FILED PURSUANT TO RULE 424(B)(3);
FILE NO. 333-64029; STICKER
SUPPLEMENT TO SUPPLEMENT NO. 3 DATED
JANUARY 28, 1999 AND SUPPLEMENT NO.
4 DATED FEBRUARY 16, 1999;
SUPPLEMENT NO. 4 DATED FEBRUARY 16,
1999 TO BE USED WITH PROSPECTUS
DATED OCTOBER 16, 1998 AND
SUPPLEMENT NO. 3 DATED JANUARY 28,
1999
SUMMARY OF SUPPLEMENTS TO PROSPECTUS
(SEE THE SUPPLEMENTS FOR ADDITIONAL INFORMATION):
Supplement No. 3 dated January 28, 1999 (incorporating Supplements No. 1
and No. 2):
(1) Reports on the acquisition by the Company of four additional apartment
complexes.
(2) Contains unaudited financial statements of the Company for the nine
months ended September 30, 1998 and the related management's
discussion and analysis of financial condition and results of
operations, and certain other updated information concerning the
Company.
Supplement No. 4 dated February 16, 1999:
(1) Provides certain updated information concerning the possible
acquisition of the Company by Cornerstone Realty Income Trust, Inc.
(2) Reports on the acquisition by the Company of one additional apartment
complex.
Apple Residential Management Group, Inc. and its affiliates and Cornerstone
Realty Income Trust, Inc. have received and are expected to continue to receive
fees and expense reimbursements in connection with the Company's acquisitions
and the management of the properties and the Company. In connection with the
five property acquisitions described in the Supplements, Apple Residential
Management Group, Inc. and Cornerstone Realty Income Trust, Inc. received or
will receive property acquisition fees totaling $881,340.
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FILED PURSUANT TO RULE 424(B)(3);
FILE NO. 333-64029; SUPPLEMENT NO. 4
DATED FEBRUARY 16, 1999 TO BE USED
WITH PROSPECTUS DATED OCTOBER 16,
1998 AND SUPPLEMENT NO. 3 DATED
JANUARY 28, 1999
SUPPLEMENT NO. 4 DATED FEBRUARY 16, 1999
TO PROSPECTUS DATED OCTOBER 16, 1998
APPLE RESIDENTIAL INCOME TRUST, INC.
The following information supplements the Prospectus of Apple Residential
Income Trust, Inc. dated October 16, 1998 (the "Prospectus"), as previously
supplemented by Supplement No. 3 dated January 28, 1999. Prospective investors
should carefully review the Prospectus, Supplement No. 3 (which incorporated and
replaced Supplements No. 1 and No. 2), and this Supplement No. 4. Capitalized
terms that are used but not defined in this Supplement have the meanings given
to them in the Prospectus.
POSSIBLE MERGER OF APPLE RESIDENTIAL INCOME TRUST, INC.
AND CORNERSTONE REALTY INCOME TRUST, INC.
As stated in the Prospectus, beginning in 1997, Cornerstone Realty Income
Trust, Inc. ("Cornerstone") has from time to time evaluated the desirability of
seeking to acquire the Company. See the discussion under the heading "Summary of
the Offering -- Developments Involving Cornerstone Realty Income Trust, Inc. --
Possible Acquisition of the Company by Cornerstone," on page 2 of the Prospectus
and under "Investment Objectives and Policies -- Sale and Refinancing Policies,"
on pages 31 and 32 of the Prospectus. AS STATED IN THE PROSPECTUS, PROSPECTIVE
INVESTORS IN THE COMPANY SHOULD TAKE INTO ACCOUNT THE POSSIBILITY OF CORNERSTONE
ACQUIRING THE COMPANY (OR ITS ASSETS) IN MAKING AN INVESTMENT DECISION RELATIVE
TO THE COMPANY.
The Company and Cornerstone have each appointed a special committee of
their Board of Directors (consisting solely of directors independent of
management of the two companies) to consider a potential transaction. The
respective special committees have each hired financial advisors to evaluate a
potential merger between the two companies, and those advisors have had
discussions concerning the terms of a possible merger transaction. These actions
may lead to a merger of the Company and Cornerstone. However, as of the date of
this Supplement, there is no assurance that a merger (or a similar transaction
by which Cornerstone would acquire the Company) will be agreed upon by the
Company and Cornerstone. Furthermore, as of the date of this Supplement, there
can be no assurance regarding the nature or value of the securities Company
Shareholders would receive upon a merger of the Company and Cornerstone, if it
occurs.
Cornerstone, like the Company, is a real estate investment trust. Glade M.
Knight, who is the Chairman, Chief Executive Officer and a director of the
Company, is also the Chairman, Chief Executive Officer and a director of
Cornerstone. Cornerstone has operated as a real estate investment trust since
1993. It owns 58 apartment complexes comprising 13,462 apartment units in
Virginia, North Carolina, South Carolina and Georgia. The common shares of
Cornerstone are listed on the New York Stock Exchange under the symbol "TCR." In
the WALL STREET JOURNAL, information on trading of the Cornerstone common shares
is found under the entry "CrnrstnRlty."
ADDITIONAL PROPERTY ACQUISITION
On February 1, 1999, the Company purchased the Grayson Square Apartments in
Grapevine, outside of Dallas, Texas. Additional information on this property is
provided below.
GRAYSON SQUARE APARTMENTS
GRAPEVINE, TEXAS
On February 1, 1999, Apple REIT VII Limited Partnership (together with its
parent companies, Apple Residential Income Trust, Inc., Apple General, Inc. and
Apple Limited, Inc., the "Company") purchased the Grayson Square Apartments
located at 2300 Grayson Drive, Grapevine, Texas (the "Property").
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The Property comprises 200 apartment units. The purchase price for the
Property was $9,350,000. The seller was Grapevine I Partners, Ltd., a Texas
limited partnership, which is not affiliated with the Company, Apple Residential
Management Group, Inc. (the "Advisor") or their affiliates. The purchase price
was paid through a combination of (i) approximately $2,357,215 in cash using
proceeds from the sale of the Common Shares of the Company, and (ii)
approximately $6,992,785 by assumption of a mortgage loan. Title to the Property
was conveyed to the Company by special warranty deed.
The Property was acquired with the assumption of a mortgage loan in the
original principal amount of $7,350,000 held by Fannie Mae. On February 1, 1999,
the outstanding balance of the mortgage loan was $6,992,785. The interest on the
mortgage loan currently is 6.505% per annum; amortization is based on a 28-year
amortization term; and prepayments are permitted after May 1, 2001 with a 2%
prepayment penalty, after May 1, 2002 with a 1% prepayment penalty, and after
May 1, 2003 with no prepayment penalty. The maturity date of the mortgage loan
is April 1, 2005, and the balance due at maturity, assuming no payment has been
made on principal in advance of its due date, is $6,200,873. The current
required monthly payment of principal and interest is $46,634.00.
In connection with the original financing of the Property, the previous
owner of the Property agreed to certain restrictions on the use of the Property
set forth in a special warranty deed and deed restrictions. In connection with
the purchase of the Property and the assumption of the mortgage loan, the
Company entered into an assumption of the special warranty deed and deed
restrictions. Among the restrictions agreed to by the Company is that at least
20% of the apartment units must be occupied by persons who, at the time of
initial occupancy of the apartment units, are "lower income tenants." The term
lower income tenants is defined, generally, as one or more persons who occupy an
apartment unit whose aggregate anticipated income does not exceed 80% of the
median income for the area where the Property is located.
LOCATION. The Property is located on Grayson Drive near Highways 121 and
114 in Grapevine, Texas. The Property is within Tarrant County, near Dallas.
The Property is located within the greater Dallas/Fort Worth 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. The Dallas metropolitan
area is the second largest 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 17,600 acres
of land between the two cities. It is the second largest commercial airport in
the United States in terms of land area, and is the second busiest airport in
the world, with more than 2,500 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 Property is in a neighborhood consisting of other multi-family and
single-family housing, and commercial and retail development. The Property is
located near restaurants, businesses, schools and churches, and is readily
accessible from Highways 121, 114 and 360. The Property is an approximately
25-minute drive from Dallas, an approximately 15-minute drive from Fort Worth
and an approximately 10-minute drive from the Dallas/Fort Worth International
Airport.
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DESCRIPTION OF THE PROPERTY. The Property consists of 200 garden-style
apartment units in 20 two-story buildings on approximately 10.8 acres of land.
The Property was constructed in 1985. There are four apartment unit types. The
unit mix and rents being charged new tenants as of February 1999 are as follows:
APPROXIMATE
INTERIOR
SQUARE MONTHLY
QUANTITY TYPE FOOTAGE RENTAL
- ---------- --------------------------------- ------------ --------
30 One bedroom, one bathroom 600 $ 540
60 One bedroom, one bathroom 750 640
60 One bedroom, one bathroom w/den 900 740
50 Two bedrooms, two bathrooms 1,018 875
The apartments provide a total of approximately 168,000 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
$200,000 for repairs and improvements to the Property, to include clubhouse
renovations, exterior painting, replacement of gutters and downspouts, and
interior upgrades.
The following information is provided by the seller. Physical occupancy at
the Property averaged approximately 96% in 1994, 96% in 1995, 96% in 1996, 95%
in 1997, and 92% in 1998. 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 unit with den
(900 square feet) rented for $615 in 1994, $660 in 1995, $670 in 1996, $690 in
1997, and $705 in 1998. The average effective annual rental per square foot at
the Property for 1994 through 1998 was $8.43, $9.05, $9.19, $9.46, and $9.67,
respectively.
The Property has an outdoor swimming pool, a Jacuzzi, a playground and a
fitness center. There is also a clubhouse with a leasing office and ample paved
parking for the tenants.
The buildings are wood frame construction with exteriors consisting of a
combination of brick veneer and painted wood siding. The buildings are on
concrete slab foundations and 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 an individually controlled heating and air-conditioning unit. Each
kitchen has a refrigerator/freezer, electric range and oven, dishwasher and
garbage disposal. All of the units, other than the smallest one-bedroom units,
have full-sized washer/dryer connections. Each upstairs unit has vaulted
ceilings and each downstairs unit has nine-foot ceilings. Selected apartment
units have a wood-burning fireplace and built-in bookcases. Each apartment unit
has walk-in closets, private outside storage, a covered balcony or patio, and
ceiling fans. The owner of the Property pays for cold water, sewer service,
trash removal, gas for hot water and basic cable television service. The
residents pay for their electricity usage, which includes cooking, lighting,
heating and air-conditioning.
There are at least four 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 nearby competing properties averaged
approximately 89% on February 1, 1999.
As of February 10, 1999, the Property was approximately 88% occupied. The
tenants are a mix of white-collar workers, students and retired persons.
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The following table sets forth 1998 real estate tax information on the
Property:
ASSESSED
JURISDICTION VALUE RATE TAX
- --------------------------- -------------- -------------- ----------------
Tarrant County ............ $ 7,000,000 $ 0.60532 $ 42,372.12
City of Grapevine ......... 7,000,000 1.92279 134,595.30
-------------
Total ................... $ 176,967.42
The basis of the depreciable residential real property portion of the
Property (currently estimated at about $8,778,065) 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 Internal Revenue Code of 1986, as amended (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, Cornerstone Realty Income Trust, Inc. became entitled to a property
acquisition fee equal to 2% of the purchase price of the Property, or $187,000.
At closing, $47,144 of the fee was paid. The balance will be paid if and when
the debt encumbering the Property is repaid. Cornerstone Realty Income Trust,
Inc. will also 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.
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