FILED PURSUANT TO RULE 424(B)(3)
REGISTRATION NO. 333-10635
SUPPLEMENT NO. 10 DATED JUNE 2, 1998
TO PROSPECTUS DATED NOVEMBER 19, 1996
(TO BE USED TOGETHER WITH
SUPPLEMENT NO. 9 DATED APRIL 30, 1998 AND
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. 9 dated April 30,
1998, and is part of such Prospectus. PROSPECTIVE INVESTORS SHOULD CAREFULLY
REVIEW EACH OF THE PROSPECTUS, SUPPLEMENT NO. 9 AND THIS SUPPLEMENT NO. 10.
TABLE OF CONTENTS TO SUPPLEMENT NO. 10
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Status of the Offering ............................................................... S-2
Property Acquisitions ................................................................ S-2
Election of Directors ................................................................ S-6
Management's Discussion and Analysis of Financial Condition and Results of Operations S-6
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 or 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 or 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.
S-1
<PAGE>
STATUS OF THE OFFERING
As of May 31, 1998, the Company (as the context requires, the term
"Company" used herein shall be deemed to include Apple Residential Income Trust,
Inc. and its subsidiaries, Apple General, Inc., Apple Limited, Inc., and Apple
REIT Limited Partnership. See "Transfer of Assets to Subsidiary Partnership" in
Supplement No. 9) has closed the sale to investors of 2,084,444 Shares at $9 per
Share, and 16,876,566 Shares at $10 per Share, representing aggregate gross
proceeds to the Company of $187,525,662, and proceeds net of selling commissions
and marketing expense allowance of $169,149,095. These totals include 417,778
Shares purchased by Cornerstone Realty Income Trust, Inc., as described under
"Developments Involving Cornerstone Realty Income Trust, Inc. -- Authorization
for Additional Share Issuance" in Supplement No. 9.
PROPERTY ACQUISITIONS
On May 8, 1998, the Company acquired the Bitter Creek Apartments in Grand
Prairie, outside of Dallas, Texas. On June 2, 1998, the Company acquired the
Summer Tree Apartments in North Dallas, Texas. Additional information on these
properties is provided below.
BITTER CREEK APARTMENTS
Grand Prairie, Texas
On May 8, 1998, Apple REIT Limited Partnership purchased the Bitter Creek
Apartments located at 2934 Alouette in Grand Prairie, Texas (the "Property").
The Property comprises 472 apartment units. The purchase price for the
Property was $13,505,000. The seller was Bitter Creek, L.P., a Texas limited
partnership which was not affiliated with the Company, Apple Residential
Advisors, Inc. (the "Advisor") or their affiliates. The purchase price was paid
entirely in cash using proceeds from the sale of Shares of the Company. Title to
the Property was conveyed to the Company by limited warranty deed.
Location. The Property is located on Highway 360 in Grand Prairie, 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." For
information on The Metroplex, see under "Brookfield Apartments" in Supplement
No. 9.
The immediate area surrounding the Property consists of other multi-family
housing, single-family housing, commercial and retail development. The Property
is an approximately 10-minute drive from the Dallas/Fort Worth International
Airport, an approximately 20-minute drive from downtown Fort Worth and an
approximately 20-minute drive from downtown Dallas.
Description of the Property. The Property consists of 472 apartment units
in 36 buildings on approximately 20.7 acres of land. The Property was
constructed in 1982.
The Property offers five different unit types. The unit mix and rents being
charged new tenants as of June 1998 are as follows:
<TABLE>
<CAPTION>
APPROXIMATE
INTERIOR
SQUARE MONTHLY
QUANTITY TYPE FOOTAGE RENTAL
- ----------- ------------------------------- ------------ --------
<S> <C> <C> <C>
48 One bedroom, one bathroom 600 $439
192 One bedroom, one bathroom 720 469
128 Two bedrooms, two bathrooms 950 539
72 Two bedrooms, two bathrooms 1,000 579
32 Three bedrooms, two bathrooms 1,150 709
</TABLE>
All unit types are available with a fireplace for an extra $10 per month.
The apartments provide a total of approximately 397,000 square feet of net
rentable area.
S-2
<PAGE>
The Company believes that the Property has generally been well maintained
and is in good condition. However, the Company has budgeted approximately
$354,000 for repairs and improvements to the Property. These repairs and
improvements will include clubhouse renovations, exterior painting and wood
replacement, interior upgrades and a new fitness center.
The following information is provided by the seller. Physical occupancy at
the Property averaged approximately 94% in 1993, 92% in 1994, 91% in 1995, 92%
in 1996 and 96% in 1997. Leases at the Property are generally for terms of one
year or less. Average rental rates for the past five years have generally
increased. As an example, a two-bedroom, two-bathroom apartment (1,000 square
feet) rented for $499 in 1993, $509 in 1994, $519 in 1995, $529 in 1996 and $539
in 1997. The average effective annual rental per square foot at the Property for
1993, 1994, 1995, 1996 and 1997 was $6.83, $6.96, $7.10, $7.24, and $7.37,
respectively.
The Property has two outdoor swimming pools with fountains, a tennis court,
four laundry facilities and a sand volleyball court. There is also a clubhouse
with a kitchen, entertainment area and a leasing office. There is ample paved
parking for tenants.
The buildings are wood-frame construction with a combination of brick
veneer and masonite hardboard on concrete slab foundations. Roofs are pitched
and covered with fiberglass shingled on plywood.
Each apartment unit has 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 has a refrigerator/freezer, electric range and oven, dishwasher and
garbage disposal. Each unit (except the smallest one-bedroom unit) has
full-sized washer/dryer connections. A total of 232 units have woodburning
fireplaces, and each second-floor unit has vaulted ceilings. Each unit has
walk-in closets, outside storage, a covered balcony or patio and ceiling fans.
The owner of the Property pays for cold water, sewer charges, gas (for hot
water) and trash removal. The tenants pay for electricity service, which
includes cooking, lighting, heating and air-conditioning.
There are at least 12 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 at nearby competing properties averaged approximately 95% on May
31, 1998.
As of May 31, 1998, the Property was approximately 97% occupied. The
tenants are a mix of white-collar and blue-collar workers.
The following table sets forth the 1997 real estate tax information on the
Property:
<TABLE>
<CAPTION>
ASSESSED
JURISDICTION VALUE RATE TAX
- ------------------------------- ------------- ------------- ----------------
<S> <C> <C> <C>
County of Tarrant ............. $8,700,000 $ 1.99520 $ 173,582.05
City of Grand Prairie ......... 8,929,790 0.68000 60,722.40
Total ........................ $ 234,304.45
</TABLE>
The basis of the depreciable residential real property portion of the
Property (currently estimated at about $10,526,521) 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.
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 paid Cornerstone Realty Income Trust, Inc. a property
acquisition fee equal to 2% of the purchase price of the Property,
S-3
<PAGE>
or $270,100. 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.
SUMMER TREE APARTMENTS
North Dallas, Texas
On June 2, 1998, Apple REIT Limited Partnership purchased the Summer Tree
Apartments located at 13250 Emily Road in North Dallas, Texas (the "Property").
The Property comprises 232 apartment units. The purchase price for the
Property was $5,700,000. The seller was Sunrise Enterprises, Inc., a Texas
corporation which was not affiliated with the Company, the Advisor or their
affiliates. The purchase price was paid entirely in cash using proceeds from the
sale of Shares of the Company. Title to the Property was conveyed to the Company
by limited warranty deed.
Location. The Property is located on Emily Road on the north side of
Interstate 635 (L.B.J. Freeway), and just west of U.S. Highway 75 (Central
Expressway) in North Dallas, Texas. The Property is located within "The
Metroplex." For information on The Metroplex, see under "Brookfield Apartments"
in Supplement No. 9.
The immediate neighborhood surrounding the Property consists of other
multi-family and single-family housing and commercial and retail development.
The Property is located approximately one-quarter mile from a
multi-billion-dollar Texas Instruments facility. The Property is proximate to
other businesses, restaurants, schools and churches, and is readily accessible
from Interstate 635 and Highway 75. The Property is an approximately 20-minute
drive from the Dallas/Fort Worth International Airport and an approximately
15-minute drive from downtown Dallas.
Description of the Property. The Property consists of 232 garden-style
apartment units in 11 two- and three-story buildings on approximately six acres
of land. The Property was constructed in 1980.
The Property offers four different unit types. The unit mix and rents being
charged new tenants as of June 1998 are as follows:
<TABLE>
<CAPTION>
APPROXIMATE
INTERIOR
SQUARE MONTHLY
QUANTITY TYPE FOOTAGE RENTAL
- ---------- ----------------------------- ------------ --------
<S> <C> <C> <C>
96 One bedroom, one bathroom 481 $439
48 One bedroom, one bathroom 575 464
72 One bedroom, one bathroom 622 484
16 Two bedrooms, two bathrooms 933 659
</TABLE>
The apartments provide a total of approximately 133,500 square feet of net
rentable area.
The Company believes that the Property has generally been well maintained
and is in good condition. However, the Company has budgeted approximately
$348,000 for repairs and improvements to the Property, to include clubhouse
renovations, exterior painting, pool renovations, sign replacement and interior
upgrades.
The following information is provided by the seller. Physical occupancy at
the Property averaged approximately 94% in 1993, 94% in 1994, 96% in 1995, 96%
in 1996 and 97% in 1997. Leases at the Property are generally for terms of one
year or less. Average rental rates for the past five years have generally
increased. As an example, a one-bedroom, one-bathroom apartment (622 square
feet) rented for $390 in 1993, $424 in 1994, $444 in 1995, $454 in 1996 and $484
in 1997. The average effective annual rental per square foot at the Property for
1993, 1994, 1995, 1996 and 1997 was $7.97, $8.67, $9.07, $9.28, and $9.89,
respectively.
S-4
<PAGE>
The Property has an outdoor swimming pool, a fitness center, a laundry
facility and card-accessed entrance gates. The Property also has a clubhouse
with a kitchen, entertainment area and leasing office. There is ample paved
parking for tenants.
The buildings are wood-frame construction with a combination of brick
veneer, stucco and wood lap siding on concrete slab foundations. Roofs are
pitched and covered with asphalt shingles on plywood sheathing.
Each apartment unit has 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 individually controlled heating and air-conditioning unit. Each
kitchen has a refrigerator/freezer, electric range and oven, dishwasher,
microwave oven and garbage disposal. All units have washer/dryer connections and
all units except the smallest one-bedroom units have a wood-burning fireplace.
The owner of the Property pays for cold water, sewer charges, gas (for hot
water) and trash removal. The tenants pay for their electricity service, which
includes cooking, lighting, heating and air-conditioning.
There are at least eight 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 at nearby competing properties averaged
approximately 97% on May 31, 1998.
As of May 31, 1998, the Property was approximately 98% occupied. The
tenants are primarily a mix of white-collar and blue-collar workers.
The following table sets forth the 1997 real estate tax information on the
Property:
<TABLE>
<CAPTION>
JURISDICTION ASSESSED VALUE RATE TAX
- ---------------------------- ---------------- ------------- ---------------
<S> <C> <C> <C>
County of Dallas ........... $4,423,510 $ 0.44307 $ 19,599.25
City of Dallas ............. 4,423,510 0.65160 28,823.59
Richardson I.S.D. .......... 4,423,510 1.60000 70,776.16
---------- ---------- ------------
Total ..................... $ 119,199.00
</TABLE>
The basis of the depreciable residential real property portion of the
Property (currently estimated at about $2,738,537) 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.
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 paid Cornerstone Realty Income Trust, Inc. a property
acquisition fee equal to 2% of the purchase price of the Property, or $114,000.
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.
S-5
<PAGE>
ELECTION OF DIRECTORS
At the annual meeting of shareholders of the Company, held on May 12, 1998,
the following four persons, already serving as directors, were duly nominated
for election as directors of the Company, received the number of votes set forth
opposite their respective names, and were therefore re-elected to one-year
terms:
<TABLE>
<CAPTION>
NUMBER OF NUMBER OF
NAME VOTES RECEIVED VOTES WITHHELD
- -------------------------- ---------------- ---------------
<S> <C> <C>
Lisa B. Kern ............. 14,906,853 61,993
Glade M. Knight .......... 14,906,853 61,993
Penelope W. Kyle ......... 14,906,853 61,993
Bruce H. Matson .......... 14,906,853 61,993
</TABLE>
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 March 31, 1998 and the financial statements of the Company
as of December 31, 1997. 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 the
Prospectus, Supplement No. 9 and this Supplement No. 10. The Company is operated
and has elected to be treated as a REIT for federal income tax purposes.
RESULTS OF OPERATIONS
Income and occupancy
The Company's property operations for three months ended March 31, 1998
reflect the operations from the properties acquired before 1998 and from the
three properties acquired in 1998 from their respective acquisition dates. The
increase in rental income and operating expenses from the first quarter 1997 to
first quarter 1998 is primarily due to a full quarter of operation of the 1997
acquisitions as well as the incremental effect of the 1998 acquisitions.
Substantially all of the Company's income is from the rental operation of
apartment communities. Rental income for the first three months increased to
$4,928,751 in 1998 from $1,154,400 in 1997 due to the factors stated above.
Overall economic occupancy for the Company's properties was 94% and 92% at
the three months ended March 31, 1998 and 1997. Overall, the average rental
rates for the portfolio increased 13% to $588 from $516 per month for the three
months ended March 31, 1998 and 1997, respectively. The increase is primarily
due to rental increases.
The Company's other source of income is the investment of its cash and cash
reserves. Interest income for the three months ended March 31, 1998 and 1997 was
$336,387 and $84,935, respectively. The increase during the three months ended
March 31, 1998 is due to the Company's investment balance held pending
acquisitions. It is anticipated the interest income will decrease with future
acquisitions.
Expenses
Total expenses for the first three months increased to $3,292,919 in 1998
from $678,913 in 1997. The increase is due largely to the increase in the number
of apartments. The operating expense ratio (the ratio of rental expenses,
excluding general and administrative, amortization and depreciation expense, to
rental income) was 45% and 40% for the three months ended March 31, 1998 and
1997, respectively. The increase from the first quarter of 1997 to the first
quarter of 1998 is primarily due to a full quarter of operation of the 1997
acquisitions.
S-6
<PAGE>
General and administrative expenses totaled 3% of total rental income for
the three months ended March 31, 1998 and 6% for the same period in 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 three months has increased to $889,545 in 1998
from $137,689 in 1997. The increase is directly attributable to the acquisition
of additional apartment communities in 1998 and 1997.
LIQUIDITY AND CAPITAL RESOURCES
There was a significant change in the Company's liquidity during the three
months ended March 31, 1998, as the Company continued to acquire properties.
During the three months ended March 31, 1998, the Company closed the sale to
investors of 4,336,988 shares representing gross proceeds to the Company of
$43,369,884 and net proceeds after payment of brokerage fees and other
offering-related costs of $38,973,479.
Using proceeds from the sale of shares, the Company acquired 696 apartment
units in three residential rental communities during first quarter of 1998. The
following is information on these three acquisitions:
<TABLE>
<CAPTION>
PROPERTY NAME DATE ACQUIRED UNITS PURCHASE PRICE LOCATION
- ---------------------------------- --------------- ------- ---------------- ----------------
<S> <C> <C> <C> <C>
Main Park Apartments ............. February 1998 192 $ 8,000,000 Duncanville, TX
Timberglen Apartments ............ February 1998 304 12,000,000 Dallas, TX
Copper Ridge Apartments .......... March 1998 200 4,525,000 Fort Worth, TX
</TABLE>
Notes payable
The Company generally seeks to hold all of its properties on an unsecured
basis, although it is not prohibited from incurring secured debt . The Company's
$20 million unsecured line of credit expired on March 31, 1998 and was not
amended to extend the maturity date. As of March 31, 1998, there was no
outstanding balance on the unsecured line of credit.
Cash and cash equivalents
Cash and cash equivalents totaled $36,601,110 at March 31, 1998. During the
first quarter in 1998, the Company distributed $2,038,051 to its shareholders,
of which $1,246,809 was reinvested in additional shares through the Additional
Share Option. The reinvested funds netted the Company $1,122,128 after payment
of brokerage fees. During this quarter, the Company distributed $84,808 to
Cornerstone on shares that had been purchased by Cornerstone.
Capital requirements
The Company has an ongoing capital expenditure commitment to fund its
renovation program for recently acquired properties. In addition, the Company is
always assessing potential acquisitions and intends to acquire additional
properties during 1998. On May 8, 1998, the Company purchased Bitter Creek
Apartments, a 472-unit apartment community located in Grand Prairie, Texas for
$13,505,000. As of May 9, 1998, no material definitive commitments existed for
the purchase of additional properties. The potential sources to fund the
improvements and additional acquisitions include additional equity, cash
reserves, and debt provided by its line of credit.
The Company capitalized $1.6 million of improvements to its various
properties during the first quarter of 1998. It is anticipated that some $6
million in additional capital improvements will be completed during the next
year on the current portfolio, which are expected to be funded through cash
reserves and dividend reinvestment.
The Company has short-term cash flow needs in order 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
and distributions.
S-7
<PAGE>
Capital resources are expected to grow with the future sale of the
Company's shares and the cash flow from its operations. Approximately 55% of all
first quarter 1998 distributions ($1,122,128) were reinvested in additional
shares. In general, the Company's liquidity and capital resources are expected
to be adequate to meet its cash requirements in 1998.
S-8
<PAGE>
APPLE RESIDENTIAL INCOME TRUST, INC.
INDEX TO FINANCIAL STATEMENTS OF THE COMPANY
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
COMPANY INTERIM FINANCIAL STATEMENTS (UNAUDITED):
Consolidated Balance Sheets - March 31, 1998 and December 31, 1997 ...................... F-2
Consolidated Statements of Operations - Three Months ended March 31, 1998 and March 31,
1997 .................................................................................. F-3
Consolidated Statement of Shareholders' Equity - Three Months ended March 31, 1998 ...... F-4
Consolidated Statements of Cash Flows - Three Months ended March 31, 1998 and March 31,
1997 .................................................................................. F-5
Notes to Consolidated Financial Statements .............................................. F-6
</TABLE>
F-1
<PAGE>
APPLE RESIDENTIAL INCOME TRUST, INC.
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1998 1997
---------------- ---------------
<S> <C> <C>
ASSETS
Investment in rental property
Land ................................................................. $ 19,242,535 $ 15,396,823
Building and improvements ............................................ 95,914,449 73,113,886
Furniture and fixtures ............................................... 1,410,819 1,123,639
------------ ------------
116,567,803 89,634,348
Less accumulated depreciation ......................................... (2,787,548) (1,898,003)
------------ ------------
113,780,255 87,736,345
------------ ------------
Cash and cash equivalents ............................................. 36,601,110 24,162,572
Prepaid expenses ...................................................... 90,784 142,581
Other assets .......................................................... 774,271 444,022
------------ ------------
37,466,165 24,749,175
------------ ------------
Total Assets .......................................................... $151,246,420 $112,485,520
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities
Accounts payable ...................................................... $ 355,938 $ 536,324
Accrued expenses ...................................................... 2,143,818 2,143,888
Rents received in advance ............................................. 23,902 70,051
Tenant security deposits .............................................. 492,175 394,702
------------ ------------
Total Liabilities ..................................................... 3,015,833 3,144,965
Shareholders' Equity
Common stock, no par value, authorized 50,000,000 shares; issued and
outstanding 16,708,817 shares and 12,371,829 shares, respectively.... 148,058,824 109,090,459
Class B convertible stock, no par value, authorized 200,000 shares;
issued and outstanding 200,000 shares ................................ 20,000 20,000
Receivable from officer-shareholder ................................... (20,000) (20,000)
Net income greater than distributions ................................. 171,763 250,096
------------ ------------
148,230,587 109,340,555
------------ ------------
Total Liabilities and Shareholders' Equity ............................ $151,246,420 $112,485,520
============ ============
</TABLE>
See accompanying notes to financial statements.
F-2
<PAGE>
APPLE RESIDENTIAL INCOME TRUST, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
-----------------------------
MARCH 31, MARCH 31,
1998 1997
------------- -------------
<S> <C> <C>
REVENUE:
Rental income ...................................... $4,928,751 $1,154,400
EXPENSES:
Property and maintenance ........................... 1,236,828 292,652
Taxes and insurance ................................ 738,151 106,098
Property management ................................ 257,038 60,663
General and administrative ......................... 162,873 73,335
Amortization ....................................... 8,484 8,476
Depreciation of rental property .................... 889,545 137,689
---------- ----------
Total expenses ................................... 3,292,919 678,913
---------- ----------
Income before interest income (expense) ............. 1,635,832 475,487
Interest income .................................... 336,387 84,935
Interest expense ................................... (12,501) (4,167)
---------- ----------
Net income .......................................... $1,959,718 $ 556,255
========== ==========
Basic and diluted earnings per common share ......... $ 0.14 $ 0.16
========== ==========
Distributions per common share ...................... $ 0.20 $ --
========== ==========
</TABLE>
See accompanying notes to financial statements
F-3
<PAGE>
APPLE RESIDENTIAL INCOME TRUST, INC.
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY (UNAUDITED)
<TABLE>
<CAPTION>
COMMON STOCK CONVERTIBLE CLASS B STOCK RECEIVABLE
------------------------- ------------------------- FROM NET INCOME TOTAL
NUMBER NUMBER PRINCIPAL GREATER THAN SHAREHOLDERS'
OF SHARES AMOUNT OF SHARES AMOUNT SHAREHOLDER DISTRIBUTIONS EQUITY
------------ ------------ ----------- ------------- ----------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1997 ........ 12,371,829 $109,090,459 200,000 $20,000 $ (20,000) $ 250,096 $109,340,555
Net proceeds from the sale of shares 4,212,296 37,846,237 -- -- -- -- 37,846,237
Net income ......................... -- -- -- -- -- 1,959,718 1,959,718
Cash distributions declared to
shareholders ($.203 per share) .... -- -- -- -- -- (2,038,051) (2,038,051)
Shares issued through reinvestment
of distributions .................. 124,681 1,122,128 -- -- -- -- 1,122,128
---------- ------------ ------- ------- --------- ------------- ------------
Balance at March 31, 1998 ........... 16,708,806 $148,058,824 200,000 $20,000 $ (20,000) $ 171,763 $148,230,587
========== ============ ======= ======= ========= ============= ============
</TABLE>
See accompanying notes to financial statments.
F-4
<PAGE>
APPLE RESIDENTIAL INCOME TRUST, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
-----------------------------------
MARCH 31, MARCH 31,
1998 1997
---------------- ----------------
<S> <C> <C>
Cash flow from operating activities:
Net income .......................................................... $ 1,959,718 $ 556,255
Adjustments to reconcile net income to net cash provided by
operating activities
Depreciation and amortization ..................................... 898,029 146,165
Amortization of deferred financing costs .......................... 12,501 4,167
Changes in operating assets and liabilities:
Prepaid expenses .................................................. 51,797 (132,486)
Other assets ...................................................... (351,234) (751,257)
Accounts payable .................................................. (180,386) 508,843
Accrued expenses .................................................. (69,296) 589,338
Rent received in advance .......................................... (46,149) 19,241
Tenant security deposits .......................................... (962) 599
------------- -------------
Net cash provided by operating activities ........................ 2,274,018 940,865
Cash flow from investing activities:
Acquisitions of rental property, net of liabilities assumed ......... (25,160,351) (49,240,262)
Capital improvements ................................................ (1,595,174) (210,600)
------------- -------------
Net cash used in investing activities ............................ (26,755,525) (49,450,862)
Cash flow from financing activities:
Proceeds from short-term borrowings ................................. -- 10,000,000
Net proceeds from issuance of shares ................................ 38,958,096 39,893,637
Cash distributions paid to shareholders ............................. (2,038,051) --
------------- -------------
Net cash provided by financing activities ........................ 36,920,045 49,893,637
Increase in cash and cash equivalents ............................ 12,438,538 1,383,640
Cash and cash equivalents, beginning of year ......................... 24,162,572 100
------------- -------------
Cash and cash equivalents, end of year ............................... $ 36,601,110 $ 1,383,740
============= =============
</TABLE>
See accompanying notes to financial statements.
F-5
<PAGE>
APPLE RESIDENTIAL INCOME TRUST, INC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
MARCH 31, 1998
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 months ended
March 31, 1998 are not necessarily indicative of the results that may be
expected for the year ended December 31, 1998. These financial statements should
be read in conjunction with the Company's December 31, 1997 Annual Report on
Form 10-K.
All earnings per share amounts for all periods have been presented and
where appropriate, restated to conform to the Statement 128 requirements.
Certain previously reported amounts have been reclassified to conform with
the current financial statement presentation.
As of January 1, 1998, the Company adopted Statement 130, "Reporting
Comprehensive Income." Statement 130 establishes new rules for the reporting and
display of comprehensive income and its components; however, the adoption of
this Statement had no impact on the Company's net income or shareholders'
equity. The Company does not currently have any items of comprehensive income
requiring separate reporting and disclosure.
NOTE 2 -- INVESTMENT IN RENTAL PROPERTY
The Company purchased three properties located in the Dallas/Fort Worth
area of Texas for $24,525,000. The following is a summary of rental property
acquired during the three months ended March 31, 1998:
<TABLE>
<CAPTION>
INITIAL
DESCRIPTION ACQUISITION COST DATE
- ---------------------- ------------------ ---------------
<S> <C> <C>
Main Park ............ $ 8,000,000 February, 1998
Timberglen ........... 12,000,000 February, 1998
Copper Ridge ......... 4,525,000 March, 1998
</TABLE>
NOTE 3 -- NOTES PAYABLE
During 1997, the Company entered into an agreement with a commercial bank
for an unsecured revolving line of credit not to exceed $20 million to
facilitate the timely acquisition of properties. The line of credit expired on
March 31, 1998 and has not been amended to extend the maturity date. Borrowings
under the agreement were evidenced by an unsecured promissory note and bore
interest at one-month LIBOR plus 200 basis points. As of March 31, 1998 there
were no outstanding borrowings under the line of credit.
F-6
<PAGE>
APPLE RESIDENTIAL INCOME TRUST, INC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) -- (CONTINUED)
NOTE 4 -- 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 $52,375. The Company paid the
Advisor a fee equal to .25% of total contributions received by the Company in
the amount of $14,894. The Company paid Apple Realty Group, Inc. a fee of 2% of
the purchase price of the acquired properties in the amount of $624,382.
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) also serves as Chief
Executive Officer and Chairman, 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. For the three months ended
March 31, 1998, the Company paid Cornerstone $351,534 under the agreements.
During 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 (valued at $11 per common
share for a total of $1,650,000) in exchange for the assignment of the rights to
the acquisition/disposition agreement. Cornerstone is entitled, under the terms
of the acquisition/disposition agreement, to a real estate commission equal to
2% of the gross purchase price of the Company's properties. For the three months
ended March 31, 1998, the Company paid Cornerstone approximately $490,500 under
the agreement.
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. In April 1997, Cornerstone
purchased 417,778 common shares of the Company at $9 per share for approximately
$3.76 million. Cornerstone owns approximately 2.5% of the total common shares of
the Company outstanding as of March 31, 1998. Cornerstone intends to make
periodic evaluations of the advisability of purchasing additional common shares
of the Company and may make such purchases, if such purchases are deemed by the
Cornerstone board of directors to be in the best interests of Cornerstone and
its shareholders.
NOTE 5 -- EARNINGS PER COMMON SHARE
The following table sets forth the computation of basic and diluted
earnings per common share:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
---------------------------------
MARCH 31, MARCH 31,
1998 1997
---------------- --------------
<S> <C> <C>
Numerator:
Net income ...................................................... $ 1,959,718 $ 556,255
Numerator for basic and diluted earnings ........................ 1,959,718 556,255
Denominator:
Denominator for basic earnings per share-weighted- average shares $ 13,882,117 3,403,759
Effect of dilutive securities:
Stock options ................................................... -- --
------------ -----------
Denominator for diluted earnings per share-adjusted weighted-
average shares and assumed conversions .......................... 13,882,117 3,403,759
------------ -----------
Basic and diluted earnings per common share ...................... $ 0.14 $ 0.16
------------ -----------
</TABLE>
F-7
<PAGE>
APPLE RESIDENTIAL INCOME TRUST, INC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) -- (CONTINUED)
NOTE 6 -- SUBSEQUENT EVENTS
During April 1998, the Company distributed to its shareholders
approximately $2,753,213 (20.4 cents per share) of which approximately
$1,746,082 was reinvested in the purchase of additional shares through the
Additional Share Option. During April 1998, the Company also closed the sale to
investors of 933,431 shares at $10 per share representing net proceeds to the
Company after payment of brokerage fees of $8,400,876.
During May 1998, the Company purchased Bitter Creek Apartments, a 472-unit
apartment community located in Grand Prairie, Texas for $13,505,000.
NOTE 7 -- ACQUISITIONS
The following unaudited pro forma information for the three months ended
March 31, 1998 and 1997 assumes the property acquisitions made during 1998 and
1997 were made by the Company on January 1 of the respective year and is
presented as if (a) 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 (b) the Company had used proceeds from its best efforts
offering to acquire the properties. 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.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
----------------------------------
MARCH 31, MARCH 31,
1988 1997
---------------- ---------------
<S> <C> <C>
Rental Income ................ $ 5,442,733 $ 5,432,343
Net Income ................... $ 2,048,501 $ 1,761,932
Net income per share ......... $ .13 $ .13
</TABLE>
The pro forma information reflects adjustments for the actual rental income
and rental expenses of the three acquisitions made in 1998 and the 12
acquisitions made in 1997 for the respective periods in 1998 and 1997 prior to
their acquisition 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% of 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
