REIT.  During  1999,
Cornerstone  Realty  Income Trust,  Inc.  provided the company with services and
rental space and was paid approximately $55,000.

NOTE 7
WARRANTS

The company has agreed to sell to the Managing  Dealer for an aggregate of $100,
warrants (the  "warrants")  to purchase 10% of the shares sold in this offering,
up to 3,000,000  common shares,  at an exercise price of $16.50 per common share
(165% of the public  offering price per common  share).  The Warrants may not be
sold,  transferred,  assigned  or  hypothecated  for one  year  from the date of
issuance,  except to the officers and  employees of the Managing  Dealer and are
exercisable  at any time and from time to time, in whole or in part,  during the
five-year  period  commencing  on  the  date  of the  final  closing  after  the
termination  of the offering (the  "Warrant  Exercise  Term").  At the company's
expense,  the  company  may be  required  to  register  the  Warrants  under the
Securities Act during the Warrant Exercise Term.


                                      F-55

<PAGE>

NOTE 8
EARNINGS PER SHARE

The following table sets forth the computation of basic and diluted earnings per
share:

<TABLE>
<CAPTION>
<S>                                                  <C>
Year Ended December 31, 1999
NUMERATOR:

         Net income and numerator for
         basic and diluted earnings                  $  365,465
DENOMINATOR:

         Denominator for basic earnings per
         share-weighted-average shares                2,648,196
EFFECT OF DILUTIVE SECURITIES:
         Stock options                                    2,200
---------------------------------------------------------------
         Denominator for diluted earnings
         per share-adjusted weighted-
         average shares and assumed conversions       2,650,396
---------------------------------------------------------------
         Basic and diluted earnings per
          common share                               $      .14
---------------------------------------------------------------
</TABLE>

NOTE 9
LESSEE

All of the company's  lease revenue is derived from the  Percentage  Leases with
the lessee.  Certain information,  related to the lessee's financial statements,
is as follows:

<TABLE>
<CAPTION>
<S>                                                      <C>
As of December 31,1999
-------------------------------------------------------------------
BALANCE SHEET INFORMATION:
         Cash and cash equivalents                       $2,395,000
         Total assets                                     3,826,155
         Due to Apple Suites, Inc.                        2,123,136
         Shareholders' Deficit                             (141,004)
</TABLE>

<TABLE>
<CAPTION>
<S>                                                      <C>
For the period September 1 through December 31,1999
-------------------------------------------------------------------
STATEMENT OF OPERATIONS INFORMATION:
         Total revenue                                   $5,671,075
         Rent expense-Apple Suites, Inc.                  2,518,031
         Total expenses                                   5,812,179
         Net loss                                         (141,104)
</TABLE>

At  December  31,  1999,  the  company  owned 11 hotels  operating  as  Homewood
Suites(R) by Hilton. The hotels operate pursuant to franchise license agreements
which  require the payment of fees based on a  percentage  of suite  revenue and
sundry revenue. These fees are paid by the lessee.


                                      F-56

<PAGE>

The lessee engages Promus as a third-party  manager to operate the hotels leased
by it and pays the manager a 4% management fee based on a percentage of adjusted
gross revenue. During the first two years of the management agreement, a portion
of the management fee equal to 1% of adjusted gross revenues is  subordinated to
the  lessee's  receipt of a return  equal to 11% of the  purchase  price of each
hotel. The lessee pays the manager a franchise fee and a marketing fee, equal to
4% of gross revenues, respectively.

NOTE 10
QUARTERLY AND FINANCIAL DATA (UNAUDITED)

The following is a summary of quarterly results of operations for the year ended
December 31, 1999:

<TABLE>
<CAPTION>
1999                                                      Third Quarter*                      Fourth Quarter
------------------------------------- ----------------------------------- -----------------------------------
<S>                                                             <C>                               <C>
Revenues                                                        $481,676                          $2,205,441
Net income                                                        38,708                             326,757
Basic and diluted                                                    .02                                 .12
Distributions declared per share                                      --                                 .33
</TABLE>
* Operations commenced on September 1, 1999.

NOTE 11
PRO FORMA INFORMATION (UNAUDITED)

The following  unaudited pro forma information for the period ended December 31,
1999 is presented as if the  acquisition of the 11 hotels occurred on January 1,
1999. The pro forma information does not purport to represent what the company's
results of operations would actually have been if such transaction, in fact, had
occurred  on January 1, 1999,  nor does it purport to  represent  the results of
operations for future periods.

<TABLE>
<CAPTION>
                                                                                Twelve months ended 12/31/99
-------------------------------------------------------------------------------------------------------------
<S>                                                                                              <C>
Lease revenue                                                                                    $14,102,040
Net income                                                                                       $ 3,828,096
Net income per share-basic and diluted                                                           $      1.31
</TABLE>

The pro forma  information  reflects  adjustments  for actual lease  revenue and
expenses  of the 11 hotels  acquired in 1999 for the  respective  period in 1999
prior to  acquisition  by the company.  Net income has been adjusted as follows:
(1)  depreciation  has been adjusted based on the company's basis in the hotels;
(2) advisory  expenses  have been adjusted  based on the  company's  contractual
arrangements;  (3) interest expense has been adjusted to reflect the acquisition
as of January 1, 1999; and (4) common stock raised during 1999 to purchase these
hotels has been adjusted to reflect issuance as of January 1, 1999.


                                      F-57

<PAGE>

NOTE 12

SUBSEQUENT EVENTS

During January and February of 2000, the company closed the sale to investors of
335,487  shares at $10 per share  representing  net  proceeds  to the company of
$3,019,377.

The company has entered into  contracts to purchase two  additional  hotels from
Hilton on or before April 28, 2000 for a total  purchase price of $30.4 million.
The  purchase  is  subject  to a number  of  customary  closing  conditions.  In
addition,  the ability of the company to purchase the hotels is contingent  upon
its obtaining  sufficient  funds,  either through the sale of sufficient  common
shares  under  the  company's  "best  efforts"  offering  or  through  alternate
financing  sources.  Therefore,  there  can be no  assurance  that the  proposed
purchase will occur as scheduled,  or at all.  There is a required  deposit with
Hilton of $400,000 against the aggregate purchase price. If the company does not
complete the purchase, it could lose the monies deposited.

                                      F-58

<PAGE>

SCHEDULE  III REAL  ESTATE AND  ACCUMULATED  DEPRECIATION  (AS OF  DECEMBER  31,
1999)-APPLE SUITES, INC.

<TABLE>
<CAPTION>
<S>                 <C>           <C>           <C>             <C>          <C>           <C>          <C>
1. Addison,         $7,141,500    $2,090,000    $7,410,000      $280,937     $2,117,035    $7,663,902    $9,780,937
Texas

2. Las Colinas,      8,383,500     2,800,000     8,400,000       355,748      2,835,140     8,720,608    11,555,748
Texas

3. Plano,            4,050,000       594,000     4,806,000       158,623        600,481     4,958,142     5,558,623
Texas

4. Richmond,         7,050,000       846,000     8,554,000       267,166        858,975     8,808,191     9,667,166
Virginia

5. Atlanta,          7,350,000     2,254,000     7,546,000       399,600      2,282,915     7,916,685    10,199,600
Georgia
(Galleria)

6. Baltimore,       12,261,000     1,634,800    14,713,200       509,511      1,671,050    15,186,461    16,857,511
Maryland

7. Clearwater,       7,812,000     2,395,680     8,020,320       296,279      2,853,277     7,859,002    10,712,279
Florida

8. Detroit,          3,247,500       412,240     3,917,760       136,485        526,858     3,939,627     4,466,485
Michigan

9. Atlanta,          3,024,750       519,600     3,513,400       104,785      1,051,850     3,085,935     4,137,785
Georgia
(Peachtree)

10. Salt Lake        3,864,750     1,048,580     4,104,420       161,389        415,557     4,898,832     5,314,389
City, Utah

11. Jackson,         4,384,500       467,680     5,378,320       119,318        469,946     5,495,372     5,965,318
Mississippi

          TOTALS   $68,569,500   $15,062,580   $76,363,420    $2,789,840    $15,683,084   $78,532,757   $94,215,841   (1)
====================================================================================================================
<CAPTION>
<S>                    <C>        <C>          <C>         <C>
1. Addison,            $70,349     1990        Sept 1999    39 yrs.
Texas

2. Las Colinas,         80,052     1990        Sept 1999    39 yrs.
Texas

3. Plano,               46,204     1997        Sept 1999    39 yrs.
Texas

4. Richmond,            80,046     1998        Sept 1999    39 yrs.
Virginia

5. Atlanta,             55,013     1990        Oct 1999     39 yrs.
Georgia
(Galleria)

6. Baltimore,           65,349     1998        Nov 1999     39 yrs.
Maryland

7. Clearwater,          34,082     1998        Nov 1999     39 yrs.
Florida

8. Detroit,             17,209     1990        Nov 1999     39 yrs.
Michigan

9. Atlanta,             13,728     1990        Nov 1999     39 yrs.
Georgia
(Peachtree)

10. Salt Lake           21,546     1996        Nov 1999     39 yrs.
City, Utah

11. Jackson,            12,631     1997        Dec 1999     39 yrs.
Mississippi

          TOTALS      $496,209
===============================
</TABLE>

(1) Represents the aggregate cost for federal income tax purposes.

(2) The  reconciliation  of  the  carrying  amount  of real  estate  owned is as
follows:

CARRYING VALUE:
    Beginning balance                                 $        --
    Acquisition of hotel properties                    91,426,000
    Subsequent costs capitalized                        2,789,841
                                                       ----------
    Balance at December 31, 1999                      $94,215,841
                                                      ===========

                                      F-59

<PAGE>

                          Independent Auditor's Report

The Management
Apple Suites Management, Inc.

We have  audited the  accompanying  consolidated  balance  sheet of Apple Suites
Management,  Inc.  (the  "Company")  as of December  31,  1999,  and the related
consolidated  statements of operations  and retained  deficit and cash flows for
the period from March 11, 1999 (date of  inception)  through  December 31, 1999.
These financial  statements are the responsibility of the Company's  management.
Our responsibility is to express an opinion on these financial  statements based
on our audit.

We conducted our audit in accordance with auditing standards  generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable  assurance about whether the financial  statements are free
of material  misstatement.  An audit also includes  examining,  on a test basis,
evidence supporting the amounts and disclosures in the financial statements.  An
audit also includes  assessing the accounting  principles  used and  significant
estimate  made by  management,  as  well as  evaluating  the  overall  financial
statement  presentation.  We believe that our audit provides a reasonable  basis
for our opinion.

In our opinion, the consolidated  financial statements referred to above present
fairly, in all material respects,  the consolidated  financial position of Apple
Suites  Management,  Inc. at December 31, 1999, and the consolidated  results of
its  operations  and its cash flows for the period  from March 11, 1999 (date of
inception)  through December 31, 1999, in conformity with accounting  principles
generally accepted in the United States.

                                                     /s/ Ernst & Young LLP

Richmond, Virginia
February 28, 2000


                                      F-60

<PAGE>

                          APPLE SUITES MANAGEMENT, INC.
                           CONSOLIDATED BALANCE SHEET

<TABLE>
<CAPTION>

AS OF DECEMBER 31,                                                                      1999
----------------------------------------------------------------------------------------------------
<S>                                                                                      <C>
Current assets

Cash and cash equivalents                                                                $2,395,000
Net receivables                                                                             738,361
Inventories                                                                                 121,801
Other assets                                                                                  8,142
                                                                                 -------------------

     Total current assets                                                                 3,263,304

Deferred  franchise fees                                                                    562,851
                                                                                 -------------------

Total assets                                                                             $3,826,155
                                                                                 ===================

Liabilities and Shareholders' Deficit

Current liabilities

Accounts payable                                                                            $48,586
Rent payable to Apple Suites, Inc.                                                        2,123,136
Due to third party manager                                                                  454,147
Due to Apple Suites, Inc.                                                                    28,991
Accrued expenses                                                                            624,346
Current portion of long-term notes payable to Apple Suites, Inc.                             56,939
                                                                                 -------------------

     Total current liabilities                                                            3,336,145

Long-term notes payable to Apple Suites, Inc.                                               631,014
                                                                                 -------------------

Total liabilities                                                                         3,967,159

Shareholders' deficit

Common stock, no par value,  5,000 authorized;
  10 shares issued and outstanding                                                              100
Retained deficit                                                                           (141,104)
                                                                                 -------------------

Total shareholders' deficit                                                                (141,004)
                                                                                 -------------------

Total Liabilities and Shareholders' Deficit                                              $3,826,155
                                                                                 ===================
</TABLE>
See accompanying notes to consolidated financial statements.


                                      F-61
<PAGE>

                          APPLE SUITES MANAGEMENT, INC.
            CONSOLIDATED STATEMENT OF OPERATIONS AND RETAINED DEFICIT

<TABLE>
<CAPTION>
                                                           FOR THE PERIOD
                                                            MARCH 11, 1999
                                                               THROUGH
                                                         DECEMBER 31, 1999(a)
                                                    ----------------------------
<S>                                                                   <C>

REVENUE

Suite revenue                                                         $5,335,925
Other revenue and interest income                                        335,150
                                                    -----------------------------

   Total revenue                                                       5,671,075

EXPENSES

Rent expense-Apple Suites, Inc.                                        2,518,031
Operating expense                                                      1,656,540
General and administrative                                               494,377
Advertising and promotion                                                472,787
Utilities                                                                199,907
Franchise fees                                                           213,437
Management fees                                                          226,136
Other                                                                     30,964
                                                    -----------------------------

   Total expenses                                                      5,812,179

Loss before income taxes                                                (141,104)

Income tax benefit                                                            --
                                                    -----------------------------

Net loss                                                               $(141,104)

Retained deficit, beginning of period                                         --
                                                    -----------------------------

Retained deficit, end of period                                        $(141,104)
                                                    =============================

</TABLE>

(a)  The Lessee commenced operations on September 1, 1999.

See accompanying notes to consolidated financial statements.


                                      F-62

<PAGE>

                          APPLE SUITES MANAGEMENT, INC.
                      CONSOLIDATED STATEMENT OF CASH FLOWS

<TABLE>
<CAPTION>

                                                                          FOR THE PERIOD
                                                                          MARCH 11, 1999
                                                                             THROUGH
                                                                       DECEMBER 31, 1999(a)
                                                                    --------------------------

<S>                                                                                 <C>
Cash flow from operating activities:

Net loss                                                                            $(141,104)

Adjustment to reconcile net loss to net cash
  provided by operating activities

       Amortization of deferred franchise fees                                           5,049

Changes in operating assets and liabilities:

       Receivables                                                                   (738,361)
       Other assets                                                                    (8,142)
       Due to Apple Suites, Inc.                                                        28,991
       Rent payable to  Apple Suites, Inc.                                           2,123,136
       Accounts payable                                                                 48,586
       Due to third party manager                                                      454,147
       Accrued expenses                                                                624,346
                                                                    ---------------------------

                              Net cash provided by operating activities              2,396,648

Cash flow from financing activities:

       Repayments of notes payable                                                      (1,748)
       Proceeds from sale of common stock                                                  100
                                                                    ---------------------------

                              Net cash used in financing activities                     (1,648)

                              Increase in cash and cash equivalents                  2,395,000

Cash and cash equivalents, beginning of period                                              --
                                                                    ---------------------------

Cash and cash equivalents, end of period                                            $2,395,000
                                                                    ===========================

Supplemental Cash Flow Information:

Non-cash transactions:
Notes payables-issued by Apple Suites, Inc.                                          $ 689,701
Payment of deferred franchise fees                                                   $ 567,900
Acquisition of inventory                                                             $ 121,801

(a)  The Lessee commenced operations on September 1, 1999.

See accompanying notes to consolidated financial statements.
</TABLE>


                                      F-63

<PAGE>

APPLE  SUITES MANAGEMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1
GENERAL INFORMATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

ORGANIZATION
Apple Suites Management, Inc. (together with its subsidiaries, the "Lessee") was
formed on March 11, 1999 and is owned 100% by Glade M. Knight.  Mr.  Knight also
serves as the Chairman and CEO of Apple Suites, Inc. (the "Company"). The Lessee
commenced  operations  effective  September  1, 1999 with the  acquisition  of 4
extended-stay hotels by the Company.

The Lessee operates in one business segment. Each hotel is leased by the Company
to the Lessee under a master hotel lease agreement  ("Percentage  Lease") having
an initial term of ten years,  subject to earlier  termination  at the option of
the Company upon 30 day notice.  The lease  agreement  provides for two optional
five year  extensions.  The  Percentage  Leases require base rent payments to be
made to the Company on a monthly basis and additional  quarterly  payments to be
made based upon percentages of suite and sundry revenue.  Promus Hotels, Inc. or
an affiliate ("Promus") manages the hotels under a management agreement with the
Lessee.  Promus  Hotels,  Inc.  is a  wholly-owned  subsidiary  of Hilton  Hotel
Corporation ("Hilton").  The hotels are located throughout the United States and
are licensed with Homewood Suites(R) by Hilton.

The accompanying financial statements include the accounts of the Lessee and its
subsidiaries.  All significant intercompany transactions have been eliminated in
consolidation.

CASH AND CASH EQUIVALENTS
Cash equivalents  include highly liquid investments with original  maturities of
three  months  or less.  The  fair  market  value  of cash and cash  equivalents
approximate their carrying value.

INVENTORIES
Inventories,  consisting  primarily of food and beverages and hotel supplies are
stated at the lower of cost or market,  with cost  determined  on a method  that
approximates the first-in, first-out basis.

REVENUE RECOGNITION
Revenue is  recognized  as earned,  which is generally  defined as the date upon
which a guest occupies a room or utilizes the hotel's services.

OTHER REVENUE
Other  revenue  consists  of  revenues  derived  from  hotel  services  such  as
telephone,  TV, valet and vending machines. These sundry revenues are recognized
in the period the related services are provided.

ADVERTISING AND PROMOTION COSTS
Advertising  and promotion  costs are expensed when  incurred.  Advertising  and
promotion costs represent the expense for franchise  advertising and reservation
systems  under the terms of the  hotel  franchise  agreements  and  general  and
administrative  expenses  that are  directly  attributable  to  advertising  and
promotion.


                                      F-64

<PAGE>


DEFERRED FRANCHISE FEES
Deferred franchise fees represent the costs incurred in connection with entering
into hotel license agreements, which have a term of 20 years. Deferred franchise
fees are being amortized over the term of the hotel license agreements.

RENT EXPENSE
Rent  expense is  recognized  as incurred by the  Company  under the  Percentage
Leases commencing on the date the lease is executed.  Percentage rent is accrued
prior to the Lessee  achieving the baseline revenue that triggers the percentage
rental expense when achievement of the baseline revenue is considered  probable.
Baseline revenue amounts are determined on a quarterly basis for each hotel.

INCOME TAXES
The Lessee  provides  for income  taxes under the  provisions  of  Statement  of
Financial  Accounting  Standards ("SFAS") No. 109 "Accounting for Income Taxes".
SFAS No. 109 requires an asset and liability  based  approach in accounting  for
income taxes.

COMPREHENSIVE INCOME
The Company does not currently have any items of comprehensive  income requiring
separate reporting and disclosure.

USE OF ESTIMATES
The preparation of financial statements in accordance with accounting principles
generally  accepted in the United  States  requires  management  to make certain
estimates  and  assumptions  that  affect  amounts  reported  in  the  financial
statements  and  accompanying  notes.  Actual  results  may  differ  from  those
estimates.

SEASONALITY
The hotel industry is seasonal in nature. Seasonal variations in revenues at the
hotels under lease may cause quarterly  fluctuations in the Company's  revenues.
Revenues for 1999 primarily  consist of fourth quarter revenues which may not be
indicative of a full year.

NOTE 2
PERCENTAGE LEASES
The  Percentage  Leases expire in 2009,  subject to earlier  termination  by the
Company  upon 30 day notice.  The  Percentage  Leases  provide for two  optional
five-year extensions.  The rent due for each hotel is the sum of a base rent and
a  percentage  rent.  Percentage  rent is  calculated  on a  quarterly  basis by
multiplying  fixed  percentages  by the  total  amounts  of  year-to-date  suite
revenues with reference to specified  threshold  amounts,  known as breakpoints.
Both the base rent and the breakpoints  used in computing  percentage  rents are
subject to annual  adjustments  based on increases  in the Consumer  Price Index
("CPI").

The  Lessee's  future  commitments  to the  Company  for base  rent in effect at
December 31, 1999 are as follows:

                                      F-65
<PAGE>


                  Year                                 Amount
                  ----                                 ------

                  2000                            $ 6,583,400
                  2001                              6,583,400
                  2002                              6,583,400
                  2003                              6,583 400
                  2004                              6,583,400
                  Thereafter                       31,564,507
                                                   ----------
                                                  $64,481,507
                                                  ===========

Base rent is payable to the Company in arrears and percentage rent is payable 15
days following a quarter-end. The Lessee incurred rent expense of $2,518,031 for
the year ended  December 31, 1999 and had rent payable of $2,123,136 at December
31, 1999.

NOTE 3
COMMITMENTS AND RELATED PARTY TRANSACTIONS
On September 17, 1999, the Lessee entered into various debt  agreements with the
Company.  The Lessee  borrowed from the Company  $567,900 for franchise fees and
$121,800  for hotel  supplies.  The  promissory  notes  relating  to these  debt
agreements  bear  interest  at a rate of 9% per annum.  Principal  and  interest
payments  are due  monthly.  The  Lessee  incurred  interest  expense of $10,915
related to the promissory notes and $7,557 was payable at December 31, 1999.

The  aggregate  maturities  of principal  for  promissory  notes  subsequent  to
December 31, 1999 are as follows:

                  Year                                 Amount
                  ----                                 ------

                  2000                               $ 56,939
                  2001                                 62,612
                  2002                                 68,485
                  2003                                 74,909
                  2004                                 79,687
                  Thereafter                          345,321
                                                      -------
                                                     $687,953
                                                     ========

The Lessee has entered into license agreements with Promus to operate the hotels
as Homewood  Suites(R) by Hilton  properties.  These agreements have terms of 20
years and expire in 2019.  These  agreements  require the Lessee to, among other
things,  pay monthly  franchise fees equal to 4% of suite  revenue.  License and
franchise  agreements  contain  specific  standards  for, and  restrictions  and
limitations   on,  the  operation  and  maintenance  of  the  hotels  which  are
established  by  Promus  to  maintain  uniformity  in the  system  for  Homewood
Suites(R) by Hilton.  Such  standards  generally  regulate the appearance of the
hotel,  quality and type of goods and services offered,  signage, and protection
of  marks.  Compliance  with  such  standards  may  from  time to  time  require
significant  expenditures  for capital  improvements  which will be borne by the
Company.  In addition,  the agreements provide that Promus will manage the daily
operations of the hotels and provide advertising and promotion to include access
to the  reservation  system for Homewood  Suites(R)  by Hilton.  The Lessee pays
Promus 4% of monthly  suite revenue for each

                                      F-66

<PAGE>

of these  functions,  respectively.  Total  expenses  incurred by the Lessee for
franchise  fees,  advertising  and promotion  fees, and management  fees totaled
$653,010.

NOTE 4
SHAREHOLDER'S EQUITY
The Lessee  requires or may require funds to capitalize  its business to satisfy
its obligations  under Percentage  Leases with the Company,  dated September 17,
1999. To meet these objectives, the Lessee has two funding commitment agreements
(together  "Payor") of $1 million each from Mr.  Knight and Apple Suites  Realty
Group, Inc.,  ("ASRG"),  respectively.  ASRG is owned by Mr. Knight. The funding
commitments  are  contractual  obligations  of the Payor to provide funds to the
Lessee. Funds paid to the Lessee under the commitments are to be used to satisfy
any  capitalization  or net worth  requirements  applicable to the Lessee or the
Lessee's payment  obligations  under the lease agreements and does not represent
any indebtedness.  The funding commitments  terminate upon the expiration of the
Percentage  Leases,  written  agreement  between  the Payor and the  Lessee,  or
repayment of all amounts to the Payor. As of December 31, 1999, no contributions
have been made by the Payor to the Lessee.

NOTE 5
INCOME TAXES
The Lessee is subject to federal and state income taxes.  The Lessee  incurred a
loss during the period and as such has no income tax  liability  at December 31,
1999. No deferred income tax asset has been recorded in the consolidated balance
sheet since  realization  is  uncertain.  At December 31,  1999,  the Lessee has
$110,000 of net operating loss carryforwards which expire in 2020.

NOTE 6
CREDIT RISK
The Lessee maintains cash on deposit with Promus in a pooled investment  account
that  potentially  subjects the Lessee to a  concentration  of credit  risk.  At
December 31, 1999 the Lessee has $1,107,399 on deposit with Promus.


                                      F-67
<PAGE>

                               APPLE SUITES, INC.
            PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
                FOR THE YEAR ENDED DECEMBER 31, 1999 (UNAUDITED)

         The following unaudited Pro Forma Condensed  Consolidated  Statement of
Operations  of Apple  Suites,  Inc.  (the  "Company")  are  presented  as if the
acquisition  and leasing of the eleven  extended-stay  hotels by the Company had
occurred at the beginning of the period presented. The seller was Promus Hotels,
Inc., or an  affiliate.  Promus  Hotels,  Inc. is a  wholly-owned  subsidiary of
Hilton Hotel Corporation ("Hilton"). The hotels have been leased to Apple Suites
Management, Inc. or its subsidiary (the "Lessee") pursuant to master hotel lease
agreements.  Such pro forma  information is based in part upon the  Consolidated
Statement of Operations of the Company, the Pro Forma Statement of Operations of
the Lessee and the historical  Statements of Operations of the acquired  hotels.
In management's  opinion,  all  adjustments  necessary to reflect the effects of
these transactions have been made.

         The following unaudited Pro Forma Condensed  Consolidated  Statement of
Operations  for the period  presented  are not  necessarily  indicative  of what
actual  results of  operations  of the  Company  would have been  assuming  such
transactions had been completed as of the beginning of the period presented, nor
does it purport to represent the results of operations for future  periods.  The
master hotel lease  agreements  between the Company and the Lessee were based on
economic  conditions  existing at the time of acquisition.  Application of these
agreements to periods prior to the acquisition  may not be meaningful.  The most
significant  assumption which may not be indicative of future  operations is the
amount of financial  leverage  employed.  This Pro Forma Statement assume 75% of
the purchase  price was funded with debt for the entire  period  presented.  The
Company  intends to repay this debt with the  proceeds  from its "best  efforts"
offering.  This repayment of debt would result in lower interest expense, higher
net income, but lower earnings per share.


                                      F-68

<PAGE>

FOR THE YEAR ENDED DECEMBER 31, 1999 (UNAUDITED)

<TABLE>
<CAPTION>
                                                                  Pro Forma Adjustments
                                     ---------------------------------------------------------------------------------
                                                    Homewood          Homewood         Homewood
                                      Historical     Suites            Suites           Suites
                                     Statement of  Acquisition       Acquisition      Acquisition           Total
                                      Operations      (A I)            (A II)           (A III)           Pro Forma
                                     ---------------------------------------------------------------------------------
<S>                                     <C>         <C>               <C>              <C>                <C>
Revenue:
   Percentage lease revenue             $2,518,031  $4,510,834  (B)   $5,932,615 (B)   $1,140,560  (B)    $14,102,040
   Interest income and other income        169,086          --                --               --             169,086

Expenses:
   Taxes and insurance                     426,592     822,599  (C)      647,225 (C)       93,884  (C)      1,990,300
   General and administrative              153,807      82,649  (D)       86,636 (D)       65,659  (D)        388,751
   Depreciation                            496,209     656,623  (E)      821,580 (E)      140,664  (E)      2,115,076
   Interest expense                      1,245,044   1,977,313  (F)    2,353,863 (F)      372,683  (F)      5,948,903
                                     ---------------------------------------------------------------------------------

Total expenses                           2,321,652   3,539,184         3,909,304          672,890          10,443,030
                                     ---------------------------------------------------------------------------------

Net income                              $  365,465  $  971,650        $2,023,311         $467,670         $ 3,828,096
                                     =================================================================================

Earnings per common share:
   Basic and diluted                         $0.14                                                              $1.31
                                     ==============                                                     ==============

Basic and diluted weighted average
common shares outstanding                2,648,196          --  (G)       99,283 (G)      176,360  (G)      2,923,839
                                     ==============                                                     ==============
</TABLE>

Notes to Pro Forma Condensed Consolidated Statements of Operations

(A)  Represents  results of operations  for the eleven hotels  acquired on a pro
forma basis as if the eleven  hotels were owned by the Company at the  beginning
of the period presented.

<TABLE>
<CAPTION>
                                                                Date Commenced                    Date
         Property                                                 Operations                    Acquired
-------------------------------------------------------------------------------------------------------------------
<S>       <C>                                                    <C>                       <C>
I         Homewood Suites - Dallas, TX                               1990                  September 1, 1999
I         Homewood Suites - Las Colinas, TX                          1990                  September 1, 1999
I         Homewood Suites - Plano, TX                                1997                  September 1, 1999
I         Homewood Suites - Richmond. VA                           May 1998                September 1, 1999
I         Homewood Suites - Atlanta, GA                              1990                   October 1, 1999
-------------------------------------------------------------------------------------------------------------------
II        Homewood Suites - Clearwater, FL                       February 1998             November 24, 1999
II        Homewood Suites - Salt Lake, UT                            1996                  November 24, 1999
II        Homewood Suites - Atlanta, GA                              1990                  November 24, 1999
II        Homewood Suites - Detroit, MI                              1990                  November 24, 1999
II        Homewood Suites - Baltimore, MD                         March 1998               November 24, 1999
-------------------------------------------------------------------------------------------------------------------
III       Homewood Suites - Jackson, MS                          February 1997             December 22, 1999
</TABLE>

(B) Represents lease payment from the Lessee to the Company  calculated on a pro
foma basis by applying the rent provisions in the master hotel lease  agreements
to the  historical  room revenue of the hotels as if the beginning of the period
was the beginning of the lease year. The


                                      F-69

<PAGE>

base rent and the percentage rent will be calculated and paid based on the terms
of the lease  agreement.  Refer to the  discussion  of the  master  hotel  lease
agreement for details.

(C) Represents  historical real estate and personal property taxes and insurance
which will be paid by the Company pursuant to the master hotel lease agreements.
Such amounts are the historical amounts paid by the respective hotels.

(D)  Represents the advisory fee of .25% of  accumulated  capital  contributions
under  the  "best  efforts"  offering  for the  period  of time not owned by the
Company and anticipated legal and accounting fees, employee costs,  salaries and
other costs of operating as a public company.

(E)  Represents  the  depreciation  on the eleven hotels  acquired  based on the
purchase  price,  excluding  amounts  allocated to land, of $37,450,320  for the
first acquisition,  $41,085,600 for the second  acquisition,  and $5,485,886 for
the third  acquisition,  for the  period of time not owned by the  Company.  The
average life of the depreciable  assets was 39 years. The estimated useful lives
are based on management's  knowledge of the properties and the hotel industry in
general.

(F) Represents the interest  expense for the eleven hotel  acquisitions  for the
period in which the  hotels  were not owned,  interest  was  computed  using the
interest  rates  of  8.5%  on  mortgage  debt  of  $33,975,000   for  the  first
acquisition, $30,210,000 for the second acquisition and $4,384,500 for the third
acquisition that was incurred at acquisition.

(G) Represents additional common shares assuming the properties were acquired at
the  beginning  of the period  presented  with the net  proceeds  from the "best
efforts"  offering  of $9  per  share  (net  $8.06  per  share)  for  the  first
$15,000,000 and $10 per share (net $8.95 per share) for the remainder.


                                      F-70

<PAGE>

                          APPLE SUITES MANAGEMENT, INC.
            PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
                FOR THE YEAR ENDED DECEMBER 31, 1999 (UNAUDITED)

         The following unaudited Pro Forma Condensed  Consolidated  Statement of
Operations of Apple Suites  Management,  Inc. (the "Lessee") are presented as if
the leasing of the eleven  extended-stay  hotels from Apple  Suites,  Inc.  (the
"Company") to the Lessee or its  subsidiary had occurred at the beginning of the
period presented.  The Company purchased the hotels from Promus Hotels, Inc., or
an affiliate.  Promus Hotels, Inc. is a wholly-owned  subsidiary of Hilton Hotel
Corporation  ("Hilton").  The  hotels  have  been  leased  to the  Lessee or its
subsidiary  pursuant to master hotel lease agreements.  Further,  the results of
operations reflect the hotel management  agreements and hotel license agreements
between  Promus  and the  Lessee  or its  subsidiary.  The  master  hotel  lease
agreements  were  based  on  economic   conditions   existing  at  the  time  of
acquisition. Application of these agreements to periods prior to the acquisition
may not be  meaningful.  Such pro  forma  information  is based in part upon the
Consolidated  Statement of Operations of the Lessee and the hotels and should be
read  in  conjunction  with  the  financials   statement  contained  herein.  In
management's  opinion, all adjustments necessary to reflect the effects of these
transactions have been made.

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


                                      F-71

<PAGE>

FOR THE YEAR ENDED DECEMBER 31, 1999 (UNAUDITED)

<TABLE>
<CAPTION>
                                                     Homewood      Homewood      Homewood
                                      Historical      Suites        Suites        Suites
                                     Statement of  Acquisitions  Acquisitions   Acquisition    Pro Forma              Total
                                      Operations       (A I)        (A II)        (A III)     Adjustments           Pro Forma
                                     -------------------------------------------------------------------------------------------
<S>                                     <C>           <C>          <C>            <C>           <C>                 <C>
REVENUES:
   Suite revenue                        $5,335,925    $9,818,797   $12,082,374    $2,230,952            --          $29,468,048
   Other income                            335,150       560,096       709,240       168,438            --            1,772,924

EXPENSES:
   Operating expenses                    1,656,540     3,794,204     4,870,096       954,102            --           11,274,942
   General and administrative              494,377       250,317       300,399        77,381    $(107,000)  (B)
                                                                                                    19,036  (C)       1,034,510
   Advertising and promotion               472,787       438,985       580,564       112,902     (965,290)  (D)
                                                                                                   965,285  (E)       1,605,233
   Utilities                               199,907       354,113       551,359        75,639            --            1,181,018
   Taxes and insurance                          --       822,599       647,225        93,884   (1,563,708)  (F)              --
   Depreciation expense                         --     1,783,021     2,217,128       426,986   (4,427,135)  (G)              --
   Franchise fees                          213,437       392,757       483,295        89,238     (965,290)  (H)
                                                                                                   965,285  (I)       1,178,722
   Management fees                         226,136       311,275       383,599        71,982     (766,856)  (J)
                                                                                                 1,130,796  (K)       1,356,932
   Rent expense-Apple Suites, Inc.       2,518,031            --            --            --    11,584,009  (L)      14,102,040
   Other                                    30,964            --            --            --            --               30,964
                                     ----------------------------------------------------------------------       --------------

Total expenses                           5,812,179     8,147,271    10,033,665     1,902,114     5,869,132           31,764,361

Income before income tax                 (141,104)     2,231,622     2,757,949       497,276    (5,869,132)            (523,389)

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

Net income                              $(141,104)    $2,231,622    $2,757,949      $497,276   $(5,869,132)           $(523,389)
                                     ======================================================================       ==============
</TABLE>

Notes to Pro Forma Condensed Consolidated Statements of Operations

(A)  Represents  results of  operations  for the eleven  Homewood  Suites  hotel
acquisitions  on a pro forma  basis as if the hotels  acquired  were  leased and
operated by the Lessee at the beginning of the period presented,  see below. The
hotels acquired are as follows:


                                      F-72

<PAGE>

<TABLE>
<CAPTION>
                                                                Date Commenced                    Date
         Property                                                 Operations                    Acquired
-------------------------------------------------------------------------------------------------------------------
<S>       <C>                                                    <C>                       <C>
I         Homewood Suites - Dallas, TX                               1990                  September 1, 1999
I         Homewood Suites - Las Colinas, TX                          1990                  September 1, 1999
I         Homewood Suites - Plano, TX                                1997                  September 1, 1999
I         Homewood Suites - Richmond. VA                           May 1998                September 1, 1999
I         Homewood Suites - Atlanta, GA                              1990                   October 1, 1999
-------------------------------------------------------------------------------------------------------------------
II        Homewood Suites - Clearwater, FL                       February 1998             November 24, 1999
II        Homewood Suites - Salt Lake, UT                            1996                  November 24, 1999
II        Homewood Suites - Atlanta, GA                              1990                  November 24, 1999
II        Homewood Suites - Detroit, MI                              1990                  November 24, 1999
II        Homewood Suites - Baltimore, MD                         March 1998               November 24, 1999
-------------------------------------------------------------------------------------------------------------------
III       Homewood Suites - Jackson, MS                          February 1997             December 22, 1999
</TABLE>

(B) Represents the elimination of the historical accounting fee allocated to the
hotels by the prior owner.

(C)  Represents the addition of the  anticipated  legal and accounting and other
expenses to operate as a stand alone company.

(D) Represents  the  elimination  of the  historical  advertising,  training and
reservation fee allocated to the hotels by the prior owner.

(E)  Represents  the addition of the marketing fee to be incurred  under the new
license  agreements.  The marketing fee is calculated  based on the terms of the
license agreements which is 4% of suite revenue.

(F)  Represents the  elimination of the taxes and insurance.  Under the terms of
the lease these expenses will be incurred by the Company and,  accordingly,  are
reflected  in the  Company's  Pro  Forma  Condensed  Consolidated  Statement  of
Operations.

(G) Represents the elimination of the depreciation expense. This expense will be
reflected  in the  Company's  Pro  Forma  Condensed  Consolidated  Statement  of
Operations.

(H) Represents the elimination of the historical  franchise fee allocated to the
hotels by the prior owner.

(I)  Represents  the  addition of  franchise  fees to be incurred  under the new
license agreements.  The franchise fees are calculated based on the terms of the
agreement , which is 4% of suite revenue.

(J) Represents the  elimination of the historical  management  fees for the year
ended December 31, 1999.

(K) Represents  the addition of the  management  fees of 4% of gross revenue and
the  accounting  fee  $1,000  per hotel per month to be  incurred  under the new
management agreements for the period presented.

(L) Represents lease payments from the Lessee to the Company calculated on a pro
forma basis by applying the rent provisions in the master hotel lease agreements
to the  historical  room revenue of the hotels as if the beginning of the period
was the beginning of the lease year. The base rent and the percentage  rent will
be calculated and paid based on the terms of the lease  agreement.  Refer to the
discussion of the master hotel lease agreements for details.


                                      F-73