SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

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

FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2006

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

FOR THE TRANSITION PERIOD FROM              TO             

Commission File Number 000-50731

APPLE HOSPITALITY FIVE, INC.

(Exact name of registrant as specified in its charter)

VIRGINIA	76-0713476
(State or other jurisdiction of incorporation or organization)	(IRS Employer Identification No.)
814 EAST MAIN STREET RICHMOND, VIRGINIA	23219
(Address of principal executive offices)	(Zip Code)

(804) 344-8121

(Registrant’s telephone number, including area code)

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

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

Large accelerated filer  ¨ Accelerated filer  x Non-accelerated filer  ¨

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

At August 1, 2006, there were 45,003,573 outstanding shares of common stock, no par value, of the registrant.

APPLE HOSPITALITY FIVE, INC.

FORM 10-Q

INDEX

		Page Number
PART I. FINANCIAL INFORMATION
Item 1.	Financial Statements (Unaudited)
	Consolidated Balance Sheets - June 30, 2006 and December 31, 2005	3
	Consolidated Statements of Operations - Three and six months ended June 30, 2006 and Three and six months ended June 30, 2005	4
	Consolidated Statements of Cash Flows - Six months ended June 30, 2006 and Six months ended June 30, 2005	5
	Notes to Consolidated Financial Statements	6
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	9
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	13
Item 4.	Controls and Procedures	13
PART II. OTHER INFORMATION
Item 1.	Legal Proceedings (not applicable)
Item 1A.	Risk Factors (not applicable)
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	14
Item 3.	Defaults Upon Senior Securities (not applicable)
Item 4.	Submission of Matters to a Vote of Security Holders	15
Item 5.	Other Information (not applicable)
Item 6.	Exhibits	16
Signatures		17

This Quarterly report on Form 10-Q includes references to certain trademarks or service marks. SpringHill Suites^®, by Marriott, Courtyard^® by Marriott, Residence Inn^® by Marriott and Marriott Suites^® trademarks are the property of Marriott International, Inc. (“Marriott”) or one of its affiliates. The Homewood Suites^® and Hilton Garden Inn^® trademarks are the property of Hilton Hotels Corporation (“Hilton”) or one or more of its affiliates. For convenience, the applicable trademark or service mark symbol has been omitted but will be deemed to be included wherever the above-referenced terms are used.

2

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements (Unaudited)

Apple Hospitality Five, Inc.

Consolidated Balance Sheets (unaudited)

(in thousands, except share data)

	June 30, 2006			December 31, 2005
ASSETS
Investment in hotels, net of accumulated depreciation of $30,125 and $23,934, respectively	$	399,521		$	401,732
Cash and cash equivalents		890			1,082
Restricted cash-furniture, fixtures and other escrows		4,787			4,277
Due from third party managers, net		6,301			3,157
Other assets, net		978			3,199
TOTAL ASSETS	$	412,477		$	413,447
LIABILITIES
Notes payable	$	5,836		$	4,575
Accounts payable and accrued expenses		1,671			1,986
TOTAL LIABILITIES		7,507			6,561
SHAREHOLDERS’ EQUITY
Preferred stock, authorized 15,000,000 shares; none issued and outstanding		—			—
Series A preferred stock, no par value, authorized 200,000,000 shares; outstanding 45,163,663 and 45,226,571 shares, respectively		—			—
Series B convertible preferred stock, no par value, authorized 240,000 shares; issued and outstanding 240,000 shares		24			24
Common stock, no par value, authorized 200,000,000 shares; outstanding 45,163,663 and 45,226,571 shares, respectively		443,109			443,722
Distributions greater than net income		(38,163	)		(36,860	)
TOTAL SHAREHOLDERS’ EQUITY		404,970			406,886
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY	$	412,477		$	413,447

See notes to consolidated financial statements.

3

Apple Hospitality Five, Inc.

Consolidated Statements of Operations (unaudited)

(in thousands, except per share data)

	Three months ended June 30, 2006			Three months ended June 30, 2005			Six months ended June 30, 2006			Six months ended June 30, 2005
Revenues:
Suite revenue	$	30,909		$	25,779		$	60,574		$	50,830
Other revenue		1,998			1,664			3,970			3,522
Total revenue		32,907			27,443			64,544			54,352
Expenses:
Operating expense		7,485			6,900			14,731			13,438
Hotel administrative expense		2,632			2,387			5,199			4,663
Sales and marketing		2,249			1,897			4,295			3,605
Utilities		1,244			1,075			2,556			2,193
Repair & maintenance		1,388			1,191			2,685			2,479
Franchise fees		678			455			1,352			881
Management fees		1,475			1,196			3,168			2,586
Taxes, insurance and other		1,953			1,660			3,968			3,324
General and administrative		927			767			1,584			1,376
Depreciation expense		3,181			2,670			6,293			5,312
Total expenses		23,212			20,198			45,831			39,857
Operating income		9,695			7,245			18,713			14,495
Other		241			—			241			—
Interest income		39			199			76			323
Interest expense		(177	)		(100	)		(384	)		(198	)
Net income	$	9,798		$	7,344		$	18,646		$	14,620
Basic and diluted income per common share	$	0.22		$	0.16		$	0.41		$	0.32
Weighted average shares outstanding - basic and diluted		45,087			45,221			45,092			45,252
Distributions declared per common share	$	0.22		$	0.22		$	0.44		$	0.44

See notes to consolidated financial statements.

4

Apple Hospitality Five, Inc.

Consolidated Statements of Cash Flows (unaudited)

(in thousands)

	Six months ended June 30, 2006			Six months ended June 30, 2005
Cash flow from operating activities:
Net income	$	18,646		$	14,620
Adjustments to reconcile net income to cash provided by operating activities:
Depreciation		6,293			5,312
Stock option expense		57			—
Other non-operating income		(241	)		—
Changes in operating assets and liabilities:
Due from third party managers		(3,144	)		(2,789	)
Debt service and other escrows		97			78
Other assets		(282	)		87
Accrued expenses		(316	)		368
Net cash provided by operating activities		21,110			17,676
Cash flow used in investing activities:
Decrease in cash paid for future acquisitions		—			340
Proceeds from sale of airplane		2,852			—
Capital improvements		(3,980	)		(2,144	)
Increase in deposits on capital improvement projects		(210	)		—
Net decrease (increase) in cash restricted for property improvements		(606	)		14
Net cash used in investing activities		(1,944	)		(1,790	)
Cash flow used in financing activities
Net proceeds from issuance of common stock		5,796			5,858
Redemptions of common stock		(6,466	)		(7,106	)
Repayment of secured notes payable		(39	)		(36	)
Net proceeds from line of credit		1,300			—
Cash distributions paid to shareholders		(19,949	)		(19,912	)
Net cash used in financing activities		(19,358	)		(21,196	)
Decrease in cash and cash equivalents		(192	)		(5,310	)
Cash and cash equivalents, beginning of period		1,082			38,630
Cash and cash equivalents, end of period	$	890		$	33,320

See notes to consolidated financial statements.

5

Notes to Consolidated Financial Statements

Note 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 accounting principles generally accepted in the United States. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. These unaudited financial statements should be read in conjunction with the Company’s audited consolidated financial statements contained in the Company’s December 31, 2005 Annual Report on Form 10-K. Operating results for the three and six months ended June 30, 2006 are not necessarily indicative of the results that may be expected for the year ending December 31, 2006.

Organization

Apple Hospitality Five, Inc. (the “Company”), a Virginia corporation, was formed on September 20, 2002, and its first investor closing was on January 3, 2003. The Company completed its best-efforts offering on March 18, 2004. 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 owns 28 hotels and is operated as and has annually elected to be taxed as a real estate investment trust (“REIT”). The REIT Modernization Act, effective January 1, 2001, permits a REIT to establish taxable businesses to conduct certain previously disallowed business activities. The Company has formed wholly-owned taxable REIT subsidiaries, and has leased all of its hotels to these subsidiaries (collectively, the “Lessees”).

Stock Incentive Plans

Effective January 1, 2006, the Company adopted Financial Accounting Standards Board (FASB) Statement No. 123 (revised 2004), Share-Based Payment, which is a revision of FASB Statement No. 123, Accounting for Stock-Based Compensation and elected the modified prospective transition method. Accordingly, no prior year amounts have been restated. Statement 123 (R) supersedes APB Opinion No. 25, Accounting for Stock Issued to Employees, and amends FASB Statement No. 95, Statement of Cash Flows. Generally, the approach in Statement 123 (R) is similar to the approach described in Statement 123. However, Statement 123 (R) requires all share-based payments to employees, including grants of employee stock options, to be recognized in the income statement based on their fair values. Pro forma disclosure is no longer an alternative. The adoption of this statement is not anticipated to have a material impact on the Company’s results of operations or financial position. For the second quarter of 2006 approximately 54,000 directors’ stock options were issued and share-based expense of approximately $57,000 was recorded.

Earnings Per Common Share

Basic earnings per common share is computed based upon the weighted average number of shares outstanding during the period. Diluted earnings per share is calculated after giving effect to all potential common shares that were dilutive and outstanding for the period. There were no potential common shares with a dilutive effect during the three and six months ended June 30, 2006 and 2005. The Series B convertible preferred shares are not included in earnings per common share calculations until such time that such shares are converted to common shares.

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.

6

Note 2

Investments in Hotels

The Company owned 28 hotels as of June 30, 2006. The Courtyard by Marriott in Vienna, Virginia was purchased in August 2005. All other properties were purchased prior to 2005.

Note 3

Other Assets

On May 17, 2006, the Company, through a wholly-owned subsidiary, Apple Hospitality Air LLC, sold its Lear jet for approximately $2.9 million. The disposal resulted in a gain of approximately $241,000.

Note 4

Notes payable

In January 2006, the Company entered into a $10 million revolving line of credit agreement. The line of credit, which terminates in January 2007, currently bears interest based on LIBOR which was 5.346% at June 30, 2006. As of June 30, 2006, there was $1.3 million outstanding on the line of credit.

Note 5

Shareholders’ Equity

During 2004, the Company instituted a Unit Redemption Program to provide limited interim liquidity to its shareholders. Redemption of Units, when requested, is made quarterly on a first-come, first-served basis. Shareholders may request redemption of Units for a purchase price equal to the lesser of: (1) the purchase price per unit that the shareholder actually paid for the unit; or (2) $11.00 per unit. The Company reserves the right to change the purchase price of redemptions, reject any request for redemption, or otherwise amend the terms of, suspend, or terminate the Unit Redemption Program. During the six months ended June 30, 2006, the Company redeemed 589,906 Units in the amount of $6.5 million under the program.

During 2004, the Company instituted a dividend reinvestment plan to its shareholders. The plan provides a convenient and cost effective way to increase shareholder investment in the Company by reinvesting dividends to purchase additional Units of the Company. The uses of the proceeds from this plan may include purchasing Units under the Company’s Unit Redemption Program, enhancing properties, satisfying financing obligations and other expenses, increasing working capital, funding various corporate operations, and acquiring extended-stay hotels. The Company has registered 7 million shares for potential issuance under the Program. During the six months ended June 30, 2006 526,999 Units were issued under the plan representing approximately $5.9 million. As of June 30, 2006, 2.1 million Units have been reinvested, representing $23.2 million in proceeds to the Company since the plan’s inception.

Expense related to the issuance of the 240,000 Series B convertible preferred shares to Mr. Knight will be recognized at such time when the number of common shares to be issued for conversion of the Series B shares can be reasonably estimated and the event triggering the conversion of the Series B shares to common shares occurs. The expense will be measured as the difference between the fair value of the common stock for which the Series B shares can be converted and the amounts paid for the Series B shares. Assuming a conversion event had occurred, there would be approximately 2.9 million common shares, which based upon the sales price of the Company’s shares at $11 per share would result in approximately $32 million of expense.

7

Note 6

Related Parties

The Company has significant transactions with related parties. These transactions cannot be construed to be arm’s length and the results of the Company’s operations may be different if these transactions were conducted with non-related parties.

The Company has contracted with Apple Suites Realty Group, Inc. (ASRG) to provide brokerage services for the acquisition and disposition of the Company’s real estate assets. In accordance with the contract, ASRG is paid a fee of 2% of the gross purchase price of any acquisitions or gross sale price of any dispositions of real estate investments, subject to certain conditions. There were no acquisitions or dispositions during the periods reported; therefore, there were no costs incurred with ASRG.

Effective January 3, 2003, the Company contracted with Apple Hospitality Five Advisors, Inc. (“AFA”), which in turn subcontracts with Apple Suites Advisors, Inc. (“ASA”), a subsidiary of Apple Hospitality Two, Inc., to advise and provide day-to-day management services for the Company and due-diligence services on acquisitions. In accordance with the contract, the Company pays AFA a fee equal to .1% to .25% of total equity contributions received by the Company in addition to certain reimbursable expenses. AFA in turn pays that total amount to ASA. During the six months ended June 30, 2006 and 2005, the Company incurred advisory and other reimbursable expenses of approximately $998,000 and $760,000 under this agreement, which are included in general and administrative expense.

AFA and ASRG are 100% owned by Mr. Glade M. Knight, the Company’s Chairman and Chief Executive Officer. ASA is a wholly-owned subsidiary of Apple Hospitality Two, Inc. Mr. Knight also serves as the Chairman and Chief Executive Officer of Apple Hospitality Two, Inc., a hospitality REIT, Apple REIT Six, Inc., a diversified REIT, and Apple REIT Seven, Inc., a newly organized company which is proposed to be a diversified REIT. The Company’s Board of Directors has members that are also on the Board of Directors of Apple Hospitality Two, Inc., Apple REIT Six, Inc. or Apple REIT Seven, Inc.

Note 7

Subsequent Events

In July 2006, the Company declared and paid approximately $3.4 million, or $.076 per share, in distributions to its common shareholders of record on June 28, 2006, of which $1.1 million or 100,698 Units were reinvested under the Company’s Dividend Reinvestment Plan.

In July 2006, the Company also redeemed 260,788 Units representing approximately $2.9 million, under the Company’s Unit redemption program.

8

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

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

General

Overview

The Company was formed and initially capitalized on September 20, 2002, with its first investor closing on January 3, 2003. On March 18, 2004, the Company concluded its best-efforts offering. The Company owns 28 hotels within different markets in the United States. The Company has elected to be treated as a Real Estate Investment Trust (“REIT”) for federal income tax purposes. The Company’s first hotel was acquired in January 2003 with twenty-one additional hotels acquired throughout 2003, five hotels acquired during 2004, and one acquired in 2005. The performance of the Company’s hotels can be influenced by many factors, including local hotel competition, local and national economic conditions and the performance of the individual managers assigned to its hotels. In evaluating financial condition and operating performance, the most important matters on which the Company focuses are revenue measurements, such as average occupancy, average daily rate (“ADR”) and revenue per available room (“RevPAR”), and expenses, such as hotel operating expenses, general and administrative and other expenses described below. The performance of the hotels for the periods owned have generally met expectations.

	Three months ended June 30,												Six months ended June 30,
(in thousands)	2006			POR		2005			POR		Percent change		2006			POR		2005			POR		Percent change
Total revenues	$	32,907		100	%	$	27,443		100	%	20	%	$	64,544		100	%	$	54,352		100	%	19	%
Hotel direct expenses		17,151		52	%		15,101		55	%	14	%		33,986		53	%		29,845		55	%	14	%
Taxes, insurance and other expense		1,953		6	%		1,660		6	%	18	%		3,968		6	%		3,324		6	%	19	%
General and administrative		927		3	%		767		3	%	21	%		1,584		2	%		1,376		3	%	15	%
Depreciation		3,181		10	%		2,670		10	%	19	%		6,293		10	%		5,312		10	%	18	%
ADR	$	115				$	105				10	%	$	116				$	105				10	%
Occupancy		80	%				78	%			3	%		77	%				76	%			1	%
RevPAR	$	92				$	81				14	%	$	90				$	80				13	%

9

Hotels Owned

As of June 30, 2006, the Company owned the following 28 hotel properties:

City	State	Franchise/Brand	Date Acquired	Gross Purchase Price		# of Suites
Tucson	Arizona	Courtyard	October 2003	$	12,500,000	153
Tucson	Arizona	Residence Inn	December 2004		12,000,000	120
Cypress	California	Residence Inn	May 2003		19,000,000	155
Colorado Springs	Colorado	Homewood Suites	February 2003		12,300,000	127
Danbury	Connecticut	SpringHill Suites	August 2003		11,500,000	106
Tampa	Florida	Hilton Garden Inn	September 2003		12,250,000	95
Baton Rouge	Louisiana	Homewood Suites	February 2003		7,000,000	115
Las Vegas	Nevada	Marriott Suites	October 2003		42,500,000	278
Lebanon	New Jersey	Courtyard	August 2003		15,000,000	125
Cranbury	New Jersey	Residence Inn	May 2003		11,000,000	108
Somerset	New Jersey	Residence Inn	May 2003		13,000,000	108
Albuquerque	New Mexico	Homewood Suites	February 2003		12,900,000	151
Westbury	New York	Hilton Garden Inn	December 2003		19,000,000	140
Hauppauge	New York	Residence Inn	May 2003		18,500,000	100
Solon	Ohio	Homewood Suites	September 2003		10,050,000	86
Nashville	Tennessee	Residence Inn	June 2003		8,800,000	168
Addison	Texas	Courtyard	October 2003		15,600,000	176
Harlingen	Texas	Courtyard	October 2003		10,000,000	114
Houston	Texas	Courtyard	October 2003		15,000,000	153
Houston	Texas	Courtyard	August 2004		11,000,000	100
Houston	Texas	Residence Inn	August 2004		13,200,000	120
Fort Worth	Texas	Courtyard	March 2004		10,500,000	92
Brownsville	Texas	Residence Inn	October 2003		11,300,000	102
Dallas Fort Worth	Texas	Residence Inn	October 2003		11,000,000	100
Houston Westchase	Texas	Residence Inn	January 2003		14,300,000	120
Dallas Park Central	Texas	Residence Inn	October 2003		13,900,000	139
Merrifield	Virginia	Courtyard	August 2005		27,925,005	206
Federal Way	Washington	Courtyard	September 2004		16,900,000	160
				$	407,925,005	3,717

No goodwill or intangible assets were recorded in connection with any of the acquisitions.

Related Party Transactions

The Company has significant transactions with related parties. These transactions cannot be construed to be arm’s length and the results of the Company’s operations may be different if these transactions were conducted with non-related parties.

The Company has contracted with Apple Suites Realty Group, Inc. (“ASRG”) to provide brokerage services for the acquisition and disposition of the Company’s real estate assets. In accordance with the contract, ASRG is paid a fee of 2% of the gross purchase price of any acquisitions or gross sale price of any dispositions of real estate investments, subject to certain conditions. There were no acquisitions or dispositions during the periods reported; therefore, there were no costs incurred with ASRG.

10

Effective January 3, 2003, the Company contracted with Apple Hospitality Five Advisors, Inc. (“AFA”), which in turn subcontracts with Apple Suites Advisors, Inc. (“ASA”), a subsidiary of Apple Hospitality Two, Inc., to advise and provide day-to-day management services for the Company and due-diligence services on acquisitions. In accordance with the contract, the Company pays AFA a fee equal to .1% to .25% of total equity contributions received by the Company in addition to certain reimbursable expenses. AFA in turn pays that total amount to ASA. During the six months ended June 30, 2006 and 2005, the Company incurred advisory and other reimbursable expenses of approximately $998,000 and $760,000 under this agreement, which are included in general and administrative expense.

AFA and ASRG are 100% owned by Mr. Glade M. Knight, the Company’s Chairman. ASA is a wholly-owned subsidiary of Apple Hospitality Two, Inc. Mr. Knight also serves as the Chairman and Chief Executive Officer of Apple Hospitality Two, Inc., a hospitality REIT, Apple REIT Six, Inc., a diversified REIT, and Apple REIT Seven, Inc., a newly organized company which is proposed to be a diversified REIT. The Company’s Board of Directors has members that are also on the Board of Directors of Apple Hospitality Two, Inc., Apple REIT Six, Inc. or Apple REIT Seven, Inc.

Results of Operations

The Company’s financial results for the first six months of 2006 have improved as compared to the first six months of 2005. This improvement reflects the increase in hotels owned as of June 30, 2006 as compared to prior year and the overall improvement in the hospitality industry. The Company will continue to focus on continuing to penetrate markets and maximizing ADR and occupancy. Although there can be no assurances of future results since many factors in the hotel industry are not controllable by the Company, it is anticipated this improvement will continue throughout 2006.

Revenues

The Company’s principal source of revenue is hotel suites revenue and related other revenue. Hotel operations are for the Company’s 28 hotels acquired through June 30, 2006 for their respective periods owned. For the three months ended June 30, 2006 and 2005, the Company earned total revenue of $32.9 million and $27.4 million. For these periods, the hotels achieved average occupancy of 80% and 78%, ADR of $115 and $105, and RevPAR of $92 and $81. For the six months ended June 30, 2006 and 2005, the Company earned total revenue of $64.5 million and $54.4 million. For these periods, the hotels achieved average occupancy of 77% and 76%, ADR of $116 and $105, and RevPAR of $90 and $80. ADR, or average daily rate, is calculated as room revenue divided by the number of rooms sold, and RevPAR, or revenue per available room, is calculated as occupancy multiplied by ADR. The overall increase in revenue for these periods is due to an additional hotel owned in 2006 as compared to 2005 and the overall improvement in the hospitality industry. The Company has and will continue to aggressively manage its room rates to maximize revenue.

Expenses

Expenses for the three and six months ended June 30, 2006 and 2005 represented the expenses related to the Company’s hotels purchased for their respective periods owned. Expenses increased overall due to the increased number of hotels owned in 2006 versus 2005 and to the increase in revenue.

For the three months ended June 30, 2006 and 2005, direct expenses of the hotels totaled approximately $17.2 million or 52% of total revenues and $15.1 million or 55% of total revenues. For the six months ended June 30, 2006 and 2005, direct expenses were $34.0 million and $29.8 million or 53% and 55% of total revenues. The decline as a percentage of revenue is due to the increase in ADR.

Taxes, insurance, and other expense for the three months ended June 30, 2006 and 2005 was approximately $2.0 million or 6% of total revenue and $1.7 million or 6% of total revenues. For the six months ended June 30, 2006 and 2005, taxes, insurance, and other expense was $4.0 million and $3.3 million or 6% of total revenues in both periods.

11

General and administrative expense (“G&A”) for the three months ended June 30, 2006 and 2005 was approximately $927,000 or 3% of total revenue and $767,000 or 3% of total revenues. G&A year-to-date June 30, 2006 and 2005 was $1.6 million and $1.4 million or 2% and 3% of total revenues.

Depreciation expense for the three months ended June 30, 2006 and 2005 was approximately $3.2 million and $2.7 million. Depreciation expense for the six months was $6.3 million and $5.3 million, respectively. Depreciation expense represents expense of the Company’s hotels and related personal property for their respective periods owned. The increase is due to the additional property acquired in the third quarter of 2005.

Liquidity and Capital Resources

Capital Requirements and Resources

The cash flow generated from the properties owned is the Company’s principal source of liquidity. In addition, the Company may borrow funds, subject to limitations set forth in its by-laws. In January 2006, the Company entered into a $10 million revolving line of credit agreement. The line of credit, which terminates in January 2007, may be extended under certain conditions and bears interest based on LIBOR or the prime rate. As of June 30, 2006, there was $1.3 million outstanding on the line of credit.

The Company’s dividend distribution policy is at the discretion of the board of directors and depends on several factors. In June 2006 the Company increased its distribution to an annual rate of $0.91 per Unit outstanding from $0.88 per Unit. Distributions are paid monthly. The Company anticipates operating cash flow to allow the Company to continue its current dividend payment policy. However, there can be no assurance that the Company will continue its current dividend amount or that it will be completely funded from operations.

The Company has on-going capital commitments to fund its capital improvements. The Company is required, under all of the Company’s management agreements, to make available for the repair, replacement, and refurbishing of furniture, fixtures, and equipment of the hotels, an amount of approximately 5% of total revenues. The Company expects that this amount will be adequate to fund substantially all of the required repair, replacement, and refurbishments and to maintain the Company’s hotels in a competitive condition. As of June 30, 2006, the Company held approximately $4.7 million in reserve.

The Company anticipates that cash flow and available capital resources will be adequate to cover its operating expenses and to permit the Company to meet its anticipated liquidity requirements, including distribution requirements.

In general, the Company expects capital resources to be adequate to meet its cash requirements in 2006.

Impact of Inflation

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

Seasonality

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

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Business Interruption

Being in the real estate industry, the Company is exposed to natural disasters both locally and nationally, and although management believes there is adequate insurance to cover this exposure, there can be no assurance that such events will not have a material adverse effect on the Company’s financial position and results of operations.

Subsequent Events

In July 2006, the Company declared and paid approximately $3.4 million, or $.076 per share, in distributions to its common shareholders of record on June 28, 2006, of which $1.1 million or 100,698 Units were reinvested under the Company’s Dividend Reinvestment Plan.

In July 2006, the Company also redeemed 260,788 Units representing approximately $2.9 million, under the Company’s Unit redemption program.

Item 3. Quantitative and Qualitative Disclosures about Market Risk

The Company does not engage in transactions in derivative financial instruments or derivative commodity instruments. As of June 30, 2006, the Company’s financial instruments were not exposed to significant market risk due to interest rate risk, foreign currency exchange risk, commodity price risk or equity price risk.

Item 4. Controls and Procedures

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

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PART II. OTHER INFORMATION

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

Unit Redemption Program

With its initial offering the Company instituted a Unit redemption program to provide its shareholders who have held their Units for at least one year with the benefit of limited interim liquidity, by presenting for redemption all or any portion of their Units at any time and in accordance with certain procedures. Once this time limitation has been met, the Company may, subject to certain conditions and limitations, redeem the Units presented for redemption for cash, to the extent that the Company has sufficient funds available to fund the redemption. If Units are held for the required one-year period, the Units may be redeemed for a purchase price equal to the lesser of: (1) $11.00 per unit; or (2) the purchase price per Unit that was actually paid for the Units. The board of directors reserves the right, in its sole discretion, at any time and from time to time, to waive the one-year holding period, reject any request for redemption, change the purchase price for redemptions or otherwise amend the terms of, suspend, or terminate the unit redemption program. Redemption of units, when requested, will be made quarterly on a first-come, first-served basis. The Company’s board of directors, in its sole discretion, may choose to suspend or terminate the unit redemption program or reduce the number of Units purchased under the unit redemption program if it determines the funds otherwise available to fund the unit redemption program are needed for other purposes. These redemptions are primarily funded through the Company’s dividend reinvestment plan. The following is a summary of redemptions during the second quarter of 2006:

Issuer Purchases of Equity Securities

	(a)	(b)	(c)	(d)
	Total Number of Units Purchased	Average Price Paid per Unit	Total Number of Units Purchased as Part of Publicly Announced Plans or Programs	Maximum Number of Units that May Yet Be Purchased Under the Plans or Programs
Period
April 2006	261,573	$10.94	2,617,397	(1)

⁽¹⁾ The maximum number of Units that may be redeemed in the current calendar year is three percent (3.0%) of the weighted average number of Units outstanding at the end of the previous calendar year.

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Item 4. Submission of Matters to a Vote of Security Holders

On May 11, 2006, the Company held an Annual Meeting of Shareholders for the purpose of electing four directors to the Company’s Board of Directors. The four nominees to the Company’s Board of Directors were Mr. Kent W. Colton, Mr. Glenn W. Bunting, Mr. Bruce H. Matson and Mr. Robert M. Wily. Each of these individuals were current directors of the Company. Mr. Colton was nominated for an additional two-year term on the Board of Directors and Mr. Bunting, Mr. Matson and Mr. Wily were nominated for an additional three-year term on the Board of Directors. The election of directors was uncontested, and the nominees were elected.

The total number of votes represented at the Annual Meeting of Shareholders was 45,155,427. The voting results were as follows:

Kent W. Colton	Votes for: 44,760,553
	Votes withheld: 394,874
Glenn W. Bunting	Votes for: 44,764,404
	Votes withheld: 391,023
Bruce H. Matson	Votes for: 44,759,497
	Votes withheld: 395,930
Robert M. Wily	Votes for: 44,745,978
	Votes withheld: 409,449

The names of the other directors whose terms of office as directors continued after the Annual Meeting of Shareholders are Glade M. Knight, Lisa B. Kern, and Michael S. Waters.

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Item 6. Exhibits

Exhibit Number	Description
3.1	Articles of Incorporation, as amended, of Apple Hospitality Five, Inc. (Incorporated by reference to Exhibit 3.1 to Amendment No. 3 to the registrant’s registration statement on Form S-11 (SEC File No. 333-100044) filed December 3, 2002).
3.2	Bylaws of Apple Hospitality Five, Inc. (Incorporated herein by reference to Exhibit 3.2 to Form 10-Q filed on August 4, 2005; SEC File No. 000-50731).
31.1	Certification of the Company’s Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (FILED HEREWITH).
31.2	Certification of the Company’s Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (FILED HEREWITH).
32.1	Certification of the Company’s Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (FILED HEREWITH).

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SIGNATURES

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

Apple Hospitality Five, Inc.
By:	/s/ Glade M. Knight	Date: August 8, 2006
	Glade M. Knight,
	Chairman of the Board, Chief Executive Officer, and President (Principal Executive Officer)
By:	/s/ Bryan Peery	Date: August 8, 2006
	Bryan Peery, Chief Financial Officer (Principal Financial and Principal Accounting Officer)

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