FILED PURSUANT TO RULE 424(B)(3)
REGISTRATION NO. 333-10635
SUMMARY OF SUPPLEMENTS TO PROSPECTUS
(SEE THE SUPPLEMENTS FOR ADDITIONAL INFORMATION):
Supplement No. 5 dated October 31, 1997 (incorporating Supplements No. 1, No. 2,
No. 3 and No. 4):
(1) Reports on the acquisition by the Company of eleven apartment
complexes.
(2) Reports on the granting to Cornerstone Realty Income Trust, Inc. of a
right to acquire up to 9.8% of the Company's outstanding Shares.
(3) Reports on the election of a fifth member to the Board of Directors
and the composition of the Board Committees.
(4) Reports on the Company obtaining an unsecured line of credit to
facilitate property acquisitions.
(5) Provides certain other updated information concerning the Company and
its properties.
Supplement No. 6 dated December 11, 1997:
(1) Reports on the acquisition by the Company of one additional apartment
complex.
(2) Reports on a proxy solicitation by the Company to transfer all of the
Company's properties to one or more subsidiaries that are directly or
indirectly wholly-owned by the Company (the "Reorganization") and the
adoption of certain amendments to the Bylaws related to the
Reorganization (the "Bylaw Amendments").
(3) Provides certain other updated information concerning the Company and
its properties.
As of November 30, 1997 the Company had closed the sale of 2,084,444 Shares
at $9 per Share, and 9,185,019 Shares at $10 per Share, representing aggregate
gross proceeds to the Company of $110,610,190, and proceeds net of selling
commissions and marketing expenses of $99,334,811. The Company endeavors
continually to invest proceeds in the acquisition of additional apartment
communities as promptly as practicable after the receipt of such proceeds. As of
November 30, 1997, substantially all of the proceeds of the offering available
for investment in properties had been so invested.
Cornerstone Realty Income Trust, Inc. will receive fees and expense
reimbursement in connection wit the Company's acquisitions and the management of
the properties and the Company. In connection with the property acquisitions
described in the Supplements, Apply Realty Group, Inc., an Affiliate of the
Advisor, or Cornerstone Realty Income Trust, Inc., as successor-in-interest to
Apple Realty Group, Inc., will receive property acquisition fees totaling
$1,657,917.
<PAGE>
SUPPLEMENT NO. 6 DATED DECEMBER 11, 1997
TO PROSPECTUS DATED NOVEMBER 19, 1996
APPLE RESIDENTIAL INCOME TRUST, INC.
The following information supplements the Prospectus of Apple Residential
Income Trust, Inc. dated November 19, 1996 and Supplement No. 5 dated October
31, 1997, and is part of such Prospectus. PROSPECTIVE INVESTORS SHOULD CAREFULLY
REVIEW THE PROSPECTUS, SUPPLEMENT NO. 5 AND THIS SUPPLEMENT.
TABLE OF CONTENTS TO SUPPLEMENT NO. 6
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Status of the Offering ............................................................... S-1
Proxy Solicitation .................................................................. S-2
Property Acquisitions ............................................................... S-2
Other Developments .................................................................. S-5
Management's Discussion and Analysis of Financial Condition and Results of Operations S-5
Exhibit A -- Proxy Statement ......................................................... S-7
Index to Financial Statements ...................................................... F-1
</TABLE>
The Prospectus and Supplements thereto contain forward-looking statements
within the meaning of Section 27A of the Securities Act of 1933, as amended (the
"Securities Act"), and Section 21E of the Securities Exchange Act of 1934, as
amended (the "Exchange Act"). Such forward-looking statements include, without
limitation, statements as to anticipated renovations to Company properties and
anticipated improvements in property operations from completed and planned
property renovations, and the possible acquisition by Cornerstone Realty Income
Trust, Inc. of Shares in the Company or the business or assets of the Company.
Such forward-looking 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 the results of
operations or plans expressed or implied by such forward-looking statements.
Such factors include, among other things, unanticipated adverse business
developments affecting the Company, the properties or Cornerstone Realty Income
Trust, Inc., as the case may be, adverse changes in the real estate markets and
general and local economic and business conditions. Investors should review the
more detailed risks and uncertainties set forth under the caption "Risk Factors"
in the Prospectus. Although the Company believes that the assumptions underlying
the forward-looking statements contained in the Prospectus and the Supplements
are reasonable, any of the assumptions could be inaccurate, and therefore there
can be no assurance that the forward-looking statements included in the
Prospectus and Supplements will prove to be accurate. In light of the
significant uncertainties inherent in the forward-looking statements included in
the Prospectus and the Supplements, 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 forward-looking statements or the
objectives and plans of the Company will be achieved.
STATUS OF THE OFFERING
As of November 30, 1997, the Company had closed the sale to investors of
2,084,444 Shares at $9 per Share, and 9,185,019 Shares at $10 per Share,
representing aggregate gross proceeds to the Company of $110,610,190, and
proceeds net of selling commissions and marketing expenses of $99,334,811. These
totals include 417,777 Shares purchased by Cornerstone Realty Income Trust, Inc.
as described in Supplement No. 5 dated October 31, 1997.
S-1
<PAGE>
PROXY SOLICITATION
On November 28, 1997, the Company mailed to Shareholders of record at the
close of business on October 31, 1997 (the "Record Date") a Notice of Special
Meeting of Shareholders and a Proxy Statement, copies of which are attached
hereto as Exhibit A. At the Special Meeting Shareholders will be asked to
consider and vote on the following proposals:
1. The transfer of any and all of the Company's properties to one or more
subsidiaries that are directly or indirectly wholly-owned by the
Company (the "Reorganization") and the adoption of certain amendments
to the Bylaws related to the Reorganization (the "Bylaw Amendments").
2. To transact such other business as may properly come before the
Special Meeting.
The current structure of the Company may inhibit the Company's flexibility
in planning future transactions or acquisitions. Furthermore, the current
ownership structure tends to maximize the Company's exposure to franchise tax.
Management of the Company believes that the Reorganization may provide
flexibility in acquiring desirable properties and materially reduce the
Company's franchise tax liability in future years. In light of the foregoing and
as further described in the Proxy Statement, the Company proposes to transfer
the Properties to a Virginia limited partnership, the partners of which will be
two newly created, wholly-owned subsidiaries of the Company. Shareholders will
effectively continue to hold the same ownership interest in the Properties
following the Reorganization, through the Company's 100% ownership of the
subsidiaries which will together own a 100% interest in the partnership. No
substantive change in the rights of the Shareholders is intended to occur as a
result of the Reorganization.
The Board of Directors of the Company determined that the Reorganization
and Bylaw Amendments were in the best interests of Shareholders. Accordingly,
the Board unanimously approved the Reorganization and Bylaw Amendments and
recommended that the Shareholders vote in favor of the Reorganization and Bylaw
Amendments at the Special Meeting.
The Special Meeting will be held on Wednesday, December 17, 1997. Only
Shareholders of record on the Record Date are entitled to vote at the meeting.
PROPERTY ACQUISITIONS
As of the date of this Supplement, the Company owns the following
properties:
NUMBER DATE OF
NAME LOCATION OF UNITS ACQUISITION
- ------------------------------ ---------------- ---------- ------------
Brookfield .................. Dallas, TX 232 01/28/97
Eagle Crest .................. Irving, TX 484 01/30/97
Tahoe ........................ Arlington, TX 240 01/31/97
Mill Crossing ............... Arlington, TX 184 02/21/97
Polo Run ..................... Arlington, TX 224 03/31/97
Wildwood ..................... Euless, TX 120 03/31/97
Toscana ..................... Dallas, TX 192 03/31/97
Arbors on Forest Ridge ...... Bedford, TX 210 04/25/97
Pace's Cove .................. Dallas, TX 328 06/24/97
Remington Hills ............ Irving, TX 362 08/06/97
Copper Crossing ............ Fort Worth, TX 200 11/24/97
Additional information on Copper Crossing is provided below.
COPPER CROSSING
FORT WORTH, TEXAS
On November 24, 1997, the Company purchased the Copper Crossing Apartments
located AT 5644 Riverwalk Drive in Fort Worth, Texas (The "Property").
S-2
<PAGE>
The Property comprises 200 apartment units. The purchase price for the
Property was $4,750,000. The seller was Copper Crossing Investors, Ltd., a Texas
limited partnership which is not affiliated with the Company, Apple Residential
Advisors, Inc. or their Affiliates. The entire purchase price was paid using
proceeds from the sale of shares. Title to the Property was conveyed to the
Company by limited warranty deed.
LOCATION. The Property is located off of Bryant-Irvin in Fort Worth, Texas,
in Tarrant County, which is part of the greater Dallas/Fort Worth Consolidated
Metropolitan Statistical Area, or as it is called locally, "The Metroplex." The
following information is based in part upon information provided by the Dallas
Chamber of Commerce.
The Dallas/Fort Worth Metroplex is in the north-central part of Texas and
is composed of nine counties. The 1996 population of The Metroplex was
approximately 4,400,000. Dallas is the second largest city in the state, behind
Houston.
The economy of the Dallas/Fort Worth area is complex and diversified. Key
economic factors include a large manufacturing base (including as products
military hardware, electronics, automobiles, industrial equipment, oil-field
parts, food products and chemicals), banking, insurance services,
communications, oil and gas production and air transportation. Major employers
in the area include Texas Instruments, Southwestern Bell, General Motors, J.C.
Penney, NationsBank and Vought Aircraft Company.
The Metroplex is also an established transportation center for the nation.
The Dallas/Fort Worth International Airport occupies approximately 17,800 acres
of land between the two cities. It is the largest commercial airport in the
United States in terms of land area, and is the fourth busiest airport in the
world, with 1,700 daily arrivals and departures.
The area also has a well-established system of interstate highways and
supporting secondary routes. The Metroplex is located at the hub of Interstates
35,45, 20 and 30. Two outer loops, Interstate 635 in Dallas and Interstate 820
in Fort Worth, surround the respective cities.
The many institutions of higher learning in the area include Southern
Methodist University, the University of Texas at Dallas, the University of Texas
at Arlington, the University of North Texas, and Texas Christian University.
The immediate area surrounding the Property consists of other multi-family,
single-family, commercial and retail development. The Property is located near
restaurants, businesses, schools, and churches, and is readily accessible from
Interstate 20, Highway 183 and Interstate 820, which are the major highways in
the area.
The Property is close to Hulen Mall, a major regional mall. This regional
mall has spurred significant construction and corresponding retail growth in the
Hulen Mall/Benbrook area. The Property is an approximately 30-minute drive from
the Dallas/Fort Worth International Airport, an approximately 15-minutes drive
from the Fort Worth central business district and an approximately 30-minute
drive from the Dallas central business district.
DESCRIPTION OF THE PROPERTY. The Property consists of 200 garden-style
apartment units in 13 two-story buildings on approximately 6.9 acres of land.
The Property was constructed in 1981.
The Property offers four different unit types. The unit mix and rents
currently being charged new tenants as of November, 1997 are as follows:
APPROXIMATE INTERIOR MONTHLY
QUANTITY TYPE SQUARE FOOTAGE RENTAL
- -------------- --------------------------- ---------------------- --------
56 One bedroom/one bathroom 563 $385
40 One bedroom/one bathroom 663 410
32 One bedroom/one bathroom 745 450
72 Two bedrooms/two bathrooms 915 540
S-3
<PAGE>
The apartments provide a total of approximately 148,000 square feet of net
rental area.
The Company believes that the Property has generally been well maintained
and is in good condition. According to the seller, in the past two years the
seller spent over $400,000 in capital improvements to the exterior of the
Property, including new roofs, exterior rehabilitation, and repair and
replacement of awnings.
The Company has budgeted approximately $100,000 for additional capital
improvements to the Property. These improvements will include clubhouse
renovations and upgrading the landscaping at the Property. In addition, at the
time that the Company acquired the Property there were 12 apartment units which
had been damaged by fire. These damaged apartment units are currently being
repaired and are all expected to be available for occupancy by April 1998. All
costs of the repair are being funded with the proceeds of Property casualty
insurance.
Leases at the Property are generally for terms of one year or less. Average
rental rates for the past five years have both increased and decreased. As an
example, a one-bedroom, one-bathroom apartment unit (563 square feet) rented for
$289 in 1992, $300 in 1993, $299 in 1994, $315 in 1995, and $345 in 1996. The
average effective annual rental per square foot at the Property for 1992, 1993,
1994, 1995, 1996, was $5.53, $5.74, $5.72, $6.03, and $6.60, respectively.
The buildings are wood-frame construction with a combination of brick
veneer and masonite hardboard on reinforced concrete slab foundations. Roofs are
sloped fiberglass shingled on plywood.
The Property has an outdoor swimming pool with a large deck, a fitness
center, a laundry facility, a sand volleyball court and picnic areas. There is
also a clubhouse which includes an entertainment area and a leasing office.
There is ample paved parking for the tenants.
All apartment units have wall-to-wall carpeting in the living areas and
vinyl floors in the kitchen and bath. Each apartment unit has a cable television
hook-up and an individually controlled heating and air conditioning unit. Each
kitchen is equipped with a refrigerator/freezer, electric range and oven,
dishwasher and garbage disposal. Each apartment unit has a woodburning
fireplace, a screened porch or balcony, ceiling fans, mini blinds and vertical
blinds. The largest one-bedroom units and the two-bedroom units include
full-sized washer/dryer connections. The owner of the Property pays for cold
water, gas usage for hot water, sewer service and trash removal. Tenants pay for
their own electricity service, which includes cooking, lighting, heating and air
conditioning.
There are at least five apartment properties that compete with the
Property. All offer similar amenities and generally have rents that are
comparable to those of the Property. Based on a recent telephone survey, the
Advisor estimates that occupancy in the nearby competing properties now averages
approximately 94%.
According to information provided by the Seller, physical occupancy at the
Property averaged approximately 85% in 1992, 87% in 1993, 96% in 1994, 95% in
1995, 94% in 1996, and 93% during the first six months of 1997. As of November
24, 1997, the Property was 91 % occupied, counting as vacant the 12 units
recently damaged by fire. Of the 188 units available for rental, 182, or 96% of
188, were rented as of November 24, 1997. The tenants are a mix of white-collar
workers, blue-collar workers, students and retired persons.
The following table sets forth the 1996 real estate tax information of the
Property:
ASSESSED
JURISDICTION VALUE RATE TAX
- ------------------------- ------------ ----------- ------------
County of Tarrant ...... $3,300,000 $ 2.01160 $66,382.67
City of Benbrook ...... 3,300,000 0.78500 25,905.00
Total .................. $92,287.67
The basis of the depreciable residential real property portion of the
Property (currently estimated at about $2,698,000) will be depreciated over 27.5
years on a straight-line basis. The basis of the personal property portion will
be depreciated in accordance with the modified accelerated cost recovery system
of the Code. Amounts to be spent by the Company on repairs and improvements will
be treated for tax purposes as permitted by the Code based on the nature of the
expenditures.
S-4
<PAGE>
The Advisor and the Company believe that the Property is and will continue
to be adequately covered by property and liability insurance.
ACQUISITION AND MANAGEMENT SERVICES AND FEES. In consideration of services
rendered to the Company in connection with the selection and acquisition of the
Property, the Company will pay Cornerstone Realty Income Trust, Inc., a property
acquisition fee equal to 2% of the purchase price of the Property, or $95,000.
Cornerstone Realty Income Trust, Inc. will serve as property manager for the
Property and for its services will be paid by the Company a monthly management
fee equal to 5% of the gross revenues of the Property plus reimbursement of
certain expenses.
OTHER DEVELOPMENTS
As described in the Prospectus, under "Investment Objectives and
Policies-Sale and Refinancing Policies," the Company has granted to Cornerstone
Realty Income Trust, Inc. ("Cornerstone") a right of first refusal to purchase
the properties and business of the Company. Early in 1997, Cornerstone stated
its intention to evaluate the possible acquisition of the Company by the end of
1997. The Company has been informed that Cornerstone, with the assistance of
certain professional advisors, has evaluated the desirability to Cornerstone and
its shareholders of a proposal to acquire the Company in 1997, and has
determined that it is not in the best interest of Cornerstone and its
shareholders to seek to acquire the Company at this time. However, the Company
has been informed that Cornerstone expects to reevaluate the desirability of
seeking to acquire the Company from time to time in the future.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following discussion is based upon the unaudited financial statements
of the Company as of September 30, 1997 and the financial statements of the
Company as of December 31, 1996. The information should be read in conjunction
with the Company's financial statements and notes thereto and the pro forma
financial statements and notes thereto of the Company included elsewhere in this
Supplement. The Company is operated and has elected to be treated as a REIT for
federal income tax purposes.
LIQUIDITY AND CAPITAL RESOURCES. There was a significant change in the
Company's liquidity during the nine months ended September 30, 1997. During the
nine months ended September 30, 1997, the Company closed the sale to investors
of 8,258,996 Shares representing gross proceeds to the Company of $80,923,281
and net proceeds after payment of Selling Commissions and other costs of
$72,245,821. The Company capitalized $2,173,200 of improvements to its various
properties as of September 30, 1997. It is anticipated that some $3,000,000 in
additional capital improvements will be completed during the next year on the
current portfolio. The source to fund these improvements is from equity raised
and set aside specifically for the improvements and from the expected sale of
additional Shares.
During the nine months ended September 30, 1997, the Company made ten
acquisitions of residential rental properties as follows:
<TABLE>
<CAPTION>
PURCHASE
PROPERTY NAME DATE ACQUIRED UNITS PRICE LOCATION
- -------------------------------------- --------------- ------- ------------- --------------
<S> <C> <C> <C> <C>
Brookfield Apartments ............... January 1997 232 $ 5,458,485 Dallas, TX
Eagle Crest Apartments ............... January 1997 484 15,650,000 Irving, TX
Tahoe Apartments ..................... January 1997 240 5,690,560 Arlington, TX
Mill Crossing Apartments ............ February 1997 184 4,544,121 Arlington, TX
Polo Run Apartments .................. March 1997 224 6,858,974 Arlington, TX
Wildwood Apartments .................. March 1997 120 3,963,519 Euless, TX
Toscana Apartments .................. March 1997 192 5,854,531 Dallas, TX
The Arbors Apartments ............... April 1997 210 7,748,907 Bedford, TX
Pace's Cove Apartments ............... June 1997 328 9,277,355 Dallas, TX
Remington Hills at Las Colinas ...... August 1997 362 13,100,000 Irving, TX
</TABLE>
S-5
<PAGE>
During the nine months ended September 30, 1997, the Company borrowed
$39,640,000 against its line of credit in conjunction with property acquisitions
and repaid $34,507,298 of the balance. The balance on the line of credit as of
September 30, 1997 was $5,132,702. In October 1997, the Company repaid the
outstanding balance. This is consistent with the Company's long term business
objective to hold its properties on an unleveraged basis.
Cash and cash equivalents totaled $1,350,305 at September 30, 1997.
While the Company is always assessing potential acquisitions, no material
commitments existed on November 1, 1997 for the purchase of additional
properties. The Company's only on-going commitment for capital expenditures is
to the renovation of its existing portfolio. Equity funds have been raised in
conjunction with the acquisition of properties to fund capital expenditures for
currently held properties. In addition, the Company will acquire new properties
as funds are available.
The Company has short-term cash flow needs to conduct the operation of its
properties. The rental income generated from the properties supplies sufficient
cash to provide for the payment of these operating expenses.
The Company's capital resources are expected to grow with the continued
sale of its Shares and through operations.
RESULTS OF OPERATIONS. As operations of the Company began in January 1997,
a comparison of the three months or nine months ended September 30, 1997 and
1996 is not possible. The Company's property operations for the nine months
ended September 30, 1997 reflect the operations of the Company's ten
acquisitions from their respective acquisition dates. Rental income for the
three and nine months ended September 30, 1997 was $3,789,266 and $7,771,744,
respectively.
The economic occupancy levels for the Company's properties averaged 92% at
the end of the three months and 93% for the nine months ended September 30,
1997. Overall, the average rental rate for the portfolio was $525 per month for
the nine months ended September 30, 1997 and $539 for the three months ended
September 30, 1997.
The Company's other source of income is the investment of its cash and cash
reserves. Interest income for the three and nine months ended September 30, 1997
was $19,043 and $107,584, respectively.
Total expenses for the nine months ended September 30, 1997 were $5,258,721
and $2,718,762 for the three months ended September 30, 1997. The operating
expense ratio (the ratio of rental expenses, excluding general and
administrative, amortization and depreciation expense, to rental income) was 48%
for the nine months ended September 30, 1997 versus 49% for the three months
ended September 30, 1997. General and administrative expenses totaled 5% of
total rental income for the three and nine months ended September 30, 1997. This
percentage is expected to decrease as the Company's asset base and rental income
grow. These expenses represent the administrative expenses of the Company as
distinguished from the operations of the Company's properties. Depreciation
expense for the nine months ended September 30, 1997 was $1,086,111 and for the
three months ended September 30, 1997 was $642,770.
The Company does not believe that inflation had any significant impact on
the operation of the Company during the nine months ended September 30, 1997.
Future inflation, if any, would likely cause increased operating expenses, but
the Company believes that increases in expenses would be offset by increases in
rental income. Inflation may also cause capital appreciation of the Company's
properties over time, as rental rates and replacement costs increase.
S-6
<PAGE>
EXHIBIT A
APPLE RESIDENTIAL INCOME TRUST, INC.
306 EAST MAIN STREET
RICHMOND, VA 23219
Dear Shareholder:
You are cordially invited to attend a Special Meeting of Shareholders of
Apple Residential Income Trust, Inc. (the "Company"), which will be held at 3:00
p.m. on Wednesday, December 17, 1997, at the offices of McGuire, Woods, Battle &
Boothe, L.L.P., Seventh Floor, 901 East Cary Street, Richmond, Virginia.
At the Special Meeting, you will be asked to consider and vote on the
following proposals:
1. The transfer of any and all of the Company's properties to one or
more subsidiaries that are directly or indirectly wholly-owned by
the Company (the "Reorganization") and the adoption of certain
amendments to the Bylaws related to the Reorganization (the
"Bylaw Amendments").
2. To transact such other business as may properly come before the
Special Meeting.
The Board of Directors of the Company has determined that the
Reorganization and Bylaw Amendments are in the best interests of shareholders.
Accordingly, the Board has unanimously approved the Reorganization and Bylaw
Amendments and recommends that you vote in favor of the Reorganization and Bylaw
Amendments at the Special Meeting.
The proposed Reorganization and Bylaw Amendments are described in the
accompanying Proxy Statement. I urge you to review carefully the Proxy
Statement. Because the Company does not yet have securities registered under the
Securities Act of 1934, the Proxy Statement is not required to, and does not,
contain all of the disclosures that might technically be required under that
Act. The Proxy Statement is not required to be, and has not been, filed with the
Securities and Exchange Commission. However, in the judgment of management, the
Proxy Statement contains all information needed to understand and evaluate fully
the proposed Reorganization and Bylaw Amendments. Please note that the
Reorganization, together with the Bylaw Amendments, are intended to provide
certain business and tax benefits to the Company without altering, in any
substantive way, the Company's assets or business operations or the
shareholders' interests therein.
I hope you will attend the Special Meeting. However, whether nor not you
plan to attend, PLEASE COMPLETE, SIGN AND DATE THE ACCOMPANYING PROXY CARD
PROMPTLY AND RETURN IT IN THE ENCLOSED PREPAID ENVELOPE. If you are present at
the meeting you may, if you wish, withdraw your proxy and vote your own shares.
Sincerely,
/s/ Stanley J. Olander, Jr.
Stanley J. Olander, Jr.
Secretary
Richmond, Virginia
November 26, 1997
S-7
<PAGE>
APPLE RESIDENTIAL INCOME TRUST, INC.
NOVEMBER 26, 1997
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON WEDNESDAY, DECEMBER 17, 1997
A Special Meeting of Shareholders of Apple Residential Income Trust, Inc.
(the "Company") will be held at the offices of McGuire, Woods, Battle & Boothe,
L.L.P., Seventh Floor, 901 East Cary Street, Richmond, Virginia 23219, on
Wednesday, December 17, 1997 at 3:00 p.m. for the following purposes:
1. To authorize the transfer of any and all of the Company's
properties to one or more subsidiaries that are directly or
indirectly wholly-owned by the Company (the "Reorganization") and
the adoption of certain amendments to the Bylaws related to the
Reorganization (the "Bylaw Amendments").
2. To transact such other business as may properly come before the
Special Meeting.
The holders of common shares of record at the close of business on October
31, 1997 are entitled to vote at the meeting. If you are present at the meeting,
you may vote in person even though you have previously delivered your proxy.
The proxy card with which to vote your shares is located in the window
pocket of the envelope in which these proxy materials were mailed. If necessary,
an additional proxy card may be obtained by calling David S. McKenney at (804)
643-1761.
By Order of the Board of Directors
/s/ Stanley J. Olander, Jr.
Stanley J. Olander, Jr.
Secretary
WHETHER OR NOT YOU EXPECT TO BE PRESENT AT THE MEETING, PLEASE SIGN, DATE
AND RETURN THE ENCLOSED PROXY CARD. IF YOU ATTEND THE MEETING, YOU MAY WITHDRAW
YOUR PROXY AND VOTE IN PERSON.
S-8
<PAGE>
APPLE RESIDENTIAL INCOME TRUST, INC.
PROXY STATEMENT
NOVEMBER 26, 1997
GENERAL
The enclosed proxy is solicited by the Board of Directors of Apple
Residential Income Trust, Inc. (the "Company") for the Special Meeting of
Shareholders to be held at the offices of McGuire, Woods, Battle & Boothe,
L.L.P., Seventh Floor, 901 East Cary Street, Richmond, Virginia 23219, on
Wednesday, December 17, 1997 at 3:00 p.m. (the "Special Meeting"). The proxy may
be revoked at any time prior to voting thereof by giving written notice to the
Company (at 306 East Main Street, Richmond, Virginia 23219, facsimile number
(804) 782-9302) of intention to revoke or by conduct inconsistent with continued
effectiveness of the proxy, such as delivery of a later dated proxy or
appearance at the meeting and voting in person the shares to which the proxy
relates. Shares represented by executed proxies will be voted, unless a
different specification is made therein, FOR the Reorganization Proposal (as
defined under "Resolutions to be Adopted").
This Proxy Statement and the enclosed proxy will be mailed on November 28,
1997 to shareholders of record at the close of business on October 31, 1997 (the
"Record Date").
At the close of business on the Record Date, the Company had 10,108,598.35
common shares ("Shares") outstanding and entitled to vote. Each Share has one
vote on all matters, including those to be acted upon at the Special Meeting.
The holders of a majority of such Shares present at the Special Meeting in
person or represented by proxies constitute a quorum. If a quorum is present,
the affirmative vote of more than two-thirds of the total number of Shares
outstanding and entitled to vote on the Record Date is required to approve the
Reorganization Proposal. Shareholders who wish to abstain from voting on the
Reorganization Proposal may do so by specifying their abstention on the enclosed
proxy, and the Shares otherwise votable by such shareholders will not be
included in determining the number of Shares voted for the Reorganization
Proposal. The Company will comply with instructions in a proxy executed by a
broker or other nominee shareholder that fewer than all of the Shares of which
such shareholder is the holder of record on the Record Date are to be voted on a
particular matter. All such Shares which are not voted will be treated as Shares
as to which vote has been withheld.
The mailing address of the Company is Apple Residential Income Trust, Inc.,
306 East Main Street, Richmond, Virginia 23219 (facsimile number (804) 782-9302,
telephone number (804) 643-1761). Notice of revocation of proxies should be sent
to that address, to the attention of David S. McKenney.
THE COMPANY WILL PROVIDE SHAREHOLDERS, WITHOUT CHARGE (EXCEPT FOR
EXHIBITS), A COPY OF THE COMPANY'S ANNUAL REPORT ON FORM 10-K FOR THE YEAR ENDED
DECEMBER 31, 1996 AND QUARTERLY REPORTS ON FORM 10-Q FOR THE QUARTERS ENDED
MARCH 31, 1997, JUNE 30, 1997, AND SEPTEMBER 30, 1997, FILED WITH THE SECURITIES
AND EXCHANGE COMMISSION, INCLUDING THE FINANCIAL STATEMENTS AND SCHEDULES
THEREIN, ON WRITTEN REQUEST TO STANLEY J. OLANDER, JR., SECRETARY OF THE
COMPANY, AT THE MAILING ADDRESS FOR THE COMPANY SET FORTH ABOVE.
BACKGROUND
The Company is a Virginia corporation that has elected to be treated for
federal income tax purposes as a real estate investment trust ("REIT"). The
Company's assets, which are directly owned by the Company, consist of
multifamily rental apartment communities located in and around Dallas and Fort
Worth, Texas (the "Properties"). The current structure of the Company may
inhibit the Company's flexibility in planning future transactions or
acquisitions. For example, the current structure makes it difficult, if not
impossible, for potential sellers of properties to exchange their properties for
equity interest in the Company in a manner that could defer tax liabilities for
the sellers. This lack of flexibility may hinder the Company's acquisition of
desirable properties from sellers seeking such tax deferral. Furthermore, the
current ownership structure tends to maximize the Company's exposure to
franchise tax. Management of the Company believes that the Reorganization may
materially reduce the Company's franchise tax liability in future years.
S-9
<PAGE>
PROPOSED REORGANIZATION
In light of the foregoing and as further described herein, the Company
proposes to transfer the Properties to a Virginia limited partnership, the
partners of which will be two newly created, wholly-owned subsidiaries of the
Company.
The Company will form the two wholly-owned subsidiaries, Apple Limited,
Inc. and Apple General, Inc., as Virginia corporations. The Company will
transfer an undivided 99 percent interest in the Properties to Apple Limited,
Inc. and an undivided 1 percent interest in the Properties to Apple General,
Inc. Apple Limited, Inc. and Apple General, Inc. will together form the limited
partnership, Apple Limited Partnership (the "Partnership"), as a Virginia
limited partnership. Apple Limited, Inc. will contribute its 99% interest in
the Properties to the Partnership in exchange for a 99% limited partnership
interest in the Partnership. Apple General, Inc. will contribute its 1%
interest in the Properties to the Partnership in exchange for a 1% general
partnership interest in the Partnership. The Partnership will hold the
Properties and conduct the business activities of the Company associated with
the Properties.
The material terms of the proposed transfer of the interests in the
Properties to the Partnership in exchange for interests in the Partnership will
be set forth in the partnership agreement of the Partnership (the "Partnership
Agreement") and are as summarized herein. The Company will send a copy of the
proposed Partnership Agreement to any shareholder who requests it.
The following diagrams set forth the current structure of the Company's
ownership of the Properties and the structure that would be in effect following
implementation of the Reorganization:
Current Company Structure Company Structure Following Reorganization
- ------------------------- ------------------------------------------
---------------- ----------------
| Shareholders | | Shareholders |
---------------- ----------------
| |
| |
| |
--------------------- ---------------------
| The Company | | The Company |
--------------------- ---------------------
| | |
| | |
| 100% ownership | | 100% ownership
| --------------------- ---------------------
| |Apple General, Inc.| |Apple Limited, Inc.|
---------------- --------------------- ---------------------
|The Properties| 1% general partner | | 99% limited partner
---------------- | |
| |
\ / \ /
\ / \ /
/ \
/ Apple \
/ Limited \
/Partnership\
-------------
|
|
|
----------------
| The Property |
----------------
S-10
<PAGE>
EFFECT OF THE REORGANIZATION; PROPOSED BYLAW AMENDMENTS
Shareholders will effectively continue to hold the same ownership interest
in the Properties following the Reorganization, through the Company's 100%
ownership of Apple Limited, Inc. (which will own a 99% interest in the
Partnership), and 100% ownership of Apple General, Inc. (which will own a 1%
interest in the Partnership). Apple General, Inc., as general partner of the
Partnership, will manage the affairs of the Partnership. The Company, as sole
shareholder of Apple General, Inc., will be entitled to exercise the rights of a
100%-shareholder with respect to Apple General, Inc., including the election and
removal of directors of that company. No substantive change in the rights of the
shareholders is intended to occur as a result of the Reorganization. To give
effect to this intent, management has proposed and the Board of Directors has
approved and hereby submits to the shareholders for their approval, certain
amendments to the Company's Bylaws (set forth below) designed to retain existing
Bylaw restrictions on the Company and its directors and officers, and to retain
certain existing shareholder rights, notwithstanding the technical changes in
legal ownership effected by the Reorganization.
No federal or state regulatory requirements must be complied with nor must
regulatory approval be obtained in connection with the Reorganization and Bylaws
Amendments. The transfers described in the Reorganization are expected to be
tax-free transfers at both the state and federal level.
RESOLUTIONS TO BE ADOPTED
The Board of Directors has approved and hereby submits to the shareholders
(with its recommendation for adoption) the following resolutions (collectively,
the "REORGANIZATION PROPOSAL");
RESOLVED, that the Company transfer any and all of the Company's
multifamily rental apartment communities (including all assets associated
therewith) to a partnership to be created by the Company, the partners of
which will be the Company or entities wholly-owned, directly or indirectly,
by the Company; and
RESOLVED, that the following be added as a new Article XIII to the
Company's Bylaws:
ARTICLE XIII
CONDUCT OF BUSINESS THROUGH SUBSIDIARIES
13.1 Subsidiaries. To the extent permitted by the Articles of
Incorporation, these Bylaws (excluding Section 9,1(i) hereof, which shall
not be construed to prohibit anything contemplated by this Article XIII)
and applicable law (including any required consent of the Directors and
Shareholders under applicable law), the Company may conduct its business
through subsidiary companies owned or controlled by the Company (or its
subsidiaries). Any such subsidiary company is referred to as a "Subsidiary
Company" and collectively such subsidiary companies are referred to as the
"Subsidiary Companies." It is specifically acknowledged that the conduct of
the Company's business through a Subsidiary Company or Subsidiary Companies
may be effected and undertaken by the transfer by the Company of properties
to, the acquisition of properties by, and the ownership and operation of
properties in, a partnership all of whose interests are initially owned by
the Company and/or a Subsidiary Company or Subsidiary Companies. However,
the transfer described in the preceding sentence shall not constitute an
event permitting conversion of the Company's Class B Convertible Shares.
13.2 Interpretation and Application of Bylaws. If and to the extent
(i) the Company conducts its business through Subsidiary Companies, or (ii)
there are properties which, in the absence of Subsidiary Companies, would
be owned and operated by the Company but such properties are instead owned
and operated by Subsidiary Companies, restrictions on the power of the
Company to engage in certain transactions and restrictions on the authority
of Directors and officers of the Company in these Bylaws, and in particular
the restrictions contained in Articles VIII, IX and X of these Bylaws,
shall be interpreted and applied to Subsidiary Companies in the same manner
as they apply by their terms to the Company to the extend necessary to
ensure that the Bylaw provision is given the
S-11
<PAGE>
effect intended notwithstanding that the Company's business is conducted
through Subsidiary Companies instead of by the Company directly. The
Company shall exercise any rights and powers it has as an owner or partner
(directly or indirectly) of a Subsidiary Company consistently with this
provision.
13.3 Certain Shareholder Consents. If a transaction involving the
proposed sale or other transfer, whether by sale, exchange, merger,
consolidation, lease, share exchange or otherwise, by a Subsidiary Company
would require pursuant to the applicable law the consent or approval of
Shareholders if the Company owned directly, and were proposing the sale or
other transfer of, the relevant assets, the Company shall not approve,
undertake or effectuate any such proposed sale or other transfer through
such Subsidiary Company without first obtaining the consent or approval of
the Shareholders of the Company.
MATTERS TO BE PRESENTED AT THE 1998 ANNUAL MEETING OF SHAREHOLDERS
Any qualified shareholder wishing to make a proposal to be acted upon at
the Annual Meeting of Shareholders in 1998 must submit such proposal, to be
considered by the Company for inclusion in the Proxy Statement, to the Company
at its executive office in Richmond, Virginia, no later than December 31, 1997.
OTHER MATTERS
Management knows of no matters other than those stated above that are
likely to be brought before the Special Meeting. However, if any matters not
known a reasonable time before the date of this Proxy Statement come before the
Special Meeting, the persons named in the enclosed proxy are expected to vote
the Shares represented by such proxy on such matters in accordance with their
best judgment.
THE COMPANY DEPENDS UPON ALL SHAREHOLDERS PROMPTLY SIGNING AND RETURNING
THE ENCLOSED PROXY CARD TO AVOID COSTLY SOLICITATION. YOU CAN SAVE THE COMPANY
CONSIDERABLE EXPENSE BY SIGNING AND RETURNING YOUR PROXY CARD IMMEDIATELY.
S-12
<PAGE>
INDEX TO FINANCIAL STATEMENTS OF THE COMPANY
PAGE
------
COMPANY INTERIM FINANCIAL STATEMENTS (UNAUDITED):
Balance Sheets -- September 30, 1997 and December 31, 1996........... F-2
Statement of Operations -- Three Months ended September 30,
1997 and Nine Months Ended September 30, 1997........... F-3
Statement of Shareholders' Equity -- Nine Months ended
September 30, 1997...................................................... F-4
Statement of Cash Flows -- Nine Months ended September 30, 1997........... F-5
Notes to Financial Statements ............................................ F-6
F-1
<PAGE>
APPLE RESIDENTIAL INCOME TRUST, INC.
BALANCE SHEETS (UNAUDITED)
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1997 1996
--------------- -------------
<S> <C> <C>
ASSETS
Investment in Rental Property Land ........................... $ 13,504,976 --
Building ................................................... 67,365,012 --
Property improvements ....................................... 1,683,878 --
Furniture and fixtures ....................................... 489,322 --
------------ ---------
83,043,188 --
Less accumulated depreciation .............................. (1,086,111) --
------------ ---------
81,957,077 --
------------ ---------
Cash and cash equivalents .................................... 1,350,305 100
Prepaid expenses ............................................. 161,391 --
Other assets ................................................ 561,464 --
------------ ---------
2,073,160 100
------------ ---------
Total Assets ............................................. $ 84,030,237 $ 100
============ =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities
Notes payable ................................................ $ 5,132,702 --
Accounts payable ............................................. 411,069 --
Accrued expenses ............................................. 1,647,832 --
Rents received in advance .................................... 25,969 --
Tenant security deposits .................................... 371,794 --
------------ ---------
7,589,366 --
Shareholders' equity
Common stock, no par value, authorized 50,000,000 shares; is-
sued and outstanding 8,676,784 shares and 10 shares, respec-
tively ..................................................... 76,005,921 100
Class B convertible stock, no par value. Authorized 200,000
shares: issued and outstanding 200,000 ..................... 20,000 20,000
Receivable from principal shareholder ........................ (20,000) (20,000)
Net income greater than distributions ........................ 434,950 --
------------ ---------
76,440,871 100
------------ ---------
Total Liabilities and Shareholders' Equity ............... $ 84,030,237 $ 100
============ =========
</TABLE>
See accompanying notes to financial statements.
F-2
<PAGE>
APPLE RESIDENTIAL INCOME TRUST, INC
STATEMENTS OF OPERATIONS (UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
1997 1997
-------------------- ------------------
<S> <C> <C>
REVENUE:
Rental income ................................. $3,789,266 $7,771,744
EXPENSES:
Utility expenses .............................. 385,718 796,570
Repairs and maintenance ........................ 317,500 581,796
Taxes and insurance ........................... 597,227 1,176,182
Property management ........................... 207,026 403,479
Advertising .................................... 88,782 194,785
General and administrative ..................... 192,520 391,837
Amortization .................................... 8,484 25,444
Depreciation of rental property ............... 642,770 1,086,111
Other operating expenses ........................ 278,735 602,517
---------- ----------
Total expenses .............................. 2,718,762 5,258,721
---------- ----------
Income before other income (expense) ............ 1,070,504 2,513,023
Interest and investment income .................. 19,043 107,584
Interest expense .............................. (232,818) (377,154)
---------- ----------
Net income ....................................... $ 856,729 $2,243,453
========== ==========
Net income per share ........................... $ 0.12 $ 0.44
========== ==========
Weighted average number of shares outstanding ... 7,135,536 5,053,423
========== ==========
</TABLE>
See accompanying notes to financial statements.
F-3
<PAGE>
APPLE RESIDENTIAL INCOME TRUST, INC.
STATEMENT OF SHAREHOLDERS' EQUITY (UNAUDITED)
<TABLE>
<CAPTION>
COMMON STOCK CONVERTIBLE CLASS B STOCK
------------------------- -----------------------------------------------------------
NET OF
RECEIVABLE NET INCOME TOTAL
NUMBER NUMBER FROM PRINCIPAL GREATER THAN SHAREHOLDERS'
OF SHARES AMOUNT OF SHARES SHAREHOLDER DISTRIBUTIONS EQUITY
----------- ------------- ----------- ---------------- --------------- --------------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1996 ...... 10 $ 100 200,000 $ 0 $ 0 $ 100
Net proceeds from the sale of shares 8,147,064 71,238,441 -- -- -- 71,238,441
Net income ........................ -- -- -- -- 2,243,453 2,243,453
Cash distributions declared to share-
holders ($.401 per share) .......... -- -- -- -- (1,808,503) (1,808,503)
Shares issued to Cornerstone Realty
Income Trust, Inc. ............... 417,778 3,760,000 -- -- -- 3,760,000
Shares issued through Additional
Share Option ..................... 111,932 1,007,380 -- -- -- 1,007,380
---------- ------------ --------- ---- ------------ ------------
Balance at September 30, 1997 ...... 8,676,784 $76,005,921 $200,000 $ 0 $ 434,950 76,440,871
========== ============ ========= ==== ============ ============
</TABLE>
See accompanying notes to financial statements.
F-4
<PAGE>
APPLE RESIDENTIAL INCOME TRUST, INC.
STATEMENT OF CASH FLOWS (UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
1997
------------------
<S> <C>
Cash flow from operating activities:
Net income ......................................................... $ 2,243,453
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation and amortization .................................... 1,111,555
Changes in operating assets and liabilities:
Prepaid expenses ................................................ (161,391)
Other assets ................................................... (586,908)
Accounts payable ................................................ 411,069
Accrued expenses ................................................ 1,647,832
Rent received in advance ....................................... 25,969
Tenant security deposits ....................................... 371,794
-------------
Net cash provided by operating activities ..................... 5,063,373
Cash flow from investing activities:
Acquisitions of rental property .................................... (80,869,988)
Capital improvements ................................................ (2,173,200)
-------------
Net cash used in investing activities ........................ (83,043,188)
Cash flow from financing activities:
Proceeds from short-term borrowings ................................. 39,640,000
Repayments of short-term borrowings ................................. (34,507,298)
Net proceeds from issuance of shares .............................. 76,005,821
Increase (decrease) in commissions payable to underwriters ......... --
Cash distributions paid to shareholders ........................... (1,808,503)
-------------
Net cash provided by financing activities ..................... 79,330,020
Increase in cash and cash equivalents ........................ 1,350,205
Cash and cash equivalents, beginning of year ........................ 100
-------------
Cash and cash equivalents, end of period ........................... $ 1,350,305
=============
</TABLE>
See accompanying notes to financial statements
F-5
<PAGE>
APPLE RESIDENTIAL INCOME TRUST, INC
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
SEPTEMBER 30, 1997
NOTE 1 -- GENERAL INFORMATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The accompanying unaudited 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 and nine months
ended September 30, 1997 are not necessarily indicative of the results that may
be expected for the year ended December 31, 1997. These financial statements
should be read in conjunction with the Company's December 31, 1996 Annual Report
on Form 10-K.
The Company was formed in August, 1996. Operations commenced in January,
1997.
During the first quarter of 1997, the Financial Accounting Standards Board
issued a new statement on the calculation of earnings per share which is
effective beginning in the 4th quarter of 1997 and early adoption is prohibited.
Under the new statement, primary and fully dilutive earnings per share are
replaced with basic and diluted earnings per share. The Company's basic earnings
per share for the nine month period ended September 30, 1997 according to the
new statements would not change from the reported amounts.
In June 1997, the FASB issued SFAS No. 131 "Disclosure about Segments of an
Enterprise and Related Information." The Company will adopt SFAS No. 131 in
1998. SFAS No. 131 will not have any impact on the financial results or
financial condition of the Company, but will result in certain in required
disclosures of segment reporting.
CASH AND CASH EQUIVALENTS:
Cash equivalents include highly liquid investments with original maturities
of three months or less. The fair market value of cash and cash equivalents
approximates their carrying value.
INVESTMENT IN RENTAL PROPERTY
The Company records impairment losses on rental property used in the
operations if indicators of impairment are present and the undiscounted cash
flows estimated to be generated by the respective properties are less than their
carrying amount. Impairment losses are measured as the difference between the
asset's fair value and its carrying value.
The investment in rental property is recorded at depreciated cost and
includes real estate brokerage commissions paid to an affiliated company Apple
Realty Group for purchase prior to March 1, 1997, and Cornerstone Realty Income
Trust, Inc. after March 1, 1997.
INCOME RECOGNITION
Rental, interest and other income are recorded on an accrual basis. The
Company's properties are leased under operating leases that, typically, have
terms that do not exceed one year.
ADVERTISING COSTS
Costs incurred for the production and distribution of advertising are
expensed as incurred.
F-6
<PAGE>
APPLE RESIDENTIAL INCOME TRUST, INC
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) - (CONTINUED)
NOTE 1 -- GENERAL INFORMATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -
(CONTINUED)
INCOME PER SHARE
Net income per share is computed based upon the weighted average number of
shares outstanding during the year. Potentially dilutive securities are not
included since their inclusion would not materially dilute net income per share.
NOTE 2 -- NOTES PAYABLE
On March 1, 1997, the Company entered into an agreement with a commercial
bank for an unsecured revolving line of credit of $10 million. The line of
credit expires on March 31, 1998. During August, 1997, the Company increased its
unsecured line of credit to $20 million. Borrowings under the agreement are
evidenced by an unsecured promissory note and bear interest at one-month LIBOR
plus 200 basis points. As of September 30, 1997 the interest rate on the
unsecured line of credit was 7.6875% and the outstanding balance was
approximately $5.1 million. In October 1997, the Company repaid the full
outstanding balance of the line of credit with proceeds from the additional sale
of shares.
NOTE 3 -- RELATED PARTIES
Prior to March 1, 1997, the Company had contracted with Apple Residential
Management Group, Inc. (The "Management Company") to manage the acquired
properties, Apple Residential Advisors, Inc. (The "Advisor") to advise and
provide the Company with day to day management, and Apple Realty Group, Inc. to
acquire and dispose of real estate assets held by the Company. The Company paid
the Management Company a management fee equal to 5% of rental income plus
reimbursement of certain expenses in the amount of $61,135. The Company paid the
Advisor a fee equal to .1% to .25% of total contributions received by the
Company in the amount of $13,585. The Company paid Apple Realty Group, Inc. a
fee of 2% of the purchase price of the acquired properties in the amount of
$624,863.
Effective March 1, 1997, with the approval of the Company, Cornerstone
Realty Income Trust Inc. ("Cornerstone"), for which Glade M. Knight (Chief
Executive Officer and Chairman of the Board of the Company) entered into
subcontract agreements with the Management Company and Advisor whereby
Cornerstone will provide advisory and property management services to the
Company in exchange for fees and expense reimbursement per the same terms
described above.
Effective March 1, 1997, with the consent of the Company, Cornerstone
acquired all the assets of Apple Realty Group, Inc. The sole material asset of
the company was the acquisition/disposition agreement with the Company.
Cornerstone paid $350,000 in cash and issued 150,000 common shares in exchange
for the assignment of the rights to the acquisition/disposition agreement.
Cornerstone will be entitled to a real estate commission equal to 2% of the
gross purchase price of the Company's properties. As of September 30, 1997,
Cornerstone had earned approximately $1,476,041 for all of the subcontracted and
acquired services.
During the first quarter of 1997, the Company granted Cornerstone a
continuing right to acquire up to 9.8% of the common shares of the Company at
the market price, net of selling commissions. Cornerstone committed to purchase
shares of the Company at $9 per share for approximately $3.76 million which
represented approximately 9.5% of the total common shares of the Company
outstanding as of March 1, 1997. In April 1997, Cornerstone purchased 417,777
common shares of the Company. Cornerstone intends to make periodic evaluations
with the approval of its board of directors to purchase additional common shares
of the Company as of the end of each calendar quarter in order to maintain
F-7
<PAGE>
APPLE RESIDENTIAL INCOME TRUST, INC
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) - (CONTINUED)
NOTE 3 -- RELATED PARTIES - (CONTINUED)
its ownership of approximately 9.5% of the outstanding common shares of the
Company, if such additional purchases are deemed by the Cornerstone board of
directors to be in the best interests of Cornerstone and its shareholders.
NOTE 4 -- SUBSEQUENT EVENTS
During October 1997, the Company distributed to its shareholders
approximately $1,356,204 (20.2 cents per share) of which approximately $855,613
was reinvested in the purchase of additional shares through the Additional Share
Option. The Company also closed the sale to investors of 1,346,262 shares at $10
per share representing net proceeds to the Company of $12,116,361.
NOTE 5 -- ACQUISITIONS (UNAUDITED)
The following unaudited pro forma information for the nine months ended
September 30, 1997 IS presented as if (a) the Company had owned the properties
referred to below on January 1, 1997, (b) the Company had qualified as a REIT,
distributed at least 95% of its taxable income and, therefore incurred no
federal income tax expense during the period, and (c) the Company had used
proceeds from its best efforts offering to acquire the properties. The Company
had no operations prior to December 31, 1996. 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, 1997, nor
does it purport to represent the results of operations for future periods.
NINE MONTHS ENDED
SEPTEMBER 30, 1997
-------------------
Rental Income ............... $12,259,452
Net Income .................. $ 3,615,983
Net Income Per Share ...... $ .45
The pro forma information reflects adjustments for the actual rental income
and rental expenses of Brookfield, Eagle Crest, Tahoe, Mill Crossing, Toscana,
Polo Run, Wildwood, The Arbors , Paces Cove, Chaparosa and River Hill Apartments
for the periods in 1997 prior to their acquisitions by the Company. Net income
has been adjusted as follows: (1) property management and advisory expenses have
been adjusted based on the Company's contractual arrangements of 5% of revenues
from rental income plus reimbursement of certain monthly expenses estimated to
be $2.50 per unit; (2) advisory expenses have been adjusted based on the
Company's contractual arrangement of .25% annual gross proceeds of common stock
raised; and (3) depreciation has been adjusted based on the Company's allocation
of purchase price to buildings over an estimated useful life of 27.5 years.
F-8
