APPLE SUITES INC
424B3, 2000-06-05
REAL ESTATE INVESTMENT TRUSTS
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                                                FILED PURSUANT TO RULE 424(B)(3)
                                                          FILE NUMBER: 333-77055

                                          SUPPLEMENT NO. 6 DATED MAY 31, 2000 TO
                                          BE USED  WITH  SUPPLEMENT  NO. 5 DATED
                                          MARCH 31,  2000 AND  PROSPECTUS  DATED
                                          AUGUST 3, 1999

                      SUPPLEMENT NO. 6 DATED MAY 31, 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. 6
RELATES  TO  MATTERS  THAT  HAVE CHANGED OR OCCURRED SINCE MARCH 21, 2000. OTHER
IMPORTANT  MATTERS  WERE  DISCUSSED  IN SUPPLEMENT NO. 5, WHICH INCORPORATED AND
REPLACED  ALL PRIOR SUPPLEMENTS. THIS SUPPLEMENT DOES NOT INCORPORATE OR REPLACE
ANY PRIOR SUPPLEMENT.

     PROSPECTIVE  INVESTORS  SHOULD  CAREFULLY REVIEW THE PROSPECTUS, SUPPLEMENT
NO. 5 AND THIS SUPPLEMENT.


                    TABLE OF CONTENTS FOR SUPPLEMENT NO. 6

<TABLE>
<S>                                                                           <C>
    Status of the Offering ....................................................   S-2
    Recent Developments .......................................................   S-2
    Our Properties ............................................................   S-3
    Property Acquisition ......................................................   S-4
     Overview .................................................................   S-4
     Hotel Supplies and Franchise Fees ........................................   S-4
     Description of Financing .................................................   S-5
    Summary of Material Contracts .............................................   S-7
    Description of Property ...................................................   S-10
    Index to Management's Discussion and Analysis and to Financial Statements..   F-1
</TABLE>

     The  prospectus  and  the  supplements  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,  our  ability  to  repay  or  refinance our significant short-term debt,
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 common share in
accordance with the prospectus.

     As  of  May  19,  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             2,862,737.00        28,627,370              25,764,633
                          ------------       -----------             -----------
           TOTAL          4,529,403.67       $43,627,370             $39,264,633
                          ============       ===========             ===========

</TABLE>

     We  have  used  the  net  proceeds  of  our offering to acquire, by deed or
lease,  a  total  of  12  extended-stay hotels. We hold these hotels directly or
through  wholly-owned  subsidiaries.  For  simplicity,  we  will  refer to these
hotels  as  "our  hotels."  All  of  our  hotels  have  franchises with Homewood
Suites(Reg.  TM)  by Hilton, which is a registered service mark of Hilton Hotels
Corporation.


                              RECENT DEVELOPMENTS

     As  discussed  in  detail below, we have approximately $80 million in notes
payable  in  connection with our hotels. Our goal is to pay these notes with the
proceeds  from our offering of common shares. 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  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 the maturity of the notes, if necessary.
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 in part 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 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 we obtain and the progress of our offering, 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.


                                      S-2
<PAGE>

                                OUR PROPERTIES



            (Map of United States shows general location of hotels)


                               [GRAPHIC OMITTED]

<TABLE>
<CAPTION>
        MONTH OF                     NAME                  TOTAL        MONTH OF                  NAME               TOTAL
        PURCHASE                   OF HOTEL               SUITES        PURCHASE                OF HOTEL             SUITES
    ----------------   -------------------------------   --------   ---------------   ---------------------------   -------
    <S>                <C>                               <C>        <C>               <C>                           <C>
    September 1999     Dallas - Addison                     120     November 1999     Baltimore - BWI Airport          147
    September 1999     Dallas - Irving/Las Colinas          136     November 1999     Clearwater                       112
    September 1999     North Dallas - Plano                  99     November 1999     Detroit - Warren                  76
    September 1999     Richmond - West End                  123     November 1999     Salt Lake City - Midvale          98
    October 1999       Atlanta - Galleria/Cumberland        124     December 1999     Jackson - Ridgeland               91
    November 1999      Atlanta - Peachtree                   92     May 2000          Philadelphia/Great Valley        123
                                                                                                                   ---
                                                                                       TOTAL FOR ALL HOTELS      1,341
                                                                                                                 =====
</TABLE>


                                      S-3
<PAGE>

                              PROPERTY ACQUISITION


OVERVIEW

     We  acquired  the  Philadelphia/Great  Valley  hotel,  an existing Homewood
Suites(Reg.  TM)  by  Hilton  hotel,  when  we  purchased  a long-term leasehold
interest   in   the  hotel,  which  is  substantially  equivalent  to  acquiring
ownership.  This  leasehold  interest  was  purchased  through an assignment and
assumption  of  lease,  dated  as of May 8, 2000 with respect to a ground lease,
dated  as of July 1, 1996. The total purchase price was $15,489,000. We used the
net  proceeds  from  our  offering of common shares to pay 25% of this total, or
$3,872,250,  at  closing  in  cash. The balance of 75%, or $11,616,750, is being
financed   by  the  seller,  Promus  Hotels,  Inc.,  as  short-term  or  "bridge
financing."  The  financing and the ground lease are described in further detail
in other sections below.

     We  made  this  purchase through a newly organized subsidiary, Apple Suites
Pennsylvania  Business  Trust  (a  business  trust  organized under Pennsylvania
law),  based  on  business  and  tax  planning  considerations.  We are the sole
trustee  and  sole  beneficiary of Apple Suites Pennsylvania Business Trust. The
Philadelphia/Great  Valley  hotel  has  been  leased to Apple Suites Management,
Inc. under a master hotel lease agreement dated as of May 8, 2000.

     We  paid  a  real estate commission on this purchase to Apple Suites Realty
Group,  Inc.,  as  our real estate broker. This corporation is owned by Glade M.
Knight,  who  is  our president and chief executive officer. The total amount of
the  real  estate commission was $309,780, which equals 2% of the total purchase
price.


HOTEL SUPPLIES AND FRANCHISE FEES

     We  have provided Apple Suites Management, Inc. with funds for the purchase
of  certain  hotel  supplies  (such  as  sheets,  towels  and  so forth) for the
Philadelphia/Great  Valley  hotel. Apple Suites Management, Inc. is obligated to
repay  us  under a promissory note made in the principal amount of $12,300. This
promissory  note  provides  for  an  annual  interest rate of nine percent (9%),
which  would increase to twelve percent (12%) if a default occurs, and repayment
in  monthly  installments.  The  first installment consists of interest only and
has  a due date of June 1, 2000. The remaining installments consist of principal
and interest on an amortized basis. The maturity date is June 1, 2005.

     We  have  also  provided  Apple  Suites Management, Inc. with funds for the
payment  of hotel franchise fees to Promus Hotels, Inc. Apple Suites Management,
Inc.  is  obligated  to  repay  us under a promissory note made in the principal
amount  of  $55,350.  This  promissory  note is substantially similar to the one
described above, but has a maturity date of June 1, 2010.


                                      S-4
<PAGE>

DESCRIPTION OF FINANCING

     As  indicated  above,  Promus Hotels, Inc. is financing 75% of the purchase
price  with  respect  to  the Philadelphia/Great Valley hotel. This financing is
substantially  similar  to the financing provided by Promus Hotels, Inc. when we
purchased  our  other  hotels.  The  amounts  we  owe to Promus Hotels, Inc. are
evidenced by the following promissory notes:




<TABLE>
<CAPTION>
                                   ORIGINAL
           MONTH OF                PRINCIPAL      ANNUAL RATE         DATE OF
       PROMISSORY NOTE              AMOUNT        OF INTEREST         MATURITY
-----------------------------   --------------   -------------   -----------------
<S>                             <C>              <C>             <C>
     September 1999 .........    $26,625,000         8.5%         October 1, 2000
     October 1999 ...........    $ 7,350,000         8.5%         October 1, 2000
     November 1999 ..........    $30,210,000         8.5%        December 1, 2000
     December 1999 ..........    $ 4,384,500         8.5%         January 1, 2001
     May 2000 ...............    $11,616,750         8.5%         April 28, 2001
                                 -----------
        TOTAL ...............    $80,186,250
                                 ===========

</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). 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,  which will be the  intended  source of  principal
          payments, as explained below

     o    our right to prepay the notes, in whole or in part, without premium or
          penalty

     o    a late payment premium of four percent for any payment not made within
          10 days of its due date

     Revenue  from  the hotels will be used to pay interest under the promissory
notes  we  have  made  to  Promus  Hotels,  Inc. This revenue will include lease
payments  made  to  us  by Apple Suites Management, Inc. (or a subsidiary) under
the master hotel lease agreements.

     The  promissory  notes  contemplate that the "net equity proceeds" from our
offering  of  common  shares  will  be  the source of our principal payments. As
discussed  above,  however,  we  may need to seek alternate financing if the net
equity  proceeds  are  not  sufficient  for this purpose. 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  a  letter  agreement dated May 8, 2000, we are permitted to use such
net  equity proceeds to pay 25% of the purchase price for the leasehold interest
in  the  Philadelphia/Great  Valley hotel. Otherwise, to the extent that we have
such  net  equity proceeds, we generally are obligated to make monthly principal
payments under the promissory notes listed above.


                                      S-5
<PAGE>

     We  have  made  all scheduled interest payments under the promissory notes.
The aggregate amount of our interest payments through May 2000 is $2,948,444.

     To  date,  we  have  not  made  any  principal  payments  under  any of the
promissory  notes.  There  can be no assurance that the net equity proceeds from
our  offering  of  common  shares  will  be  sufficient to enable us to make all
principal  payments  under  the promissory notes when due. 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           TOTAL DUE
           PROMISSORY NOTE               MATURITY          AT MATURITY
    -----------------------------   ------------------   --------------
    <S>                             <C>                  <C>
         September 1999 .........    October 1, 2000      $26,811,010
         October 1999 ...........    October 1, 2000      $ 7,401,349
         November 1999 ..........   December 1, 2000      $30,421,056
         December 1999 ..........    January 1, 2001      $ 4,415,131
         May 2000 ...............    April 28, 2001       $11,697,908
                                                          -----------
                                               TOTAL      $80,746,454
                                                          ===========

</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.


                  [Remainder of Page Intentionally Left Blank]

                                      S-6
<PAGE>

                         SUMMARY OF MATERIAL CONTRACTS


DEEDS OF TRUST AND RELATED DOCUMENTS

     Each  of  our  hotels,  including  the  Philadelphia/Great Valley hotel, is
encumbered.  In  general,  the  encumbrances  consist of a mortgage on the hotel
building  and  its underlying real property, a security interest in any 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 having a
variety  of  names,  many  of which depend on state law. For simplicity, we will
refer  to  each  of  these  documents as a "deed of trust." At each closing on a
purchase  with  respect to a hotel or group of hotels, we further encumbered our
other  hotels  with  additional  deeds  of trust or with negative pledges. These
additional  encumbrances  are  designed  to  provide additional security for the
earlier promissory notes.

     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 particular deed of trust
will  terminate  when  its  corresponding promissory note is paid in full. Other
encumbrances  created  by  additional deeds of trust or by negative pledges will
remain  in  effect  until the promissory notes to which they correspond are also
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  encumbrances,  or  make 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.

     Negative  pledges  apply  to  the  three  hotels  in  Florida, Maryland and
Virginia.  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.  The  negative pledges will terminate when our promissory notes to
Promus Hotels, Inc. are paid in full.


GROUND LEASE

     The  Philadelphia/Great  Valley hotel is subject to a ground lease dated as
of  July  1,  1996.  We  caused Apple Suites Pennsylvania Business Trust, in our
capacity  as  its  sole trustee and sole beneficiary, to become the tenant under
the ground lease. This result


                                      S-7
<PAGE>

was  achieved  through  an assignment and assumption of lease dated as of May 8,
2000.  For purposes of applicable state law, the long-term leasehold interest is
substantially  equivalent  to ownership and we expect to be treated as the owner
of  the  hotel  building. We intend to take depreciation deductions with respect
to the hotel building for federal income tax purposes.

     The  ground  lease applies to the hotel building, as well as the underlying
real  property. The ground lease has an initial term of 30 years. The tenant has
the  option  to extend the ground lease for three additional periods of 10 years
each.  When  the  ground  lease expires, or is terminated in accordance with its
terms,  the  tenancy  for  the  land  terminates  and  the  building  and  other
improvements  become the property of the landlord. Therefore, unless we purchase
the  landlord's  interest, we will not own the hotel past the term of the ground
lease.

     The  ground  lease  provides  for  annual  rent,  payable  by the tenant in
advance  in  monthly  installments.  The annual rent is $100,000 for each of the
first  five  years (that is, until August 1, 2000). Every five years, the annual
rent  will  be  adjusted  in  proportion  to  the  Consumer  Price Index for the
metropolitan  Philadelphia  area,  but  will  not  be less than $100,000 for any
year.

     The  tenant  has  certain  obligations under the ground lease. For example,
the  tenant must operate the premises in accordance with applicable law and must
maintain  general public liability insurance on the premises. For a default that
involves  the  tenant's  failure  to provide insurance and that continues for 10
days  after  written  notice  to  the  tenant,  the  landlord  may  arrange  for
substitute  insurance  at the tenant's expense. Furthermore, because a hotel has
been  constructed on the premises, the permitted uses of the premises during the
first 10 years under the ground lease are limited to hotel and related uses.

     Under  the  ground  lease,  the  tenant has 30 days after written notice to
cure  any  payment  default  under  the  ground lease, and 60 days after written
notice  to  cure  any  other default. If the default cannot be cured in 60 days,
the  cure  period  will  be  extended  if the tenant promptly begins to cure the
default  and  diligently continues to do so. In general, if a default occurs and
is  not  cured  within  the  appropriate  time  period,  the landlord's remedies
include  terminating  the  ground  lease  and requiring the tenant to vacate the
premises.  If  the  landlord  terminates  the ground lease following any uncured
default,  we  will  remain  obligated  to  pay  the full amount of the remaining
purchase  price to Promus Hotels, Inc. under the promissory note dated as of May
8,  2000,  even though we will not be receiving further revenues with respect to
the hotel.

     If  the  landlord  wishes  to  sell  the  premises and the tenant is not in
default,  the  landlord must notify the tenant in writing and grant it the first
option  to  purchase  the premises. If this option is declined, the landlord may
sell  the  premises  within six months, but the terms and conditions of the sale
cannot  be  materially  more  favorable  to  the buyer than those offered to the
tenant.


MASTER HOTEL LEASE AGREEMENT

     We  have  caused  the  tenant  under  the ground lease to further lease the
Philadelphia/Great  Valley  hotel to Apple Suites Management, Inc. pursuant to a
master


                                      S-8
<PAGE>

hotel  lease  agreement dated as of May 8, 2000. This agreement is substantially
similar  to  the  master hotel lease agreements, dated as of September 20, 1999,
that apply to our other hotels.

     The  agreement  provides  for  an  initial  term  of 10 years. Apple Suites
Management,  Inc.  has  the  option  to extend the lease term for two additional
five-year  periods,  provided  it is not in default at the end of the prior term
or  at  the  time  the  option  is  exercised.  The master hotel lease agreement
provides  that  Apple  Suites  Management,  Inc. will pay an annual base rent, a
quarterly  percentage  rent  and  a  quarterly sundry rent. Each type of rent is
explained below.

     Annual  base  rent  is  payable  in  advance in equal monthly installments.
Beginning  in  2001,  the  base rent will be adjusted each year in proportion to
the  Consumer Price Index (based on the U.S. City Average). The annual base rent
for the Philadelphia/Great Valley hotel is currently $942,375.

     Percentage  rent is payable quarterly. Percentage rent 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, credit card fees and sundry rent (as described below). Beginning in
2001,  the suite revenue breakpoints will be adjusted each year in proportion to
the  Consumer  Price  Index  (based on the U.S. City Average). The suite revenue
breakpoints  for  the  second,  third  and fourth quarters of 2000 are $196,669,
$529,219   and   $861,769,   respectively.  Suite  revenue  breakpoints  (before
adjustment)  have  been  determined for the first quarter of the remaining years
during  the  initial term of the master hotel lease agreement. 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  other  suite  revenue  breakpoints  for  the first quarter for 2001 through
2009, before any adjustment due to the Consumer Price Index:


                SUITE REVENUE BREAKPOINTS FOR THE FIRST QUARTER

<TABLE>
<CAPTION>
    2001          2002          2003          2004          2005          2006          2007          2008          2009
-----------   -----------   -----------   -----------   -----------   -----------   -----------   -----------   -----------
<S>           <C>           <C>           <C>           <C>           <C>           <C>           <C>           <C>
$300,219       $309,456      $323,313      $332,550      $341,700      $351,025      $360,263      $369,500      $378,738
</TABLE>

     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 the percentage rent paid year
to date.

     The  sundry rent is payable quarterly and equals 55% of all sundry revenue,
which  consists  of  revenue other than suite revenue, less the amount of sundry
rent paid year-to-date.

OTHER AGREEMENTS

     The  Philadelphia/Great  Valley hotel is subject to a license agreement and
a  management  agreement  with  Promus  Hotels,  Inc.  We  have  entered into an
environmental  indemnity  agreement  with  Promus  Hotels,  Inc.,  as  well as a
comfort  letter agreement regarding the lease with Apple Suites Management, Inc.
and  certain  other  issues.  These  agreements  are  substantially  similar  to
agreements that exist with respect to our other hotels.


                                      S-9
<PAGE>

                            DESCRIPTION OF PROPERTY


OVERVIEW

     Each  of  our  hotels is an extended-stay hotel, and is licensed to operate
under  a  franchise with Homewood Suites(Reg. TM) by Hilton. We believe that the
majority  of  the  guests  at  our  hotels  during  the past 12 months have been
business travelers. We expect this pattern to 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  web  site for Homewood
Suites(Reg.  TM)  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 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 Hotels
Corporation.  Such  cross-marketing  may  affect  occupancy  at  our  hotels  by
directing travelers toward, or away from, Homewood Suites(Reg. TM) by Hilton.

     Our  hotels  were  actively conducting business at the time 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 our hotels are adequately covered by insurance.


PHILADELPHIA/GREAT VALLEY

     The   Philadelphia/Great   Valley  hotel  has  a  franchise  with  Homewood
Suites(Reg.  TM)  by  Hilton  and  is  located  on  a  4.1  acre site at 12 East
Swedesford  Road,  Malvern,  Pennsylvania  19355.  The hotel is approximately 22
miles   from   downtown   Philadelphia   and  25  miles  from  the  Philadelphia
International Airport.


                                      S-10
<PAGE>

     The  hotel  opened in January 1998. It was constructed with a masonry frame
and  has  a  sand  stucco  exterior  finish.  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>
      Master Suite ......................         95                  500
      Homewood Suite ....................         21                  500
      Two-Bedroom Suite .................          7                  800

</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 5-mile radius.

     We  believe  that  the  hotel  has been 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 the addition of exterior lighting and
the  replacement  or  repair  of  sofas, interior doors and kitchen flooring. We
expect  to pay for the costs of these renovations and improvements with proceeds
from our ongoing offering of common shares.

     During  2000  (through  April  30),  the average stay at the hotel has been
approximately  five  nights, and approximately 59% of the guests have stayed for
five  nights  or  more.  In general, occupancy at the hotel is not significantly
affected  by  seasonal  variations.  The  following  table  shows  average daily
occupancy rates, expressed as a percentage, since the opening of the hotel:


                         AVERAGE DAILY OCCUPANCY RATE

<TABLE>
<CAPTION>
                                    2000
        1998          1999       (THROUGH APRIL 30)
    ------------   ----------   -------------------
    <S>            <C>          <C>
        66.7%         76.4%            74.4%

</TABLE>

     During  2000  (through April 30), the average daily rate per suite has been
$122.01,  and  the  average  daily  net  revenue  per  suite has been $90.79. As
explained  above,  revenues from the hotel, including lease revenue that is paid
to  us  under the master hotel lease agreement, will be used to pay interest due
under  the  promissory  note  dated  as  of  May 8, 2000. Our goal is to use the
proceeds  of our offering of common shares to make principal payments. There can
be  no  assurance,  however, the proceeds of the offering will be sufficient for
this  purpose.  Assuming  that no principal payments are made until the maturity
of  the  promissory  note, and that the hotel continues to have the level of net
revenue  specified  above,  approximately  24.2% of the hotel's revenue would be
needed to cover its portion of the interest payments.


                                      S-11
<PAGE>

     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 ...................      $145        $145         $194
       5 to 11 ..................       129         129          185
      12 to 29 ..................       124         124          179
      30 or more ................        99          99          159

</TABLE>

     The  hotel offers a weekend discount. This discount varies by type of suite
and  generally  reduces  the  basic  rate  by  38%.  The weekend discount is not
available  to  guests  who  stay  for five nights or more. The hotel also offers
discounts  to  guests who stay under certain corporate accounts. These discounts
are  often  negotiated  with  the  corporate  customer  and vary from account to
account.  We  estimate  that approximately 43% of the hotel's guests during 2000
(through April 30) received a corporate discount.

     The  chief  corporate  accounts  (as  designated  in  the  hotel's records)
include:  SAP, Astra Zeneca, Vanguard, Shared Medical Systems, Centocor, Unisys,
Wyeth,  Supplyforce.com,  Decision  One,  and  SCT  (Systems/Computer Training).
During  2000  (through  April  30),  the  10  largest  corporate  accounts  were
responsible  for  approximately  43%  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>
                                       2000
         1998           1999       (ANNUALIZED)
    -------------   -----------   -------------
    <S>             <C>           <C>
     $  52.85        $ 59.58       $ 63.72

</TABLE>

     The  depreciable  real  property  component  of  the  hotel, based upon our
long-term  leasehold  interest,  has  a currently estimated Federal tax basis of
$14,898,789  and  will be depreciated using the straight-line method over a life
of  39  years (or less, as permitted by the Internal Revenue Code). 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
2000:

<TABLE>
<CAPTION>
    TAX                                           ASSESSED       TAX RATE      AMOUNT
    JURISDICTION                                    VALUE      (PER $1000)     OF TAX
    ------------------------------------------ -------------- ------------- -----------
    <S>                                        <C>            <C>           <C>
             School District .................  $14,248,760   11.670         $166,283
             County of Chester ...............   14,248,760    3.014           42,946
             East Whiteland Township .........   14,248,760    0.445            6,341
                                                                             --------
                                                                  TOTAL      $215,570
                                                                             ========

</TABLE>

     We  estimate that the annual property tax on the expected improvements will
be approximately $1,600 or less.

     At  least  seven  competing  hotels  are  located within eight miles of the
hotel.  (The  names  of  the  competing  franchises,  as  listed  below,  may be
registered as service marks


                                      S-12
<PAGE>

or  trade  names.)  Of these competing hotels, two are newer than the hotel. The
newer  competing  hotels have franchises with Choice Hotels and Hampton Inn. The
other  competing  hotels have franchises with Marriott (in two cases), Sheraton,
Summerfield  Suites  and Wyndham. We believe that the rates charged by our hotel
are  generally  competitive with the rates charged by these other hotels. We are
aware  of  ongoing  or  proposed construction for two other extended-stay hotels
within  approximately  six  miles of the hotel. We expect these new hotels to be
franchised with Residence Inn and Springhill Suites.


                                      S-13
<PAGE>

                              APPLE SUITES, INC.


                   INDEX TO FINANCIAL STATEMENTS (UNAUDITED)




<TABLE>
<CAPTION>
                                                                                                  PAGE
                                                                                                 -----
<S>                                                                                              <C>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
 AND RESULTS OF OPERATIONS ...................................................................   F-2
APPLE SUITES, INC.
   Consolidated Balance Sheets as of March 31, 2000 and December 31, 1999 ....................   F-5
   Consolidated Statement of Operations for the three months ended March 31, 2000 ............   F-6
   Consolidated Statement of Shareholders' Equity for the three months ended March 31, 2000...   F-6
   Consolidated Statement of Cash Flows for the three months ended March 31, 2000 ............   F-7
   Notes to Consolidated Financial Statements ................................................   F-8
APPLE SUITES MANAGEMENT, INC.
   Consolidated Balance Sheets as of March 31, 2000 and December 31, 1999 ....................   F-13
   Consolidated Statement of Operations for the three months ended March 31, 2000 ............   F-14
   Consolidated Statement of Cash Flows for the three months ended March 31, 2000 ............   F-14
   Notes to Consolidated Financial Statements ................................................   F-15

</TABLE>


                                      F-1
<PAGE>

                     MANAGEMENT'S DISCUSSION AND ANALYSIS
               OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
        (By Apple Suites, Inc. for the Dates or Periods, as Applicable,
               Addressed by the Following Financial Statements)


GENERAL

     During  1999,  we  acquired 11 hotels with 1,218 suites from Promus Hotels,
Inc.  (or  its  affiliates),  which  is  now a wholly-owned subsidiary of Hilton
Hotels  Corporation.  All  of  our hotels are leased to Apple Suites Management,
Inc.  or  its  subsidiary  (the  "Lessee")  pursuant  to  two master hotel lease
agreements.  Each  master hotel lease agreement obligates the Lessee to pay rent
equal  to  the  sum  of  an  annual base rent, a quarterly percentage rent and a
quarterly  sundry  rent.  The Lessee's ability to make these rent payments to us
is  dependent  primarily  upon  the  operations of the hotels. See Note 5 to our
consolidated financial statements for further lease information.

     The  hotels  are  licensed to operate under the Homewood Suites(Reg. TM) by
Hilton  franchise  pursuant  to  separate license agreements. The Lessee engages
Promus  Hotels,  Inc.  to  manage  and  operate  the hotels under separate hotel
management  agreements. We are externally advised and have contracted with Apple
Suites  Advisors,  Inc.  (the "Advisor") to manage our day-to-day operations and
to  make  investment  decisions.  We  have  contracted  with Apple Suites Realty
Group,   Inc.   ("ASRG")  to  provide  brokerage  and  acquisition  services  in
connection  with  our  hotel acquisitions. The Lessee, the Advisor, and ASRG are
all  owned  by  Mr.  Glade  Knight, our Chairman. See Note 5 to our consolidated
financial statements for further information on related-party transactions.


RESULTS OF OPERATIONS APPLE SUITES, INC.

     Revenues:  Because  we  commenced operations effective September 1, 1999, a
comparison  to  the  first  quarter  of  1999  is not possible. During the three
months  ended  March  31,  2000, we had revenues of $3,454,685. All of our lease
revenue is derived from the master hotel lease agreements.

     Our  other  income  consists  of $32,732 of interest income earned from the
investments  of cash and cash reserves and $15,275 of interest on the promissory
notes  payable  by  the Lessee to us for our funding of franchise fees and hotel
supplies.

     Expenses:  Our  expenses  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 three
months  ended March 31, 2000 were $946,311 or 27% of total revenue. The interest
expense   was  $1,453,110  for  the  three  months  ended  March  31,  2000  and
represented  interest  on  short-term notes payable to Promus Hotels, Inc. at an
interest rate of 8.5%.

     The  depreciation expense was $549,201 for the three months ended March 31,
2000.  Taxes, insurance, and other was $691,575 for the three months ended March
31,  2000  or  20%  of  total  revenue.  The  general and administrative expense
totaled  7%  of  total  revenues.  These  expenses  represent our administrative
expenses. We expect these percentages to decrease as our asset base grows.


                                      F-2
<PAGE>

APPLE SUITES MANAGEMENT, INC.

     Revenues:   As   operations   commenced  effective  September  1,  1999,  a
comparison  to  the  first  quarter of 1999 is not possible. Total revenues were
$8,103,171.  Total  revenues  consist  primarily  of  suite  revenue,  which was
$7,682,355 for the three months ended March 31, 2000

     For  the  three  months ended March 31, 2000 the average occupancy rate was
78%,  the  average  daily  rate  was $89, and the revenue per available room was
$69.

     Expenses:  Total  expenses  for  the three months ended March 31, 2000 were
$8,060,470.  Rent  expense  represents  $3,406,678  or 42% of total revenue. The
Lessee  has  agreed  to pay Promus Hotels, Inc. a fee of 4% of suite revenue for
management  of the hotels. The Lessee also has agreed to pay Promus Hotels, Inc.
a  fee  of 4% of suite revenue to cover fees for the Homewood Suites(Reg. TM) by
Hilton  franchise  and  to participate in its reservation system. Total expenses
for these services were $937,354 during the period.


LIQUIDITY AND CAPITAL RESOURCES

     During  the first quarter of 2000, we sold 493,509 of our common shares, at
$10  per  share,  to  investors.  The total gross sale proceeds were $4,935,083,
which  netted  $4,393,756  to  us  after  the payment of selling commissions and
other  offering  costs.  The  Lessee's  obligations under the master hotel lease
agreements  are  unsecured.  The  Lessee  has  limited  capital  resources, and,
accordingly  its ability to make rent payments is substantially dependent on the
ability  of  the  Lessee to generate sufficient cash flow from operations of the
hotels.  We  have certain rights to cancel a master hotel lease agreement if the
Lessee  does  not  perform  under  the applicable terms. To support the Lessee's
obligations,  the Lessee has received 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 master hotel 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,
a  written  agreement  between  the  Payor and the Lessee, or the payment of all
commitment  amounts  by  the  Payor  to  the  Lessee.  As  of March 31, 2000, no
contributions  had  been  made  by  the  Payor  to  the Lessee under the funding
commitments.

     Notes  payable:  In  conjunction  our  purchase  of  the 11 hotels, we made
promissory  notes  payable  to the order of Promus Hotels, Inc. in the aggregate
amount  of $68,569,500. The notes provide for an effective interest rate of 8.5%
per  annum. Interest payments are due monthly. Principal payments are to be made
from  net proceeds of our offering of common shares. The holder of the notes has
agreed  to  defer  principal payments until the earlier of June 30, 2000 or such
time  as  we  purchase two additional hotels. At March 31, 2000, we had not made
any principal payments under these promissory notes.

     The   promissory   notes  have  various  maturity  dates.  The  approximate
principal  amounts  and  their  due  dates  are  as  follows: $34 million due on
October 1, 2000, $30.2


                                      F-3
<PAGE>

million  due  on  November 1, 2000, and $4.4 million due on January 1, 2001. Our
goal  is to pay these notes with the proceeds from our continuous "best efforts"
offering  of  common  shares. 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  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  the  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  master  hotel  lease  agreements are based in part on a percentage of hotel
suite  income; (2) the general level of interest rates, including credit spreads
for  real estate based lending; and (3) general economic conditions. In general,
for each of the notes payable, all of our 11 hotels serve as collateral.

     Cash  and cash equivalents: Cash and cash equivalents totaled $3,781,922 at
March 31, 2000.

     Capital  requirements:  We  have  an ongoing capital commitment to fund our
capital  improvements.  We  are required under the master hotel lease agreements
to  make  an amount equal to 5% of suite revenue available monthly to the Lessee
for  the  repair,  replacement,  or  refurbishing  of  furniture,  fixtures, and
equipment  on  a  cumulative  basis,  provided  that such amount may be used for
capital  expenditures made by us with respect to the hotels. We expect that this
amount   will  be  adequate  to  fund  the  required  repair,  replacement,  and
refurbishments  and  to  maintain  our  hotels  in  a  competitive condition. We
capitalized  improvements  of  $280,532  in  2000. At March 31, 2000, a total of
$696,869 was held for funding of these improvements.

     We  expect  to  acquire  additional  hotels  during  2000.  We plan to have
monthly  equity  closings  in 2000, until the offering is fully funded, or until
such  time  as  we  may  opt to discontinue the offering. We anticipate that the
equity  funds  will  be  invested  in additional hotels and will be used to make
principal  payments  on  the  notes incurred in conjunction with the our current
hotels.

     Capital  resources  are expected to grow with the future sale of our common
shares.  Approximately  46%  of  the 2000 common share dividend distribution, or
$329,215,  was reinvested in additional common shares. In general, our liquidity
and  capital  resources  are  believed to be more than adequate to meet our cash
requirements  during 2000, given current and anticipated financing arrangements.


     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 our hotels may cause quarterly
fluctuations  in the our lease revenues, particularly during the fourth quarter,
to  the  extent  that  we  receive percentage rent. To the extent that cash flow
from  operations  is  insufficient  during  any  quarter,  due  to  temporary or
seasonal  fluctuations  in  lease  revenue, we expect to utilize cash on hand or
funds   from   equity  raised  through  our  "best  efforts"  offering  to  make
distributions.


                                      F-4
<PAGE>

                              APPLE SUITES, INC.

                    CONSOLIDATED BALANCE SHEETS (UNAUDITED)


<TABLE>
<CAPTION>
                                                                           MARCH 31, 2000   DECEMBER 31, 1999
                                                                          ---------------- ------------------
<S>                                                                       <C>              <C>
ASSETS
Investment in hotel-net of accumulated depreciation of $1,045,410 and
 $496,209, respectively..................................................   $ 93,450,963      $93,719,632
Cash and cash equivalents ...............................................      3,781,922          581,344
Restricted cash .........................................................        696,869        1,023,721
Rent receivable from Apple Suites Management, Inc. ......................      2,641,141        2,123,136
Notes and other receivables from Apple Suites Management, Inc. ..........        694,766          717,019
Capital improvement reserve .............................................        753,927          753,927
Prepaid expenses ........................................................        263,781          270,229
Other assets ............................................................        531,470          300,000
                                                                            ------------      -----------
   Total Assets .........................................................   $102,814,839      $99,489,008
                                                                            ============      ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES
Notes payable -- secured ................................................   $ 68,569,500      $68,569,500
Interest payable ........................................................             --          466,140
Accounts payable ........................................................        161,258           65,214
Accrued expenses ........................................................        554,977          868,668
Account payable -- affiliate ............................................        531,285          708,751
Distributions payable ...................................................             --          712,735
                                                                            ------------      -----------
   Total Liabilities ....................................................   $ 69,817,020      $71,391,008
                                                                            ============      ===========
SHAREHOLDERS' EQUITY
Common stock, no par value, authorized 200,000,000 shares; issued and
 outstanding 3,922,923 shares and 3,429,414, respectively ...............   $ 32,985,016      $28,591,260
Class B convertible stock, no par value, authorized 240,000 shares;
 issued and outstanding 240,000 shares ..................................         24,000           24,000
Distributions greater than net income ...................................        (11,197)        (517,260)
                                                                            ------------      -----------
 Total Shareholders' Equity .............................................     32,997,819       28,098,000
                                                                            ------------      -----------
 Total Liabilities and Shareholders' Equity .............................   $102,814,839      $99,489,008
                                                                            ============      ===========
</TABLE>

See accompanying notes to consolidated financial statements.


                                      F-5
<PAGE>
                               APPLE SUITES INC.

               CONSOLIDATED STATEMENT OF OPERATIONS (UNAUDITED)
<TABLE>
<CAPTION>
                                                              MARCH 31, 2000
                                                             ---------------
<S>                                                          <C>
       REVENUES:
        Lease revenue ......................................   $ 3,406,678
        Interest income and other revenue ..................        48,007
       EXPENSES:
        Taxes, insurance and other .........................       691,575
        General and administrative .........................       254,736
        Depreciation of real estate owned ..................       549,201
        Interest ...........................................     1,453,110
                                                               -----------
          Total expenses ...................................     2,948,622
                                                               -----------
       Net income ..........................................   $   506,063
                                                               ===========
       Basic and diluted earnings per common share .........   $      0.14
                                                               ===========

</TABLE>

          CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY (UNAUDITED)
<TABLE>
<CAPTION>
                                                                          CLASS B
                                                                     CONVERTIBLE STOCK
                                                COMMON 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 December 31, 1999              3,429,414   $28,591,260    240,000    $24,000     $ (517,260)    $28,098,000
Net proceeds from the sale of
 common shares .........................    456,873     4,064,541         --         --             --       4,064,541
Net income .............................         --            --         --         --        506,063         506,063
Common stock issued through
 reinvestment of distribution                36,636       329,215         --         --             --         329,215
                                          ---------   -----------    -------    -------     ----------     -----------
Balance at March 31, 2000 ..............  3,922,923   $32,985,016    240,000    $24,000     $  (11,197)    $32,997,819
                                          =========   ===========    =======    =======     ==========     ===========

</TABLE>

See accompanying notes to consolidated financial statements.

                                      F-6
<PAGE>

                              APPLE SUITES, INC.

               CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED)


<TABLE>
<CAPTION>
                                                                                     THREE MONTHS ENDED
                                                                                       MARCH 31, 2000
                                                                                    -------------------
<S>                                                                                 <C>
CASH FLOW FROM OPERATING ACTIVITIES:
 Net income .......................................................................     $  506,063
 Adjustments to reconcile net income to net cash provided by operating activities:
 Depreciation of real estate owned ................................................        549,201
 Changes in operating assets and liabilities:
 Prepaid expenses .................................................................          6,448
 Rent and notes receivable from Apple Suites Management, Inc. .....................       (509,566)
 Other assets .....................................................................        (31,395)
 Accounts payable .................................................................         96,044
 Accounts payable -- affiliates ...................................................       (177,466)
 Accrued expenses .................................................................       (313,691)
 Interest payable .................................................................       (466,140)
                                                                                        ----------
   Net cash used in operating activities ..........................................       (340,502)

CASH FLOW FROM INVESTING ACTIVITIES:
 Payments received on notes receivable ............................................         13,739
 Capital improvements .............................................................       (280,532)
 Restricted cash for property improvement plan ....................................        326,852
 Earnest deposit money for pending acquisitions ...................................       (200,000)
                                                                                        ----------
   Net cash used in investing activities ..........................................       (139,941)

CASH FLOW FROM FINANCING ACTIVITIES:
 Net proceeds from issuance of common shares ......................................      4,394,265
 Cash distributions paid to shareholders ..........................................       (713,244)
                                                                                        ----------
   Net cash provided by financing activities ......................................      3,681,021
   Increase in cash and cash equivalents ..........................................      3,200,578

 Cash and cash equivalents, beginning of period ...................................        581,344
                                                                                        ----------
 Cash and cash equivalents, end of period .........................................     $3,781,922
                                                                                        ==========

</TABLE>

See accompanying notes to consolidated financial statements.

                                      F-7
<PAGE>

                              APPLE SUITES, INC.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                  (UNAUDITED)
                                MARCH 31, 2000


(1) GENERAL INFORMATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

     Basis  of Presentation -- The accompanying unaudited consolidated financial
statements  have been prepared in accordance with the instructions for Form 10-Q
and  Article  10  of Regulation S-X. Accordingly, they do not include all of the
information  required  by  generally  accepted  accounting  principles.  In  the
opinion   of   management,  all  adjustments  (consisting  of  normal  recurring
accruals)  considered  necessary  for  a  fair  presentation have been included.
Operating  results for the three months ended March 31, 2000 are not necessarily
indicative  of  the  results  that may be expected for the period ended December
31,  2000. These consolidated financial statements should be read in conjunction
with the Company's December  31, 1999 Annual Report on Form 10-K.

     The   Company   commenced   operations   in   September   1999,  therefore,
consolidated  statements of operations and cash flows for the three month period
ended March 31, 1999 are not presented.

     Apple  Suites,  Inc.,  (the  "Company")  leased to Apple Suites Management,
Inc. or its subsidiary (the "Lessee") all of its hotels acquired during 1999.

     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.

     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
agreement  ("Percentage  Leases").  At March 31, 2000, the Lessee's rent payable
to  the  Company amounted to $2,641,141. 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.

     The  Company  did  not  have  any  items  of comprehensive income requiring
separate reporting and disclosure for the periods presented.


(2) INVESTMENT IN HOTELS

     At  March  31,  2000,  the Company owned 11 hotels. Investment in hotels at
March 31, 2000 consist of the following:

<TABLE>
<S>                                              <C>
        Land ...................................  $ 15,687,640
        Building ...............................    77,336,538
        Furniture and equipment ................     1,472,195
                                                  ------------
                                                  $ 94,496,373
        Less accumulated depreciation ..........    (1,045,410)
                                                  ------------
                                                  $ 93,450,963
                                                  ------------
</TABLE>

                                      F-8
<PAGE>

                              APPLE SUITES, INC.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           (UNAUDITED) -- (CONTINUED)

(3) NOTES PAYABLE

     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 June  30,
2000  or  such time as two additional hotels have been purchased by the Company.
The Company paid $1,453,110 in interest for the period ended March 31, 2000.


(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 and a marketing expense allowance based on proceeds
of  the  shares sold. The Company received gross proceeds of $4,568,723 from the
sale  of  456,873  shares  at  $10 per share during the three month period ended
March  31,  2000.  The  net  proceeds  of  the offering, after deducting selling
commissions and other offering costs were $4,064,541 for the period.

     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
period  ended  March  31, 2000, $366,360 (net $329,215) was provided through the
reinvestment of distributions.


(5) 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  Leases 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  $3,406,678 for the three month period
ended March 31, 2000.

     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


                                      F-9
<PAGE>

                              APPLE SUITES, INC.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           (UNAUDITED) -- (CONTINUED)
(5) COMMITMENTS AND RELATED PARTIES -- (CONTINUED)

March  31,  2000,  $753,927  was  held  by  Promus for these capital improvement
reserves.  In  addition,  in  accordance with the franchise agreements, $696,869
was  held  for  the  property  improvement plan with a financial institution and
treated as restricted cash.

     The  Lessee  engages  Promus as a third-party manager to operate the hotels
leased  by  it  and pays the manager based on a percentage fee of 4% of adjusted
gross  revenues.  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.

     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.  At  March  31,  2000,  the  Company owed ASRG
$490,238.

     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.  For  the  three months ended March 31, 2000, ASA earned
$22,533 under this agreement and $41,046 was payable at March 31, 2000.

     The  Lessee,  ASRG  and ASA are 100% owned by Glade M. Knight, Chairman and
President  of  the  Company.  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
offering.


                                      F-10
<PAGE>

                              APPLE SUITES, INC.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           (UNAUDITED) -- (CONTINUED)

(6) EARNINGS PER SHARE

     The  following  table  sets  forth  the  computation  of  basic and diluted
earnings per share in accordance with FAS 128:

<TABLE>
<CAPTION>
                                                                            THREE MONTHS
                                                                               ENDED
                                                                              3/31/00
                                                                           -------------
<S>                                                                        <C>
     Numerator:
      Net Income
      Numerator for basic and diluted earnings ...........................  $   506,063
     Denominator:
      Denominator for basic earnings per share-weighted-average shares ...    3,607,458
     Effect of dilutive securities:
      Stock options ......................................................        2,200
                                                                            -----------
      Denominator for diluted earnings per share-adjusted weighted-average
        shares and assumed conversions ...................................    3,609,658
                                                                            -----------
      Basic and diluted earnings per common share ........................  $      0.14
                                                                            -----------
</TABLE>

(7) ACQUISITIONS

     The  following  unaudited  pro forma information for the three months ended
March  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
transactions,  in  fact, had occurred on January 1, 1999, nor does it purport to
represent the results of operations for future periods.

<TABLE>
<CAPTION>
                                                        THREE MONTHS
                                                           ENDED
                                                          3/31/99
                                                      ---------------
<S>                                                   <C>
     Lease revenue ..................................   $ 3,398,637
     Net income .....................................       748,633
     Net income per share-basic and diluted .........   $       .22
</TABLE>

     The   pro   forma   information  applies  the  Company's  Percentage  Lease
Agreements  to  actual  suite  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 the beginning of the periods; and (4)
common  stock  raised  during 1999 to purchase these hotels has been adjusted to
reflect issuances as of January 1, 1999.


(8) SUBSEQUENT EVENTS

     In  April,  2000  the Company distributed to its shareholders approximately
$904,918  ($.25 per share) of which approximately $448,641 was reinvested in the
purchase  of  additional  shares. On April 18, 2000, the Company closed the sale
to  investors  of  301,514  shares at $10 per share representing net proceeds to
the Company of $2,350,227.


                                      F-11
<PAGE>

                              APPLE SUITES, INC.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           (UNAUDITED) -- (CONTINUED)
(8) SUBSEQUENT EVENTS -- (CONTINUED)

     On  May  8,  2000, the Company acquired a Homewood Suites(Reg. TM) hotel in
Malvern,  Pennsylvania  for  $15,489,000.  The  hotel  was  purchased  through a
combination  of  equity  proceeds  from  the  equity  offering and a note in the
amount  of $11,616,750 made payable to the order of Promus. The note has a fixed
interest  rate  of  8.5%  per  annum.  Interest payments are due monthly and the
maturity  date is May, 2001. This hotel will be leased by the Lessee and managed
by  Promus in substantially the same manner as the other 11 Homewood Suites(Reg.
TM) hotels owned at March 31, 2000.


                                      F-12
<PAGE>
                         APPLE SUITES MANAGEMENT, INC.

                    CONSOLIDATED BALANCE SHEET (UNAUDITED)

<TABLE>
<CAPTION>
                                                                        MARCH 31,      DECEMBER 31,
                                                                           2000            1999
                                                                      -------------   -------------
<S>                                                                   <C>             <C>
CURRENT ASSETS
 Cash and cash equivalents ........................................    $2,329,310      $2,395,000
 Accounts receivables, net ........................................     1,514,431         738,361
 Inventories ......................................................       125,970         121,801
 Other assets .....................................................         2,188           8,142
                                                                       ----------      ----------
   Total Current Assets ...........................................     3,971,899       3,263,304

NON-CURRENT ASSETS
Deferred franchise fees ...........................................       555,753         562,851
                                                                       ----------      ----------
   Total Assets ...................................................    $4,527,652      $3,826,155
                                                                       ==========      ==========
LIABILITIES AND SHAREHOLDERS' DEFICIT
CURRENT LIABILITIES
 Account payable ..................................................    $  105,247      $   48,586
 Rent payable to Apple Suites, Inc. ...............................     2,641,141       2,123,136
 Due to third party manager .......................................       482,084         454,147
 Due to Apple Suites, Inc. ........................................        20,552          28,991
 Accrued expenses .................................................       704,153         624,346
 Current portion of note payable to Apple Suites, Inc. ............        58,350          56,939
                                                                       ----------      ----------
   Total Current liabilities ......................................     4,011,527       3,336,145

NON-CURRENT LIABILITIES
Note payable to Apple Suites, Inc. ................................       615,864         631,014
                                                                       ----------      ----------
   Total Liabilities ..............................................     4,627,391       3,967,159

SHAREHOLDERS' DEFICIT
 Common Stock, no par value, 5,000 authorized; 10 shares issued and
   outstanding ....................................................           100             100
 Retained deficit .................................................       (99,839)       (141,104)
                                                                       ----------      ----------
   Total Shareholders' deficit ....................................       (99,739)       (141,004)
                                                                       ----------      ----------
   Total Liabilities and Shareholders' Deficit ....................    $4,527,652      $3,826,155
                                                                       ==========      ==========
</TABLE>

See accompanying notes to financial statements.


                                      F-13
<PAGE>
                         APPLE SUITES MANAGEMENT, INC.

               CONSOLIDATED STATEMENT OF OPERATIONS (UNAUDITED)

<TABLE>
<CAPTION>
                                                  THREE MONTHS
                                                     ENDED
                                                 MARCH 31, 2000
                                                ---------------
<S>                                             <C>
REVENUE
 Suite revenue ..............................      $7,682,355
 Other revenue ..............................         420,816
                                                   ----------
   Total revenue ............................       8,103,171
EXPENSES
 Operating expense ..........................       2,295,392
 General and administrative .................         670,943
 Advertising and promotion ..................         662,647
 Utilities ..................................         283,263
 Franchise fees .............................         307,294
 Management fees ............................         322,766
 Rent expense -- Apple Suites, Inc. .........       3,406,678
 Interest expense ...........................          15,275
 Other ......................................          96,212
                                                   ----------
   Total expenses ...........................       8,060,470
 Income before income taxes .................          42,701
 Income tax expense .........................              --
                                                   ----------
   Net income ...............................      $   42,701
                                                   ==========

</TABLE>
               CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED)

<TABLE>
<CAPTION>
                                                                                THREE MONTHS ENDED
                                                                                  MARCH 31, 2000
                                                                               -------------------
<S>                                                                            <C>
CASH FLOW FROM OPERATING ACTIVITIES:
Net income .................................................................       $   42,701
Adjustments to reconcile net income to net cash used in operating activities
 Amortization of deferred franchise fees ...................................            7,098
Changes in operating assets and liabilities:
 Receivables ...............................................................         (776,070)
 Other assets ..............................................................              349
 Due to Apple Suites, Inc. .................................................           (8,439)
 Rent payable to Apple Suites, Inc. ........................................          518,005
 Accounts payable ..........................................................           56,661
 Due to third party manager ................................................           27,937
 Accrued expenses ..........................................................           79,807
                                                                                   ----------
   Net cash used in operating activities ...................................          (51,951)

CASH FLOW FROM FINANCING ACTIVITIES:
 Repayments of notes payable ...............................................          (13,739)
                                                                                   ----------
   Net cash used in financing activities ...................................          (13,739)
   Decrease in cash and cash equivalents ...................................          (65,690)

 Cash and cash equivalents, beginning of period ............................        2,395,000
                                                                                   ----------
 Cash and cash equivalents, end of period ..................................       $2,329,310
                                                                                   ==========
</TABLE>

See accompanying notes to consolidated financial statements.

                                      F-14
<PAGE>

                         APPLE SUITES MANAGEMENT, INC.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                  (UNAUDITED)

                                MARCH 31, 2000


(1) GENERAL INFORMATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES


ORGANIZATION

     Apple  Suites  Management,  Inc.  (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 days
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(Reg. TM) by Hilton.

     The  Lessee commenced operations in September 1999, therefore, consolidated
statements  of  operations and cash flows for the three month period ended March
31, 1999 are not presented.


(2) PERCENTAGE LEASES

     The  Percentage  Leases  expire  in 2009, subject to earlier termination by
the  Company upon 30 days 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  has entered into license agreements with Promus to operate the
hotels  as  Homewood Suites(Reg. TM) 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(Reg.  TM)  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


                                      F-15
<PAGE>

                         APPLE SUITES MANAGEMENT, INC.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           (UNAUDITED) -- (CONTINUED)
(2) PERCENTAGE LEASES -- (CONTINUED)

system  for  Homewood  Suites(Reg.  TM)  by Hilton. The Lessee pays Promus 4% of
monthly  suite revenue for each of these functions, respectively. Total expenses
incurred  by  the Lessee for franchise fees, advertising and promotion fees, and
management fees for the three months ended March 31, 2000 totaled $937,354.


(3) SHAREHOLDER'S EQUITY

     The  Lessee  requires  or  may  require funds to capitalize its business to
satisfy  its obligations under Percentage Leases with the Company. To meet these
objectives,  the Lessee has two funding commitment agreements of $1 million each
from  Mr.  Knight  and  Apple Suites Realty Group, Inc., ("ASRG"), respectively,
(together  "Payor").  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
payment  of  all commitments amounts by the Payor to the Lessee. As of March 31,
2000, no contributions have been made by the Payor to the Lessee.


(4) SUBSEQUENT EVENTS

     Effective  May  8,  2000, the Company acquired a hotel property in Malvern,
Pennsylvania.  This  hotel will be leased by the Lessee and managed by Promus in
substantially the same manner as the other 11 Homewood Suites(Reg. TM) hotels.


                                      F-16



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