AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON NOVEMBER 19, 1996
FILE NO. 333-10635
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
AMENDMENT NO. 3
TO
FORM S-11
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
APPLE RESIDENTIAL INCOME TRUST, INC.
(Exact name of registrant as specified in governing instruments)
306 East Main Street, Richmond, Virginia 23219
(Address of principal executive offices)
Glade M. Knight
306 East Main Street
Richmond, Virginia 23219
(Name and address of agent for service)
Copy to:
Leslie A. Grandis, McGuire, Woods, Battle & Boothe, L.L.P.
One James Center, Richmond, Virginia 23219
------------------------
Approximate date of commencement of proposed sale to the public: As soon as
practicable after the effective date of this Registration Statement.
If any of the securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box.[X]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering.[ ]_______________
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering.[ ]_______________
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box.[ ]
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant shall
file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until this Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
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<PAGE>
APPLE RESIDENTIAL INCOME TRUST, INC.
CROSS REFERENCE SHEET
<TABLE>
<CAPTION>
ITEM NUMBER AND CAPTION LOCATION IN PROSPECTUS
------------------------------------------------ -------------------------------------------------------
<S> <C> <C>
1. Forepart of Registration Statement and Outside
Front Cover Page of Prospectus................ Forepart of Registration Statement and Outside Front
Cover Page
2. Inside Front and Outside Back Cover Pages of
Prospectus.................................... Inside Front and Outside Back Cover Pages
3. Summary Information, Risk Factors and Ratio of Summary of the Offering; Risk Factors; Summary of
Earnings to Fixed Charges..................... Organizational Documents -- Shareholder Liability
4. Determination of Offering Price............... Risk Factors -- Arbitrary Share Offering Prices
5. Dilution...................................... Risk Factors -- Potential Dilution; Summary of
Organizational Documents -- Issuance of Securities
6. Selling Security Holders...................... Not Applicable
7. Plan of Distribution.......................... Plan of Distribution
8. Use of Proceeds............................... Estimated Use of Proceeds
9. Selected Financial Data....................... Not Applicable
10. Management's Discussion and Analysis of
Financial Condition and Results of Operations. Management's Discussion and Analysis of Financial
Condition
11. General Information as to Registrant.......... Summary of the Offering; Business and Properties;
Management
12. Policy with Respect to Certain Activities..... Summary of the Offering; Investment Objectives and
Policies; Summary of Organizational Documents; Reports
to Shareholders
13. Investment Policies of Registrant............. Summary of the Offering; Investment Objectives and
Policies
14. Description of Real Estate.................... Business and Properties
15. Operating Data................................ Business and Properties
16. Tax Treatment of Registrant and its Security
Holders....................................... Summary of the Offering; Federal Income Tax
Considerations; Investment by Tax-Exempt Entities
17. Market Price of and Dividends on the
Registrant's Common Equity and Related
Stockholder Matters........................... Distribution Policy
18. Description of Registrant's Securities........ Summary of the Offering; Description of Capital Stock
19. Legal Proceedings............................. Business and Properties -- Legal Proceedings
20. Security Ownership of Certain Beneficial
Owners and Management......................... Principal and Management Stockholders
<PAGE>
ITEM NUMBER AND CAPTION LOCATION IN PROSPECTUS
------------------------------------------------ -------------------------------------------------------
21. Directors and Executive Officers.............. Management
22. Executive Compensation........................ Compensation; Management
23. Certain Relationships and Related Transactions Summary of the Offering; Compensation; Conflicts of
Interest; Management; The Advisor and Affiliates
24. Selection, Management and Custody of
Registrant's Investments...................... Summary of the Offering; Compensation; Conflicts of
Interest; Investment Objectives and Policies;
Management; The Advisor and Affiliates
25. Policies with Respect to Certain Transactions Investment Objectives and Policies; Conflicts of
Interest
26. Limitation of Liability ...................... Risk Factors; Summary of Organizational Documents
27. Financial Statements and Information ......... Index to Financial Statements
28. Interests of Named Experts and Counsel........ Legal Opinions
29. Disclosure of Commission Position on
Indemnification for Securities Act Liabilities Risk Factors; Summary of Organizational Documents
</TABLE>
<PAGE>
II. INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 30. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following are estimates of the expenses to be incurred in connection with
the issuance and distribution of the securities to be registered:
SEC registration fee .................................... $ 86,208
NASD filing fee ......................................... 25,500
Printing and engraving fees ............................. 250,000
Legal fees and expenses ................................. 300,000
Accounting fees and expenses ............................ 200,000
Blue Sky fees and expense ............................... 50,000
Escrow agent and registrar .............................. 20,000
Registrant travel expense ............................... 30,000
Marketing Expense Allowance ............................. 6,250,000
Contingency ............................................. 38,292
------
TOTAL .................................................. $7,250,000
==========
ITEM 31. SALES TO SPECIAL PARTIES.
On August 7, 1996, the Registrant sold 10 Common Shares to Apple Realty
Advisors, Inc. for $100 cash.
ITEM 32. RECENT SALES OF UNREGISTERED SECURITIES.
On August 7, 1996, the Registrant sold 10 Common Shares to Apple Realty
Advisors, Inc. for $100 cash, in a transaction that was exempt from registration
under the Securities Act of 1933, as amended, pursuant to Section 4(2) thereof.
On November 14, 1996, the Registrant sold 200,000 Class B Convertible Shares to
Glade M. Knight for $20,000 cash, in a transaction that was exempt from
registration under the Securities Act of 1933, as amended, pursuant to Section
4(2) thereof.
ITEM 33. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Company will obtain, and pay the cost of, directors' and officers'
liability insurance coverage which insures (i) the directors and officers of the
Company from any claim arising out of an alleged wrongful act by the directors
and officers of the Company in their respective capacities as directors and
officers of the Company, and (ii) the Company to the extent that the Company has
indemnified the directors and officers for such loss.
The Virginia Stock Corporation Act (the "Virginia Act") permits, and the
Registrant's Articles of Incorporation and Bylaws require, indemnification of
the Registrant's directors and officers in a variety of circumstances, which may
include liabilities under the Securities Act of 1933. Under Section 13.1-697 of
the Virginia Act, a Virginia corporation generally is authorized to indemnify
its directors in civil or criminal actions if they acted in good faith and
believed their conduct to be in the best interests of the corporation and, in
the case of criminal actions, had no reasonable cause to believe that the
conduct was unlawful. The Registrant's Articles of Incorporation and Bylaws
require indemnification of officers and directors with respect to any action
except in the case of willful misconduct, bad faith, reckless disregard of
duties or violations of the criminal law. In addition, the Registrant may carry
insurance on behalf of directors, officers, employees or agents that may cover
liabilities under the Securities Act of 1933. The Registrant's Articles of
Incorporation, as permitted by the Virginia Act, eliminate the damages that may
be assessed against a director or officer of the Registrant in a shareholder or
derivative proceeding. This limit on liability will not apply in the event of
willful misconduct or a knowing violation of the criminal law or of federal or
state securities laws. Reference also is made to the indemnification provisions
set forth in the form of Agency Agreement filed as Exhibit 1 hereto.
II-1
<PAGE>
II. INFORMATION NOT REQUIRED IN PROSPECTUS - (Continued)
ITEM 34. TREATMENT OF PROCEEDS FROM STOCK BEING REGISTERED.
None of the proceeds will be credited to an account other than the
appropriate capital share account.
ITEM 35. FINANCIAL STATEMENTS, FINANCIAL STATEMENT SCHEDULES AND EXHIBITS.
(a) Financial Statements. See Index to Financial Statements for the financial
statements which are included in the Prospectus.
(b) Financial Statement Schedules: None.
(c) Exhibits. Except as noted, the Exhibits have been previously filed.
EXHIBIT
NUMBERS DESCRIPTION OF DOCUMENTS
- ------- -----------------------------------------------------------------------
1.1 Agency Agreement between the Registrant and David Lerner Associates,
Inc. with form of Selected Dealer Agreement attached as Exhibit A
thereto.
1.2 Escrow Agreement among the Registrant, First Union National Bank of
North Carolina and David Lerner Associates, Inc.
3.1 Articles of Incorporation of the Registrant.
3.2 Bylaws of the Registrant.
3.3 Articles of Amendment to the Articles of Incorporation of the
Registrant.
3.4 Articles of Amendment to the Articles of Incorporation of the
Registrant.
5 Opinion of McGuire, Woods, Battle & Boothe, L.L.P. as to the legality
of the securities being registered.
8 Opinion of McGuire, Woods, Battle & Boothe, L.L.P. as to certain tax
matters. FILED HEREWITH.
10.1 Advisory Agreement between the Registrant and Apple Residential
Advisors, Inc.
10.2 Form of Property Management Agreement between the Registrant and Apple
Residential Management Group, Inc.
10.3 Property Acquisition/Disposition Agreement between the Registrant and
Apple Realty Group, Inc.
10.4 Apple Residential Income Trust, Inc. 1996 Incentive Plan.
10.5 Apple Residential Income Trust, Inc. 1996 Non-Employee Directors Stock
Option Plan.
10.6 Share Purchase Warrants Warrant Agreement.
10.7 Right of First Refusal Agreement.
23.1 Consent of McGuire, Woods, Battle & Boothe, L.L.P. (included in
Exhibits 5 and 8).
23.2 Consent of Ernst & Young LLP.
24.1 Power of Attorney of Glade M. Knight.
24.2 Power of Attorney of Ted W. Smith.
24.3 Power of Attorney of Penelope W. Kyle.
24.4 Power of Attorney of Bruce H. Matson.
- ----------
ITEM 36. UNDERTAKINGS.
The undersigned registrant hereby undertakes:
II-2
<PAGE>
II. INFORMATION NOT REQUIRED IN PROSPECTUS - (Continued)
(a) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of the Securities
Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after the
effective date of the registration statement (or the most recent post-effective
amendment thereof) which, individually or in the aggregate, represent a
fundamental change in the information set forth in the registration statement.
Notwithstanding the foregoing, any increase or decrease in volume of securities
offered (if the total dollar value of securities offered would not exceed that
which was registered) and any deviation from the low or high end of the
estimated maximum offering range may be reflected in the form of prospectus
filed with the Commission pursuant to Rule 424(b) if, in the aggregate, the
changes in volume and price represent no more than a 20% change in the maximum
aggregate offering price set forth in the "Calculation of Registration Fee"
table in the effective registration statement;
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or any
material change to such information in the registration statement.
(b) That, for the purpose of determining any liability under the Securities
Act of 1933, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(c) That all post-effective amendments will comply with the applicable forms,
rules and regulations of the Commission in effect at the time such
post-effective amendments are filed.
(d) To remove from registration by means of a post-effective amendment any of
the securities being registered which remain unsold at the termination of the
offering.
The Registrant undertakes to send to each Shareholder at least on an annual
basis a detailed statement of any transactions with the Advisor or its
Affiliates, and of fees, commissions, compensation and other benefits paid or
accrued to the Advisor or its Affiliates for the fiscal year completed, showing
the amount paid or accrued to each recipient and the services performed.
The Registrant undertakes to provide to the Shareholders the financial
statements required by Form 10-K for the first full fiscal year of operations of
the Registrant.
The Registrant undertakes to file during the offering period a sticker
supplement pursuant to Rule 424(c) under the Act describing each property not
identified in the Prospectus at such time as there arises a reasonable
probability of investment in such property by the Registrant and to consolidate
all such stickers into a post-effective amendment filed at least once every
three months with the information contained in such amendment provided
simultaneously to the existing Shareholders. Each sticker supplement will also
disclose all compensation and fees received by the Advisor or its Affiliates in
connection with any such investment. The post-effective amendment shall include
audited financial statements meeting the requirements of Rule 3-14 of Regulation
S-X only for properties acquired during the distribution period.
The Registrant undertakes to file, after the end of the offering period, a
current report on Form 8-K containing the financial statements and any
additional information required by Rule 3-14 of Regulation S-X, to reflect each
commitment not previously disclosed in the Prospectus or a supplement thereto
involving the use of 10% or more (on
a cumulative basis) of the net proceeds of
the offering and to provide the information contained in such report to the
Shareholders at least once each quarter after the end of the offering period.
The Registrant undertakes to file the financial statements required by Form 10-K
for the first full fiscal year of operations and will provide the financial
information contained therein to the Shareholders. The Registrant undertakes to
file a final report on Form SR pursuant to Rule 463 of the Act.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to officers, directors and controlling persons of the
Registrant pursuant to the foregoing provisions or otherwise, the Registrant has
been advised that in the opinion of the Securities and Exchange Commis
II-3
<PAGE>
II. INFORMATION NOT REQUIRED IN PROSPECTUS - (Continued)
sion such indemnification is against public policy as expressed in the
Securities Act of 1933 and is, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities (other than for expenses
incurred in a successful defense) is asserted by such officer, director or
controlling person in connection with the securities being registered, the
Registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate jurisdiction
the question of whether such indemnification by it is against public policy as
expressed in the Securities Act of 1933, and will be governed by the final
adjudication of such issue.
ITEM 37.
TABLE VI: ACQUISITION OF PROPERTIES BY CORNERSTONE
Cornerstone acquired the following properties since inception in 1993. All
properties acquired are residential communities. All of Cornerstone's
acquisitions are done on a mortgage-free basis. Cost of acquisition represents
the total cost of the purchase price including any downpayment.
<TABLE>
<CAPTION>
AVERAGE
CONTRACT OTHER TOTAL SQUARE FT.
NAME OF DATE OF NUMBER PURCHASE ACQUISITION EXPENDITURES ACQUISITION OF UNITS
PROPERTY LOCATION PURCHASE OF UNITS PRICE FEE CAPITALIZED COST --
- ---------------- ---------------- ---------- ---------- ------------- ------------- -------------- ------------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
GEORGIA
West Eagle
Greens Augusta 1996 165 $ 4,000,000 $ 80,000 $ 582,135 $ 4,662,135 796
Savannah West Augusta 1996 456 $ 9,804,000 $196,080 $ 101,864 $10,101,944 872
NORTH CAROLINA
Chase Mooring Wilmington 1994 224 $ 3,594,000 $ 71,880 $1,239,121 $ 4,905,001 867
Wimbledon Wilmington 1994 192 $ 3,300,000 $ 66,000 $1,857,968 $ 5,223,968 863
Osprey Landing Wilmington 1995 176 $ 4,375,000 $ 87,500 $1,191,434 $ 5,653,934 981
Sailboat Bay Charlotte 1995 358 $ 9,100,000 $182,000 $1,965,617 $11,247,617 906
Meadow Creek Charlotte 1996 250 $11,100,000 $222,000 $ 472,925 $11,794,925 860
Beacon Hill Charlotte 1996 349 $13,300,000 $266,000 $ 454,419 $14,020,419 734
The Hanover Charlotte 1995 192 $ 5,725,000 $114,500 $ 819,716 $ 6,659,216 832
Bridgetown Bay Charlotte 1996 120 $ 5,000,000 $100,000 $ 302,656 $ 5,402,656 868
Summer Walk Concord 1996 160 $ 5,700,000 $114,000 $ 412,626 $ 6,226,626 963
The Meadows Asheville 1996 176 $ 6,200,000 $124,000 $ 425,701 $ 6,749,701 1,066
Glen Eagles Winston Salem 1995 166 $ 7,300,000 $146,000 $ 200,870 $ 7,646,870 952
Mill Creek Winston Salem 1995 220 $ 8,550,000 $171,000 $ 331,003 $ 9,052,003 897
Wind Lake Greensboro 1995 299 $ 8,760,00 $175,200 $ 500,727 $ 9,435,927 727
Willow Creek Durham 1996 200 $ 8,400,000 $168,000 $ 40,807 $ 8,608,807 961
Hollows Raleigh 1993 176 $ 4,200,000 $ 84,000 $1,123,091 $ 5,407,091 903
Trestles Raleigh 1994 280 $10,350,000 $207,000 $ 573,711 $11,130,711 926
Paces Glen Charlotte 1996 172 $ 7,425,000 $ 0 $ 100,425 $ 7,525,425 905
Signature
Place Greenville 1996 171 $ 5,400,000 $ 0 $ 166,610 $ 5,566,610 1,037
Sterling Chase Charlotte 1996 272 $10,125,000 $ 0 $ 80,457 $10,205,457 699
Highland Hills Carrboro 1996 264 $12,100,000 $ 0 $ 129,865 $12,229,865 1,000
Parkside at
Woodlake Durham 1996 266 $14,550,000 $ 0 $ 113,886 $14,663,886 865
SOUTH CAROLINA
Polo Club Greenville 1993 365 $ 4,300,000 $ 86,000 $2,224,753 $ 6,610,753 842
Magnolia Run Greenville 1995 212 $ 5,500,000 $110,000 $ 852,679 $ 6,462,679 849
Breckinridge Greenville 1995 236 $ 5,600,000 $112,000 $ 650,105 $ 6,362,105 726
Stone Ridge Columbia 1993 191 $ 3,325,000 $ 66,500 $2,033,488 $ 5,424,988 1,027
VIRGINIA
County Green Lynchburg 1993 180 $ 3,800,000 $ 76,000 $1,988,865 $ 5,074,865 1,000
Ashley Park Richmond 1996 272 $12,205,000 $244,100 $ 231,701 $12,680,801 765
Trolley Square Richmond 1996 192 $ 6,000,000 $120,000 $ 31,105 $ 6,151,105 559
Trophy Chase Charlotteville 1996 185 $ 3,600,000 $ 72,000 $ 941,537 $ 4,613,537 803
Baywatch
Pointe Virginia Beach 1995 160 $ 3,372,525 $ 67,451 $1,131,466 $ 4,571,442 911
Harbour Club Virginia Beach 1994 214 $ 5,250,000 $105,000 $ 440,744 $ 5,795,744 813
Arbor Trace Virginia Beach 1996 148 $ 5,000,000 $100,000 $ 179,425 $ 5,279,425 850
Mayflower Virginia Beach 1993 263 $ 7,634,144 $152,683 $1,267,350 $ 9,054,176 698
Tradewinds Hampton 1995 284 $10,200,000 $204,000 $ 310,123 $10,714,123 929
Hampton Glen Richmond 1996 232 $11,500,000 $ 0 $ 273,842 $11,773,842 788
</TABLE>
Note: Cornerstone does not have any mortgages on its properties nor have down
payments outstanding. In addition all cash expenditures incurred in the
acquisition of a community are capitalized.
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-11 and has duly caused this Amendment No. 3 to
Registration Statement to be signed on its behalf by the undersigned, thereunto
duly authorized, in the City of Richmond, Commonwealth of Virginia, on November
19, 1996.
APPLE RESIDENTIAL INCOME TRUST, INC.
By: /s/ Glade M. Knight
-------------------------------
Glade M. Knight
President, and as President, the
Registrant's Principal Executive
Officer, Principal Financial
Officer and Principal Accounting
Officer
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 3 to Registration Statement has been signed by the following persons on
behalf of the Registrant and in the capacities and on the date indicated.
<TABLE>
<CAPTION>
SIGNATURE CAPACITIES DATE
- ----------------------- ------------------------------------------ ----------------------
<S> <C> <C>
/s/ Glade M. Knight Director and President, and As President, November 19, 1996
- ----------------------- the Registrant's Principal Executive
Glade M. Knight Officer, Principal Financial Officer and
Principal Accounting Officer
* Director November 19, 1996
- ----------------------
Ted W. Smith
* Director November 19, 1996
- ----------------------
Penelope W. Kyle
* Director November 19, 1996
- ----------------------
Bruce H. Matson
</TABLE>
*By: /s/ Glade M. Knight
Glade M. Knight,
as attorney-in-fact for the
above-named persons
II-5
<PAGE>
EXHIBIT INDEX
(Except as stated, the following Exhibits have been previously filed)
<TABLE>
<CAPTION>
SEQUENTIAL
EXHIBIT PAGE
NUMBER DESCRIPTION NUMBER
- -------- -------------- ----------
<S> <C> <C>
1.1 Agency Agreement between the Registrant and David Lerner Associates,
Inc. with form of Selected Dealer Agreement attached as Exhibit A
thereto.
1.2 Escrow Agreement among the Registrant, First Union National Bank of
North Carolina and David Lerner Associates, Inc.
3.1 Articles of Incorporation of the Registrant.
3.2 Bylaws of the Registrant.
3.3 Articles of Amendment to the Articles of Incorporation of the
Registrant.
3.4 Articles of Amendment to the Articles of Incorporation of the
Registrant.
5 Opinion of McGuire, Woods, Battle & Boothe, L.L.P. as to the legality
of the securities being registered.
8 Opinion of McGuire, Woods, Battle & Boothe, L.L.P. as to certain tax
matters. FILED HEREWITH.
10.1 Advisory Agreement between the Registrant and Apple Residential
Advisors, Inc.
10.2 Form of Property Management Agreement between the Registrant and Apple
Residential Management Group, Inc.
10.3 Property Acquisition/Disposition Agreement between the Registrant and
Apple Realty Group, Inc.
10.4 Apple Residential Income Trust, Inc. 1996 Incentive Plan.
10.5 Apple Residential Income Trust, Inc. 1996 Non-Employee Directors Stock
Option Plan.
10.6 Share Purchase Warrants Warrant Agreement.
10.7 Right of First Refusal Agreement.
23.1 Consent of McGuire, Woods, Battle & Boothe, L.L.P. (included in
Exhibits 5 and 8).
23.2 Consent of Ernst & Young LLP.
24.1 Power of Attorney of Glade M. Knight.
24.2 Power of Attorney of Ted W. Smith.
24.3 Power of Attorney of Penelope W. Kyle.
24.4 Power of Attorney of Bruce H. Matson.
</TABLE>
EXHIBIT 8
McGUIRE WOODS
BATTLE & BOOTHE LLP
One James Center
901 East Cary Street
Richmond, Virginia 23219-4030
November 19, 1996
Board of Directors
Apple Residential Income Trust, Inc.
306 East Main Street
Richmond, VA 23219
Dear Sirs:
We have acted as counsel to Apple Residential Income Trust, Inc. (the
"Company"), a Virginia corporation, in connection with the preparation of the
registration statement on Form S-11 to which this opinion is attached as an
exhibit (the "Registration Statement"). The Company is filing the Registration
Statement (File No. 333-10635) with the Securities and Exchange Commission under
the Securities Act of 1933, as amended (the "Act"), to register under the Act
25,166,666.67 Common Shares of the Company. Terms not otherwise defined herein
shall have the meanings assigned to them in the Registration Statement.
We have reviewed originals or copies of (i) the Articles of
Incorporation, Bylaws and other corporate documents of the Company, (ii) certain
resolutions of the Board of Directors of the Company, (iii) the Registration
Statement and the prospectus included therein (the "Prospectus"), and (iv) the
form of Advisory Agreement between the Company and Apple Residential Advisors,
Inc., a Virginia corporation (the "Advisor"), included in the Registration
Statement as an exhibit. In addition, we have reviewed such other documents and
have made such legal and factual inquiries as we have deemed necessary or
advisable for purposes of rendering the opinions set forth below.
We understand and assume that the Company will duly elect to be treated
as a real estate investment trust ("REIT") for federal income tax purposes
commencing with its taxable year ended December 31, 1996. The Company's initial
and continuing qualification as a REIT depends upon the satisfaction of various
requirements under the Internal Revenue Code of 1986, as amended (the "Code").
The satisfaction of those requirements generally will be within the control of
the Company's Board of Directors and the Advisor, which has been engaged to
conduct the affairs of the Company under the supervision of the Board of
Directors. The Advisor and appropriate officers of the Company have made the
<PAGE>
Board of Directors
November 19, 1996
Page 2
following representations to us with respect to the operation of the Company:
1. The Company will operate in compliance with the Articles of
Incorporation and the Bylaws;
2. The Company will not operate so that it becomes either (i) a
financial institution referred to in Section 582(c)(5) of the Code, or (ii) an
insurance company to which subchapter L of the Code applies;
3. The Company will have at least 100 Shareholders for at least 335
days of each full taxable year, or proportionate part of any shorter taxable
year, after its first taxable year and will not be closely held as defined in
Section 856(h) of the Code;
4. The Company will use a calendar year for federal income tax
purposes;
5. The Company will elect to be treated as a REIT under the Code, and
will not elect to be treated as an S Corporation, a real estate mortgage
investment conduit, a regulated investment company, or any entity other than a
REIT for federal income tax purposes;
6. The Company will not revoke its election to be treated as a REIT and
will satisfy all relevant filing and other administrative requirements
established by the Internal Revenue Service that must be met to elect and to
maintain REIT status;
7. The Company will not have, as of the close of any taxable year, any
earnings and profits accumulated in any year during which the Company was not
treated as a REIT under the Code;
8. The Company will conduct its operations as described in the
Registration Statement (including the Prospectus), will operate in a manner so
as to qualify for taxation as a REIT under the Code, and intends to continue to
operate in such a manner;
9. The Company will invest in assets that, when acquired by the
Company, will cause the Company to satisfy (i) the asset test described in the
Prospectus, and (ii) the sources of income tests described in the Prospectus;
10. The Company will not hold any assets for sale to customers in the
ordinary course of a trade or business and will attempt to comply with the terms
of safe-harbor provisions in the
<PAGE>
Board of Directors
November 19, 1996
Page 3
Code prescribing when asset sales by a REIT will not be characterized as
prohibited transactions;
11. The Company expects that substantially all of the operating gross
income from the properties of the Company will be considered "rents from real
property" within the meaning of Section 856(d) of the Code;
12. The Company will comply with the distribution requirements of the
Code applicable to REITs;
13. The Company will comply for each taxable year with the Treasury
regulations prescribed for the purpose of ascertaining the actual ownership of
outstanding Shares of the Company; and
14. The Company anticipates that it will be a "domestically controlled
REIT," within the meaning of Section 897(h) of the Code.
Based on the foregoing documents, representations, and assumptions
being, and continuing to be, accurate, we are of the opinion that:
1. The Company will qualify as a REIT;
2. Provided that a Shareholder which is an Exempt Organization does not
incur any "acquisition indebtedness" as defined in Section 514(c) of the Code in
connection with its acquisition of Shares, dividends paid by the Company to such
Shareholder will not constitute unrelated business taxable income under Section
512 of the Code even if the Company owns "debt-financed property" as that term
is defined in Section 514(b) of the Code; and
3. The statements and legal conclusions contained in the Registration
Statement under the captions "Risk Factors--Federal Income Tax Risks" and
"Federal Income Tax Consequences" describe the material federal income tax
aspects of the offering made by the Registration Statement applicable to the
Company and the Shareholders, are correct in all material respects, and the
discussion thereunder does not omit any material provision with respect to the
matters covered.
With respect to our opinion contained in paragraph 1 above, you should
note that qualification of the Company as a REIT will depend, in part, upon the
Company's ability, through its actual operations, to meet the qualification
tests as described in the Prospectus.
<PAGE>
Board of Directors
November 19, 1996
Page 4
The foregoing opinions are based solely on the provisions of the Code,
the Treasury regulations promulgated thereunder and the judicial and
administrative rulings, pronouncements and decisions now in effect, all of which
are subject to change, which change may be retroactively applied, or possible
differing interpretations that may affect the conclusions stated herein. To the
extent this opinion relies upon recent tax legislation, and recently promulgated
Treasury regulations, no assurance can be given as to the interpretations of
such recent legislation that will be reflected in applicable Internal Revenue
Service rulings and future Treasury regulations, which could be applied
retroactively. Further, this opinion does not purport to deal with any aspects
of state law that may affect particular investors nor with certain types of
investors subject to special treatment under the federal income tax laws.
We hereby consent to the reference to our firm under the captions
"Federal Income Tax Consequences," "Risk Factors Federal Income Tax
Consequences" and "Legal Opinions" in the Registration Statement and to the
filing of this opinion as an exhibit to the Registration Statement. In giving
this consent, we do not admit that we are in the category of persons whose
consent is required by Section 7 of the Act or the rules and regulations
promulgated thereunder by the Securities and Exchange Commission.
Very truly yours,
/s/ McGuire, Woods, Battle & Boothe, L.L.P.
